Home > Uncategorized > Nailed to its perch

Nailed to its perch

from Peter Radford

I always use some famous Chicago School economist as my representative fool when I am describing mainstream economics to my uninitiated friends. How does one, after all, defend such a ludicrous body of thought? By reference to Monty Python?

Here is Gary Becker explaining why mainstream theory is so ridiculous:

“The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and consistently, form the heart of the economic approach.”

And thus Becker’s economic approach remains firmly nailed to its perch looking for all the world like a dead bird. A very dead bird. It would be funny, indeed hilarious, were it not for the rather dismal fact that people like Becker win prizes and accolades for believing such tripe. There is, apparently, no satire sufficiently cutting, no mirth sufficiently loud, and no critique sufficiently detailed to stop the farce from continuing.

Economics, especially the Becker sort, is dead. It died at its inception. It is a joke that needs sensitive burial so we can move on and look for a real economics that engages real problems and real economies and not the fetid fantasies of the type inhabiting too many professor’s minds.

I often wonder whether economists realize how funny they sound. Or whether they even care about economies. The evidence isn’t reassuring. They press on teaching rubbish as if it were golden. They press on writing ever longer papers riddled with details and mathematics that describe absolutely nothing. They continue to paint pictures that amount to fog. They are, in short, wasting everyone’s time. 

As you can tell, I am tired of it.

The pretense must end. Economics, in its majority form, is simply dumb and wrongheaded. It is a dangerous technology based on a severely anti-social premiss. It seeks to contort the world to match itself rather than to describe the world as it is.

I am not alone in this, of course, far from it. The embarrassment of the last crisis that left the mainstream sublimely naked and bereft of anything sensible to say stirred many more voices to rise in opposition. Yet the mainstream plods on. Oblivious, apparently, to its public image it hides away in university halls pretending that nothing happened, and that its core principles simply need another tweak to make them the explanatory equipment economists dream of.

But that won’t happen.

Economics went down the wrong road many decades ago. It is too deeply embedded in erroneous thinking and is beyond saving by anyone within those university halls.

If you want to read good ideas about the economy don’t ask an economist. Ask someone who has been in the economy. They might not have grand theories and lots of wizard math to blind you with, but at least they are engaged with reality and not fantasy.

Which, in rather long winded fashion, brings me to Richard Bookstaber’s excellent short book: “The End of Theory”. Let me give you a taste of it through this long quote:

“To understand crises, we must work with the limits that address these essential aspects of our human condition. And, more important, we must refute the use of mathematics because the essential problems are computationally irreducible; refute the notion that we all can be represented by a proxy, which already should be refuted based on the failures of general equilibrium theory; refute the notion of optimization and the maximization of utility, because of radical uncertainty and the need to use heuristics; refute the notion of stable preferences, because people live in a non-ergodic world where they change based on their experiences; refute models using predetermined probabilities, because past behavior cannot then prove a window into future behavior. Refute all these in periods of crisis.”

I object only to his limitation that the refutation refers to crisis. It refers to all times, those of calm as well as those of crisis.

Many of you will not appreciate Bookstaber because of his background in the deepest parts of Wall Street. But, like him or not, his thinking represents a clear and decisive denunciation of the farce that is mainstream economic thought.

Economics is riddled with longstanding idealistic and fantastic efforts to unpick the complexity of actual economies. Those efforts all end up over-simplifying to the extent that reality is tossed aside to make theorizing more tractable. And, perhaps more deadly to theory, those efforts are all entirely products of a particular time and place: they are entirely contingent on the circumstance in which they were dreamt up.

This is true of theories across the political spectrum: they ignore subsequent history and, instead, freeze within themselves the environment the theorist was observing. They become time capsules and ever more irrelevant as the real world continues to unfold. Mainstream thought, though, is a very special case: it was never relevant because it drove out reality from the very beginning. There was never an instance when mainstream thought described an actual economy or explained actual economic behavior. It was always imaginary.

And it would be demonstrably dead were in not nailed so firmly to its academic perch.

  1. patrick newman
    April 23, 2017 at 1:33 pm

    Nothing more demonstrates the bankruptcy of neo-classical economics than the predictions by the establishment of immediate economic Armageddon if the UK voted to leave the EU. Since the vote the economy has continued to grow and unemeployment fall (the quality of the new jobs since 2013 is another question) and although the pound fell it is far from obvious that it has damaged the economy. There are other non EU factors that suggest continued growth is far from uncertain. The cacophony of the financial and economic establishment was something to behold and the only surprise is that the Pope was not recruited to add spiritual authority to the Remain campaign! Forecasting is now in the positve from these very same people and institutions.
    A quote from Marx seems appropriate – Groucho! “Those are my principles, and if you don’t like them… well, I have others.”

