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Economics as religion

from Lars Syll

Contrary to the tenets of orthodox economists, contemporary research suggests that, rather than seeking always to maximise our personal gain, humans still remain reasonably altruistic and selfless. Nor is it clear that the endless accumulation of wealth always makes us happier. And when we do make decisions, especially those to do with matters of principle, we seem not to engage in the sort of rational “utility-maximizing” calculus that orthodox economic models take as a given. The truth is, in much of our daily life we don’t fit the model all that well.

rapleyFor decades, neoliberal evangelists replied to such objections by saying it was incumbent on us all to adapt to the model, which was held to be immutable – one recalls Bill Clinton’s depiction of neoliberal globalisation, for instance, as a “force of nature”. And yet, in the wake of the 2008 financial crisis and the consequent recession, there has been a turn against globalisation across much of the west …

It would be tempting for anyone who belongs to the “expert” class, and to the priesthood of economics, to dismiss such behaviour as a clash between faith and facts, in which the facts are bound to win in the end. In truth, the clash was between two rival faiths – in effect, two distinct moral tales. So enamoured had the so-called experts become with their scientific authority that they blinded themselves to the fact that their own narrative of scientific progress was embedded in a moral tale. It happened to be a narrative that had a happy ending for those who told it, for it perpetuated the story of their own relatively comfortable position as the reward of life in a meritocratic society that blessed people for their skills and flexibility. That narrative made no room for the losers of this order, whose resentments were derided as being a reflection of their boorish and retrograde character – which is to say, their fundamental vice. The best this moral tale could offer everyone else was incremental adaptation to an order whose caste system had become calcified. For an audience yearning for a happy ending, this was bound to be a tale of woe.

The failure of this grand narrative is not, however, a reason for students of economics to dispense with narratives altogether. Narratives will remain an inescapable part of the human sciences for the simple reason that they are inescapable for humans. It’s funny that so few economists get this, because businesses do.

Yes indeed, one would think it self-evident that “the facts are bound to win in the end.” But still, mainstream economists seem to be impressed by the ‘rigor’ they bring to macroeconomics with their totally unreal New-Classical-New-Keynesian DSGE models and their rational expectations and microfoundations!

It is difficult to see why.

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 realization 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 modeling assumptions and the expectations of real persons. In the world of the rational expectations hypothesis, we are never disappointed in any other way than 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 behaviors. If we really want to have anything of interest to say on real economies, financial crises, and the decisions and choices real people make we have to replace the rational expectations hypothesis with more relevant and realistic assumptions concerning economic agents and their expectations than childish roulette and urn analogies.

‘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.

No matter how precise and rigorous the analysis, and no matter how hard one tries to cast the argument in modern mathematical form, they do not push economic science forward one single millimeter if they do not stand the acid test of relevance to the target. No matter how clear, precise, rigorous, or certain the inferences delivered inside these models are, they do not say anything about real-world economies.

Proving things ‘rigorously’ in DSGE models is at most a starting point for doing an interesting and relevant economic analysis. Forgetting to supply export warrants to the real world makes the analysis an empty exercise in formalism without real scientific value.


Mainstream economists think there is a gain from the DSGE style of modeling in its capacity to offer some kind of structure around which to organize discussions. To me, that sounds more like religious theoretical-methodological dogma, where one paradigm rules in divine hegemony. That’s not progress. That’s the death of economics as a science.

