Economyths – David Orrell *****

When I saw this book I was rather excited, because it was before I realised the flaws in Freakonomics and I rather hoped this was going to be more of the same. It wasn’t. It was so much more. This is without doubt the best book I’ve read this year, and probably one of the most important books I’ve ever read.

In Economyths, David Orrell dramatically demonstrates that neo-classical economics, the basic economics still taught in our universities is absolute rubbish. It has always worried me that winners of the Nobel Prizeish Economics prize (not quite a real Nobel Prize) seemed to contradict each other from year to year. That shouldn’t happen in a science. Yes there will be shifts of direction, but not this random pulling too and fro. Orrell exposes the rotten heart of economics. What we have here is an ideology that pretends to be a science.

What Orrell shows with some humour and powerful analytical precision is how the founders of economics suffered from physics envy. They wanted to be a real science too. So they took the tools of science and applied them – without ever learning the scientific method. One of the fundamentals of the scientific method is that a theory is only good as long as it fits observation. When the data goes adrift of the theory, the theory gets thrown out. Economic theory consistently fails to effectively model the economy, yet the theory isn’t thrown away. Instead the data is cherry-picked, ignoring the bubbles and spikes that are inherently part of the economy, but that the theory can’t cope with.

Orrell shows dramatically how economic theory’s basis on the idea of the market being largely stable, rational and efficient is absolute baloney. Yet this is what every economics undergraduate is taught, and how the pathetically poor models and structures employed by banks and other financial institutions to manage risk work. And guess what? After messing things up, those same models and controls are back in place again.

It’s made clear that not all economists are tied to the neo-classical model. There are some specialists who do know more about dynamic systems and networks and other more appropriate ideas to match what’s really happening, but they seem to be in the minority, and certainly not in control of the economics academic hierarchy.

The book isn’t perfect. It’s rather repetitious on the key points, and I found the chapter on feminist economics less convincing than the rest. But this doesn’t undermine the fact that it’s very readable, takes a truly scientific view of economics and is absolutely essential reading. Forget the subtitle ‘ten ways that economics gets it wrong’ – that’s much too weak.

There are other books taking on economics, but I’ve not come across another that explains it so well for the layperson, takes in the credit crunch, totally destroys the validity of economics as we know it and should be required reading for every politician and banker. No, make that every voter in the land. This ought to be a real game changer of a book. Read it.

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Review by Brian Clegg