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Heretics and mainstream defenders

from Lars Syll

Larry Elliott wrote a Guardian article the other day criticizing mainstream economics, arguing that

math15we should stop treating economics as a science because it is nothing of the sort. A proper science involves testing a hypothesis against the available evidence. If the evidence doesn’t support the theory, a physicist or a biologist will discard the theory and try to come up one that does work empirically.

Economics doesn’t work like that. Theories can be shown to work only by making a series of highly questionable assumptions – such as that humans always behave predictably and rationally. When there is hard evidence that disputes the validity of the theory, there is no question of ditching the theory.

Mainstreamers, of course, were not too happy about this critique, and a bunch of them published a response

Why do Elliott and many others have such a distorted view of economics?

The first answer to this question, we think, lies in a misunderstanding of the purpose of mathematical models. Critics complain that economists’ models are not realistic and make absurd assumptions. The London Tube map is not realistic and makes absurd assumptions. If it did not it would be illegible. And useless. The map is useful precisely because it abstracts from unnecessary details to show you the way. This is what economic models are for, they help us to find our way through complex data in a complex world.

When economists write a mathematical model they do so to highlight particular aspects of reality without confusing details. Take the infamous “homo economicus” theory, which says that humans are both selfish and rational. We think that this explains the behaviour of many corporations well. We also think that it does poorly at explaining how we treat our children—but it is useful precisely because it serves as a benchmark. Economists spend most of their time studying departures from this benchmark—altruism towards our children, irrational behaviour when drinking.

I’ve been doing economics for almost forty years now, and I don’t know how many times I’ve heard this silly nonsense map-and-benchmark defence of mainstream neoclassical modelling.

A map with a scale 1:1 is of course totally useless. No one — absolutely no one — is contesting that. But building models of economies that abstract from important facts of reality — such as people being ‘boundedly’ rational in a world permeated by genuine uncertainty — or distorting beyond recognition how real-world actors are supposed to act or decide in real-world contexts — is a completely different thing. On that, these mainstream defenders have absolutely nothing to say. And for good reasons. That kind of modelling is nothing but nonsense on stilts! And we ought to thank Elliott for telling that to Guardian readers .

Most mainstream economists seem to have no problem with the lack of fundamental diversity — not just path-dependent elaborations of the mainstream canon — and the vanishingly little real-world relevance that characterize modern macroeconomics. To these economists, there is nothing basically wrong with ‘standard theory.’ As long as policymakers and economists stick to ‘standard economic analysis’ — DSGE — everything is fine. Economics is just a common language and method that makes us ‘think straight’ and reach correct answers.

Mainstream economists today seem to maintain that new imaginative empirical methods — such as natural experiments, field experiments, lab experiments, RCTs — help us to answer questions concerning the validity of economic theories and models. Yours truly beg to differ. There are few real reasons to share this optimism on the alleged pluralist and empirical revolution in economics.

Heterodox critics are not ill-informed about the development of mainstream economics. Its methodology is still the same basic neoclassical one. It’s still non-pluralist. And although more and more economists work within the field of ’empirical’ economics, the foundation and ‘self-evident’ benchmark is still of the neoclassical deductive-axiomatic ilk.

Sad to say, but we still have to wait for the revolution that will make economics an empirical and truly pluralist and relevant science. But one thing we do know –mainstream economics belongs to the past.

  1. December 28, 2017 at 9:22 pm


    Of course, the difference between economics & physics/maths/genetics et al & what draws it towards the “inexact” sciences of psychology & sociology is the involvement of human beings as a variable. If economics was an exact science we would act on it, and suddenly it wouldn’t be exact any more!

  2. Rob Reno
    December 28, 2017 at 9:43 pm

    It seems, economics, just like other scientific fields, must inevitably progress by one funeral at a time. Unless if course their pathalogically anti-social, destructively individualistic, self-regarding pseudo-scientific ideologically driven theories lead humanity over the precipice of civilizational collapse, in which case it will progress over our and our children’s dead bodies.

  3. December 28, 2017 at 10:29 pm

    I realize economists have their own idea of their work’s purpose which, I presume, is to create an ordered universe of ‘economic’ ideas. Perhaps this is the same as desperately seeking predictability.