  1. robert locke
    February 23, 2023 at 6:48 pm

    why look for universals. Economics is its history of specificities

    • Meta Capitalism
      February 23, 2023 at 11:00 pm

      By the end of the twentieth century, industrial capitalism—with a new global reach—had given way to financial capitalism. As the twenty-first century dawned, there was yet another transition underway: managerial capitalism [See Lock]. The Great Recession of 2007-2009 delivered a surprising destructive shock to large swaths of the population in western Europe and the United States. The angst and anger produced by that disruption have not abated. An abrupt loss of faith in the presumed beneficence of capitalism coincided with mounting despair—and political revolts—in the Middle East, parts of Latin America, and much of Africa. Immigrants became a threat to the comfortable social compact that had defined life since the end of World War II. The political class, regardless of party affiliation, was now bereft of ideas. (Bromley 2019, ix)
      The lack of comprehension is to be expected. Governing elites have been mentally nurtured on the defining fiction of modernism. The autonomous acquisitive individual was both rational and moral. The civic religion provided the necessary benediction. The destructive paralysis was abetted by a fiction within a fiction. The civic religion had managed to insist that the economy—the “market”—is a separate and quite delicate sphere of efficiency and rectitude. When held up against the self-dealing incoherence of politics, tampering with the economy can only inflict harm. Kenneth Arrow proved that social choices were inconclusive and contradictory. Only markets offered consistent clarity. Politicians must not interfere with the mystical workings of the economy. Private firms, praised as “job creators,” now comprise the sacred temples of modern capitalism. Government intervention in the market is dangerous and must be avoided. This protected realm is the fragile fount of future well-being. (Bromley 2019, x)
      Ironically, the autonomous individual is now unwittingly accomplice in his own economic marginalization. Dependent on the constellation of sanctified private firms for his precarious livelihood, he is unknowingly enlisted in the self-defeating cause of laissez faire. As politicians in western Europe and the United States quake and bluster before the alleged hordes of migrants seeking a better life, their constituents—nervous victims of the abundant caprice of managerial capitalism—exhibit behavior that further confounds the anomie and paralysis. (Bromley 2019, x)
      Possessive individualism both reigns and incapacitates. (Bromley 2019, x)

      Robert is correct. He knows a thing or two about economics is history. Naomi Oreskes and Erik M Conway (authors of Merchants of Doubt) have a new book out called The Big Myth: How American Business Taught Us to Loathe Government and Love the Free Market. Only through history can we understand how American culture has been shaped and corrupted by corporate propaganda. The pervasive propaganda of market fundamentalism is the consequence of a long-term historical propaganda campaign waged against the American people.

  2. Meta Capitalism
    March 17, 2023 at 4:43 pm

    The maintenance of a market economy involves a basic paradox. For centuries writers such as Adam Smith have argued that the workings of the market should be based on the individual pursuit of self-interest. Yet, if the pursuit of self-interest goes too far in society, the very existence of the market may itself be endangered. If “opportunistic” behavior encompasses too many forms of social action, as seen in recent years in Russia, a market economy may function very poorly.* There is a wide range of behavior—including dishonest and “corrupt” transactions within the institutional framework of the market, “rent seeking” in government policy and administration, and actions that destroy trust in the legal system—that have the potential for undermining the efficient workings of markets.

    Although few economists have so argued, it may be that finding a satisfactory resolution of the conflicting roles of self-interest in society—those areas where it can be encouraged and other areas where it must be actively discouraged—is more important to economic outcomes than the technical knowledge provided by economists. The formal idea of “social capital” traces back at least to James Coleman, who wrote in 1987 that “social norms constitute social capital.”1 In the 1990s there has been a growing literature in economics as well that emphasizes the importance of social capital in determining economic outcomes.2 Some leading social scientists now assert that the social form of capital may be equally or more important to economic performance as compared with physical and human forms of capital.3 A number of recent commentators have stated that a culture of “trust” is an essential element in maintaining a successful market (or other) economic system.4 One of the most respected economists of the past fifty years (and winner in 1972 of the Nobel Prize in economics), Kenneth Arrow, recently declared that economists in the future will routinely have to incorporate new forms of analysis of “social variables”—objects of analysis on which the traditional individualistic assumptions of ordinary economic thinking may shed little light.5? (Nelson 2014, 1-2) (Economics as Religion: From Samuelson to Chicago and Beyond” by Robert H. Nelson, http://a.co/807fXx0)

  3. Robert locke
    March 17, 2023 at 6:11 pm

    Alfred D Chndler Jt won the.Pulitizer Prize in History in 1977 for The Visble Hand of managerial elite to replace the invisible hand of the market pplace. A lot of work haa been done through his global networking at the Harvard Business School. I was involved for Germany in his 1990 book Scale and Scope Why has Chandler’s visiblle hand so little afffected econommiics?

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