Studying economics — a total waste of time

8 Oct, 2020 at 10:44 | Posted in Economics | 5 Comments

obscurant-1One may perhaps, distinguish between obscure writers and obscurantist writers. The former aim at truth, but do not respect the norms for arriving at truth, such as focusing on causality, acting as the Devil’s Advocate, and generating falsifiable hypotheses. The latter do not aim at truth, and often scorn the very idea that there is such a thing as the truth …

These writings have in common a somewhat uncanny combination of mathematical sophistication on the one hand and conceptual naiveté and empirical sloppiness on the other. The mathematics, which could have been a tool, is little more than toy … Hard obscurantist models, too, may have some value as tools, but mostly they are toys.

Jon Elster

It’s hard not to agree with Elster’s critique of mainstream economics and its practice of letting models and procedures become ends in themselves, without considerations of their lack of explanatory value as regards real-world phenomena. The message writes itself: If you’re really interested about what goes on in our economies — stay away from economics!

Many mainstream economists working in the field of economic theory think that their task is to give us analytical truths. That is great — from a mathematical and formal logical point of view. In science, however, it is rather uninteresting and totally uninformative! The framework of the analysis is too narrow. Even if economic theory gives us ‘logical’ truths, that is not what we are looking for as scientists. We are interested in finding truths that give us new information and knowledge of the world in which we live.

Scientific theories are theories that ‘refer’ to the real-world, where axioms and definitions do not take us very far. To be of interest for an economist or social scientist that wants to understand, explain, or predict real-world phenomena, the pure theory has to be ‘interpreted’ — it has to be ‘applied’ theory. An economic theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and do not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.

Building theories and models on unjustified patently ridiculous assumptions we know people never conform to, does not deliver real science. Real and reasonable people have no reason to believe in ‘as-if’ models of ‘rational’ robot-imitations acting and deciding in a Walt Disney-world characterised by ‘common knowledge,’ ‘full information,’ ‘rational expectations,’ zero  transaction costs, given stochastic probability distributions, risk-reduced genuine uncertainty, and other laughable nonsense assumptions of the same ilk. Science fiction is not science.

Much work done in mainstream theoretical economics is devoid of any explanatory interest. And not only that. Seen from a strictly scientific point of view, it has no value at all. It is a waste of time. And as so many have been experiencing in modern times of austerity policies and market fundamentalism — a very harmful waste of time.

5 Comments »

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  1. Dear Syll,
    Thanks for this piece. It is still a puzzle for me that despite the fact that their (relatively) very generous social policies of Scandinavian countries, many (if not almost all) Scandinavian economists are trained and practice mainstream economics even in those areas that overlap with social policy issues…Or is it not a puzzle at all?

  2. This doubtless helps explain why MMT, a movement whose founder and half of whose supporters are not academics, sprung to prominance. I.e. MMT was pushing against a rotten door.

    • MMT still maintains the rotten building is fine, though. MMT is (rottenly) orthodox in its inflation theory, for example: inflation for MMT is a signal that too much money is chasing too few goods. But what goods were scarce in the 1970s? Oil was plentiful but its supply was throttled for political reasons.
      .
      Fischer Black’s inflation model (inflation is noise) is a much firmer foundation than MMT can provide …

      • Modern Monetary Theory, explained
        A very detailed walkthrough of the big new left economic idea.

        By Dylan Matthews

        https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained

        “Indeed, from our view, excess demand is rarely the cause of inflation. Whether it’s businesses raising profit margins or passing on costs, or it’s Wall Street speculating on commodities or houses, there are a range of sources of inflation that aren’t caused by the general state of demand and aren’t best regulated by aggregate demand policies.

        Thus, if inflation is rising because large corporations have decided to use their pricing power to increase profit margins at the expense of the public, reducing demand may not be the most appropriate tool.

        In other words: Inflation doesn’t usually result from too-high aggregate demand, which taxes can help cool. Instead, it comes from monopolists and other predatory capitalists using their market power to push prices higher, and it can be tackled by directly regulating those capitalists.

        But even when too much demand does result in inflation, Fulwiller, Grey, and Tankus say we shouldn’t necessarily jump to taxes as a solution. “When MMT says that a major role of taxes is to help offset demand rather than generate revenue, we are recognizing that taxes are a critical part of a whole suite of potential demand offsets, which also includes things like tightening financial and credit regulations to reduce bank lending, market finance, speculation and fraud,” they write.”

        • “it can be tackled by directly regulating those capitalists.”
          .
          Much better policy: fully index the economy. Cost of Living Adjustments ensure real income purchasing power stability; Treasury Inflation Protected Securities protect savings; inflation swaps eliminate inflation risk in private contracts.
          .
          Regulation too often misfires, because regulators are either clueless about what is going on, or are part of what is going on. Example: Liquidity Coverage Ratio regulations caused a repo rate crisis in September 2019.


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