I read a very good article in the Real World Economic Review over the weekend. Entitled 'Why do economists persist in using false theories?' it is by Asad Zaman of the International Islamic University, Pakistan.
To summarise his argument, I quote this from his own conclusion:
Richard Feynman argued that the defining characteristic of scientific theories is that they are rejected and revised when they conflict with experimental evidence: "It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong". These three examples above, as well as a host of others not discussed, show that the defining characteristic of textbook economic theory is that it remains the same regardless of how much empirical evidence accumulates against it.
As he notes earlier in the piece when considering why this is the case:
To answer this deeper question, we must dig deeper into the nature of economic theory itself. What is the function of economic theory, if it is not to learn the truth about how the economic system works? Once we explore economic theories within the historical contexts in which they arose, the answer becomes blindingly clear: economic theories serve to protect the interests of those in power.
I believe Zaman is right. This is what economics has come to be about. It is not a science as it stands. It is not even worthy of being taught as such. It is just the political dogma of an elite dressed up as pseudo-science to maintain the status quo of privilege that a relative few enjoy.
That is what we are up against.
I recommend the whole article. It is reasonably accessible and the arguments and data are compelling.
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Not even a dismal science. Closer to religious belief really.
I am not sure exactly how a criticism of Bentham’s theory of utilitarianism became synonymous with a critic of economics. Many people who followed Bentham were critical of his theory too; chief among those being economist John Start Mill.
Perhaps it is because neoclassical dogma has borrowed many ideas of Bentham’s theory. However there are also differences between them. Social welfare theory is just utilitarianism rapped up in a warm fuzzy blanket.
After that you are just 1 step away from the far right ideology of Pareto that there is an elite and this elite has a right to exist and benefit from its existence until it is replaced with a new elite.
I criticise Bentham
Distribution matters
“It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with experiment, it’s wrong”. (Richard Feynman)
This is why neoliberal economics is not a science; it does not have a usable experimental method (the reference to ‘social’ science, in the case of economics is just an excuse – a fudge).
Notably Adam Smith began with observation. Neoliberal economics, however avoids anything so vulgar as engagement with the real world. Neoliberalism has never even attempted to devise a usable, repeatable method to observe, measure and test economic phenomenon. It was all too difficult; it is beyond them, and perhaps they realised that whatever they could achieve if they followed observation or the goal of experiment, it wouldn’t lead anywehere near neoliberalism.
Neoliberal economists found an easier way, that allowed them to sit in universities, pontificate, take no responsibility, and produce generations of well palced clones, protected from criticism. In the United States, around seventy years ago they set out, not to observe the world, but observe the Law schools, and target the law students, to imbue them with the ideology of neoliberalism; it was much more effective politically for neoliberalism’s success in the US and the world – than doing science.
Once politically established in the US, supported by neoliberal invested lawyers, Neoliberalism found it could write simple equations in the sky, and claim that made it just like physics. Their political influence, and the attraction of the theory of equilibrium to Big Corporate money; which found in neoliberalism an economic theory that was probably daft, but served their interests, reliably and securely – neoliberalism and Big Business found they could endlessly scratch each others backs to the advantage of each; which quickly ensured nobody could challenge them; because soon enough politicians, who need money for Party to win elections, are very easily bought: no matter the obvious, risible failure of the theory.
Who cares if the theory is wrong; it works for those who benefit most. The whole neoliberal clamfamfree is as banal and crude as that. It relies entirely on the assumption that its theory-in-the-sky must be right, and can’t be wrong – even when its forecasts are unusable, its failures of ignorance, omission and downright intellectual cowardice are catastrophic; it never has to reassess its assumptions. They must be right; Hayek said so.
Neoliberal economics is closer to religion than science. It relies entirely on faith; belief in a bbilical text written by a priesthood; exclusively selected by neoliberals serving worshippers of the sect.
Thanks John
Is this dogma akin to faith-based, “fundamentalism” or a deliberate, covert corporate strategy to transfer more money from the poor to the rich?
Both
Since coming across your blog and people who predicted the 2008 crisis, I have a done a lot of reading around economics -but not systematically. I am aware of the gaps in my knowledge.
As I came to the end of my teaching career, I moved into counselling and psychotherapy.
There are a number of similarities.