    Inasmuch as economists of any stripe have made any progress towards this goal, they cannot have avoided heroic assumptions about the managers who, I presume again, have some hand in the economy’s workings. Some economists assume they are perfectly rational, which is to be welcomed, others that they are perfect idiots, unknowingly biased and so on, less welcomed by folks consuming the fruits of managers’ labors.

    All of which is good fun but seems to have shed little light on what managers contribute and how that might impact ‘the economy’. Outliers here among the English-speaking include Veblen, Commons, Knight, Coase, Shackle, and other usual suspects. But Coase’s ‘positive transaction cost’ formulation is sharp and deserves more notice than it has received. Unfortunately Williamson more or less successfully dragged New Institutional Economics back into the mainstream, blunting Coase’s intuitions in the rush to scientize NIE and claim ’empirical success’.

    The real questions arose as Coase somewhat inadvertently and obviously untidily pushed forward those economists prepared to listen in the same way that Carnot and Clausius pushed thermodynamics forward untidily with the Second Law – to whit, there are always heat losses. Coase’s positive transaction costs are unavoidable rises in economic entropy. They are not the determinable and reducible costs of Williamson’s analysis. They are the unavoidable consequences of the real world’s uncertainties, as Knight suggested. Which means they must be matched and even exceeded by some economic value created elswhere in the economy.

    The creation of economic value, to say nothing of profit, remains a puzzle – but Coase pointed out time and again that mainstream economists had neither interest in nor explanation for it. Knight might have extended his intuition that absent his ‘radical uncertainty’, not only would there be no firms, there would be no value increase to overcome the economic entropy arising. Which raises the interesting speculation that if there can be no increase in value (i.e. that analytic framework cannot admit such increase, being focused on distribution) there can be no economic value in the first place. And where is economics without economic value? Without markets too, perhaps.

    Maybe heterodox economists can explain this?

  4. December 29, 2017 at 3:24 am

    After studying the discipline of economics and its evolution , I decided to transcend this level of analysis and move to more explanatory systems approaches , incorporating insights from many other relevant and often more scientific resaearch in my “Politics of the Solar Age “,Doubleday(1981,1986) now in 800 libraries worldwide. I summarized this synthesis in my “Mapping the Global Transition To the Solar Age: From Economism to Earth Systems Science,” Foreword by NASA Chief Scientist ,Dennis Bushnell, co-published by the Journal of the Chartered Accountants of England and Wales and Tomorrow’s Company, London, 2014.
    This is now a 56 page e-book and is free and downloadable from http://www.ethicalmarkets.com

    • Rob Reno
      December 29, 2017 at 5:52 am

      Sounds interesting, thanks.

  5. charlie
    December 29, 2017 at 4:50 pm

    from time to time I try to suggest EROEI is worth economist orthodox or heterodox attention. Energy (E) is not changeable as are money / economic variables. Ecology deals with life systems and makes significant scientifically reproducible contributions to human understanding of our existence. Where are the economists who actually know anything about ecology? Some knowledge of Odum, H T et al. should be required or ALL economists. Oh well ,, I never get a single response from this group of economists either.

  6. December 29, 2017 at 6:50 pm

    @ Charlie … which takes us back to the fundamental question – why do economists want to be considered ‘scientists’ – given the curious image economists have of the way real science is done. How many read Mach, Grünbaum, Popper, Polanyi, or Latour or even Kuhn and immerse themselves in the philosophy of science debates? What kind of scholarship is it to claim economics is or should be a science with so little understanding of ‘science’?

    The answer, of course, lies outside economics, in the sociological, political, or even religious activities in their surroundings (think evolution or global warming). The claim to be ‘scientific’ is ultimately a political claim to do with science as a privileged language of social persuasion.

    So it would be good if those teaching economics would deal first with ‘why and how does economics matter to real people?’ This related to Coase’s concerns and, in MHO, is nicely laid out in: https://smile.amazon.com/Scope-Method-Political-Economy-ebook/dp/B074CGKXD1/ref=sr_1_2?ie=UTF8&qid=1514569825&sr=8-2&keywords=scope+and+method
    Aside from being throughly readable and stressing the role of politics and art, humane aspects that reflected Keynes’s familiarity with the classics and Adam Smith’s ‘other book’, it was the book that Friedman trashed as he re-formulated mainstream economists’ thought.

    Which takes us to Aristotle, who had a thing or two to say about economics and its relevance in the real world and is still the best place to start understanding Western modes of thought.

