Home > Uncategorized > What is mainstream economics?

What is mainstream economics?

from Lars Syll

The reason you study an issue at all is usually that you care about it, that there’s something you want to achieve or see happen. Motivation is always there; the trick is to do all you can to avoid motivated reasoning that validates what you want to hear.

economist-nakedIn my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why? Because when you try to write down a model, it often seems to lead some place you weren’t expecting or wanting to go. And if you catch yourself fiddling with the model to get something else out of it, that should set off a little alarm in your brain.

Paul Krugman 

Hmm …  

So when Krugman and other ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear.’

Yours truly  is, to say the least, far from convinced. The alarm that sets off in my brain is that this, rather than being helpful for understanding real world economic issues, sounds more like an ill-advised plaidoyer for voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions.

Modern (expected) utility theory is a good example of this. Leaving the specification of preferences without almost any restrictions whatsoever, every imaginable evidence is safely made compatible with the all-embracing ‘theory’ — and a theory without informational content never risks being empirically tested and found falsified. Used in mainstream economics ‘thought experimental’ activities, it may of course be very ‘handy’, but totally void of any empirical value.

Utility theory has like so many other economic theories morphed into an empty theory of everything. And a theory of everything explains nothing — just as Gary Becker’s ‘economics of everything’ it only makes nonsense out of economic science.

Using false assumptions, mainstream modelers can derive whatever conclusions they want. Wanting to show that ‘all economists consider austerity to be the right policy,’ just e.g. assume ‘all economists are from Chicago’ and ‘all economists from Chicago consider austerity to be the right policy.’  The conclusions follows by deduction — but is of course factually totally wrong. Models and theories building on that kind of reasoning is nothing but a pointless waste of time.

Mainstream economics today is mainly an approach in which you think the goal is to be able to write down a set of empirically untested assumptions and then deductively infer conclusions from them. When applying this deductivist thinking to economics, economists usually set up ‘as if’ models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often don’t do for the simple reason that empty theoretical exercises of this kind do not tell us anything about the world. When addressing real economies, the idealizations necessary for the deductivist machinery to work, simply don’t hold.

So how should we evaluate the search for ever greater precision and the concomitant arsenal of mathematical and formalist models? To a large extent, the answer hinges on what we want our models to perform and how we basically understand the world.

The world as we know it, has limited scope for certainty and perfect knowledge. Its intrinsic and almost unlimited complexity and the interrelatedness of its parts prevent the possibility of treating it as constituted by atoms with discretely distinct, separable and stable causal relations. Our knowledge accordingly has to be of a rather fallible kind. To search for deductive precision and rigour in such a world is self-defeating. The only way to defend such an endeavour is to restrict oneself to prove things in closed model-worlds. Why we should care about these and not ask questions of relevance is hard to see.

  1. November 2, 2016 at 11:45 pm

    I have 2500 words the profession of economics does not want to hear.

    Email and say ECONOMICS



  2. November 3, 2016 at 9:13 am

    This is a good summary and I couldn’t agree more. But there is one issue that economists seem to be very ill equipped to discuss, that is to question the role of economic science in our capitalist world today.

    Economists are not the only ones that concern themselfs with economy There is a science that is mostly ignored by economists, called economic anthropology, which is a field of social anthropology. The famous scolars of economic anthropology like Bronislav Malinovsky, Marcel Mauss, Karl Polanyi or Marshall Sahlin (and Karl Marx?), may be known to economists, but they are mostly ignored in the economic profession.

    Why is that so? Why do economists get all the publicity, the money, the institutions etc. while economic anthropology is virtually unknown in the general public? Ist it because economic anthropology is bad science and economics is good science? Reading articles like above, this does not seem to be the case. To answer that question we will have to look back in history a bit.

    Social anthropology as a science has a very dark but interesting history in Germany, where I come from. In the beginning of the 20th century (and some time before) it was called “Volkskunde”. It was a very conservative and reactionary field of intelllectual exercise with its main interest in constructing and legitimizing the german nation state that only had existed for a brief time. When the Nazis came to power and nationalism was on a high, Volkskunde thus profited extremely from the nazi regime. Money and influence was raining on them. Most of the institutes and chairs in volkskunde/social anhropology in germany were created in nazi Germany.

    The “science” of that time became utterly corrupted by fascism. Volkskunde took it upon itself, without much pressure from the nazi party, to provide the scientific legitimacy of Hitlers “Rassenlehre”/ racial ideology, nationalsm and other parts of the twisted nazi ideology.

