Why economics is an impossible science

28 Jul, 2020 at 10:32 | Posted in Economics | 14 Comments

In a word, Economics is an Impossible Science because by its own definition the determining conditions of the economy are not economic: they are “exogenous.” Supposedly a science of things, it is by definition without substance, being rather a mode of behavior: the application of scarce means to alternative ends so as to achieve the greatest possible satisfaction—neither means, ends, nor satisfaction substantially specified.stun Exogenous, however, is the culture, all those meanings, values, institutions, and structures, from gender roles, race relations, food preferences, and ethnicities, to technical inventions, legal regulations, political parties, etc., etc. The effect is a never-ending series of new theoretical breakthroughs, each an Economics du jour worthy of a Nobel prize, consisting of the discovery that some relevant little bit of the culture has something to do with it. Only to be soon superseded and forgotten since the continuous development and transformation of the culture, hence of the economy, leaves the Science in its wake. An impossible Science, by its own premises.

Marshall Sahlins

The increasing mathematization of economics has made mainstream economists more or less obsessed with formal, deductive-axiomatic models. Confronted with the critique that they do not solve real problems, they often react as Saint-Exupéry’s Great Geographer, who, in response to the questions posed by The Little Prince, says that he is too occupied with his scientific work to be able to say anything about reality. Confronting economic theory’s lack of relevance and ability to tackle real problems, one retreats into the wonderful world of economic models. One goes into the “shack of tools” — as my old mentor Erik Dahmén used to say — and stays there. While the economic problems in the world around us steadily increase, one is rather happily playing along with the latest toys in the mathematical toolbox.

Modern mainstream economics is sure very rigorous — but if it’s rigorously wrong, who cares?

Instead of making formal logical argumentation based on deductive-axiomatic models the message, we are better served by economists who more than anything else try to contribute to solving real problems. The motto of John Maynard Keynes is as valid as ever:

It is better to be vaguely right than precisely wrong

14 Comments

  1. It is exactly what isn’t in neo-classical models that is the most interesting. But economics education never gets beyond that. It doesn’t even answer the most basic of questions. In fact it teaches you not to question. It does not explain why people have unlimited wants and are constrained by limited resources or even entertain the possibility that this might not even be true. Perhaps 6 months to about 18 months of economics education (which is basically an applied maths course) might be of some (limited) value. But I feel I spent years on something that lacked any form of real content or substance. You’re not going to find the answers to the world’s problems, because you are not asking the questions.

    • “But I feel I spent years on something that lacked any form of real content or substance” — I recognize the feeling!

      • And not a few others. The cleverer ones could see what it for what it was and got out early. I am not suggesting conspiracy or deliberate design, but I think neo-classical models and econometrics basically produce a distraction and type of intellectual laziness that makes us not look for the real answers for why and how things happen (and I think to understand the how, you need to know the why – and that calls for history). And so this suppresses the emancipation of thought and proper inquiry. I think this is partly the point Adorno was making re quantification and the preoccupation of coming up with numbers.

        • For a lot of people though, studying economics is a pragmatic decision – it gets secure and/or well-paid employment. And I can’t say I have not personally benefited.

          For people in the middle of their PHDs and in a quandary, I would say in most cases the right thing is still to finish it. You will find that doors open in ways you don’t expect, and you will be able to move into completely new fields and careers, with a completely different methodological mindset, easier than you might have thought. You might just have to accept that you will have to unlearn almost everything you have learned; but that’s not necessarily such a bad thing. For myself, even during the PHD, things started to take a new direction.

    • Nanikore,
      .
      “It does not explain why people have unlimited wants and are constrained by limited resources or even entertain the possibility that this might not even be true. ”
      .
      I think the first part of your statement is a long stretch, the second part I can agree with.
      .
      What are we talking about here? Microeconomics? Macroeconomics? Microeconomics qua macroeconomics?
      .
      I value the training I had in microeconomics. I value the training I had in Keynesian macroeconomics. In the time I was trained in economics it was during the late Keynesian era (thankfully, as far as I am concerned) just as Lucas was writing his seminal papers and before they had an impact on the discipline.
      .
      Sahlins is making the point that the factors that determine economic outcomes are exogenous. However, there is still an endogenous core which cannot be jettisoned. If this were not so, Keynes’ GT would have to be one of the babies thrown out with the bathwater. The focus of his treatise is endogenous factors. For me, as far as macroeconomics is concerned, Keynes is the touchstone. And as we have read many times in this blog, he was very diligent in making the point that models have limitations. I very much like the quote I recently found in an obscure book by Floyd McFarland:
      .
      “The model is a creature of his thought, but his thought never becomes a creature of his model.”
      .
      Microeconomics as microeconomics is a valuable intellectual pursuit as far as I am concerned.The kinds of economic decisions made at the micro level are largely different economic decisions than those made at the macro level. They are related but not the same. They work together but are driven by independent factors. And they can be easily reconciled, in my view.
      .
      I do not think this constant harping about economics is very productive. Yet, it is necessary, but let’s not through the baby out with the bathwater.
      .
      Without endogenous models how can economists ever hope to begin thinking about economic questions? It would be utterly impossible, frustrating and unproductive. A foundation and a beginning is necessary.

      • Henry

        “I think the first part of your statement is a long stretch, the second part I can agree with.”