My training was in something called psychodynamics -basically the interaction between the conscious and unconscious mind. Many of those trained in it thought it a superior way of working and there was a distance between them and other schools of therapy. This has changed over the last two decades as new people come into the profession. As Thomas Kuhn said, ‘paradigms -usually-change when the ‘Old Guard’ retire or die.
Although psychodynamics was very useful there were concepts I thought dubious and as I got more experienced I gave up even trying to use them. Others I must say found them useful. I would vary my approach with the client; with some I used very cognitive methods, with some it was emotional support -compassion focussed-and some found a transpersonal ( spiritual ) approach suited them. And the approaches could overlap.
Stephen Keene seems to have a similar approach with the different schools of economics although he doesn’t value them all equally.
Science is a way of approaching evidence and the ‘laws’ arise from that investigation. Economics should be similar-admitting we can’t do closed experiments in the same way as Physics or chemistry.
In both disciplines certain concepts are useful. But as a guide.
When I worked in factory one of the old guys was a bit of a philosopher . One of his sayings was “Rules are for the guidance of wise men (and women of course) and for the obedience of fools”.
Not sure if this helps the discussion but it seems relevant. The emphasis has to be enquiry and an awareness of context. Bit like history too.
I fully subscribe to the view that rules are for obedience of fools.
Equally important I find is the concept “ sometimes it is better to act now and ask for forgiveness that to ask fir permission first”
We have discovered (again) why physicists smile and are cheeky guys. If they smell out bullshit they laugh at it.
Perhaps the BBC show Question Time should be advertised as Dark Comedy?
In 1870 Thomas Huxley spoke about “the great tragedy of Science—the slaying of a beautiful hypothesis by an ugly fact”.
Any discipline is a science if it uses the scientific method – use observations or experiment to make a hypothesis that gives a prediction that can be tested by further observations or experiment.
Some economics is like this. Make a prediction, test it with data, and refine.
Some is like pure mathematics – toy models based on unrealistic assumptions or simplifications, beautiful in their own way, but with only a glancing relationship with real life. Much, unfortunately, is more like history or philosophy or theology – just stories that we tell each other, trying to understand the chaos of the world.
If a hypothesis is not falsifiable, is it even science at all?
No, in answer to the last qeustion
Science works because of the accuracy of the predictions, not falsifiability. On Popper’s test all science is false. For the philosophy read Feyerabend, not Popper
Perhaps. But for my money, science has more value than witchcraft and astrology.
The accuracy of predictions makes science useful, but the ability to discriminate between truth and falsity is how it advances.
Even having this discussion, we become trapped in the world of philosophers and their impenetrable forests of words.
Of course it does; but not because it is falsifiable: but because its predictions stand up to the test. Many years ago I asked a Director of experimental physics at the Cavendish, what it was he thought was the fundamental purpose of physics (at a seminar about James Clerk Maxwell). He simply said; to make predictions.
Physics lives and dies by its capacity to predict, and for the predictions to be replicable, time after time, after time. Truth and falshood are philosophical concepts; prediction is the essence of science, and it is prediction that gives science its power.
“[Economics] textbooks cloak themselves in an aura of objectivity. They portray economics as a science dealing with facts and theories that make predictions. Economists are portrayed like scientists wearing white lab coats objectively developing theoretical models and coming up with policy prescriptions supported by a consensus of professional opinion.
The [Microeconomics] Anti-Textbook argues that this is a myth – one which is not only dangerously misleading but also bland and boring.”
Source: The Microeconomics Anti-Textbook, A Critical Thinker’s Guide – second edition
https://www.amazon.co.uk/Microeconomics-Anti-Textbook-Critical-Thinkers-Guide/dp/1783607297/
See also The Macroeconomics Anti-Textbook, https://www.amazon.co.uk/Macroeconomics-Anti-Textbook-Critical-Thinkers-Guide/dp/1350323713/
Both are recommended.
In J K Galbraith’s “The Affluent Society” (Chapter 1) he observes “the shortcomings of economics are not original error but uncorrected obsolescence”. He goes on to note that “obsolescense has occured because what is convenient has become sacrosanct” – thus we enter our-market-which-art-in-heaven territory (my comment not JKs).
