Saturday, September 28, 2019

Jonathan Rowe - Why Economics Is Really Psychology on Steroids

Why economists are so often wrong


Friendship, kinship, loyalty, family, community, commitment, spirituality, passion for art, passion for life, etc, can't be put into the economist's equations. To them, we are just maximising utilty machines - which is how most economists relate to the world, so they think we are all like it.

What is called “economics” is really psychology on steroids. It starts with a model of human nature and extrapolates an entire scenario for how the world works from that. The model is homo economicus,the myopic protoganist of the economics texts. This hypothetical person has no social affinities, no lapses of judgment or hang-ups, no capacity even for thinking about anyone besides him or herself. He goes through life with an unfailing and relentless calculus of personal loss and gain.
As I explained in The Tragedy of Economics this portrayal of our basic nature did not arise from actual inquiry. Homo economicus was from the beginning a polemical construct, devised to serve political ends. At first this was to help undermine the secular authority of the Roman Church, and then the divine right of kings. More recently it has served to justify a fundamentalism of what is called “the market.” Along the way, it has provided economists with the semblance of a predictable atom of economic activity. This has enabled them to declaim under the banner of “science,” and has given them a hook on which to hang their arcane math.
Today, psychologists can only roll their eyes at this naïve portrayal. People who have to deal with actual humans in market settings – such as advertisers and corporate managers – find it borderline irrelevant. A new field called “behavioral economics” (which ought to be redundant but revealingly is not) is picking apart homo economicus within the temple of the profession itself.
Economics 

2 comments:

AXEC / E.K-H said...

Homo oeconomicus: the never-ending folk-psychological shitshow
Comment on Jonathan Rowe on ‘Why Economics Is Really Psychology on Steroids’*

Jonathan Rowe has important news: “What is called ‘economics’ is really psychology on steroids. It starts with a model of human nature and extrapolates an entire scenario for how the world works from that. The model is homo economicus, the myopic protoganist of the economics texts. This hypothetical person has no social affinities, no lapses of judgment or hang-ups, no capacity even for thinking about anyone besides him or herself.” and “Today, psychologists can only roll their eyes at this naïve portrayal. People who have to deal with actual humans in market settings ― such as advertisers and corporate managers ― find it borderline irrelevant.”

This may be news for the retarded trolls of the econoblogosphere. Actually, it is worn off stuff for 200+ years.

• “No science has been criticized by its own servants as openly and constantly as economics. The motives of dissatisfaction are many, but the most important pertains to the fiction of homo oeconomicus.” (Georgescu-Roegen, 1971)

• “The reason for the Austrian failure seems to lie in a faulty conception of human nature … The hedonistic conception of man is that of a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area but leave him intact …” (Veblen, 1898)

• “The science then proceeds to investigate the laws which govern these several operations, under the supposition that man is a being who is determined, by the necessity of his nature, to prefer a greater portion of wealth to a smaller in all cases, without any other exception than that constituted by the two counter-motives already specified. Not that any political economist was ever so absurd as to suppose that mankind are really thus constituted, but because this is the mode in which science must necessarily proceed. (Mill, 1874)

• “Political Economy, therefore, reasons from assumed premises ― from premises which might be totally without foundation in fact, and which are not pretended to be universally in accordance with it. The conclusions of Political Economy, consequently, like those of geometry, are only true, as the common phrase is, in the abstract; that is, they are only true under certain suppositions, in which none but general causes ― causes common to the whole class of cases under consideration ― are taken into the account.” (Mill, 1874)

The founding fathers were fully aware that their behavioral assumptions were NOT “realistic” from the psychological standpoint. Homo oeconomicus has always been justified with methodological considerations, i.e. as a necessary abstraction that serves as an analytical starting point.

Homo oeconomicus was meant to solve the starting problem: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (Mill)

Eventually, the starting point was defined with these hardcore propositions, a.k.a. neo-Walrasian axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub) This is the foundation of standard economics on which the analytical superstructure of General Equilibrium Theory rests.

See part 2

AXEC / E.K-H said...

Part 2

The fault of the axiom set HC1 to HC5 is NOT that it is bad psychology but that it is bad science. Economics is NOT about human behavior but about the behavior of the economic system. Human Nature/motives/behavior/action is the subject matter of Psychology, Sociology, Political Science, Anthropology, Biology, etcetera. The subject matter of economics is the behavior of the economic system, which is an objective non-human entity. Because of this, economics has NOT to start from subjective-behavioral microfoundations but from objective-structural macrofoundations.#2, #3

The outstanding characteristic of the representative economist is that he dabbles for 200+ years now in all Human-Nature disciplines but has NO idea of how the economic system works. Because of this, economic policy guidance NEVER had valid scientific foundations.

However: “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)

Economists do not have the true theory. The major approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism, MMT ― are axiomatically false. To this day, economics is not more than folk-psychological blather, proto-scientific garbage, and concealed political agenda-pushing. Economics is NOT psychology on steroids but rather scientific incompetence on steroids.

New Economic Thinkings consists NOT of folk-psychological realism but of a Paradigm Shift from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations.

Egmont Kakarot-Handtke

* evonomics Why Economics Is Really Psychology on Steroids
https://evonomics.com/why-economics-is-really-psychology-on-steroids/

#1 Economics is NOT about Human Nature but the economic system
https://axecorg.blogspot.com/2017/05/economics-is-not-about-human-nature-but.html

#2 From false micro to true macro: the new economic paradigm
http://axecorg.blogspot.com/2016/11/from-false-micro-to-true-macro-new.html

#3 For details of the big picture see Axiomatization
http://axecorg.blogspot.com/2014/12/axiomatization-cross-references.html