Note: this is merely an excerpt taken from a rough draft of an essay that will appear in my forthcoming book, Visions of Reality. —Greg Nyquist
Is orthodox economic theory, as professed within academia, in a state
crisis? I would argue that it is much worse than that. The word crisis
is to mild to describe the actual state of affairs. If it were in
crisis, those within the profession would at least have some inkling of
the problem. But the majority of economists seem blithely oblivious to
the fact that the entire superstructure of orthodox economics is a
complete and utterly hopeless sham. While it would be an exaggeration
to compare modern economics with, say, alchemy or numerology, the
differences aren’t as great as the judicious critic might prefer
them to be.
In the late nineties, the British
economist Paul Ormerod published a book entitled The Death of Economics
which argued that “the orthodoxy of economics, trapped in an
idealised, mechanistic view of the world, is powerless to assist
… a world economy in crisis.” [3] Many professional
economists greeted the book with scorn. “Paul Ormerod must be a
bitter old man who regrets that he chose to specialize in forecasting
macroeconomics as a profession,” wrote
one amazon.com reviewer. “I find it hard to believe that Ormerod
is an economist due to the continuous oversight/misrepresentation in
his book.” This reviewer concludes by insisting that he cannot
recommend Ormerod’s book to laymen “because it is mostly
inaccurate.” Another reviewer complained
of “factual inaccuracies and petty point scoring” and
concluded: “This obituary is premature. Reports of the death of
economics have been great exaggerated.”
It would be naive to expect
economists, who have a vested interest in protecting the methodology
upon which their careers are based, to listen with patience and respect
to any attack directed against the foundations of their so-called
science. Ormerod himself noted a “clear correlation”
between the degree of hostility shown his book “and the amount of
taxpayers’ money which the economist concerned and his or her
institution receive to carry out conventional economic research.”
[vi] But it goes beyond mere pecuniary interest. For many academic
economists, it is an ego problem—a question of overweening pride.
They shrink from admitting that all those years of drudgery in graduate
school amount to virtually nothing. Their self-respect is at stake; and
where self-respect is at issue, rational argument becomes futile.
While I do not agree with everything
in Ormerod’s book, his contention that mainstream economic theory
is isolated from reality can hardly be denied. Economists claim that
their theories describe “how the world actually operates,”
but they see “no need to examine this empirically.” [20]
This alienation from reality manifests itself most shamelessly in the
occult art of economic forecasting. In my essay “Notes Toward a
Theory of the Business Cycle,” I mentioned the dismal record of
economic forecasting. Ormerod provides further evidence of the failure
of economic prognostication. “The record of economists in
understanding and forecasting the economy at the macro-level is not
especially impressive,” writes Ormerod. “Indeed,
uncharitable writers might be inclined to describe it as
appalling.” [93]
Ormerod goes on to detail some of
the huge failures in forecasting. The Japanese recession, he notes,
“by far the deepest since the war, was not predicted. Neither the
strength of the recovery in America in the second half of 1992 nor the
slow-down in the first half of 1993 was really anticipated. And in
Europe, neither the turmoil in the ERM nor the depth of the recession
in Germany was forseen by the models.” [104-105] In fact,
according to a survey by the Paris-based Organisation for Economic
Co-operation and Development, its own forecasting records and those of
the IMF were no better at predicting the future course of inflation and
output than was the assumption that these two economic variables would
remain unchanged. [105] Economic forecasting, whether done by
international economic organizations, governments, or universities
generally have an “appalling” record, testifies Ormerod,
himself a forecaster. Nor does it have anything to do with model
concerned or the ideological propensities of the modelers. “A
survey of the accuracy of British economic forecasts, for example,
carried out by the London Business School in 1933, concluded that
differences over time between the predictions from the various schools
of thought are very small,” attests Ormerod. “But the most
stricking fact to emerge from this study is that errors in forecasts
are much greater than differences between apparently contending schools
of thought. This is by no means a new discovery, but it represents
valuable confirmation of previous stuides over the years which have
come to the same conclusion.” [105]
In other words, economic forecasts
are close to worthless. If we wish to get an idea of where the economy
is likely to go, we might do better consulting an astrologer or psychic
than we would a professional economist. And although the value of
economics cannot rest solely on making forecasts and guessing the
future, the fact that the prognostications of economists are unlikely
to be a jot more accurate than those of soothsayers, spiritual mediums,
political cranks, and other such frauds does not speak well for the
discipline. Something is terribly wrong with most of what passes for
orthodox economics. Many of the basic theories of economics have little
if anything to do with reailty. They are mere abstract figments of an
overly pedantic imagination. The general theory of equlibrium, for
instance, derived from the theoretical cerebrations of the Swiss
economist Leon Walras, is, as Ormerod puts it, “a travesty of
reality.” Yet this theory, despite its glaring absurdities, has
become one of the economics profession’s holiest of holies.
Anyone who dares to question its importance and validity places himself
well beyond the pale and demonstrates, in the eyes of economic
fraternity, that he and his views can easily be dismissed out of hand.
This is not to imply that economists
don’t have reservations about the general theory of equlibirium.
Economists well know that, as a description of reality, the theory
leaves a great deal to be desired. But it is not in its descriptive
content that the theory finds its importance; nor is it in that sense
that I am attacking it. It is the methodological raison
d’être of the theory that I find most objectionable; yet it
is precisely this aspect of the equilibrium imposture that economists
regard as sacred.
