On the irrelevance of mainstream economics

20 Feb, 2021 at 12:06 | Posted in Economics | Leave a comment

There is something about the way mainstream economists construct their models nowadays that obviously doesn’t sit right.

One might have hoped that humbled by the manifest failure of its theoretical pretences during the latest economic-financial crises, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics would give way to methodological pluralism based on ontological considerations rather than formalistic tractability. But — empirical evidence still only plays a minor role in mainstream economic theory, where models largely function as a substitute for empirical evidence.

Image result for the nature lawsonThe dominant ideology in the economics academy, I am maintaining, is precisely the extraordinarily wide-spread and long-lasting belief that mathematical modelling is somehow neutral at the level of content or form, but an essential method for science, underpinning any proper or serious economics …

The scandal of modern economics is not that it gets so many things wrong, but that it is so largely irrelevant. However in being irrelevant … the mainstream modelling orientation cannot but serve to deflect criticism from the nature of status quo at the level of the economy and thereby work to sustain it … In truth, few people take any mainstream analysis seriously, except in economics faculties’ promotion exercises.

If macroeconomic models — no matter of what ilk — build on microfoundational assumptions of representative actors, rational expectations, market clearing, and equilibrium, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Incompatibility between actual behaviour and the behaviour in macroeconomic models building on representative actors and rational expectations microfoundations is not a symptom of ‘irrationality.’ It rather shows the futility of trying to represent real-world target systems with models flagrantly at odds with reality.

A gadget is just a gadget – and no matter how many brilliantly silly mathematical models you come up with, they do not help us working with the fundamental issues of modern economies. The mainstream economics project is — mostly because of its irrelevance — seriously harmful to most people, but also seriously harmless for those who benefit from the present status quo of our societies.

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