It appears to me that a fundamental cause of the problem Yves addresses, while complex in detail, is simple to identify. It's the disciplinary approach characteristic of academia that isolates disciplines from each other when their interaction is required to address the many issues in a complex adaptive system like a society. This approach then carries over into professional careers since most influential economists are professors. They don't think out of the box because they were not trained to do so. In addition, thinking out of the box can be a career-killer before one gets tenure, and after one gets tenure it is usually too late to change. The pattern is set.
Kenneth Boulding, for instance, pointed this out in his work decades ago. He abandoned the traditional approach to economics for general systems theory, holding that conventional economics is too limited to be of actual use beyond isolated situations and quite special cases. Moreover, economists are loathe to do case studies anyway and focus instead on theory limited by assumptions and methodological preferences that are not informed by other relevant disciplines.
As an outsider looking in, I am gobsmacked by all the hidden assumptions economists make and do not explicitly acknowledge. In fact, most of them seem to be unaware of this, since they are not aware of controversies about these issues in other disciplines. Hence, they often treat controversial matters as settled or are just ignorant of thinking and research outside their own narrow approach to economics, or to the aspect of it in which they are engaged.
Naked Capitalism
Ethics and Complex Systems
Yves Smith
2 comments:
Tom -- When I got my Econ degree from Wharton in 1972 monetarism was not as strong as it is today. The econometrics class I took had very little on the underlying assumptions such as rational expectations, utility maximization, etc. Text and discussion revolved around what variables were useful and how to fit them into the model. Many years later, about 4-5 years ago, I came back to economics and felt just like you. I was totally gobsmacked. The economists think people are rational?? For 45 years I had been witness to massive irrationality, starting in the civil rights and anti-war movements in which I was involved. And economists think we are rational?? That is one of the main reasons I was open to the different approach of MMT. If traditional economics was based on rationality, it was, to me, worse than useless. There had to be a better explanation about the way our economic (monetary) system actually operated.
Philip Mirowski lays a lot of the blame at the feet of John von Neumann whose mathematical approach to econ through linear programming and game theory involved the highly sophisticated assumption of rationality that dominated econometrics, to the degree, Morowski claims, that it has become independent of confirmation in the real economy. As a result most people in business and finance don't use or at least rely on it, although it dominates policy formulation.
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