  2. Nancy E Sutton
    April 23, 2017 at 3:18 pm

    From a simpleton: isn’t the nail that keeps the dead bird on it’s perch, just overwhelming sociopathic greed, which they sanctify? And they are fed wealth and status… talk about evil. Reminds me of the Roman institution that sanctified, from their ‘perches’, the burning of heretics by the state. Result: unchallenged power, which is the cancer that cannot stop growing until the host is dead. win win

  3. antireifier
    April 23, 2017 at 5:07 pm
  4. April 24, 2017 at 1:40 pm

    I object only to his limitation that the refutation refers to crisis. It refers to all times, those of calm as well as those of crisis.

    Absolutely!

    Economics is riddled with longstanding idealistic and fantastic efforts to unpick the complexity of actual economies.

    The most longstanding idealistic and fantastic efforts to unpick the complexity begin with the refusal to conduct economic analysis in terms of nominal prices and incomes, which, coupled with the longstanding habit of ‘endowing’ consumers with budgets for baskets of goods, effectively removes budget formation decisions from analysis.

    Shifts in the shares of planned and unplannedbudgetary expenditures out of income in response to nominal income and price changes are obvious tactics and strategies of consumers, readily observed in markets. Removing these from analysis by assumption removes all rational planning decisions that consumers make (or are compelled to make) in their different socio-economic situations through time, which amounts to removing by assumption the very real needs of consumers to provide for themselves over time.

    Finally, analysis in real exchange prices rather than nominal exchange prices exacerbate the tendency of most economists to regard the distribution of monies as unimportant in aggregate even though it is obvious from the existing theory of consumer preferences :: invalid at best :: that the distribution of aggregate expenditures –if the theory of consumer preferences was true– would change significantly with shifts in the shares of incomes ‘endowed to’ different consumers simply because the different tastes would lead to different consumption if incomes altered even if total aggregate consumer expenditures was unchanged. THAT should be self-evident.

    Thanks for letting me blow off steam!

  5. April 24, 2017 at 10:52 pm

    I’ve read Bookstaber (according to wikiP he manages U Cal’s endowment of 100B$–probably gets some nice chump change for that chore).

    (i heard managers of Harvard’s endowment get paid 25$million/yr—i think this is called a ‘basic income’ by van Parijs. Some harvard grads who have ‘made it’ (and some were on their trustee board ) propose making harvard tuition free ( i prefer ‘means testing’ tho i have no connection with harvard tho i once knew someone who teaches there–his father was a prof at MIT who lived across street from me during a sabbatical , and one day he had lost his wallet so i found it . they knew who might know where it was since was always finding things. . they didnt give me a reward either. they said i stole it ; i told them i found it and they shouldnt leave valuables laying around.)

    his book i read is fine or ok but there are lots of them like that (‘end of economics, death of econ, etc.’ ) Most of them are basically the same.

    All ‘theories’ are like econ–imaginary or imagined scenarios or fantasies.
    They are made up by people bounded in space and time. The only people obsessed with ‘mainstream’ or say ‘neoclassical’ econ get paid to do it (i have my own definition which i think would be the sort of standard one accepted by people like K Arrow or Kirman—and that definition may be as distant from what most people think of as neoclassical econ as the libertarian version of adam smith’s capitalism (based on reading of wealtyh of nations/division of labor/invisible hand) versus the ‘balanced’ and complete one (which adds in smith’s ‘moral sentiment’).

    people and theories are bounded also by what they read. some think econ 101 textbook = economics like they think biology 101 (vulgar darwinism)=biology. what goes in comes out.

    nobody reads that stuff anymore except as an excercize. (in my area we still have issues—one happenned recently on ‘march for science’ /earth day—one of the local s/heros/activists got pulled over by police while jaywalking_ exveryone was jaywalking–400,000 people–because he was black. some cops and people have view that all blakcs are criminals–some are but true also for other ‘races’). people see what they look at.
    if anyone has some better theory of ‘ecionomics’ maybe try and write it here. (i did see one MIT trained ‘econophysisict’ has some general article out (asscoaiated with lee smolin–trouble with physics—thiugh it doesnt say much. he also supposedly had a theory of everything since he has a physics /hedge fund background from MIT—which was hyped—but i dont think anything came of that–havent heard anything about it for over a year.
    just surplus or excess value.

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