My Personal Echo Chamber

The most gratifying thing about writing, especially out here on the fringes of Stars Hollow, is when your themes get picked up by people who have a little more personal credibility than you do.

I decided very early in my career to eshew any claim to authority and post pseudonymously, relying instead on my ability to amuse (admit it, I’m funny), the self evident truth of my words (this is why I’m all about the scientific method and replicable experiments, try it and see!), and history to validate my musings.

So it is with great happiness and joy I draw your attention to a live jive (he actually gets paid!) Macroeconomist who, like I do, thinks most economists are nothing but ideological faith-driven rattle-shaking Shamen.

To What Extent Is Economics an Ideology and to What Extent Is It a Useful Theory?
By Philip Pilkington, Naked Capitalism
January 12, 2017

Ever since the Enlightenment many societies have moved away from justifying their existence and formulating their aims through recourse to religious language. Gone are the days of the ‘Great Chain of Being’ which justified the natural and social orders all the way from the plants and trees through the commoners, via the nobility and the King all the way up to God the creator. What replaced these ideologies were ideas about ‘Progress’ – how the good society was attained through Progress and what such Progress would look like. Progress, it was said, was to be grounded in the scientific method; what had worked so well to uncover natural processes could also be applied to engineer society.

It was in the 19th century, however, when the ideologies of Progress really began to blossom and flower. One was economics, of which we will have more to say about below. Another was phrenology. Phrenology was a science that claimed that a person’s character – including his capacities and his dispositions – were contained within his skull and could be determined by studying his skull carefully. Today few take this seriously – although many still recognise that phrenology was an early progenitor to so-called ‘neuroscience’. But throughout the 19th century these ideas were enormously popular – one popular English work sold more than 300,000 copies!

What made phrenology so popular was what also made economics so popular at the time: it gave a rationale for a society based on Progress and also provided a blueprint for how this could be achieved. The phrenological doctrine, being so vague in its pronouncements, was highly malleable and could be used to justify whatever those in power needed justifying. So, for example, in 19th century England phrenology was used to justify laissez faire economic policies by emphasising unequal natural capacities amongst the population while in early 20th century Belgian Rwanda it was used to justify the supposed superiority of the Tutsis over the Hutus
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The curious thing about modern economics is its almost complete insularity. Its proponents appear to have very little notion of how it applies to the real world. This is not the case in normal sciences. Take physics, for example. It is extremely clear how, say, the inverse squares law applies to experienced reality. In the case of gravitation, for example, the inverse squares law makes experimentally testable predictions about the force exerted by, say, the gravitational pull between the sun and the earth.

Modern economics – by which I mean neoclassical or marginalist economics which relies on the notion of utility-maximisation as its central pillar – completely lacks this capacity to map itself onto the real world. As philosophers of science like Hans Albert have pointed out, the theory of utility-maximisation rules out such mapping a priori, thus rendering the theory completely untestable. Since the theory is untestable it cannot be falsified and this allows economists to simply assume that it is true.

Once the theory is assumed to be true it can then be applied everywhere and anywhere in an entirely uncritical manner. Anything can then be interpreted in terms of utility-maximisation. This is most obvious in popular publications like Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. Such books read in an almost identical way to the fashionable books of 19th century phrenology. The economists address everything from parenting to crime to the Ku Klux Klan by filtering it through the non-experimental theory of utility-maximisation – a theory that has not and cannot be verified and so the author and reader alike take it entirely on trust.

Such systems of ideas are ideological to the core. They are cooked up independently of the evidence and are then imposed upon the material of experienced reality. We are encouraged to ‘read’ the world through the interpretive lens of economics – and when we ask for evidence that this lens uncovers factually accurate information we are confounded with circular arguments from the economists.

Large-scale public policy is also filtered through this lens. This is done by constraining the study of macroeconomics – that is, GDP growth, unemployment, inflation and so on – by tying it to the theories of utility-maximisation. All macroeconomics today must be ‘microfounded’. This means that it must have microeconomic – read: ‘utility-maximising’ – foundations. In reality, as I show in the book, these foundations are anything by ‘micro’. Rather, what is done is that the entire economy is seen to be dominated by a single uber-utility-maximiser and all the conclusions flow from there.
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(W)e have little insight into what actually motivates human beings. For this reason theories that rest on assumptions about human motivation – like utility-maximisation – must be thrown out and the study of the economy must be undertaken by examining large economic aggregates. In short, micro must be tossed off the throne and the crown must be handed to macro. The second premise is that we must not be overly concerned with highly precise ‘models’ of the economy. Instead we must take what I have come to call a ‘schematic’ approach. A schematic approach involves building tools that can be integrated into how we understand the world around us without assuming that these tools provide us with an exact description of this world. This schematic toolkit – which I begin to lay out in the later chapters of the book – can then be used to approach the study of actual economies.

These may seem like rather simple rules. But when applied to economic theory they generate rather radical results. At the same time they greatly constrain the amount of wisdom that we can assume economists to have; given these premises no book like Freakonomics should ever be taken seriously and should probably even be written in the first place. In that sense, they may appear to militate against Enlightenment optimism. This may well be so, but I would argue that they are arrived at through rational Enlightenment-style inquiry and so should be taken seriously even by proponents of Enlightenment Progress. After all, phrenology eventually fell in the face of rationalistic criticism.

Alas my professional credentials, such as they are, qualify me only to pass judgement on the dynasty of Chinese Art (hint: if it’s bronze it’s Tang, if it’s ceramic it’s Ming, or maybe Song, you can tell by the decorations and glazing). Oh, and I fix computers a little.