    In the Nicomachean Ethics Aristotle focused on how people know – and is less concerned with what people know. This emphasis has become unfamiliar to most of us, especially those who have adopted positivist thinking uncritically.

    Today Aristotle’s ideas have been trashed, along with Keynes’s; if we want to get published we are permitted only one way of knowing – the positivist way – preferably backed up by statistical analyses of what is presumed known. Doubt, such as Descartes’s, is banished by ‘fiat’ (as Williamson might put it).

    Aristotle distinguished episteme – more or less recreated in positivism – from techne, phronesis, sophia – and most problematically – nous. All these embrace Aristotle’s notion of ‘art’ as distinct from episteme. That is characterized by what ‘cannot be otherwise’ – effectively denying human agency. Aristotle’s world was richer than this, embracing our human agency, our ability to ‘make’. His four other modes of knowing are all concerned with agency and how we ‘bring into being’.

    Given these non-positivistic modes of knowing are seldom mentioned by social scientists such as management academics and micro economists it is interesting to find working class people in England often use the term ‘nous’ in precisely the way Aristotle intended – the very opposite of ‘ivory tower’. These folk despise society’s non-producers, those who simply consume – whether they be royalty, gentry, or the professoriat.

    Those economists dogmatically claiming to work on generating episteme – many, like Mirowski, sensing their labors are driven by ‘physics envy’ – are retreating further and further into the ivory tower – where the lights are kept on and the refuse removed by the real world’s laborers.

    The program of ‘economics as a science’ is fine – free speech and so on – so long as what such economists say is ignored by those inhabiting the real world, especially by its policy-makers (and global bankers) enacting policies that generate even more inequity than arises unavoidably from the real economy’s ill-understood processes. While economists vary widely it seems those that hew to the science program are often blissfully unaware of the political implications of their pronouncements – which they would not be had they begun with Keynes’s book.

    As we look back on the century since JN Keynes, we must surely conclude that the economics profession has been moving in a progressively less useful way. Aristotle appreciated that economics mattered. The discipline’s progress since has been been substantial – tipping our English hats to Adam Smith especially – but, as with all modes of human thought, progress throws up new temptations as well as new possibilities.

    Economics as a positivist science is a siren song. Too many have failed to put wax in their ears.

    • Rob Reno
      December 29, 2017 at 7:41 pm

      If I could give you five stars I would; consider ten stars given ;-) Well said and on point.

    • Rob Reno
      December 29, 2017 at 7:45 pm

      “Too many have failed to put wax in their ears.” I’m getting old and waxy myself, which sometimes makes me a little hard of hearing. Any chance you meant to say, “take wax out of their ears” rather than “put wax in their ears”? Note, I am bit satire disabled so your meaning may have went over my bald head ;-)

      • December 29, 2017 at 8:16 pm

        It’s an allusion to Homer’s Odyssey – http://www.sparknotes.com/lit/odyssey/section7.rhtml
        a fun read!

      • Rob Reno
        December 29, 2017 at 11:24 pm

        You deserve a multiplier as I learned something today. It pays sometimes to put wax in one’s ears when tempted to fall for the sweet siren songs of “experts” less one fail to think for oneself 😄

      • December 29, 2017 at 9:53 pm

        OOPS, I forgot to say thank your for your stars!

    • Frank Salter
      December 30, 2017 at 9:56 am

      Scientists do not spend their time navel-gazing by examining the meta-physics of science. They get on with doing it.
      Is this the difference between real scientists and pseudo-scientists?

      • December 30, 2017 at 1:01 pm

        Not sure who is being tarred with navel-gazing here. It certainly sounds disapproving.

        Those who know little or nothing about the practice of science are often prisoners of naivetés like correspondence theory – basically the idea that things are what they seem to be, that empiricism is dealing with established facts, ‘getting on with it’.

        Science certainly proceeds in many ways. Often by engaging puzzles and anomalies, the realization that things are not what they seem to be, that there are effects without known causes.

        Unfortunately many non-scientists have been persuaded that science proceeds by ‘falsification’. It is difficult to understand the popularity of this idea, especially given Popper’s poor grasp of experimentation. Even if we allow that theory A seems to have been falsified in experiment X, how is this progress? Popper’s discussion of where theory A’ comes from (his theory of imagination – or navel-gazing) is not coherent.

