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What’s Wrong with Economics Today?

August 10, 2010

On June 30, 2010 I posted in Daily Kos a Diary containing (See Diary Here) a list of reasons why I believe that Classical Economics has failed and why its practitioners, the Economists have led us astray. Most of negative comments to that Diary appeared to resolve themselves into two general complaints. The first being that only trained economists (or perhaps someone else in the business e.g. financiers) should criticize such an historically significant body of knowledge and analyses as represented by Classical Economics. The second criticism, I believe, was that because mathematics and observation were used developing Classical Economic Theory it has become something of a science and therefore true in its general observations and deserving of a certain amount of respect.

Although I intend to respond to these criticisms in the near future in the same venue as I published the original, I have included below a slightly edited version of that Diary.

But, before getting to the Diary itself I would like to direct the reader to the following comment on the subject by James Galbraith the economist son of the great economist J. K. Galbraith in testimony given by him to Congress:

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including “rational expectations,” “market discipline,” and the “efficient markets hypothesis” led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

DIARY

The recent collapse of the world economy and the attempts to save it have highlighted the role played in society by Classical Economics and Economists. Not since the middle ages has a belief system and its episcopate so dominated secular society as Classical Economics and Economists has these past 30 or so years. So what is wrong with that, you may ask?

Here are some of whats wrong with it:

1. Despite every attempt to demonstrate its kinship to science there is no natural or scientific law that requires that it be set up as it is.
2. It is a system set up by men to benefit men and based upon the evolutionary directives of their sex.
3. It assumes human behavior is deterministic and minimizes the unpleasant fact that people can and do choose and agree to live and act in ways inconsistent with its theology.
4. It was developed in an attempt to explain certain international transactions and the actions of a few men in coffee houses in Seventeenth and Eighteenth Century England. It failed to establish any significant predictive value for those transactions then and it fails to do so now for contemporary transactions.
5. It has for the most part been immune to the advances of science, biology, sociology and psychology that have occurred over the past 400 years (although very recently some attempts have been made to remedy this by combining Classical Economics with other fields of study).
6. It relies on classifications of people and activities that at best are illustrative of certain past events and at worst worthless.
7. It claims, like a religion, that it can explain most significant political, commercial and mass behavioral activities while it steadfastly ignores other explanations and analyses for the same phenomena.
8. It refuses to recognize that is has a fundamental conflict of interest at its core in that its episcopate, the economists, generally are employees and agents of the system that rewards them and that they then claim they have the ability to unbiasedly describe and analyze.
9. It has at best become neither a hard science nor a social science but a lobby for itself and its employers.
10. It has polluted the system by which we govern ourselves by claiming expertise where it is lacking.
11. It assumes that because its practitioners can articulate what may have happened in the past they are better suited to guess what will occur in the future than anyone else with access to the same information.
12. It steadfastly refuses to acknowledge that expertise in describing past transactions does not qualify one for advising on or administering anything.

In short Classical Economics is treated today as a religion and its practitioners, the Economists, as priests. In order to deal with the current crisis we should add Economists to Shakespeare’s famous quote about what needs to be done with lawyers.

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