What this covers
Abby Innes, Associate Professor of Political Economy at the London School of Economics, makes the case that neoclassical and neoliberal economics and Stalinist planned economics are not opposites but functional mirrors—both closed-system machine models inherited from late-19th-century high modernism, both attempting to reduce human societies to fully computable, efficient systems. She traces how Britain has adopted a governing model that resembles the late Soviet Union not in politics but in method: a totalizing economic science that promises technical neutrality while removing economic decisions from democratic debate. The twenty-five-minute conversation covers the philosophical and historical roots of this methodological error, which strand of British politics corresponds to which phase of Soviet decline, and what could displace the dominant paradigm.
Innes argues that neoclassical economics began as "social physics," borrowing Newtonian mechanics, and remains locked in axiomatic reasoning that cannot be refuted because it cannot be implemented—a logical trap that late-Soviet economists fell into when they spent decades trying to "mend market failures" in a planning system that could never be completed. She shows how the same pattern now governs British policy: the Treasury's computational general equilibrium models derive from Soviet economist Wassily Leontief and cannot even account for financial markets. The conversation turns toward what philosophy of science reveals about why no single economic science could work for all times and places in an open, evolving world, and moves into contentious terrain when it addresses which kind of reform the current Labour government might attempt. Innes identifies the real danger not as economic failure but as the public losing faith in democracy before abandoning a misconceived paradigm.
Abby Innes argues that Stalinist planned economics and neoclassical/neoliberal economics are mirror-image 'machine models' resting on the same impossible aspiration to a closed, computable, fully efficient system, and that Britain's decline mirrors the late Soviet Union because both pursued a totalizing economic science that cannot work in an open, evolving human world.
- Both Soviet planning and neoclassical economics are closed-system, deterministic machine models inherited from late-19th-century high modernism (neoclassical economics began as 'social physics' borrowing Newtonian mechanics).
- Philosophy of science (Kuhnian/anti-foundationalist) shows no Archimedean point or godlike omniscience could yield a science valid for all times because the social world is open-ended and always becoming something else.
- 'Mending market failures' is a category error that traps both Blairite technocrats and late-Soviet economists in endlessly fixing broken connections in a system that can never be completed.
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Neoclassical arguments are axiomatic-deductive arguments from assumption (logical reasoning), so they are as impossible to refute as they are to implement — unlike the scientific method of theorization from observation and continuous review — which is why they cannot be straightforwardly disproven yet cannot be made to work in the world.
“neocclassical arguments are arguments from assumption. They're axiomatic deductive arguments. They're arguments from logic. They can't be wrong in the sense that they're they're as impossible to refute as they are to implement”
Closed-system deterministic machine models of the economy cannot work in a human society because that society is an open-ended system that cannot escape uncertainty: the world is always becoming something else through emergent novelty, complex systems and technological change, so no governing science could be valid for all times and places without godlike omniscience.
“closed system deterministic machine models of the economy can't work in a human society that is an open-ended system that cannot escape the uncertainty that we live with because the world is always becoming something else”
The solution is not to replace the old economic science with a new totalizing science ('the old science is dead, long live the new science') — philosophy of science says there is no such thing for the social world — but to embrace analytical pluralism: bringing different perspectives, ideas and solutions into the policy room would improve outcomes almost instantly because the current paradigm has been scraped to the bottom.
“the very worst thing we could do would be to say the old science is dead long live the new science”
Early neoclassical/mathematical economics was originally labelled 'social physics' because it copied Newtonian mechanics and swapped the concept of energy for utility; and contrary to leftwing caricature, many early neoclassicists were socialists, so neoclassicism is best understood as a methodology rather than an inherently right-wing doctrine.
“an early name, a kind of early label for neocclassical economics, mathematical economics was social physics because the idea was that and this is effectively what they do. They effectively cut and paste Newtonian mechanics uh and exchange the idea of energy in Newtonian mechanics and swap it out for utility”
The real risk is that people conclude it is democracy, not the economy, that doesn't work — so the danger is that society gives up on democracy before it gives up on an economic paradigm that was misconceived from the beginning.
“the way they would get worse is if people decided that what doesn't work is not the economy, it's democracy. So the real risk is that we give up on democracy before we give up on a paradigm that was misconceived from the beginning.”
The Treasury's computational general equilibrium models used to calculate tax breaks under Osborne originate with the Soviet economist Wassily Leontief, and cannot even bring financial markets into the picture because doing so is too complicated.
“the models we use to calculate tax breaks under Osborne um are exchange models actually originating with a Soviet economist called Vaseline Leontev but those were the computational general equilibrium models that the Treasury used anyway. You can't even bring the financial markets into those models because it's just too too complicated.”
Rational expectations models began as a technical idea that everyone in the model shares the same knowledge of the system as the modeler — Thomas Sargent literally called this 'the communism of models' — using an idealized social planner, which embodies the assumption of a perfect coordination system where no information gets lost.
“rational expectations model started life as a technical idea that everyone in the model shares the same knowledge about the system as the modeler”
A core damage of high-modernist neoclassical/neoliberal economics is that it has habituated us to the idea that social problems have technical solutions and that economics can be depoliticized — the Blairite 'third way' dream of using the state to regulate markets so efficiently that the state merely mends a presumptively mendable system.
“almost the most damaging aspect of these kind of high modernist philosophies but neocclassical neoliberal economics is it has got us entirely used to the idea that there are technical solutions for social problems”
Britain operates in an 'analytical monoculture' in economics, but a great deal of empiricist, social-purpose, inventive economic experimentation is emerging as a coping mechanism in cities and communities, rediscovering an approach that understands the economy as an ecosystem rather than a watch.
