‘Laws of economics’ — a fictional cage

22 October, 2017 at 10:15 | Posted in Economics | Comments Off on ‘Laws of economics’ — a fictional cage

Increasingly, our debates about — and our solutions to — pressing issues such as immigration, budgets and debt are framed in the context of all-powerful economic laws that dictate what is and is not possible. There’s just one slight problem: There are no laws of economics.

cage

Referencing “the laws of economics” as a way to refute arguments or criticize ideas has the patina of clarity and certainty. The reality is that referencing such laws is simply another way to justify beliefs and inclinations …

Liberating ourselves from the fictional cage of these laws will not suddenly reveal hidden answers. But it will allow for more pragmatic examination of what is working and what is failing and why. Economic theories are guides, ones that have substantial utility. But once elevated to the realm of laws, they fall short and do us no good.

Zachary Karabell

Mainstream economics is usually considered to be very ‘rigorous’ and ‘precise.’ And yes, indeed, it’s certainly full of ‘rigorous’ and ‘precise’ statements like “the state of the economy will remain the same as long as it doesn’t change.” Although true, that is, however — as most other analytical statements — neither particularly interesting nor informative.

As noticed by Karabell there’s still a lot of talk about ‘economic laws.’ The crux of these laws that allegedly do exist in economics, is that they only hold ceteris paribus. That fundamentally means that they only hold when the right conditions are at hand for giving rise to them. Unfortunately, from an empirical point of view, those conditions are only at hand in artificially closed nomological models purposely designed to give rise to the kind of regular associations that economists want to explain. But, really, since these laws do not exist outside these ‘socio-economic machines,’ what’s the point in constructing thought experimental models showing these non-existent laws? When the almost endless list of narrow and specific assumptions necessary to allow the ‘rigorous’ deductions are known to be at odds with reality, what good do these models do?

Deducing laws in theoretical models is of no avail. Formalistic deductive “Glasperlenspiel” can be very impressive and seductive. But in the realm of science, it ought to be considered of little or no value to simply make claims about models and lose sight of reality.

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