I note that Mr Williams above makes this point: “Bentham were critical of his theory too; chief among those being economist John Start Mill” – Galbriath indirectly destroys Bentham and Mill by observing that “it would be wrong to suggest that the economic ideas which once interpreted the world of mass poverty (= 19th cent and before) have made no adjustments …. but there has also been remarkable resistance…. as a result we are guided in part by ideas that are relevant to another world and as a result we do many things that are unnecessary, some that are unwise and a few that are insane”. Smith, Bentham, Mill – some Ok ideas – but very much of their time.
In the case of “original error” In fairness to Galbraith, he was writing at a time (1950s) when Hayek & co were regarded as little better than wierd nutters. As Judt observed: Hayek committed a category error in assuming that the events in Austria 1920s & 1930s (& the rise of facism) would occur everywhere if socialism got a grip e.g. the election of the 1945 Labour gov would lead to fascism). That said, Hayek’s “Road to Smurfdom” could be classed as prophetic in that indeed, the tories using his ideas (& quoting his book) have morphed into fascists. Was Hayek right?
Concluding: this commentby Zamam: “the defining characteristic of textbook economic theory is that it remains the same regardless of how much empirical evidence accumulates against it.”,,,,,,certainly the case for electricity pricing where assorted economists insist on the perfection of marginal markets – despite the mountain of empirical evidence against, thus, as some commentators noted, we enter religious territory – I have nothing against organised or indeed disorganised religion – but I don’t think it has a place in explaining/defining how countries organise their finances.
Understanding Neo-liberalism as a religion is an extremely fruitful analogy.
Like all religions it is a frequent conduit for all that is worst about human behaviour.
The only flaw I can see is that most religions also have a good side, at their best, great sacrifice and kindness, humility, hospitality, an attempt to live a moral life.
These things appear to be entirely absent from neo-liberalism.
Feynman was of course right about scientific theories. When they are eventually falsified then they’re given up for a new theory. Which is not to say that the supporters of the old theories give up without a struggle – it’s just increasingly obvious to everyone that they’re wrong. The other thing with scientific theories is that you can rely on their exactitude. If you apply a force of 1 Newton to a mass of 1kg it will always accelerate at exactly 1 metre per second-squared. With economics, I’m sure we’d be happy if more-or-less the same thing happened the majority of the time when a certain action was applied. Economics is after all mediated by human behaviour and we’d excuse the odd departures. The religious zeal with which some economic theory is touted is more reminiscent of the continued insistence in some quarters that the Sun moves around the Earth. Economics would have more credibility if it could show as much success as scientific predictions of chaotic systems like the climate.
Mathematics and physics can be as exact as you suggest, although there are many areas where physics cannot be quite so precise (as 1 Newton is 1 kg . m / s^2 your example is effectively a definition rather than an experiment proving the accuracy of the science – but for example we can test relativity very accurately by measuring the time dilation experienced by satellites, or measuring the deflection in the position of stars during a solar eclipse).
But for example biology (and that includes medicine) is a messy business and rarely quite so mechanistic. While it is definitely a serious science, almost every rule seems to have an exception.
To the extent that economics can be practised in a scientific manner, it is a messy one like biology, not a neat one like physics, mainly because it describes complex systems with an unpredictable human element. The fault that many economists fall into is thinking that economics can be simplified radically in the same manner as physics or mathematics, without greatly harming its ability to make useful predictions.
And many economists also seem unable to change their theories to fit the evidence, rather than cherry-picking evidence that fits their theories.
Even physics always has phenomena unexplainable by the prevailing orthodox theory. Newton’s problems with gravity (I will pass over his tangles with astrology, or the mysteries he sought to solve in ‘Revelation’), are merely illustrative, but permeate. There are always unexplained phenomena that do not fit the triumphant theory; but are dismissed as trivial by the rush to the new orthodoxy (which generally means they have low utility or are ignorable inconveniences, for a while); they remain as dimly glowing warning lights, usually ignored initially with swaggering confidence ….. until they can’t be ignored any longer, but the death of the theory typically requires the death of the generation which speny their life believing, and teaching it.
Science never proves, it can only disprove a hypothesis. As Huxley said “The Great Tragedy of Science — The Slaying of a Beautiful Hypothesis by an Ugly Fact”.
The hypothesis/theory of neoclassical economics has been shown to be false by the current crashing of the economy, a decade after it was disproven by The Financial Crisis of 2007–08, and arguably by The OPEC Oil Price Shock of 1973, and The Great Depression of 1929–39.
On the other hand, the post-war boom is shown to be consistent with Modern Money Theory.
