Nailed to Its Perch

I always use some famous Chicago School economist as my representative fool when I am describing mainstream economics to my uninitiated friends. How does one, after all, defend such a ludicrous body of thought? By reference to Monty Python?

Here is Gary Becker explaining why mainstream theory is so ridiculous:

“The combined assumptions of maximizing behavior, market equilibrium, and stable preferences, used relentlessly and consistently, form the heart of the economic approach.”

And thus Becker’s economic approach remains firmly nailed to its perch looking for all the world like a dead bird. A very dead bird. It would be funny, indeed hilarious, were it not for the rather dismal fact that people like Becker win prizes and accolades for believing such tripe. There is, apparently, no satire sufficiently cutting, no mirth sufficiently loud, and no critique sufficiently detailed to stop the farce from continuing.

Economics, especially the Becker sort, is dead. It died at its inception. It is a joke that needs sensitive burial so we can move on and look for a real economics that engages real problems and real economies and not the fetid fantasies of the type inhabiting too many professor’s minds.

I often wonder whether economists realize how funny they sound. Or whether they even care about economies. The evidence isn’t reassuring. They press on teaching rubbish as if it were golden. They press on writing ever longer papers riddled with details and mathematics that describe absolutely nothing. They continue to paint pictures that amount to fog. They are, in short, wasting everyone’s time.

As you can tell, I am tired of it.

The pretense must end. Economics, in its majority form, is simply dumb and wrongheaded. It is a dangerous technology based on a severely anti-social premiss. It seeks to contort the world to match itself rather than to describe the world as it is.

I am not alone in this, of course, far from it. The embarrassment of the last crisis that left the mainstream sublimely naked and bereft of anything sensible to say stirred many more voices to rise in opposition. Yet the mainstream plods on. Oblivious, apparently, to its public image it hides away in university halls pretending that nothing happened, and that its core principles simply need another tweak to make them the explanatory equipment economists dream of.

But that won’t happen.

Economics went down the wrong road many decades ago. It is too deeply embedded in erroneous thinking and is beyond saving by anyone within those university halls.

If you want to read good ideas about the economy don’t ask an economist. Ask someone who has been in the economy. They might not have grand theories and lots of wizard math to blind you with, but at least they are engaged with reality and not fantasy.

Which, in rather long winded fashion, brings me to Richard Bookstaber’s excellent short book: “The End of Theory”. Let me give you a taste of it through this long quote:

“To understand crises, we must work with the limits that address these essential aspects of our human condition. And, more important, we must refute the use of mathematics because the essential problems are computationally irreducible; refute the notion that we all can be represented by a proxy, which already should be refuted based on the failures of general equilibrium theory; refute the notion of optimization and the maximization of utility, because of radical uncertainty and the need to use heuristics; refute the notion of stable preferences, because people live in a non-ergodic world where they change based on their experiences; refute models using predetermined probabilities, because past behavior cannot then prove a window into future behavior. Refute all these in periods of crisis.”

I object only to his limitation that the refutation refers to crisis. It refers to all times, those of calm as well as those of crisis.

Many of you will not appreciate Bookstaber because of his background in the deepest parts of Wall Street. But, like him or not, his thinking represents a clear and decisive denunciation of the farce that is mainstream economic thought.

Economics is riddled with longstanding idealistic and fantastic efforts to unpick the complexity of actual economies. Those efforts all end up over-simplifying to the extent that reality is tossed aside to make theorizing more tractable. And, perhaps more deadly to theory, those efforts are all entirely products of a particular time and place: they are entirely contingent on the circumstance in which they were dreamt up.

This is true of theories across the political spectrum: they ignore subsequent history and, instead, freeze within themselves the environment the theorist was observing. They become time capsules and ever more irrelevant as the real world continues to unfold. Mainstream thought, though, is a very special case: it was never relevant because it drove out reality from the very beginning. There was never an instance when mainstream thought described an actual economy or explained actual economic behavior. It was always imaginary.

And it would be demonstrably dead were in not nailed so firmly to its academic perch.