June 27, 2016

Political economics: as worthless as ever

Comment on Lars Syll on ‘Brexit — a rejection of mainstream economics’


You cite Ann Pettifor: “The British people have today rejected this mainstream, orthodox economics, a strain of fundamentalism that they may rightly judge has proved deleterious to their own economic interests.”

That is off the wall. We can be sure that the British people could not care less about economics because they simply do not know what it is. Economists themselves do not. Because of this, it is of utmost importance to clearly distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, scientific standards are observed.

Theoretical economics has to be judged according to the criteria true/false and NOTHING else. The history of political economics from Adam Smith onward can be summarized as an utter scientific failure. A closer look at what is naively called economics as if it were a homogeneous entity shows that theoretical economics has been captured by the agenda pushers of political economics. Smith and Ricardo fought for Liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis and Pettifor and Keen.

What people can see and experience of economics is always political economics. And they judge it in light of their situation/interests and NEVER whether it is scientifically true or false. Because of this, it is ridiculous to say that the British people have “rejected mainstream economics”.

Economics is scientifically worthless. Walrasian, Keynesian, Marxian, and Austrian economists are groping in the dark with regard to the two most important features of the market economy: (1) the profit mechanism, and (2), the price mechanism. The fatal fault lies in the fact that economists argue from the micro-level upwards to the economy as a whole. And here the Fallacy of Composition regularly slips in. To get out of failed orthodox economic theory requires a paradigm shift and NOT a political referendum of an utterly confused populace.

There is no way around this: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

It is a fact that economists do not have the true theory — Walrasianism, Keynesianism, Marxianism, Austrianism is PROVABLY false. Therefore, as a matter of principle, economic policy advice has no better scientific foundation than old Roman poultry entrails reading. Educated common sense and personal opinion are all that economists have achieved in more than 200 years.

This point gets entirely lost in actual political discussions because the criterion for political economics is whether or not it fits an agenda and NOT whether the underlying theory is true or false. As soon as political economics dominates, the very task of the theoretical economist — to explain how the monetary economy works — is forgotten and the well-defined scientific standards are ignored.

Both, orthodox and heterodox economists have to be reminded of what science implies and why politics and science have to be strictly separated: “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)

Lacking the true theory, neither orthodox nor heterodox economists can tell which “consequences follow from certain causes” and which means “are the most effectual to obtain certain ends”. This holds in particular for employment theory.#1

As a rule of thumb, the British or European people cannot expect scientifically valid advice from economists but they can expect that politicians always find someone who is prepared to act as a “scientific” fig leave for actions that have been decided politically. There is not much difference between right or left in this respect.

Egmont Kakarot-Handtke

Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis: Liberty Fund.
Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

#1 Iatrogenic economics