        The distinction between ‘scientists’ and ‘pseudo-scientists’ presumes a robust theory that is something like a ‘truth criterion’. The history of doing science is full of instances that show the shared view of the community of those who call themselves scientists is normally taken as the truth criterion to be used.

        Unfortunately none have been found that are beyond being dismissed. Kuhn’s great contribution to the debate was to point out how ‘science’ actually proceeds – from a historical point of view rather than from a ‘progress towards the Truth’ point of view – by moving on from one truth-criterion (paradigm) to another that no longer has the navel-gazing appeal the previous one had.

      • December 30, 2017 at 2:14 pm

        “MOST scientists … get on with doing it”. Those whose most immediate concern is getting paid to, those who have been warned off metaphysics, and others among the c.70% with sensory personalities which focus their interest on things and measurements rather than processes. The greater – in Kuhn’s sense “revolutionary” – scientists tend to have intuitive personalities more tacitly aware of the presence or absence of systemic relationships, which have to be posited and explored before Kuhn’s “normal scientists can get round to confirming the existence of such relationships by measuring them. Note that I am not calling “normal” scientists ‘pseudo-scientists’. It takes all sorts to make the scientific world.

        The pseudo-scientists are, IMHO, those eager to sell untested intuitions as absolute truth rather than hypotheses in need of evaluation, and managers whose lack of understanding – of how their sub-conscious metaphysical assumptions and personality traits blinker their understanding of language and mathematics – leaves them arrogantly or defensively unwilling to consider evaluating hypotheses (including metaphysical assumptions) involving energetic causation and encoded communication within systematic topological relationships.

        That, sadly, seems to include almost all economists, and most “normal” scientists fail to grow beyond their fear of being thought not to know and hence of the as yet unknown – which is precisely what real scientists are supposed to be interested in and challenged by.

      • Rob Reno
        December 31, 2017 at 12:13 am

        Se le chemin est beau, nous ne devons pas demander où elle conduit.* (Anatole France)

        [B]ullshit results from the adoption of lame methods of justification, whether intentionally, blamelessly or as a result of self-deception…. If we conceal the lameness of our reasons from ourselves, we end up self-deceptively believing our own bullshit, or manipulated by the bullshit of others. (Kimbrough, Scott. On Letting It Slide. In Bullshit and Philosophy (editors Hardcastle, Gary L. and Reisch, George A.). Chicago: Open Court; 2006; pp. 16-17.)

        I am reminded of the saying that ignorance is bliss. Alfred Wegener was accused of practicing pseudo-science because he proposed a scientific theory which went against the accepted scientific dogma of the day.

        The role of philosophy is to make explicit those critical philosophical assumptions that are unconsciously, more or less, taken for granted, and which have been shown in the history of science throughout disparate fields at different times to have either been the cause of progress and/or stagnation. Scientists are first and foremost humans, and like all humans become emotionally attached to our cherished world-views and all the philosophical baggage such entails. As Waddington noted, “a scientist’s metaphysical beliefs are not mere epiphenomena, but have a definite and ascertainable influence on the work he produces” (Laubichler et al. 2007: 205, From Embryology to Evo-Devo: A History of Developmental Evolution.)

        Frank’s comment sneers at the idea that scientists be self-aware of their own metaphysical baggage. That is neither scientific nor wise, but foolishly naïve.

        * If the path be beautiful, let us not ask where it leads.

        Reference List

        1. Pigliucci, Massimo. Denying Evolution: Creationism, Scientism, and the Nature of Science. Massachusetts: Sinauer Associates; 2002; p. 246.
        Notes: Science as a Social Activity

        There is one issue about which creationists are completely right: Science is not above criticism. On the contrary, because of its influence on modern society, science and scientists need careful scrutiny as much as they deserve admiration and support. As Helen Longino eloquently puts it, science is a social process, and one that is far too important to be left in the hands of scientists alone. Perhaps the most dangerous fallacy a scientist can commit, often subconsciously, is to only do science and never think about it. Yet many scientists who I know are not aware of the broad discussion about how science is done (or shouldn’t be done) that permeates the literature in philosophy and sociology of science. Worse yet, when asked, they positively sneer at the idea of doing philosophy or sociology of science. (Pigliucci 2002: 247)

