Economics as ideology

from Lars Syll

Study proves trickle-down didn't trickle | PoliticsNCTax cuts for the wealthy were supposed to stimulate growth and make everyone better off. There was dispute about this within the profession, but there were also many economists who provided intellectual support for the claim that tax cuts will create growth and widespread prosperity. The evidence from the Bush and Reagan tax cuts does not support this claim, but it is still made by some economists and this gives those who are serving wealthy interests or who want to force government to shrink by starving it of revenue the cover they need for their arguments …

We do need more humility about what we do and do not know, more willingness to change our minds when the evidence disagrees with our favorite theoretical model, and the willingness to acknowledge disagreement within the profession. But most of all we need to take a strong stand against those inside and outside the profession who misuse economic theory and empirical results for political and ideological purposes.

Mark Thoma

You never hear anyone at our seminars telling the lecturer that the assumptions on which his models are built are only made for ideological reasons. But that does not necessarily mean — whether on the surface or not — that academic analysis is judged on its merits. What it means is that we have a catechism that no one dares to question. And that catechism has become hegemonic for particular reasons, one of which may very well be of an ideological nature. When the neoclassical theory was developed in the late 19th century one of the reasons was that some economists — e.g. Böhm-Bawerk — thought that the Ricardian (labour value) tradition had become too radical and could be used as a dangerous weapon in the class struggle. Marginalism was explicitly seen as a way to counter that.

Even though some economists seem to think that facts are bound to win in the end, yours truly begs to differ.

Take the rational expectations assumption. Rational expectations in the mainstream economists’ world imply that relevant distributions have to be time-independent. This amounts to assuming that an economy is like a closed system with known stochastic probability distributions for all different events. In reality, it is straining one’s beliefs to try to represent economies as outcomes of stochastic processes. An existing economy is a single realization tout court, and hardly conceivable as one realisation out of an ensemble of economy-worlds since an economy can hardly be conceived as being completely replicated over time. It is — to say the least — very difficult to see any similarity between these modelling assumptions and the expectations of real persons. In the world of the rational expectations hypothesis, we are never disappointed in any other way than as when we lose at the roulette wheels. But real life is not an urn or a roulette wheel. And that’s also the reason why allowing for cases where agents make ‘predictable errors’ in DSGE models doesn’t take us any closer to a relevant and realist depiction of actual economic decisions and behaviours.

‘Rigorous’ and ‘precise’ DSGE models cannot be considered anything else than unsubstantiated conjectures as long as they aren’t supported by evidence from outside the theory or model. To my knowledge no in any way decisive empirical evidence has been presented.

So, given this lack of empirical evidence, why do mainstream economists still stick to using these kinds of theories and models building on blatantly ridiculous assumptions? Well, one reason, I would argue, is of an ideological nature. Those models and the assumptions they build on standardly have a neoliberal or market-friendly bias. I guess that is also one of the — ideological — reasons those models and theories are so dear to many Chicago economists and ‘New Keynesian’ macroeconomists …

  1. metaecongary
    August 30, 2022 at 6:08 pm

    The inherent limitation built into both mainstream Microeconomics and Macroeconomics is the presumption (in Single Interest Theory) that a person only maximizes, and is encouraged to do so, self-interest (ego-driven). And, by bringing economic policy on-line to encourage same, both Micro and Macro become political (right-wing) ideologies. Science is ignored, in that science demonstrates (and Human experience corroborates) that a person has a dual interest represented in a joint self & other-interest (in Dual Interest Theory in Metaeconomics). Seeking the best balance is what it means to maximize own-interest. Own-interest cannot be opposed to ethical reflection, the latter empathy-based and working to temper the excesses of self-interest-only. Tempering said excesses involves ethics, so both Micro and Macro are both unscientific & unethical. Human are best served by facts (science) & ethics, as Dual Interest Theory in Metaeconomics makes clear, a front on which both Micro and Macro fail.
    So, commenting on a couple of points raised in the Syll post:
    1. Tax policy based on self-interest only framing, being opposed to ethical reflection, is doomed to failure. It fails to see the key role of taxes in funding that which is in the shared (with the other)-interest. The other-interest is also primarily an empathy-based interest, so empathy with the other (as in seeking optimal inequality rather than facilitating extreme inequality) works to temper the (ego-based) self-interest in paying no taxes. Empathy-based ethics are at play: Ethics are key.
    2. Rational expectations? Well, such a notion makes no sense without seeing the role of the shared other-interest in giving context to what is rational. In fact, rationality requires achieving balance in the joint and nonseparable self & other (shared, yet internalized within the own-self)-interest.
    And, overall, the biggest failure of mainstream economics is to not see the key role of Government, which is tasked with reflecting the representing the shared other-interest, that which the other can go along with, affecting both tax policy and expectations. Because the economic problem is all about finding good balance in the ego & empathy, self & other-interest, person & community, it is, writ large, about finding good balance in the joint and nonseparable Market & Government. One cannot minimize Government without minimizing the Market, too.
    Dual Interest Theory (DIT) is already based in science, and can be further shored-up, as it is built on a solid empirical foundation, so, using DIT causes Metaeconomics to be a science not an ideology. And, it works, because it is Human nature to have both tendencies to self-interest and to other (shared with others, ethics based, that which the other can go along with)-interest. There is no defensible empirical base under the Single Interest Theory of Micro and Macroeconomics because the lack of room in the evolved nature of Humans and the Communities in which we live to maximize self-interest only: And, while doing so is primal, it cannot be sustained, and, cannot lead to peace (minimal political chaos), happiness, and, certainly cannot produce economic efficiency.

    • metaecongary
      September 2, 2022 at 1:09 am

      Mainstream economics is an ideology of self-interest, favoring an ego-driven Econ. Returning economics to a science requires recognizing the dual nature (empirically confirmed) of Human nature, with real people needing homeostatic balance in ego & empathy to live in peace, be happy, and, writ large, contribute to an economically efficient economy. A scientific-economics sees the need to balance the joint ego-based self-interest and the empathy (and, thus, ethics)-based shared (with others)-interest. It is said balance that serves the own-interest. Try Metaeconomics, a science-based economics, you might like it (see the Blog for applications that might pique intrigue with it at https://www.metaeconomics.info/blog ).

  2. September 1, 2022 at 8:01 pm

    Reblogged this on Calculus of Decay .

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