Neoclassical economics is without scholarly integrity. It does not belong in universities. It certainly should not be the dominant source of policy advice to governments.
Most scholarly disciplines, be they history, physics or ecology, have a conception of appropriate standards by which the evidential basis of an argument is presented and the reasoning leading to conclusions is explained. The goal is to shed light on the workings of the world, and a criterion for a successful study is that observations or records are consistent with the study’s conclusions.
Neoclassical economics, the strand of economics that has dominated world policies for several decades, fails these criteria. Its conclusions are regularly contradicted by developments in the real world. A dominant criterion for a successful study is that its logic is internally consistent; it thus confuses mathematics with the science it claims to be. It is variously claimed that assumptions on which a theory is based don’t matter, or that the better the theory the more unrealistic the assumptions, or that all theories are wrong. It imagines its theories are useful approximations to reality, and fails to appreciate that more reasonable assumptions can lead to radically different conclusions, so its theories may be deeply misleading.
[This is a more technical post, addressed to those interested in re-making the field of economics into something relevant, informed and capable of self-improvement.]
Debates about whether economics is or can ever be a science appear frequently on the Real World Economics blog, such as making economics a relevant science. Perhaps more in the subsequent comments than in the articles themselves, there are some recurring confusions and misconceptions, such as whether mathematics should be involved, about what the role of mathematics might be, about “prediction” as a necessary part of a science, about the role of assumptions and approximations, about whether any study involving people can ever be a science and, fundamentally, about what science really is.
I have commented in passing on this topic before, for example here, but in this comment I’d like to offer a more focussed discussion.
I have decided it’s past time to stop humouring climate skepticism and denial by allowing their “debate” on my posts. Why? Because tolerating it only helps to perpetuate the myth that climate scientists are divided and there’s a lot of doubt about the cause of global warming. It feeds the trolls.
The AGW menu and submenu lists items related to global warming that are archived here, so I don’t have to keep repeating the same arguments to sceptics who keep repeating the same old arguments. I just updated the AGW tag with the following.
[I’ve wanted to write about this for a long time, and the September issue of Scientific American finally provoked me. They talk about exceeding our evolutionary limits, living beyond 1oo, manipulating ourselves to be smarter (but no mention of wiser), and so on. So, another long essay.]
The term appropriate technology was popularised after E. F. Schumacher’s pivotal work Small is Beautiful. Schumacher argued against the modern economic pathology of endless physical growth, which of course cannot continue on our finite planet. He argued further that some technology only promotes endless growth, or it distracts us from more important things in life, and is therefore not beneficial. Technology that supports a fulfilling life and is compatible with a steady-state or slowly shrinking physical economy he called appropriate technology.
As for technology, so for science. A common assumption by scientists is that if a challenge is there then it is fair game to address it. In fact it is commonly presumed that freedom of enquiry, a central ingredient of an open democratic society, justifies such an attitude. However we need to recognise that such freedom comes with responsibility. This seems to be recognised regarding human cloning, for example, where strong legal and social restrictions have commonly been imposed.
Whether economics can be a science, and whether mathematics has a place in economics or economic science, seem to be vexed questions among heterodox economists. Having been a natural scientist for over four decades and thought hard about the nature of science and the place of mathematical models within it, I would hope to offer some clarification on these issues. After discussion, this post will be put in a permanent page.
There has been a lively discussion of Eight Elementary Errors of Economics at Real World Economics Review Blog. Here are a couple of exchanges that raise good points. (If these commenters respond further I will post them here, in fairness to them.) There has also been discussion of history, science, love and other topics. You might like to have a look.
[This is my most recent attempt to encapsulate the deep flaws in mainstream economics, and the sensible alternative struggling for recognition. Posted 7 June at Real World Economics Review blog, with a lively discussion following.]
The Global Financial Crisis, the extreme inequality of wealth world-wide, the materialism of modern life and the dire state of the planet are not accidents, nor just unavoidable consequences of the nature of things. They are the result of the modern practice of economics, which makes elementary errors of accounting, evidence, perception and theory.
The Nature of the Beast: how economists mistook wild horses for a rocking chair.
Mainstream free-market economics fundamentally mis-identifies the nature of market economies. Its record is of retarded growth followed by disaster. It counts costs as positives instead of negatives. It is blind to how the present banking system destabilises the economy. It is relentlessly materialistic and adversarial. It ignores most of what we know about real people and the real world.
The result is pseudo-scientific gobbledygook, and the unstable, inequitable, undemocratic, destructive and unsustainable mess known as the global economy.
The Nature of the Beast draws out the real nature of market economies using modern knowledge of systems, human behaviour, ecology, biology and physics. It points the way to stable, prosperous, democratic market economies that can support people, societies and the living world into the indefinite future.
Many people, including many heterodox economists, understand that the neoclassical equilibrium approach to understanding economies is futile and misleading , because modern economies are far from equilibrium. The neoclassical prediction of equilibrium or near equilibrium requires a string of patently absurd assumptions. However the development of better theories seems to be significantly hindered by a feeling that any superseding theory has to be thoroughly quantified before it can be useful, and a feeling that the neoclassical theory has set a benchmark for sophisticated mathematics that must be matched before another theory can be respectable. Less fundamentally there seems to be a common perception that empirical insights can only be gained through elaborate statistical treatments of observations.
Here I offer some discussion from my experience as a natural scientist, and some examples regarding the Global Financial Crisis, to counter these hindrances. Continue reading →