My review of Mark Blyth’s forthcoming book, Austerity: A Dangerous Idea can be found here. After I wrote the review, Dani Rodrik published a piece arguing that economists needed to pay less attention to interests, and more to ideas:
Interests are not fixed or predetermined. They are themselves shaped by ideas – beliefs about who we are, what we are trying to achieve, and how the world works. Our perceptions of self-interest are always filtered through the lens of ideas. … So, where do those ideas come from? Policymakers, like all of us, are slaves to fashion. Their perspectives on what is feasible and desirable are shaped by the zeitgeist, the “ideas in the air.” This means that economists and other thought leaders can exert much influence – for good or ill. John Maynard Keynes once famously said that “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist.” He probably didn’t put it nearly strongly enough. The ideas that have produced, for example, the unbridled liberalization and financial excess of the last few decades have emanated from economists who are (for the most part) very much alive. … Economists love theories that place organized special interests at the root of all political evil. In the real world, they cannot wriggle so easily out of responsibility for the bad ideas that they have so often spawned.
Blyth thinks very similarly about how ideas dominate interests, and how we need to take account of this studying the economy. As I summarize his take (building not only on the austerity book, but his previous work too):
Blyth cares about bad ideas because they have profound consequences. We do not live in the tidy, ordered universe depicted by economists’ models. Instead, our world is crazy and chaotic. We try to control this world through imposing our economic ideas on it, and sometimes can indeed create self-fulfilling prophecies that work for a while. For a couple of decades, it looked as though markets really were efficient, in the way that economists claimed they were. As long as everyone believed in the underlying idea of underlying markets, and believed that everyone else believed in this idea too, they could sustain the fiction, and ignore inconvenient anomalies. However, sooner or later (and more likely sooner than later), these anomalies explode, generating chaos until a new set of ideas emerges, creating another short-lived island of stability.
This means that ideas are fundamentally important. The world does not come with an instruction sheet, but ideas can make it seem as if it does. They tell you which things to care about, and which to ignore; which policies to implement, and which to ridicule. This was true before the economic crisis. Everyone from the center left to the center right believed that weakly regulated markets worked as advertised, right up to the moment when they didn’t. It is equally true in the aftermath, as boosters of neoliberalism have moved with remarkable alacrity from one set of bad ideas to another.