Why we should pay no attention to the macroeconomists behind that scientific curtain

Economist Peter Radford argues that much of modern macroeconomics is deliberately divorced from reality and does more harm than good in addressing current issues of political economy. For me, this evokes the Wizard of Oz.

There is an economist to defend any hair-brained policy proposal. Anything a politician cares to suggest can be given a well argued, and reasonable defense by a well respected and tenured professor from somewhere.

And when economists are hopelessly wrong? Are they fired? Are they pilloried and thrown out of their tenured positions to suffer the voluntary unemployment lines they condemn others to? Dean Baker has recently thrown a hissy fit over this. Of course not. Failed economists are a dime a dozen in our best schools. They are still teaching whatever they first thought. No amount of empirical data threatens their prestige. Why? Here’s the great scam: because economics is a self-contained, self-referential pursuit disconnected, very deliberately and carefully, from the dangers of having to be useful. It is thus immune from disproof. All that Popperian conjectures and refutations mumbo-jumbo is not applicable to economics. Economists have constructed their world so as not to have to be practical. Instead they are quasi-philosphers, quasi-mathemeticians, quasi-physicists, quasi-psychologists, and quasi-sociologists. By so being they can dodge between the bullets of practical questioning and never have to improve their art. Being quasi-everything is a great defense. You can confuse all the specialists and answer to no one. Except yourself.

These people should have the moral decency not to advance their theories as useful political policies, Radford says.

You’d think that, at the very least, they would stress test their advice. That they would check their theories against some evidence of their efficacy. That they would have the ethical decency to do no harm. Before, that is, and not after, they urge policies whose consequences, both intended and unintended, we all have to live through.

Radford says 19th Century economists began developing the cloak of pseudoscience (when science and respect for science were booming) to attempt to counter Marx's charge that they were merely mouthpieces for heartless and rapacious capitalism. 

No one doubts that the study of economies is a very serious and potentially socially valuable pursuit. Most of its great advances have been at times when there were big political and social upheavals and dangers that required insight into the way in which an economy works. A real one. Not a made up one. Early economists were intrigued and influenced by the processes and challenges of industrialization. Prior to that they had been embroiled in arguments over taxation and trade, both of which were contentious and relevant topics to the newly emerging nation states of the 1600 and 1700′s.

Then along came Marx, who thundered away at the disruptive issues of early capitalism and its satanic mills. His critique was sufficient to demand a right wing response, which came in the form of marginalism and Walrasian systemic thinking. Those advances were an attempt to make economics scientific and thus immune to the implied Marxist charge that the early theories were simply justifications for capitalist favoring policies.

That attempt to shift economics from being politically motivated towards being scientific, and thus cleansed of political taint, gathered momentum and led to even greater discord in the 1930′s and later. One part of economics wandered off into the supposed safety of the self referential community I mentioned above, content to manipulate ever more abstract models until it ended up with people like [Nobel laureate] Lucas openly calling his analysis utopian. The other channel was filled with people trying to engage a more “realistic” set of theories that recognized the vagaries and complexities of the world. But because those vagaries are intractable, or have been, to the tools economists inherited from their political economy origins, and because much of the subject’s key topics are still framed in 1800′s terminologies these realists have made less of an impression. They don’t appear as scientific. Their models are kluge-like and not filled with impressive mathematics. So the so-called scientists won. They invented “positive” economics, where theoretical discussions disdained empirical proof, and where math wizardry counted for more than connection with practical policy.

Which is why a recent poll of economics post-graduate students showed a belief that being good in math is more important to being a good economist, than knowing anything about the economy. Abstraction for abstraction’s sake is the watchword of modern mainstream economics.

Read the whole article in Real-World Economics Review Blog.

Comments

[BT]

Nonsense.

As Keynes pointed out, most of the ideas of the politicians come from some long-dead economist.

What is needed is for politicians, the media and economists themselves to have a better understanding of money! If everyone had the same understanding as Paul Krugman, Richard Koo, Dean Baker, James Galbraith or Randall Wray, things would be better.

Instead, we have Wall Streeters like John Paulson, Roger Altman, Pete Peterson and Richard Berner calling the shots with politicians who understand even less about money than Ron Paul.