The ideological function of economic theories and models

from Andri Stahel

. . . economists seem to be undeterred by these new understandings brought to physics or even by the blow brought to Newton’s mechanics by 20^th-century quantum physics and Einstein’s relativity. They continue to stick to classical mechanics as if nothing had changed in the way physician understand the physical world. Nor are they bothered by the way other social and political sciences came to understand the social world; or how in neurosciences and psychology, the understanding of the working of the human brain is undoubtedly far-removed from the assumption of “rational behaviour” economists like to base their models on. As have neoclassic economists never seriously asked themselves whether the mathematical equations resulting from leaving aside all potential friction and nuisances while establishing models of the economic reality bear any meaning describing actual reality and real-world events.

Physicists know that to calculate the time it takes a feather to fall from the heights of the Pisa tower to the ground, air friction has to be taken into account. Furthermore, they know that, in the presence of changing wind patterns, it becomes impossible to predict with a minimum of accuracy the time it will take and the location this feather may touch it. Nevertheless, a reasonably accurate prediction could be made for a billiard ball being thrown from the high of the tower, although ignoring these factors. Thus, for predicting the movement of billiard balls or cosmic bodies moving in empty spaces, external friction can be left out of the equations, and they may still hold reasonably accurate predictions. In some cases, some variables, like atmospheric conditions and pressure, assuming them to be homogeneous, may be included to get better accuracy by calculating the trajectory of a cannon-ball. Notwithstanding, physicians would not dare to consider these functions valid for calculating the trajectory of real feathers in the real-world. Indeed, already for a precise Global Positioning System (GPS) based on differently orbiting satellites, Einstein’s and not Newton’s equations have to be considered. However, are economists not simply sticking to their reductionist practice despite growing complexity and speed of change? Merely ignoring crucial factors in their models and equations; even in times of fast and strong political, technological, social and environmental change?

Indeed, how can we expect any kind of predictive accuracy from a model of the economic reality in which political, cultural, technological and social factors and changes have deliberately being left out of the model? Of course, we cannot. Nevertheless, it is, paradoxically this known incapacity which economists all too frequently and eagerly use to precisely shield their theories and models from any attempt in falsification. Each time observed real-life events contradict the prediction of a model, theories and models use to be rescued by arguing that it is due to the external factors which have been left outside the model that the deviation occurred. Thereby, in a strange, if not perverse reversal of scientific logic, in economics it goes the other way around: once the model is based on the assumption of non-political interference, free-markets, rational behaviour, among others; and, furthermore, it predicts a general economic equilibrium and full-employment; the deviation is seen as a proof that reality has to be changed and fixed in order to attain these desirable realities on whose assumptions the model is based. It is argued that once political interference is removed, free-market policies implemented, rational profit-maximising economic behaviour stimulated; full-employment, general economic equilibrium and efficiency will be attained… Thus, instead of following Popper’s idealised normative behaviour of abandoning a theory once its predictions fail to be observed, economists use their theories as ideological weapons to promote and defend given economic policies. Not creating theory to conform to reality, but the “messy reality” to conform to the theoretical models instead.

Furthermore, it is this ideological function, the way specific theories and models serve given political agendas, as well as economic interests; the way certain theories are “palatable to vested interests and appealing to the man-in-the-street” – or at least the interest of those most benefiting from the existing economic structures and practices – that may explain why modern economic science, although far-removed from being able to give an adequate representation of reality or make even approximatively accurate prediction about the future, is still considered to be a science. Nobel prizes being awarded to cleverly and sophisticatedly designed models and imaginary worlds; professional economists advising and recommending public policies; while, paraphrasing John Lennon, “the reality is what happens while economists are busy thinking about something else”.

http://www.paecon.net/PAEReview/issue94/Stahel94.pdf