[Updated Mar. 7— Draft: in flux!]
Not too long ago a friend asked how to make sense of economics. After my laughter subsided, I recommended two books by Robert Heilbroner: The Worldly Philosophers:The Lives, Times and Ideas of the Great Economic Thinkers (Wiki Link) and Behind the Veil of Economics: Essays in the Worldly Philosophy (NY Times Books). I said, "Start with these, and then we can talk more." If my friend had been more inclined toward Financial Economics I might have added Peter Bernstein's Against the Gods: The Remarkable Story of Risk (my assessment) to the list.
To effectively make sense of economics one must realize that Economics is both a history of technology and development, and a study of how people in societies provide for their sustenance. Neither of these two studies necessarily relies on money, although in most cultural practice money is near center stage.
Since money is center stage in most economic chatter, it proves useful to better understand both the contributions and the blindspots in the various "schools of thought" that make up what we call economics.
Blind Men and the Elephant
Consider "the blind men and the elephant" metaphor as applied to economists. Austrians (Wiki Link) (and Neo-Austrians) emphasize market mechanisms and market cycles. Unfortunately, they tend to overemphasize the importance of markets and under-emphasize the role of government. At least they are accused of such by other economists. Often there is outright hatred of government (sometimes with the exception of National Defense) apparent in their writing.
Monetarists (Wiki Link, NS Link) focus on the role of the "money supply" on national output and longer-term price trends. Monitarists tend to focus too narrowly on money and its supposed ability to heal all social problems. At least they are accused of such by other economists.
Keynesians (Wiki Link) (and Post-Keynesians, and Chartalist cousins) emphasize the role of government in setting up mediums of exchange (currency, monetary accounting systems, credit systems, taxation, etc.) and in moderating market behavior when things get too wild. Unfortunately, Keynesians seem too often to err on the government side of the cultural power balance between government and markets. And some Keynesians, like there monetrist antagonists are prone to overplay the "money card" when faced with economic problems. At least they are accused of such behaviors by other economists.
Complexity-theory economists (Wiki Link), focus on "complex systems" and the complexity of human interaction that is sometimes framed as "wicked problems". They are accused by other economists of bringing too much information into their frames of reference, thereby disabling predictive capabilities that theories/methods from other schools of thought enable. Complexity theorists, like other economists, are often so caught up in the mathematics of their vision quest that they are accused of methodological blindness.
Behavorial economists (Wiki Link) bring psychology to center stage in talking through behavior of individual and group actors. I was particularly glad to see them emerge — so too complexity theorists —to move economics thought forward.
Information economists (Wiki Link) put information and information transfer at center stage. Some emphasize the importance of "information asymmetry" as power in both markets and government.
Finally Institutional economists (Wiki Link) focus on "institutionalist political economy", affording much space for politics and political theory in the study of economics.
But we can't stop here. These few hints just begin to explain the various schools of economic thought. See also: Heterodox Economics, which includes the "schools" where I spend much of my time.
[ Notes: The word "hate" as used above is probably too strong. Alternates include: despise, belittle, "can't stand", etc. Also, there are practitioners in all of the economic schools of thought who are much better than the caricatures I present. Still, when I wander through the blogs, I'm struck by how nearly the term "hate" fits. I should mention that there is a strong tendency toward turf protection among economists — many spend much time dishing dirt on other schools of thought, and on prominent economists not from their school. This is understandable, since economics sits just behind much of the
power money in the world today.]
Too often economists fail to adequately embed political and psychological reasoning into their arguments. In every case they so fail, their reasoning ought to fall on deaf ears. But it doesn't. Witness the mess we are in today and the impact too-blind economic reasoning — pontificating really — has had. Audiences listen too well to half-blind (or worse) economic reasoning. Such arguments are amplified by the media, and continue to befuddle and enrage. This proves true whether we look to the so-called general public or to the halls of legislative, administrative and judicial governments around the world.
Learning from Economists
Despite the chaos of economics, the nastiness of politics, and the aberrant nature of the human psyche, there is much we can learn from economists. Austrians help us to better understand the creative destruction (Wiki Link), to use Schumpeter's words, of market cycles. They help us understand information theory: the use and transmission of knowledge via market mechanisms. [ What else? both here and in other schools] They also help us to be wary of moral hazard (Wiki Link) . Keynesians help us better understand important roles for automatic stabilizers (Wiki Link when market cycles tend toward "irrational exuberance" and "irrational pessimism". Monetarists help us better understand that if we are going to base a social system around money, we had better damn well understand the plumbing of the system. Institutionalists help us better understand that we had better understand much beyond money when we are dealing with political economy. Behavioralists and information theorists help us better understand that there are bounds on individual and group rationality (Wiki Link). Complexity theorists help us better understand the chaos/order balance of the world we live in — i.e. complex systems — and the added individual and group psychological "systems effects" that are inherent in social system.
Other schools of thought add spice, nuance, and sometimes insight to discussions within any school. And remember that many economists don't fit well within any "school".Policy makers need to better understand the ideological/methodological roots of economics reasoning. They need to better understand, as do we all, the "frames" that economists use to bound their discussions — frames that sometimes blind those who work and talk within them.
[Need to add something about The Shock Docrtine, The Wrecking Crew, etc. and the havoc that half-blind ideology and power can unleash.]