“we don't understand the extent to which we are operating in an analytical monoculture in economic terms”
British capitalism today bears no resemblance to the promises of the Thatcher revolution: excessive financial extraction and the excessive power of the financial industry — which closed-system models cannot even integrate (the Treasury's computational general equilibrium models, originating with Soviet economist Wassily Leontief, leave financial markets out as too complicated) — alongside cost-of-living crisis, 4 million children in abject poverty, financialization and corporate state capture, none of which neoclassical economics can diagnose, yet which drive poverty and alienation from democracy.
“British capitalism at this point bears absolutely no resemblance to any of the promises that were made for it by the Thatcher revolution.”
Neoclassical reasoning is institutionalized across virtually every British and international economic agent: the Treasury Green Book is a neoclassical second-best framework defining decision-making across all government departments, international financial institutions use neoclassical reasoning, and central banks rely on dynamic stochastic general equilibrium models built on a 'representative agent' and rational-expectations models.
“The Treasury Green Book that defines the decision-making processes across all government departments is a neocclassical second best world green book.”
Neoclassical economics is not useless: it can be genuinely insightful for analyzing simple markets with repeated, isolable phenomena (such as asymmetries in contracting), rationalizing what happened or recurs in certain circumstances after the fact — but it cannot serve as a sufficient governing science, which is unsustainable both in philosophy of science and, judging by Britain's condition, socially and politically.
“I don't want to argue that neocclassical economics is useless it's around asymmetries in contracting it can be very insight ful if you're looking at simple markets where you can reasonably coherently say that there are repeated phenomena”
The mainstream (Blairite) economic tradition treats neoclassical economics not as literal description but as a 'second best' scientific heuristic for diagnosing and mending market failures — fixing monopoly, asymmetric contracting, or pricing nature to solve climate — but the idea that you can mend market failures is a fallacy and a category error: it confuses a logically valid model with something reproducible in the social world, falsely assuming each fix moves society toward a horizon of perfectly competitive markets.
“the idea that you can mend market failures is a fallacy. It's assuming that by mending the broken connections in a system, you're getting closer to the horizon where everything is complete and competitive, perfectly competitive markets.”
Stalinist planned economics and the mathematical neoclassical economics underpinning neoliberal policy since 1979 are effectively mirror images: both are closed-system, deterministic 'machine models' of the economy that assume a fully efficient system is achievable (a perfect plan or a perfect market) and therefore converge on the same statecraft of quantification, output planning and forecasting.
“Stalinist economics specifically and the mathematical formal neocclassical economics which is the basis of neoliberal policies since 1979. Uh they're effectively both machine models of the economy. They both operate with sort of closed system reasoning about the possibility of a completely efficient system”
Late-Soviet economists (Russian, Polish, Hungarian) spent the later decades of the USSR trying to mend the broken connections and solve information failures in a planning system that could never be made complete — and later generations of neoclassical economists are doing exactly the same thing, on the same misunderstanding that information failures can be solved in a world that is always becoming something else.
“the later decades of the Soviet Union were spent with talented, brilliant economists, Russian economists and Polish economists and Hungarian economists trying to figure out how to mend the broken connections in a planning system that you could never make complete.”
Soviet totalitarianism and British liberal democracy are politically opposite, but both are 'misadventures in high modernism' — late-19th/early-20th-century projects seeking methodologies to transcend the uncertainties of the social world and obtain definitive answers, and Britain has imposed a totalizing economic science on itself without physical coercion or revolution.
“What they hold in common is that they're both misadventures in high modernism. So they're both coming out of the end of the 19th century and the beginning of the 20th century and looking for methodologies that will effectively allow us to transcend the vicissitudes and uncertainties of the social world.”
45 years of first-best neoliberal policy (privatization, deregulation) failed on the terms by which it was justified — these had effects but not the promised ones — and the subsequent generation (Blair, Cameron, US New Democrats, the European Commission) spent ~25 years trying to mend market failures, only to be baffled as institutions evolved dynamics and pathologies that neoclassical economics cannot even describe, let alone solve.
“we've spent the last 45 years trying the first best version, finding that none of it works private in the terms by which it was justified. Privatization, deregulation, all of these things had effects, but they weren't the effects we were told they were going to be.”
British political history maps onto Soviet decline: Thatcherism functioned like Leninism (revolutionary idealism that didn't work as supposed), Blairism like the reformist Khrushchevite phase of mending market failures, and the last 14 years of Conservative government like Brezhnev-era stagnation — a neotraditionalist phase that gives up real reform and just 'sings the old songs' hoping they work.
“you could think of thatism was like Leninism, right? It's the point of revolutionary idealism. And then it didn't work the way it was supposed to.”
Brexit was the wrong diagnosis of a real crisis, and the real crisis was a crisis of the British state.
“the intuition I had was that Brexit was the wrong diagnosis of a real crisis and the real crisis was a crisis of the British state.”
Rachel Reeves was trained through the Bank of England, which is an essentially neoclassical institution, so the obstacle to change is political will: at what point she will declare that her training, the Treasury and her mainstream economic advice are not fit for purpose is a political decision, not a technical one.
“Rachel Reeves, who is a profoundly smart woman, uh was brought up through the Bank of England. And the Bank of England is an essentially neocclassical uh economic institution.”
Will Hutton, on a conference panel, accused Innes of straw-manning the efficient market hypothesis by arguing it doesn't apply to reality, when that is the basis of current policy.
“Will Hutton the former editor of the observer labor grande so to speak criticized you for straw manning... the old position on the efficient market hypothesis that it's doesn't apply to reality but that is the lead of our current”