Why is there no Meso-Economics?

This is not a blogpost to bash mainstream economics, but rather to understand why in teaching and, to some extent, in research mainstream economics does systematically filter out important aspects of reality. Economics is reductionist or parsimonious, if you prefer this term, and bases itself on important dichotomies. One such dichotomy is micro- vs. macroeconomics.

One reason why political science often appears less of a science. But this is an observational bias.

Of course, a lot of the best research straddles the two, looking for microfoundations in macroeconomics or for how macroeconomics shapes individual decision-making. In many subfields of economics – industrial economics, labour market economics etc. – meso-level phenomena such as firms, trade unions or market structures play a huge role. At the fringes, economists also work on non-standard collective actors such as non-profit organizations. Yet, all in all, mesoeconomics is a messy field, and is not one which would merit an introductory textbook of note. There is no Mankiw ‘Principles of Mesoeconomics’ for one.

There have been occasional attempts to start a field of mesoeconomics. See here or here, for instance. Nonetheless, the main fields are micro and macro. As a political economist this has always irritated me. During my days as a student of economics in Germany, I learned that economics is about the economy in general, and business administration (BWL) is about enterprises and companies. It could well happen that you heard two, totally contradictory messages on the very same day. For instance, in macroeconomics I learned about the assumption of consumer sovereignty and how this is a necessary ingredient to standard welfare economics, only to move class rooms and listen to all these lectures about marketing and organization in business administration that all aim at, let’s face it, fooling customers to buy stuff they don’t need and fooling workers to trade extrinsic motivation (aka money) for intrinsic motivation (aka self-exploitation).

This is why I think the omission of mesoeconomics is fundamental in several ways. For one, it drives wedges where none should exist. Micro and macro need meso as the grey zone. Omitting the meso-level, also helps school building and useless tribal discussions about which main field is prior to the other (with microeconomics often winning because of the reductionist bias in economics as a field).

More importantly, the neglect of mesoeconomics underplays the role of an important, but often very messy host of issues on the meso-level. More focus on the meso level reveals that the ideal-type market competition rarely happens because firms and other types of collective actors differ tremendously in size, market power, access to politics to name a few. More focus on the meso level reveals that macro questions sometimes boil down to what very large companies in a country do or want. The Swedish model of welfare state capitalism? For decades it was synonymous to the ideas of one Swedish family of industrialists (I am exaggerating of course, but only slightly) Internet commerce? The Big 5 tech companies run up to 75 percent of all their respective businesses.

In terms of economic policymaking, this means, among other things, that we need to take as a rule non-competitive market or at least semi-competitive markets as standard, rather than thinking that the standard is market competition. Empirically, allowing for the meso-level means that very often the law of large numbers does not necessarily apply. Conceptually allowing for the meso-level means that trying to find nomothetic laws reaches its limits. Of course, we can frame issues of limited competition and few economic agents in terms of game theory. But at the extreme, few firms might depend on few individuals, individuals that may or may not behave rational. Political science does try to erase the individual as much as possible, putting ‘variables’ instead of ‘names’ in the lingo of textbooks on social science research methodology. But it would be foolish to say that individuals do not matter when you look at influential philosophers (e.g. Marx) or influential politicians (e.g. Trump).

Therefore, the root of economists’ disregard for the meso-level seems to be the fuzzy, imprecise nature of the meso-level, a level at the vagaries of history and chance. It goes against the notion of economics as an exact science. And this fear, ironically enough, is quite irrational in my view.

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