In short, what we have today is an attempt at ‘pure economics’ that has been stripped of politics.
By political, I’m talking about the traditional use of politics as a balancing mechanism of competing interests – politics’ old job before Thatcher came in.
By ascribing economics to objective ‘experts’ (non-politicians, technocrats), the political role of a balancing/mitigation factor is retarded and left out and only money matters from a POV of efficiency (efficiency meaning the growth of wealth or money).
Without the political dimension of course, the fact that that growth is too narrowly concentrated is not even considered as growth itself is the monocratic goal. That growth is all that matters – the numbers – not the people.
‘Pure economics’ therefore (even neo-liberal economics if you will) is nothing but a negation of political economy.
Real life is messy and pure/neo-liberal economics does exactly what Steve Keen says it does – it over-simplifies the complexity in favour portraying political economy as weak and false and pure economics as a truth, and strong.
Clara Mattei in ‘The Capital Order’ (2022) does a good job of explaining the pure economics as espoused by Italian economists such as Maffeo Pantaleoni, Alberto de Stefani, Umberto Ricci and Luigi Einaudi (pp. 213-217 for example, all of Chapter 7).
(p.216): ‘Pure economics aspired to be something like the Platonic form of social inquiry. Just as ideas for Plato were the authentic essence of existing phenomena, so too economic ideas were more real than reality itself. They were the true model, the archetype that reality played out…………..The four professors had as their ambition to eradicate the impurities of the real world so that it would conform to the purity of their mathematical models’.
And so, we then enter the world of authoritarianism (as Mirowski has already told us):
‘More explicitly, the models and theorems had not only to dispense practical economic knowledge: they had to command people’s obedience.’ Sounds like most economic courses to me! Do the math or die!!
I’d never heard of these names before reading this book but we now can add them to the list of neo-liberal antidemocratic economic practitioners like von Hayek, Friedman, Walters, von Mises and Buchanan.
Thanks
A most entertaining canter through the same territory (with American subtitles) from Cory Doctorow
https://pluralistic.net/2023/04/03/all-models-are-wrong/#some-are-useful
He’s summarising a piece by Stiglitz (https://prospect.org/economy/2023-04-03-how-models-get-economy-wrong/) and “Hidden in Plain Sight,” by Dayen and Mabud telling us just how wrong the models were about the Trump cuts (https://prospect.org/economy/2023-04-03-hidden-in-plain-sight/)
All 3 worth reading, IMHO.
Thanks for that reference in Real World Economic Review
As regards what the UK can expect, an earlier review in the same publication, of the fate of the Greek economy might be prescient.
http://www.paecon.net/PAEReview/issue76/Hudson1-76.pdf
There is no value comparison because of the euro
Antique Economics In Action. Series 2. Episode 56.
For those that want a laugh – the recent Finnish elections provide one. Here is the Politico profile of the winner:
https://www.politico.eu/article/finland-elections-petteri-orpo-sanna-marin-mr-dependable-finlands-election-winner
“He played on deeply rooted (if mundane) Finnish fears about rising government debt and offered concrete (if workaday) solutions, such as cuts to public services.”
(MP Comment: which begs the question: who manipulated the Finnish public to believe that debt was a problem……..and…….cuts to public services the answer?)
“After a narrow election defeat in 2019, Orpo elected to take his party into opposition rather than enter a coalition with the Social Democrats. He set about rebuilding its standing as a traditional center-right economic alternative that was willing to cut public spending and limit tax increases.”
(MP Comment: straight out of the Thatcher/Hayek cook-book).
Readers are permitted to start sniggering now. But of course, the whole thing runs from Finland through the EU to the ECB, a wholly owned subsidiary of the Bundesbank, where EU countries are required to run their accounts like those of corner shops and much of Europe is simply a market place for Germans goods. On a related note, German industry is “positioning” themselves to take advantage of Ukraine once peace breaks out (a delegation went with Halbeck last week to Kiev) – doubtless the Ukrainians will, in due course, be told to “balance the books – or else – good luck with that approach – Euro serfs might be cowed by the EU/ECB combo, the Ukrainians are made of sterner stuff).
Deprewsinbg, isn’t it?
