December 30, 2014

Yeah, it makes sense

Comment on 'Mainstream macroeconomics distorts our understanding of economic reality'


There is theoretical and political economics. Confusion is the natural habitat of political economists. Problems are not solved but kicked around until they are overloaded or muddled up beyond recognition.

This is the paradigmatic case:
“What a tricky business this all is! In his Treatise on Money, Mr. Keynes told the world that savings and investment are only equal in conditions of equilibrium; that an excess of investment over saving means rising prices, and vice versa. In his General Theory, he told us that saving and investment are always equal, and that this is a mere identity or truism, without significance for the determination of prices. As far as I can make out, there are relevant and important senses in which all these statements are each of them right and each of them wrong. (Hicks, 1939, p. 184)

An economist makes sense of anything.

Let us call the drive to nudge any question to the point of inconclusiveness, overload, or peaceful cohabitation of manifest contradictions the Hicks drive. It is a — spontaneous or conscious — scientific survival strategy because: “… you cannot prove a vague theory wrong.” (Feynman, 1992, p. 158)

Or, as Mirowski put it: “With enough fog emitted, almost anything becomes possible.” (2013, p. 344)

Keynes recommended evasion:
“Another danger is that you may ‘precise everything away’ and be left with only a comparative poverty of meaning. ... Such a problem was avoided, said Keynes, by Marshall who used loose definitions but allowed the reader to infer his meaning from 'the richness of context'.” (Coates, 2007, p. 87)

And Walrasians practiced it:
“Trying to pin down down the essential ideas is sometimes difficult because neoclassical economics always seems to be a moving target.” (Boland, 1992, p. 213)

And, while it is, of course, true that formalization, too, can be abused and misapplied, with this paradox Keynes inadvertently became the patron saint of all muddle heads: “Formalization of even a part of what goes into our common sense understanding of society would be, as he [Keynes] said 'prolix and complicated to the point of obscurity.' Theories constructed with vague concepts paradoxically can maximize precision and economy.” (Coates, 2007, p. 8)

The Hicks drive includes Preemptive Vanitization: “There is no objective truth in economics. Nobody understands the whole picture. Everybody gets a piece of it.” Roosevelt

To flesh out the futility of thinking, economists often invoke Heisenberg's Uncertainty Principle, the Duhem–Quine Thesis, Gödel’s Proof, or other kinds of impossibility theorems. After all, when an economist cannot solve a problem, nobody can.

With this, economics became — what sounds like an oxymoron — a pluralistic science.

“Within the whole of his [the economist's] science, or what he insists on calling science, no generally recognised result is to be found, as is also the case for theology and for roughly the same reasons; there is no single doctrine taken to be a scientific truth without the diametrically opposed view being similarly upheld by authors of high repute.” (Wicksell, quoted in Deane, 1983, p. 8)

All this makes teaching easy, and the next generation, again, is not much bothered with unpractical concepts like scientific truth.

“This dynamic adjustment story may or may not be true; in its simple form, it is believed by only a few economists. We taught it nonetheless because, given the assumptions, it is a logically consistent story, and for most students, it meets the 'Yeah, it makes sense' criterion.” (Colander, 1995, pp. 169-170)

An economist makes sense of anything — except reality.

Egmont Kakarot-Handtke

Boland, L. A. (1992). The Principles of Economics. Some Lies my Teacher Told Me. London, New York: Routledge.
Coates, J. (2007). The Claims of Common Sense. Moore, Wittgenstein, Keynes and the Social Sciences. Cambridge, New York, NY, etc.: Cambridge University Press.
Colander, D. (1995). The Stories We Tell: A Reconstruction of AS/AD Analysis. Journal of Economic Perspectives, 9(3): 169–188. URL
Deane, P. (1983). The Scope and Method of Economic Science. Economic Journal, 93(369): 1–12. URL
Feynman, R. P. (1992). The Character of Physical Law. London: Penguin.
Hicks, J. R. (1939). Value and Capital. Oxford: Clarendon Press, 2nd edition.
Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste. London, New York: Verso.