Why Economics?

In recent weeks I’ve been reading some books of critical economics, and one question that I’ve come up with is: “Why is there economics instead of nothing? What good is economics?”

This is not a rhetorical question. I’m sure that economics is good for something, but at this point I’m not sure specifically what it is. Mainstream economists seem unaware of any problem, and thus are incapable of advocating for their science; whereas critical economists and outside critics focus mostly on the problems, without saying a lot about the strengths.

I took a pretty tough semester of economics back in 1966 and didn’t like it much. Since then I’ve done quite a bit of reading about economics, but without developing an economist’s skills. I make no apology for this outside view – it’s like the natural historian’s or the ecologist’s view, observing the critter in its natural context without dissecting it. Outside knowledge is one of the forms of real knowledge.

The books I’ve read are mostly by fully-credentialed renegade economists, and sometimes by eminent mainstream economists reflecting philosophically at the ends of their careers. None of it is central to school economics as taught, which means that I know quite a few things about (but not “of”) economics that most professional economists don’t know.

In this piece I primarily will rely on Steve Keen's Debunking Economics (Zed, 2001). The rest of my references are in the first comment. (I especially recommend Cobb and Daley and Fullbrook. Collander, Holt, and Rosser represent a commendable attempt by well-established mainstream economists to respond to criticisms which most people in the biz simply ignore.)

The first category of problems is external – problems of avoidance. There are a lot of things that economics simply does not talk about: power, the family and childraising, the propertyless and unemployed, local community, and the physical environment (considered either as the place of origin of resources, or as the receptacle of pollution). All these things are assumed but not discussed by economics, often with disastrous results both normatively and descriptively. These are things which I’ve known about for a long time. (On my book list Cobb and Daley, Folbre, Williams and, to a degree, Sen talk about these issues.)

More interesting to me, since I could not have found these by myself, are the internal weaknesses of economics, which Steve Keen describes extremely well. It turns out that economics is not very successful even on its own terms.

The internal criticisms of economics fall roughly into two categories: bad mathematics (notably the laws of general equilibrium, which are claimed to be stable but are not), and empirical falsehood. Besides general equilibrium, the economic concepts which Keen says are erroneous include “the representative agent”, the downward-sloping demand curve, the upward-sloping supply curve, diminishing marginal productivity, the use of risk (as in gambling) as a proxy for uncertainty (what Rumsfeld calls the “unknown unknowns”), Say’s Law and its various revisions (which only work in a static economy with no accumulators of wealth, no growth, and no capitalists), and the neoclassical adaptations of Keynes.

These false concepts happen to be some of the basic principles taught to beginning economics students. Economics even comes equipped with a well-developed rationalization, originated by Milton Friedman, for grounding their science on falsehoods (which are claimed to be heuristic fictions), but in one of his best chapters (chapter 7) Keen shows that these rationalizations are mistaken.

A second defense of economics holds that these theoretical errors have no practical effect in the big picture, but Steve Keen also denies that – arguing, in particular, that the disaster of shock therapy in the old Soviet Union was in large part the result of the dogmatic application of erroneous economic principles (chief among which was the simple assumption that Russian society, politics, and history could simply be ignored, and that orthodox economic reforms would by themselves be sufficient to restore Russia’s economic health.)

Keen doesn’t underline the point as strongly as I would, but many of the fundamental errors of economics come from attempts to achieve predictivity, universality, and theoretical perfection, comparable to that of classical mechanics in physics, by bracketing out time and historicity. This problem in economics is part of a larger problem, and it’s been known since Poincare’s work on the three-body problem that, even in physics, this kind of timelessness and predictivity cannot always be found.

Take, for example, the theory for which Debreu won a Nobel Prize in 1983 (Keen, pp. 171-3). “In this model, there is only one market – if indeed there is a market at all – at which all commodities are exchanged, for all times from now until eternity. Everyone in this “market” makes all of their sales and purchases for all of time in one instant. Initially everything from now until eternity is known with certainty, and when uncertainty is introduced, it is swiftly made formally equivalent to certainty”.

Now, this is simply the economist’s version of the predictable clockwork universe wrongly alleged by Laplace. Even in physics this kind of model is now known to be wrong, not only in practice but even in principle, and everything we know tells us that it is even less possible in economics.

Relevant Readings

Colander, Holt, Rosser, eds., The Changing Face of Economics, Michigan, 2004.

Daly, Herman, and Cobb, John, For the Common Good, Beacon, 1989.

Folbre, Nancy, The Invisible Heart, New Press, 2001.

Fullbrook, Edward, ed., What’s Wrong with Economics, Anthem, 2004.

Keen, Steve, Debunking Economics, Zed, 2001.

Klamer, Arjo, ed., Conversations with Economists, Rowman and Allanheld, 1984.

Mirowski, Philip, Machine Dreams, Cambridge, 2002.

Mirowski, Philip,

Nelson, John, Megill, Allan, and McCloskey, Donald, The Rhetoric of the Human Sciences, Wisconsin, 1987.

Sen, Amartya, Rationality and Freedom, Harvard, 2002.

Williams, Joan, Unbending Gender, Oxford, 2000.

My earlier reading on economics: http://www.idiocentrism.com/econ.htm

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I am emersonj at gmail dot com.

Original materials copyright John J Emerson

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