        “unlimited wants, but limited resources” is of course the basic economic problem which lies at the foundation of the philosophy behind modern economics. From there it proceeds with indifference curves and budget lines, the stipulation of optimisation conditions, and so on, and so on.

        But both parts should be considered controversial. You might think that people can never be satisfied, implying greed, but really that needs to be properly established. And if it is true, why? Is it genetic? Is it a consequence of behaviour generated by a capitalist system? If so, who or what generates it in capitalism?

        A possible answer is in the anthropology and other literature. What has their fieldwork and research said about isolated communities in the Amazon or New Guinea largely untouched by capitalism? I think you will find that their findings will throw at least some doubt on that statement.

        But the important thing in education is that people are taught to question. This is especially true in the humanities and social sciences. The only way I think people can achieve this is through pluralism. There should be a schools of thought approach in economics at least. For example a Neo-Marxian view is that capitalism generates a large part of that behaviour.

        “In the time I was trained in economics it was during the late Keynesian era (thankfully, as far as I am concerned) just as Lucas was writing his seminal papers and before they had an impact on the discipline.”

        I greatly sympathise. I would argue that the GT is a crucial part of macro-economic education. I think though that macro went astray before Lucas and Sargent. I remember going to seminar by Skidelsky. He argued that Keynes was the only economist to challenge the orthodoxy, but ultimately even he failed. Really Lucas/Sargent was a natural consequence of unifying micro and macro-economics, and this could traced back to at least Samuelson. Further, even if it was established that micro-economic theory was an acceptable description of the real world, it is still questionable if it can be carried over to the macro/social level.

        Although it might give formalistic unity to the discipline, I don’t think it teaches people to question. Particularly with such a strong mainstream built around it. Rather people take far too much controversial material as given, and become far too closed to important knowledge to be found elsewhere. This is particularly true when it relates to unquantifiable, informal, but nevertheless verifiable, material. The preoccupation of economics becomes incorporating observed behaviour into the standard neo-classical model. But often these are at odds with the fundamental philosophy that underpins classical and neo-classical economics. The result is you get a lot of gimmicks added to the construct and their real value and meaning is lost. Frictions, totally arbitrary, added to rational expectations optimisation models are an example.

        Economics should not be about choosing models or ‘adjusting’ models. In the end you have to do the fieldwork or go down to the archives. But this is best done after one has received as pluralistic an educational background as possible.

      • Nanikore,
        .
        I pretty much agree with everything you say, except for the last paragraph.
        .
        Studying the “exogenous” factors in a particular problem is necessary, of course. But what is the point of so doing without doing it in the context of a model. It is like trying to construct a building without foundation or internal structure (the endogenous core). The external “exogenous” facade cannot stand alone. Without an endogenous core all that is done is that a bunch of “exogenous” factors are gathered and heaped together into a melange without a basis for relating one to the other.

        • Henry,

          I think that that comes down to good writing. And it is not an easy task, and it takes real skill in any subject. A good paper does not look like a laundry list. What distinguishes a first, or a great work is something that draws a lot of complex material together into an overriding and compelling narrative. The reader is convinced that there are no holes in the argument, no loose ends, no arbitrariness, no unsubstantiated assertions and no contradictions that are not explained or accounted for. If issues are made exogenous there must be very good reasons for doing so. It is unlikely you can make a case for it, however, in a world full of interdependent factors.
          .
          Good research should not be framed by a model, especially at the beginning. The danger with that is you are likely to confirm a model for the wrong reasons. The best way of dealing with that is to have a pluralistic education and be aware of methodological debates. Basically read widely, and then make decisions about frameworks later if you feel such a framework is necessary or helpful, but beware of the dangers. However, I think a good paper will consider as much material and accumulated knowledge on the subject as possible, and not be limited by a framework as such. Theories are reference points. They are not things that should dictate the narrative.
          .
          The main point I am trying to drive home, however, is the importance of pluralism and critical thinking, of which the latter requires the former.

          • Economists are way too eager to close their models. Closing the model and detaching it from the context of the larger and more complex system of the political economy relieves the economist from responsibility for knowing anything about the actual economy, but it leaves the model without meaning. There’s no way to place it in a compelling narrative without meaning.

  2. I would suggest as definition of Economics of today: Strategy, tactics and the intermediate levels, today and in history, concerning the struggle within and between classes in the field of production, distribution and consumption of the means of living. The mainstream of which presupposes the establishing and reproduction of the class society built on compund interest, as this was begun in Mesopotamia some time 5000 to 3000 bc.. The mathematic language used has its roots in two very different inventions. The geologic – astronomic and meterologic science developed to plan for sedentary agriculture and to predict flooding. And the book-keeping neccesary in agrarian states dependent on granaries. Mathematic arguments was established as fairness by the ideology of religion and the state machine for violence. The imperative of growth which began as taxation – simply put to keep the granaries filled under all circumstances – was exploited by privateers – travelling salesmen – using for its time very advanced econometrics to prove the godliness of their claims to the right to make private fortunes. In the begining the good statesman (king) proved himself by wiping the slate of indebtness clean. Nowadays that is cyclical crisis and long depressions. The long depression lifted by world-war.

  3. Don’t tell Smith or Marx, they might disagree, sharply. As I do.

    • I don’t think that Smith or Marx would have disagreed much if Sahlins’ “economics” was replaced by “mainstream/neoclassical economics” …

        • Obviously, Noam knows more about the history of economics than Chicago economists. And no one is surprised 🙂


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