    After WW2, not surprisingly, Volkskunde almost vanished and it took Volkskunde more than 20 years to overcome its dark history. In order to do so, Volkskunde had to REFLECT ITS ROLE in society and in history very profoundly. This was a very painful process for anybody engaged in this science, but today social anthropology in germany is a very critical and progressive science and brings forth many of the (left?) intellectual critics of capitalism.

    One thing that social anthropology also does today is to reflect upon all fields of science, including economy. The clear outcome of that is, that economy has alligned itself very closely with the current elite and provides the ideological legitimacy of the current hegemony, quite similar to what Volkskunde had done it its own past. Just as Volkskunde had profited from alligning itself with nazi ideology while letting itself be corrupted, economic science today profits hugely from its close alliance with power. Money from the capitalist enterprises is raining on them in numbers all other fields of science can only dream of and economists are invited by the corporate media to present their work to a broad bublic.

    Today the global hegemony is in question as capitalism is in a fundamental crisis. Its no wonder that with the crisis of global capitalism, economic science finds itself in a fundamental crisis too, even if many of its members are in utter denial of either crisis. From the perspective of social anthropology, the only way to overcome this crisis in economic science is for it self to reflect on the role it is playing in the current capitalist system nd question its alliance with the global elites.

    Questioning this alliance with power and the role of economic science will probably result in loosing much of the privileges that economic science has today. Those priviliges come with a price though. The alternative to this transformation of economic science could be that in the event of a postcapitalist transformation of society, economic science will have lost all of its legitimacy and could be disposed with alltogether.

  3. November 3, 2016 at 12:45 pm

    I have a model of everything which tells you nothing but how, where and when to look for whatever it is you are interested in.

    C.f. https://rwer.wordpress.com/2016/11/01/wages-not-commensurate-with-labor-productivity-in-the-usa/#comment-113657.

    Lars, please try and engage with those who take the trouble to respond to you. Here you seem so sure of your own views that – right or wrong – they sound like professorial [self] propaganda. You clearly know that “the answer hinges on what we want our models to perform and how we basically understand the world”; so please focus constructively on that, not on unrelenting destructive criticism of nit-pickety methodical details.

  4. November 3, 2016 at 7:02 pm

    Mainstream economics keeps this compelling history out of sight.
    Such omitters are Conpersons first!

  5. November 4, 2016 at 9:06 am

    Many scientists miss the world for the love of theorizing. To paraphrase William James, humans live, experience the world and assign it meaning and significance as they do. Humans have been doing this for about 70,000 years. Science is hopefully merely a refinement of this process. Science attempts to capture more than a single perspective on experience, but rather as many as possible. To do this, scientists invent theories and terminology that includes but expands on ordinary human explanation. The social sciences are in a unique position. Social scientists study human relationships. Humans are part of the process of inventing these relationships and their meanings. Social science can’t displace ordinary meanings and significance of experience since these are the objects of the science’s study. Since all scientific study begins with the object of study, social scientific study begins with ordinary, everyday meanings and explanations of human experiences. Theories and methods invented by social scientists should expand, not restrict access to the study object, and should never replace that object. For economists, this means the study of actions, theories, decisions, and meanings labeled economic by humans who are not economists. Most economists would likely not accept my reasoning here. But it is consistent with the history of both the physical and social sciences. In this light, what is the purpose of economic models? They can be scientific instruments only so long as they attempt to mirror the theories, methods, meanings, and decisions labeled economic by non-economists. But economics can be reflexive. That is, economists can look back at the results of their own work and attempt in one way or another to modify the actions, theories, etc. of non-economists. This course of action is dangerous, both for the scientists and for the objects of their study. Right now, in my view economists have done a poor job of studying the objects of their study while simultaneously offering themselves as experts to “fix” the problems they see in economic actions and theories of non-economists. Very dangerous combination.

  6. November 5, 2016 at 8:39 am

    I have left a comment here (two days ago) that was not published, probably because I was not very articulate in what would superficialy seem a comparison of todays science generally and mainstream economics specifically with science in Nazi-Germany. My comment was not trying to do this comparison.

    I very much agree to the analysis in the article, but I do think it is not capturing an essential part of what what “mainstream economics is”. I tried is to answer that question from the point of view of social anthropology, using Michel Foucaults perspective on science as the Knowledge/Power complex of a power system.

    To do that I had to find a (relatively recent) transition of a knowledge/power system and used Germanies post WW2 history to make my point. I do not draw any undue comparisons between Nazi Germany and western capitalism, but used this transition as a model, just as Michel Foucault used it himself.

    I edited my comment and posted it on my blog as a response to the article above, I hope I found any misleading parts that lead to my comment not being published:

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