Home > Uncategorized > The ideological function of economic theories and models

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 20th-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

  1. C-Rene Dominique
    March 3, 2021 at 6:22 pm

    I agree with with Andri, eventhough what he is saying is well known. I believe that economists should pay heed to what Nikola tesla (1856-19430) has said:
    “If you want to find the secret of the Universe. think in terms of energy, frequency or vibration”:

    The modern economy is almost everywhere self-similar and power law governs behavior
    Hence the modern market is a multifractal. The Hausdorff of everything in the Universe from the elements, solar systems, galaxies, clausters, and the visible Universe, etc. are non-integers as a consequence of the Virial Theorem, indicating the the Universe has a memory of its quantum origin.
    After supply and demand (eventhough the demand side is misspecified), I believe that economists would do well to focus on the vibration of the market system, reconstruct its strange attractor, and determine behavior before focussing on policies.

  2. Dominique
    March 3, 2021 at 6:28 pm

    I mean the Hausdorff dimension (see above).

  3. March 7, 2021 at 9:47 am

    I agree with Dominique. Back in the 1950’s I learned about Direct and Alternating Current power systems, and how the former followed from Faraday’s investigations into the battery powered electric circuits accidentally discovered in 1800, and electric lighting developed via competition between the UK’s Swann and the US’s Edison. I had never heard of Tesla until this century, when cars of that name were in the offing; nor that the first power network in New York City had been an Edison Direct Current one. From a recent BBC documentary it would seem Edison’s self-promotion was better than Tesla’s, even though Tesla’s Alternating Current system was in practice far superior and in theory made power distribution a special case in the spectrum of radio communication, with sunlight at the other end. The moral of the story in economics seems to be “Beware of self-promotors! Look at economics as a communication rather than a power system”.

    Dominique says this, which I suggest is worthy of further investigation: “power law governs behaviour”. We tend to think of power in terms of Newtonian applied forces, but in maths it means the number of dimensions. This on Dominique’s Hausdorff dimension:

    “In mathematics, Hausdorff dimension is a measure of roughness, or more specifically, fractal dimension, that was first introduced in 1918 by mathematician Felix Hausdorff. For instance, the Hausdorff dimension of a single point is zero, of a line segment is 1, of a square is 2, and of a cube is 3”. Wikipedia.

    In the accompanying flow diagrams, a point becomes a triangle, a single dimension (measure) uses an (external) inverted point to measure the first, and thereafter one is into the complexity of combinations, as in the behaviour of systems such as the brain involving both its four parts and the four ways of interacting with them, i.e. the 16 Myers-Briggs possibilities.

    Another point that needs making is that academic language like “automorphic functions” makes the reality sound a lot worse than it is. The Fourier frequency relations are really quite simple when seen graphically as the interaction between two similar waves, such that “the difference which makes a difference” is not their size but their relative timing.

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