From my work, education, study, the problem with anything claiming to be scientific in relation to people is that they’re not dealing with mechanical phenomena like physicists, but with reflective, living beings that respond to the predictions being made and publicised. I would bet a considerable sum that no economist of whatever flavour knows how to calculate the influence upon their predictions of public knowledge of their predictions. Also, I would argue that economics is a rhetorical/persuasive field, not a scientific field. It is well-understood that professions will use the scientific method to bolster their own credibility, a phenomena known as scientificity – it provides an air of authority, knowledge, shields from criticism, allows claims to understanding and so on, all of which are useful except to the customer. Observing people is not the same as observing unconscious, unthinking matter. As economists share their views they influence what is being observed. When economists say “interest rates need to rise to counter inflation” I don’t believe for a moment their intention is simply to inform or educate (for a start there is no genuine explanation of the how or why). That, I would argue, is the purpose of economics – to influence (soften people up, get them to repeat the same, change policy to benefit benefactors, get people to accept bring exploited by flattering their cleverness) with plausible authority, by whatever means necessary – get into universities, get seats at the table, appear scientific, mathematical, use clever-sounding language, discredit dissenters. I imagine there’s a playbook for charlatans and snake oil sellers that would include all of these methods.
Well put
Zaman’s paper says
“Romer (2016 ) documents how leading monetary economists persist in believing that monetary policy does not affect the real economy, despite very strong empirical evidence to the contrary. ”
I am puzzled. I thought that monetarists DID believe that monetary policy affects the real economy ie puts up the cost of credit, chokes off demand, increases unemployment etc etc . Otherwise why be a monetarist? Or is that “not” a typo?
Could someone explain please?
Jeff
I know it sounds absurd, but this is right.
Steve Keen explains it at length, but I summarise it from the classic quantity theory of money where MV=PT, where M = Money Supply, V= Velocity of circulation, P= Price Level and T = Transactions.
Monetarists think V and T (the actual number of transactions in the economy) are fixed so reducing M by cutting money supply in the economy (including by raising interest rates) must reduce P.
That is absurd, of course, but that was Zaman’s point: this is absurd by they still think it.
And remember, macroeconomics is based on barter, which supports this idea of money being a side issue that does not impact the real economy. The reality is we know that monetary policy has massive impacts.
Do monetarists then say that the price of things and aggregate demand are not part of the “real economy” ?
Don’t monetarists admit full well that raising interest rates increases unemployment, so they can achieve NAIRU and stop the workers demanding higher wages? Wasn’t Larry Summers recently saying the US needed to raise unemployment to X million for a while using interest rates in order to control inflation?
Economists disagree with each other
I’ll certainly follow up references in this debate. and I agree with you Richard – dogma indeed, it often comes over as rote without understanding.
Can I also suggest a wider problem, let’s call it the “social science fallacy”. This isn’t simply that people themselves, being complex, make things exceedingly complex to understand, although that is also true. It is this; unlike the pure sciences, social science takes wider human society as its context – the base on which everting stands, or the thing in which the study is embedded. As we know context is everything but that context itself, is a to some extent, a human invention (the bits to do with culture, beliefs and norms).
So I also agree with Pilgrim Sleight and others, economics isn’t and cannot be a science; we should insist on calling it political economy – its the way it is by design, so lets change the design.
It follows then that by changing culture, beliefs and norms, the system itself will be changed, that is, those components of human behaviour which are discretionary will and can change. The “some” is important since there are also things we cannot change because we too are also animals and part of nature. That’s where people who want to see a paradigm shift are coming from; XR state this explicitly by the way and put nicer on it based on Chenowath and others.
The problem I have with simply calling for a paradigm shift is that is necessary to imagine and plan the actual mechanisms by which the change occurs, as well as imagining in detail what the alternative looks like. Most people arguing this way (in my experience to date) are light on the practicalities of change. The actual mechanisms by which the new paradigm alters real world outcomes require us to deal with and overcome entrenched power. That almost certainly requires the building of building countervailing power – and that needs to be more sophisticated then filling the streets – though that will likely be part of it. It matters simply because the incumbent has the advantage
Incidentally it’s also why opposition politicians who accept the existing set up and just want a technocratic fix are both wrong and wasting our (increasingly short) time. I was recently told that Blair/Brown’s position was based on pessimism about deeper change based on reading and being influenced by JK Galbrath – Culture of contentment.
Anyone interested could read more here
https://brianfishhope.com/index.php/part-1-review/the-human-system