September 22, 2015

PsySoc — the scourge of economics

Comment on David Ruccio on ‘The fundamental truth about American economic growth’

Blog-Reference

You quote a recent Science article: “... that we’re seeing right now, with the insurgent campaigns of Donald Trump and Bernie Sanders and elite hopes that they will just fade away, are ‘early skirmishes in a coming class war’.” (See intro)

It is not so much the prediction of a coming class war in the U.S. that is false but the explanation within the framework of economics.

The crucial point is that economics deals — in the first place — not with individual human behavior or society at large. This is the realm of psychology, sociology, anthropology, history, political science, etcetera. Insofar as economics deals with behavioral assumptions like utility maximization, greed, power grabbing, etcetera, it is a dilettantish variant of Psycho-Sociology or PsySoc.

The authors of the Science article argue that it is wrong to explain the problems of the U.S. economy by ‘pathologizing the poor’ and that it is necessary to turn ‘attention to the pathologies of the rich.’ (See intro)

It should be pretty obvious that economic problems cannot be explained or solved by psychology. It is known since the ancient Greeks that psychologism is the way stupid people explain the world, i.e. lightnings fly from the sky because Zeus is angry. The pathology explanation is on the same scientific level as the Zeus explanation, that is, it is exactly at intellectual ground zero.

There is some irony in the fact that the most famous predictor of imminent class war had been very explicit about the vacuousness of psychologism: “To prevent possible misunderstanding, a word. I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests. My stand-point, from which the evolution of the economic formation of society is viewed as a process of natural history, can less than any other make the individual responsible for relations whose creature he socially remains, however much he may subjectively raise himself above them.” (Marx, 1906, M.9)

On closer inspection, however, Marx only replaced subjective psychologism with objective sociologism. Instead of pathological individuals we now have ‘embodyments of economic categories.’ This is somewhat better but still not good enough. What, then, is the real subject matter of economics?

As a first approximation, one can agree on the general characteristic that the economy is a complex system.

However, with the term system one usually associates a structure with components that are non-human. In order to stress the obvious fact that humans are an essential component of the economic system the market economy should be characterized more precisely as a complex hybrid human/system entity or SysHum.

The scientific method is straightforwardly applicable to the sys-component but not to the hum-component. While it is clear that the economy always has to be treated as an indivisible whole, for good methodological reasons the analysis has to start with the objective system-component. The economic system has its own logic which is different from the behavioral logic of humans. The systemic logic is what Adam Smith called the Invisible Hand.

The history of the U.S. economy since around the 1920s could be retold quite realistically as a tumbling from crisis to crisis with idiots, criminals, sociopaths, swindlers, fakers, etc. grabbing for power and money.

To do so, however, is the not the proper task of theoretical economics. Economics has to explain how the actual economic system works and this implies to explain economic crises or an eventual breakdown by structural defects and not by psychological or social pathologies (2015; 2014). In other words, the pain comes from the broken leg and not from evil spirits. The economy breaks down because of overall loss, society breaks down for other reasons. These things have to be kept properly apart.

This said, is not to deny that Donald Trump could be the harbinger of the economic and intellectual breakdown of the U.S. To be quite clear, this is a serious problem of political science but by no stretch of the imagination of theoretical economics, which is a science in marked contrast to political economics, which is — and that is the fundamental truth — rubbish folk psychology and brainless gossip.

Egmont Kakarot-Handtke


References
Kakarot-Handtke, E. (2014). Mathematical Proof of the Breakdown of Capitalism. SSRN Working Paper Series, 2375578: 1–21. URL
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
Marx, K. (1906). Capital: A Critique of Political Economy, Vol. I. The Process of Capitalist Production. Library of Economics and Liberty. URL

See also 'Economics: ‘a tale Told by an idiot, full of sound and fury’?' and 'Confounding sociology and economics' and 'The happy end of the social science delusion' and 'Economics: the honeypot for know-nothings'