Home > Uncategorized > Yanis Varoufakis on the irrelevance of mainstream economics

Yanis Varoufakis on the irrelevance of mainstream economics

from Lars Syll

Varoufakis is undoubtedly right — there is indeed something about the way mainstream economists construct their models that obviously doesn’t sit right.

One might have hoped that humbled by the manifest failure of its theoretical pretences during the latest economic-financial crises, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics would give way to methodological pluralism based on ontological considerations rather than formalistic tractability. But — empirical evidence still only plays a minor role in mainstream economic theory, where models largely function as a substitute for empirical evidence.

If macroeconomic models — no matter of what ilk — build on microfoundational assumptions of representative actors, rational expectations, market clearing, and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Incompatibility between actual behaviour and the behaviour in macroeconomic models building on representative actors and rational expectations microfoundations is not a symptom of ‘irrationality.’ It rather shows the futility of trying to represent real-world target systems with models flagrantly at odds with reality.

A gadget is just a gadget — no matter how many brilliantly silly mathematical models you come up with, they do not help us work with the fundamental issues of modern economies. The mainstream economics project is — mostly because of its irrelevance — seriously harmful to most people, but also seriously harmless for those who benefit from the present status quo of our societies.

  1. deshoebox
    August 8, 2022 at 8:11 pm

    When I first studied economocs in the 1980s I was surprised to see that some of its basic assusmptions seemed shaky. As I continued my studies, I came to see that all of the fundamental assumptions of economics are actually false. Amazing! But it was only decades later, earlier this year, in fact, that it finally dawned on me that economics as a system of thought and as currently taught and practised was deliberately created to ensure there would be a plentiful professional class of people – “economists” – who will not understand certain things and who will never ask certain kinds of questions. This realization was beyond amazing and I am trying to think of another word to describe it.

  2. August 9, 2022 at 12:01 am

    This is a very interesting realization, and one that I have also arrived at via a similar course of intellectual development. The problem of interest is to document this: WHO deliberately created this and HOW did they do this and implement it? Some of the elements of this systematic construction of a web of lies are given in my post on Economic theory as ideology

    Economic Theory as Ideology

    and Ideological Macroeconomics and Increasing Inequality. https://weapedagogy.wordpress.com/2017/01/11/ideological-macroeconomics-increasing-inequality/

  3. August 9, 2022 at 8:26 am

    We are looking for primary cause. What are you looking for?

    WEDNESDAY, 30 MAY 2012
    In the economic sense: Any thought that says that Land is Capital.

    In whatever shape or form that comes. By rich or poor thinkers, from both the left and right of politics. Any economic investigation using only Labour and Capital as factors in the production and distribution of wealth. Excluding Land as a primary factor.

  4. August 9, 2022 at 8:27 am



    “Remember that we sometimes demand explanations for the sake not of their content, but of their form. Our requirement is an architectural one; the explanation a kind of sham corbel that supports nothing.”
    ― Ludwig Wittgenstein, Philosophical Investigations

  5. Julian Hinton
    August 9, 2022 at 12:59 pm

    “Incompatibility between actual behaviour and the behaviour in macroeconomic models building on representative actors and rational expectations microfoundations is not a symptom of ‘irrationality.’ It rather shows the futility of trying to represent real-world target systems with models flagrantly at odds with reality.”
    No, not a symptom of rationality but rather an effective diversionary tactic that has evolved to serve the purpose of diverting attention away from the collective and effective building of realistic explanations of economic behaviour and outcomes. These aren’t futile attempts. They are purposeful and effective intellectual conservatism.

  6. August 9, 2022 at 8:34 pm

    Thanks to Y’all – Yanis, Lars, DSB, Asad, Roger, and Julian have been on the right track for quite awhile, clearly. Yet, consider the actual, historic answer to the critical questions. A: The ‘Dutch’ prototype of the central banking pyramid game inspired the first official, Royal central bank scam. It ruined the Swedish economy faster than the Netherlanders could get their own official CB scam going. Of course, the English royals were hot to get the BOE game going with the Rothschild clan.
    Now, who keeps the game up & running (other than kleptocratic prostitutes.gov)? Yes, corporate media shills are major players, but the real culprits – all the sleep-walking consumers (99%ers) who trust the Fed-buck Ponzi scam – keep the crooked casino capitalism game going. Why?
    As the late, great Carl Sagan feared, too many of us are too easily bamboozled, and the worse and longer…the less we want to know about it. In other words, everyone who blindly keeps using debt-based play-money is an accessory during the fact of the biggest, longest running financial scam in world history.

  7. Gerald Holtham
    August 13, 2022 at 7:14 pm

    Consider a common-sense observation like: when A happens B generally follows. An economics training encourages you to set up a model to explore on what conditions would A entail B and when might the association fail. This is not a wicked approach; indeed it should aid clarity of thought. Unfortunately in academic economics things have taken a different course. When it is shown that the proposition that A entails B requires multiple unlikely conditions to hold, these are noted and then ignored. That B follows A is retained as a generalization in spite of the logico-mathematical demonstration that is is a special case at best. Economic theory demonstrates conclusively that general equilibrium will never pertain in reality. Yet economics does not push on from there to explore the consequences of uncertainty and disequlibrium.
    Ideology plays a role as others have alleged but it is not the whole story. There is a professional tendency to remain in tractable worlds that can be taught to students rather than admitting our understanding of reality is severely partial.
    Lucas is an extreme case. He is one of a cadre of economists whose parents or grandparents escaped persecution in Eastern Europe to arrive in the USA, In their mind government is associated with pogroms and injustice, the USA with its relative freedom and prosperity for many (not all) owes its success to the dominance of market ideology. There are huge flaws in that view but Lucas, like Friedman before him will never be swayed. They don’t necessarily believe everything they say but they consider it justified in the service of preserving the USA from the contamination of European statist or communitarian ideas.

    • Meta Capitalism
      August 14, 2022 at 5:40 am

      Gerald, you are truly a brilliant. When I read comments like the one above, I come away knowing I have gained a valuable insight. You reveal an intellectual balance that I appreciate greatly. Thank you.

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