Economic theory has been hollow for a long long time

The secret is getting out. Modern economic theory is a pseudo-science. So let me give you some recent discussions of what ought to be obvious to anyone living in an economy in which economists are advising governments. First this: The new astrology: By fetishising mathematical models, economists turned economics into a highly paid pseudoscience. From which:

The economist Paul Romer at New York University has recently begun calling attention to an issue he dubs ‘mathiness’ – first in the paper ‘Mathiness in the Theory of Economic Growth’ (2015) and then in a series of blog posts. Romer believes that macroeconomics, plagued by mathiness, is failing to progress as a true science should, and compares debates among economists to those between 16th-century advocates of heliocentrism and geocentrism. Mathematics, he acknowledges, can help economists to clarify their thinking and reasoning. But the ubiquity of mathematical theory in economics also has serious downsides: it creates a high barrier to entry for those who want to participate in the professional dialogue, and makes checking someone’s work excessively laborious. Worst of all, it imbues economic theory with unearned empirical authority. . . .

Romer is not the first to elaborate the mathiness critique. In 1886, an article in Science accused economics of misusing the language of the physical sciences to conceal ‘emptiness behind a breastwork of mathematical formulas’. More recently, Deirdre N McCloskey’s The Rhetoric of Economics (1998) and Robert H Nelson’s Economics as Religion (2001) both argued that mathematics in economic theory serves, in McCloskey’s words, primarily to deliver the message ‘Look at how very scientific I am.’ . . .

Romer believes that fellow economists know the truth about their discipline, but don’t want to admit it. ‘If you get people to lower their shield, they’ll tell you it’s a big game they’re playing,’ he told me. ‘They’ll say: “Paul, you may be right, but this makes us look really bad, and it’s going to make it hard for us to recruit young people.”’

There was then this in The Wall Street Journal a couple of days ago: The Great Economics Debate. Here is the bit before the paywall.

Friedrich Hayek and John Maynard Keynes worked at a time when the study of economics was concerned with society and its values. Richard Vedder reviews ‘Hayek vs Keynes’ by Thomas Hoerber. By Richard Vedder

Today economics is a fundamentally quantitative pursuit, dominated by abstract mathematics and complex modeling, largely removed from the realities of human interaction. But it was not always thus. Economic theory . . .

You can undoubtedly guess the rest. Meanwhile, here at RMIT, Imad Moosa, one of my professorial colleagues, has just had a book published with the quite direct title: Econometrics as a Con Art. Here is a summary of the book:

Imad Moosa challenges convention with this comprehensive and compelling critique of econometrics, condemning the common practices of misapplied statistical methods in both economics and finance.

After reviewing the Keynesian, Austrian and mainstream criticisms of econometrics, it is demonstrated that econometric models can be manipulated to produce any desired result. These hazardous analyses may then be relied upon to support flawed policy recommendations, ideological beliefs and private interests. Moosa proposes that the way forward should instead be to rely on clear thinking, intuition and common sense rather than to continue with the reliance upon econometrics. The mathematization of economics has limited the accessibility of and participation in economic discussion by converting the area into a complex ‘science’ when it should not be.

Economic theory has been hollow for a long long time, but good economics exists. Unfortunately you would have to go back near a hundred years to find a time when economic theory was consistently sound. Nor is it just the maths that has ruined theory but the diagrams as well. That, however, is for another day.

In the meantime, I have just sent out a final draft of an article I have written to a number of colleagues and friends with this note attached.

I have written that it is almost impossible for an economist raised on Keynesian models and presuppositions to understand how classical economists approached economic issues. I also say, which is a bit more provocative, that they understood the processes of an economy better than we do, which of course implies that I think I understand how an economy works better than most economists today. Which, to tell the truth, I do. This is the article in which I try to explain why I think that in less than 2000 words. It is therefore not long, and I also think not very hard to understand, but then I think that about everything I write on classical theory which turns out to be immensely difficult.

I will just bring this joke out of the paper since I think it’s clear what I’m saying, but perhaps it is a bit too enigmatic. In any case, I think this is also true if you see my meaning:

Grieve mentions that I must think of myself as the only one in step. The joke I actually see myself in the midst of is about the impossibility that there could be a twenty dollar bill on the ground because if there were someone would already have picked it up. But there are others [who understand Say’s Law and classical theory], with Bylund (2017) a particularly fine example.

And if you would like to look at Bylund’s article, you will find it here: Rick Perry — and His Critics — Still Don’t Understand Say’s Law.”

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