        This lack of understanding of philosophy and sociology of science by scientists is, of course, at the root of … scientism …, and therefore indirectly helps cause the creation-evolution problem. … [When] a scientist of the caliber of Noble Prize-winning physicist Steven Weinberg can even go so far as writing a book chapter entitled “Against Philosophy,” in which he argues that philosophy is not only useless, but positively harmful to the scientific enterprise. It is this sort of hubris that offends many creationists (not to mention philosophers), and they have every right to be offended. (Pigliucci 2002: 247)

        2. Weinert, Friedel. The Scientist as Philosopher: Philosophical Consequences of Great Scientific Discoveries. Berlin: Springer-Verlag; 2004; pp. 278-279.
        Notes: The reason for the everlasting interaction between science and philosophy transpires clearly. The human mind musters an admirable ability to think up equations for physical systems. But equations need to be interpreted in terms of physical models and mechanisms. Science requires conceptual understanding. This understanding employs fundamental philosophical notions.

        (….) The scientific enterprise comes with philosophical commitments, whether the scientist likes it or not. The scientist needs philosophical ideas, simply because amongst the experimental and mathematical tools in the toolbox of the scientist there are conceptual tools, like fundamental notions. The despairing scientist may ask: ‘Will we ever get an answer?’ The philosopher replies: ‘Not a definitive answer, but a few tentative answers.’ Recall that the philosopher (and the scientist qua philosopher) works with conceptual models. At any one time only a few of these models are in circulation. They cannot provide the definitive answers of which the scientist is fond. But this is typical of models even in the natural sciences.

      • Rob Reno
        December 31, 2017 at 1:09 am

        Most of the ideological influence from society that permeates science is a great deal more subtle. It comes in the form of basic assumptions of which scientists themselves are usually not aware yet which have profound effect on the forms of explanation and which, in turn, serve to reinforce the social attitudes that gave rise to those assumptions in the first place. (Richard Lewontin, 1991, cited in Sapp 2003, 252)

  7. December 31, 2017 at 10:00 am

    There seems to be some misunderstandings here about the basics of science. Science and Technology studies (STS) developed beginning in the 1970’s to study the “production” or “manufacture” of science. Kuhn’s place in the history of STS is with others he was the first to emphasize the communal basis of the solidity of scientific knowledge along with the very human hands-on work needed to create it. Science is thus, says STS a socio-historical creation of current humans. There is no science, no area of science, no tool or method of science, no philosophy of science that is not a production of current humans. Unlike the history of science of the first half of the 20th century, STS says science reflects all the cultural and evolutionary history of Homo Sapiens. For example, science is not always true and rational. Sometimes it is untrue and irrational. For our discussion here the main difference between economists and, say, physicists are the subjects they choose to study. STS also asserts that science is not just for elites. It must be both accountable and available for use (and abuse) by all the “pubic.” This part of STS highlights the multiple prejudices (racial, gender, class, ideological, etc.) that are part of and influence scientists and their work. For STS science is one among many cultural artifacts and social institutions. In this institution scientists attempt to identify facts. Facts are what stands up and out after dozens or hundreds or thousands of observations using every tool/method the scientist can scrounge up. This is an evolutionary process. The emergence of the fact brings the scientist to a new world, a new revelation of the subject of study. But this is always a human understanding of the fact, of the worlds the facts reveal. Grounded in the community of science, which is grounded in the socio-cultural history of humans. This history provides both the psychological and philosophical assumptions from which scientists begin their search for facts. Think of science and human culture like an orchestra and conductor. Together they produce music, by gradually merging into one institution over time. The details of this are subtle and complex, and beyond our scope here. Suffice it to say, in line with all Homo Sapiens evolution (biological and cultural) science is social, collective, and practical. It seems economics satisfies one and two, but not three.

    But on occasion economists do meet these standards. In 2012, Congressional Republicans asked the Congressional Research Service (CSR) to prove that tax reductions at the top rate spur growth. “Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945” by Thomas L. Hungerford, Specialist in Public Finance is the report issued based on that request. The conclusion of the report,

    The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.

    However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced—lower top tax rates may be associated with greater income disparities.

    This refutes the last 40 years of Republican tax policy. Did it change that policy? The “Tax Cuts and Jobs Act of 2017” says not. Ideologues who are not economists are to blame I think for at least as much of the decline of professional economics as are economists.

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