The philosopher Thomas Kuhn, in his
famous book The Structure of Scientific Revolutions, argued that every
science requires what he called a paradigm, which he defined as a kind
of interpretive framework that guides the scientist in the development
of both the methods and the goals of his research. Those theories which
make up this interpretive framework Kuhn called
“paradigms.” Most so-called “normal science,”
argues Kuhn, involves little more than “an attempt to force
nature into the preformed and relatively inflexible box that the
paradigm supplies. No part of the aim of normal science,” Kuhn
continues, “is to call forth new sorts of phenomena; indeed those
that will not fit the box are often not seen at all.” [24,
italics added]
The general equilibrium theory, with
its utterly arrogant and intolerant commitment to quantification,
measurement, and its uncompromisingly mathematical methodology, amounts
to little more than a Kuhnian paradigm. Such paradigms, as Kuhn went to
great lengths to explain, are of course necessary before anything
remotely descriable as science can take place at all. The process of
knowing cannot begin in the absence of an interpretive framework or
paradigm. As Kant famously said, “Thoughts without content are
empty, perceptions without understanding are blind.” Theories are
needed to make sense of that vast congery of disparate perceptions
known as experience. “Our intellect does not draw its laws from
nature,” admonished Kant, “but imposes them on
nature.” Or rather, as Kuhn puts it, “Surveying the rich
experimental literature … makes one suspect that something like
a paradigm is prerequisite to perception itself. What man sees depends
both upon what his previous visual-conceptual experience has taught him
to see. In the absence of such training there can only be, in William
James’ phrase, ‘a bloomin’ buzzin’
confusion.’” [113]
Kant’s assumption that the
mind imposes laws on nature involves a bit of philosophical license, a
regretable lapse into idealism. Contrary to what idealists continually
assert, the mind does not impose anything onto reality. Only a very
conceited philosopher would make so bold an assertion. But the mind
does require theories or frameworks or paradigms (call them what you
will) to interpret experience, without which no laws, no understanding,
no comprehension of reality could ever take place. This poses a bit of
a problem to our intreprid methodologist. How can our theories, our
ideas, our laws describing reality possibly be true if such theories,
ideas, and laws must themselves be based on prior theories which are
not derived from reality? The philosopher Karl Popper proposed a
solution to this paradox as follows: “Our intellect does not draw
its laws from nature, but tries—with varying degrees of
success—to impose upon nature laws which it freely
invents.” [Conjectures and Refutations, 191] In other words, our
interpretive frameworks are not the rigid categories proposed by Kant
or the arbitrary paradigms of Kuhn, but are fluid and provisional
theoretical constructs which can be adjusted and improved over time. To
be sure, such adjustment or amendment is not easy. Kuhn is correct when
he stresses the inflexible nature of these interpretive paradigms. The
point I wish to stress in contrast to Kuhn is the indubitable fact that
not all paradigms are created equal, that some are clearly more
superior as interpretive frameworks than others. Kuhn seems to imply
that all paradigms are more or less equal, that truth, or at least the
truth of all interpretive frameworks, is altogether relative. This view
of the matter is clearly implied by his contention that there exists no
cumulative development in the maturity and refinement of scientific
paradigms—a very questionable assertion, to say the least. The
paradigms that dominate scientific interpretive and research today are
clearly more powerful and reliable as guides to reality than the
paradigms that dominated what passed for science in the Middle Ages.
If all that Kuhn was really trying
to say is that later interpretive schema are not necessarily better
than earlier ones and that progress in the development paradigms can
never be taken for granted, then there would be no reason to quibble.
Of course there are no guarantees in the development of knowledge. For
any number of reasons, a specific science or discipline may regress
over time. As a matter of historical fact, this has not happened in the
hard sciences, which have enjoyed substantial progress since the
seventeenth and eighteenth centuries. Progress in the social sciences,
on the other hand, has been less propitious. In terms of the
accumulation of fact, a great deal of work has been done. But in terms
of our understanding of those facts, the social sciences for many
decades now have been doing little else than spinning their cognitive
wheels. In terms of broad understanding, do we really know that much
more about society or politics or the economy than was known fifty
years ago? No, I don’t think so. Only in psychology has real
progress been made, and only then within the more rigorously scientific
and empirical side of the discipline. The rest of social science
remains largely moribund, with progress existing only within
overly-specialized (and hence largely trivial) domains. In terms of
general theory, no social scientist understands society a jot better
than Max Weber, Joseph Schumpeter or Vilfredo Pareto did.
How can this be? Why has progress
within the social sciences come to a sudden halt? I would venture to
guess that the reason has to do with the paradigms that dominate
research and scholarship within the social sciences. Social science is
afflicted with bad paradigms, with interpretive frameworks that fail to
correspond with reality. The most conspicous example of a bad paradigm
is the so-called Standard Social Science Model, which asserts, in the
words of antropologist Margaret Mead, “that human nature is
almost unbelievably malleable, responding accurately and contrasingly
to contrasting cultural conditions.” [Blank Slate, 25] Those who
interpretive social facts on the basis of this utterly untenable and
scandalously utopian interpretive framework will end up with a very
warped view of society.
[This concludes the excerpt of the essay "The Economics Profession: An Autopsy"]
