Home > Uncategorized > The tragedy of pseudoscientific and self-defeatingly arrogant economics

The tragedy of pseudoscientific and self-defeatingly arrogant economics

from Lars Syll

The problem of any branch of knowledge is to systematize a set of particular observations in a more coherent form, called hypothesis or ‘theory.’ Two problems must be resolved by those attempting to develop theory: (1) finding agreement on what has been observed; (2) finding agreement on how to systematize those observations.

comic1In economics, there would be more agreement on the second point than on the first. Many would agree that using the short-hand rules of mathematics is a convenient way of systematizing and communicating knowledge — provided we have agreement on the first problem, namely what observations are being systematized. Social sciences face this problem in the absence of controlled experiments in a changing, non-repetitive world. This problem may be more acute for economics than for other branches of social science, because economists like to believe that they are dealing with quantitative facts, and can use standard statistical methods. However, what are quantitative facts in a changing world? If one is dealing with questions of general interest that arise in macroeconomics, one has to first agree on ‘robust’ so-called ‘stylized’ facts based on observation: for example, we can agree that business cycles occur; that total output grows as a long term trend; that unemployment and financial crisis are recurring problems, and so on.

In the view of the economic world now dominant in major universities in the United States — with its ripple effect around the world — is these are transient states, aberrations from a perfectly functioning equilibrium system. The function of theory, in this view, is to systematize the perfectly functioning world as a deterministic system with the aid of mathematics. One cannot but be reminded of the great French mathematician Laplace, who claimed with chilling arrogance, two centuries after Newton, that one could completely predict the future and the past on the basis of scientific laws of motion — if only one knew completely the present state of all particles. When emperor Napoleon asked how God fitted into this view, Laplace is said to have replied that he did not need that particular hypothesis. Replace ‘God’ by ‘uncertainty’, and you are pretty close to knowing what mainstream macro-economists in well-known universities are doing with their own variety of temporal and inter-temporal optimization techniques, and their assumption of a representative all knowing, all-seeing rational agent.

Some find this extreme and out-dated scientific determinism difficult to stomach, but are afraid to move too far away, mostly for career reasons. They change assumptions at the margin, but leave the main structure mostly unchallenged. The tragedy of the vast, growing industry of ‘scientific’ knowledge in economics is that students and young researchers are not exposed to alternative views of how problems may be posed and tackled.

Amit Bhaduri

Yes indeed — modern economics has become increasingly irrelevant to the understanding of the real world. One of the main reasons for this irrelevance is the failure of economists to match their deductive-axiomatic methods with their subject.

rocket-science-pic

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logics is interesting and fun. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in dire straits.

Already back in 1991, a commission chaired by Anne Krueger and including people like Kenneth Arrow, Edward Leamer, and Joseph Stiglitz, reported from own experience “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,”  and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” And in conclusion they wrote that “graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues.”

Not much is different today. Economics — and economics education — is still in dire need of a remake.

  1. Craig
    May 10, 2017 at 7:41 am

    The problem is actually the arrogance and religiosity of “settled” science itself and in mathematics’ lack of thoroughgoing investigation of all possible dynamic factors that effect modern technologically advanced economies. Economics (and other human systems as well) requires an old mental discipline that includes and integrates the reductive scientific method and its holistic opposite mental mode of thought. This is what is known as Wisdom and in fact such integrations of science and an aspect or aspects of consciousness like imagination, visualization, openness to new, different and even “absurd” ideas has always been the signature of scientific breakthrough. There would be no relativity or space-time concept without Einstein’s imaginative proclivities.History is replete with the value of integrating opposites which is the very process of Wisdom.

    Integrate the overweening monopolistic power of the monetary and financial paradigms of Debt and Loan ONLY with the intelligent application of a new paradigm of direct and reciprocal monetary Gifting and you’ll have accomplished Wisdom regarding money systems, economics and the 5000 year old dominance of the business model of Finance.

    Isn’t 5000 years long enough for a monopolistic paradigm?

  2. May 11, 2017 at 9:01 am

    The points made are good, and mostly useful. But the perspective presented is too simplistic. The notion of real world is troubling, and not useful. The “real” world and science (even economics) are created in the same way. Humans create stories about what they see, hear, smell, taste, and touch. They wind the stories together into myths, rules of thumb, and eventually into cultures. This means they form meanings or significance for the stories and rank and arrange them for use in their lives. Scientists follow the same process. Scientists, however create many more observations with their five senses and extend these with tools they invent (e.g., laboratories, mathematics, physical instruments, professional societies) to create further observations. Scientists then follow the process described above in combining and explaining these observational clusters. The whole process never ends, either for the ordinary citizen or for the scientist. When you reference the real world that can be looked at in two ways. First, the ordinary world created by humans in the process of being human and creating cultures and societies. Quite often the worlds scientists create will not correspond with the ordinary culture. Especially, for the physical sciences. There is greater correspondence for the social sciences, but even here one is not a duplicate of the other. For example, ordinary culture uses the word and process of labeling much differently than do sociologists. And, except for a few jokes Freud’s psychoanalysis is not generally included in ordinary culture. But the two cannot be wholly separate since scientists and lay persons often share a culture. But real world can also refer to the cycles of scientific work where observations from a time and place are compared to observations from other times and places. At times, however this comparison can be confusing. After all, which observations are real and which not?

    The fundamental problem that puts humans in this situation is that all human knowledge, truth, and understanding is the result of human creativity, human imagination. Humans create truth, justice, reason, etc. And build elaborate worlds of art, science, literature, and culture with their imagination. As we used to say in grammar school, if you don’t like it, too bad. That’s the way it is for humans. Hope this helps.

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