I've just read the stunning Economyths by David Orrell which points out something startling. Classical/neo-classical economics presents itself as a science - but actually it's woo. (Orrell doesn't say this literally, it's my interpretation.) Economics is a pretend science. Just like those who grab hold of the terms of quantum physics without understanding them, the founders of economics took the tools of science, but ignored scientific method. They wanted their ideology to be scientific, and assumed that by taking on the look of classical physics - laws, equilibria and such - that it was enough to make them scientific. But it wasn't.
It's worried me a long time that you can have such totally opposing views as Friedman and Keynes type approaches in what is supposedly a science. But now, thanks to Orrell's book, I can see this is simply because woo doesn't have to have a logical structure.
In the end, the scientific method is quite clear. Having formulated your hypothesis, you test it against experiment and/or observation. If the data contradicts the hypothesis, you have to either modify the hypothesis or discard it. Yet time after time, economics has failed to match reality. Still today economics students are taught about supply and demand curves. About a market that is stable, rational and efficient. It bears no relation to the real world.
I'm not saying you can't simplify. Most models are simplified compared to reality. But they still have to match observation. Instead, traditional economics has buried its head in the sand and pretended bubbles and spikes don't exist. They've pretended (sob) that traders always act rationally, rather than as an emotional herd of sheep. Most economic models don't even accept the existence of banks. It's pathetic.
Of course there are plenty of economists that go against the grain, who argue for taking a dynamic systems approach and for including an understanding of human behaviour in economics. But the fact remains that economics students are still taught the same baloney. It's as if we taught first year physics students the elemental theory of earth, air, fire and water. And that traditional economics approach is still very strong in banks and politics. Even after all that has happened. It's time for a change, and I really would recommend that every banker and politician be forced to read David Orrell's book.
Hi Brian
ReplyDeleteI definitely agree with the message of this book, and will have to read it. I’m glad these points are being made.
Another book which covers similar ground in parts is Robert Skidelsky’s Keynes: The Return of the Master, published last year. It explains how undergraduates these days spend so much time learning the complicated maths that go with the models of classical economics, that they have no time left to question whether what they’re learning is actually useful/the best approach.
It also shows how the number of worldwide recessions has massively increased since the ‘Efficient Market Hypothesis’ and neoliberalism, based on these classical models, started to dominate in the 1980s. Between 1945 and the 1970s, we just didn’t have the same problems.
Matt
Thanks Matt, interesting.
ReplyDeleteA science is just something which is studied.
ReplyDeleteThere is good science in "economics" - the real issue is "applied economic theory".
For example, Adam Smith talks about "an invisible hand", that made it possible for British industrialists to sell manufactured goods to American colonialists at the lowest possible price. But the "invisible hand" that drove the "engine of trade" was the one that held the whip over the Jamaican slave's back.
Historically, trade not based on slavery was usually limited to luxury goods - Greek honey for Israelite pitch for Phoenician purple dye. But Fascist Rome was fed on imported Egyptian wheat, and Imperial Britain was clothed in imported American cotton. Unsustainable in the long term - that is why Britain outlawed slavery BEFORE the US did.
Adam Smith's basic theory of "supply and demand" is sound. It is the "application" of that theory that is so "Emperor's New Clothes".
I think I would take issue with the subject that 'a science is just something which is studied.'
ReplyDeleteThere is no doubt that the original scientia just meant knowledge (which is arguably rather different from something that is studied), but in modern usage, you would presumably term English literature (for example) a science, which I'm not sure many in an English faculty would agree with (unless they want to avoid a cut in funding).