Wren-Lewis insults medical science

23 Oct, 2018 at 17:48 | Posted in Economics | 5 Comments

In a discussion today on twitter one discussant was questioning if economics really could be considered a science, adding that in physics — contrary to economics — “there are no different school of thoughts on ‘Newton’s Laws of Motion’. To this Simon Wren-Lewis answered:

Exactly the same is true of mainstream economics. There are also groups who cannot live with the mainstream who form schools of thought, like MMT. But mainstream economics is a science, like medicine.

But that is simply not true as Steve Keen also notes in a reply to Wren-Lewis. Economics is in no way a science similar to physics, Newtonian mechanics or medicine!

‘Laws’ in economics only hold ceteris paribus. That fundamentally means that these laws/regularities 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/regularities do not exist outside these ‘socio-economic machines,’ what’s the point in constructing these non-existent laws/regularities? 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?

Take ‘The Law of Demand.’

Although it may (perhaps) be said that mainstream economics had succeeded in establishing The Law – when the price of a commodity falls, the demand for it will increase — for single individuals, it soon turned out, in the Sonnenschein-Mantel-Debreu theorem, that it wasn’t possible to extend The Law to apply on the market level, unless one made ridiculously unrealistic assumptions such as individuals all having homothetic preferences – which actually implies that all individuals have identical preferences.

This could only be conceivable if there was in essence only one actor – the (in)famous representative actor. So, yes, it was possible to generalize The Law of Demand – as long as we assumed that on the aggregate level there was only one commodity and one actor. What generalization! Does this sound reasonable? Of course not. This is pure nonsense!

How has mainstream​ economics reacted to this devastating​ finding? Basically by looking the other way, ignoring it and hoping that no one sees that the emperor is naked.

Modern mainstream textbooks try to describe and analyze complex and heterogeneous real economies with a single rational-expectations-robot-imitation-representative-agent. That is, with something that has absolutely nothing to do with reality. And – worse still – something that is not even amenable to the kind of general equilibrium analysis that they are thought to give a foundation for, since Hugo Sonnenschein (197), Rolf Mantel (1976) and Gerard Debreu (1974) unequivocally showed that there did not exist any condition by which assumptions on individuals would guarantee neither stability nor uniqueness of the equilibrium​ solution.

Of course one could say that it is too difficult on undergraduate levels to show why the procedure is right and to defer it to masters and doctoral courses. It could justifiably be reasoned that way – if what you teach your students is true​ if The Law of Demand is generalizable to the market level and the representative actor is a validmodelling​g abstraction! But in this case, it’s demonstrably known to be false, and therefore this is nothing but a case of scandalous intellectual dishonesty. It’s like telling your students that 2 + 2 = 5 and hope that they will never run into Peano’s axioms of arithmetics.

Or take ‘Revealed Preferences.’

timthumbThe experiment reported here was designed to reflect the fact that revealed preference theory is concerned with hypothetical choices rather than actual choices over time. In contrast to earlier experimental studies, the possibility that the different choices are made under different preference patterns can almost be ruled out. We find a considerable number of violations of the revealed preference axioms, which contradicts the neoclassical theory of the consumer maximising utility subject to a given budget constraint. We should therefore pay closer attention to the limits of this theory as a description of how people actually behave, i.e. as a positive theory of consumer behaviour. Recognising these limits, we economists should perhaps be a little more modest in our ‘imperialist ambitions’ of explaining non-market behaviour by economic principles.

Reinhard Sippel 

Reinhard Sippel’s classic experiment showed considerable violations of the revealed preference axioms and that from a descriptive point of view — as a theory of consumer behaviour — the revealed preference theory was of a very limited value.

Mainstream theory of consumer behaviour has been developed in great part as an attempt to justify the idea of a downward-sloping demand curve. What forerunners like e.g. Cournot (1838) and Cassel (1899) did was merely to assert this law of demand. The utility theorists tried to deduce it from axioms and postulates on individuals’ economic behaviour. Revealed preference theory — in the hands of Paul Samuelson and Hendrik Houthakker — tried to build a new theory and to put it in operational terms​ but ended up with just giving a theory logically equivalent to the old one. As such it also shares its shortcomings of being empirically non-falsifiable and of being based on unrestricted universal statements. The theory is nothing but an empty tautology.

These were just two examples exemplifying the non-science character of mainstream economics. ​Comparing​ economics to real sciences like physics or medicine is nothing but an insult!

5 Comments

  1. Lars criticises economic laws on the grounds that they only hold “all else equal”. Well the same goes for medicine and many other subjects. E.g. the fact of consuming more than the recommended amount of alcohol will not necessarily stop you living to the age of 100. But take a big enough sample of people and it becomes obvious that excess alcohol intake tends to lead to an early death, which in turn means it’s valid to say that “all else equal” excess alcohol shortens your life.

    • The downward-sloping demand curve is easily demonstrable on the basis of two utterly obvious assumptions: that in spending decisions more people wish to save money than to waste it; and that changes in all the innumerable other considerations determining people’s spending decisions are random, are uncorrelated, with regard to their preferences in wasting or saving money. So the “theory” is generally (though not necessarily always) correct in predicting the *direction* of the effect of a price change even though it is completely empty of any implication as to the quantitative degree of that effect.

    • How much did Prohibition shorten life? Until recently medical science defined homosexuality as deviant. Is that a medical law? What about drapetomania, the disease of wanting to escape slavery? Medical science has produced a lot of “laws” that have since been repealed. Cifee was bad for you in the 1970s, good for you today. Wine was good for you in moderation, then bad. Medical science is awfully fickle …

  2. Science is a field of study which aims to predict and control. Economics merely seeks to describe based on regressive analyses of what happened yesterday. Despite powerful models and tools, Economics, especially Macroeconomics not only fails to reliably predict, but it also fails regularly to control. The results are a long history of catastrophic consequences called recessions, depressions, and bear markets. Bulls and Bears are a zoological metaphor; not a predictive model.

    Science, as I have described it, cures disease, lights houses, puts satellites into space, predicts human behavior, enables safely navigating the globe, blowing large populated areas to smithereens with A-Bombs, and even predict the demise of life on our melting planet. Science can do these things at the group and individual levels. Economics has yet to predict even the Great Depression or the Great Recession – until after the fact, of course.

  3. Physics may use assumptions to come to a general thesis. But economics lays an entire framework of assumptions on which it build itself. No science does anything remotely similar.

    Economics is more akin to law than science, not only because it is heavily influenced by policy, but because it is entirely man made. Behavioral economics tried to make it more of a science only to find that the human factor is utter chaos, especially when one realizes that a few people can completely overturn a market or industry by themselves (wealth concentration effect).


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