Saturday, January 11, 2020

Lars P. Syll — Economics — too important to be left to economists


The problem with economics as a discipline, and this generally includes all forms of economics including heterodox economics to some extent, is "economics." That is is to say, economists assume that economics is chiefly or exclusively about economic behavior when economic behavior is embedded in social and political behavior and includes the entire "human condition."

The only "economist" that really grasped this in depth was Karl Marx, and he was a philosopher coming from a Hegelian background rather than being an "economist" in today's terminology. He understood and emphasized social embeddedness, as do the economic anthropologists, economic sociologists and institutionalists that followed. Even Keynes approached economics in terms of the existing neoclassical paradigm that prevailed, and he did it as a mathematician would since his background was it mathematics and his principle work was the Treatise on Probability.

Conversely, almost as a reaction to Marx, the economic profession got sidetracked by Alfred Marshall's emphasis on formalizing economics in an attempt to make it "scientific." This led to the presumption (hidden assumption) that economics is chiefly or even solely about economic behavior. The result was the assumption of homo economicus as a homogenous agent behaving "rationally" to maximize self-interest in economic dealings, principally in markets, which act as calculating machines to maintain economic equilibrium through adjustments in price based on supply and demand.

The problem is that this model is based on a generalizing from economic behavior at a micro level, irrespective of social embedding. Therefore the scope of application is limited by the extremely narrow scale. Unfortunately, most economists ignore this limitation of scope and the significance of scale.

Macroeconomics cannot be scaled up microeconomics because behavior at the individual level is not the foundation of behavior at the macro level as is conventionally assumed by those promoting microfoundations; for the simple reason that most people's behavior is not exclusively economic but includes social and political factors as will as ideological presumptions that differ temporally, geographically, by class and according to affiliation and personal disposition.

Economics is embedded in society just as are individuals and their behavior. Social networks (systems) are comprised of individuals as elements but networks (systems) also influence individuals that are related to them, either as members or those affected peripherally. A social system is not an aggregation of individuals acting independently but rather a system in which relationships are highly influential. Therefore, economic aggregates cannot tell the whole tale.

Individuals often have conflicting interests as well. People do not always prioritize their economic interest over their social and political interests as the assumption of homo economicus posits. Their choices are influenced by personal disposition, knowledge base, and cognitive-affective biases. At a most evident level, people that belong to different political parties and their factions think, feel, and act differently, including with respect to economic affairs and interests. For example, traditionalists regularly set tradition and traditional values above economic interests such that they act "irrationally" from the economic point of view while not being actually irrational. They view themselves as acting on the basis of higher reasons.

While homo economicus may have a place in the study of microeconomics, at the scale of macroeconomics and political economy, the agent is not homo economicus but homo socialis, and homo socialis is non-homogenous and not necessarily economically "rational." So game theory does not apply in this case.

The fact that societies are complex adaptive systems, especially at the national and international levels, means that model-building is challenged by tractability. Many conventional approaches are based on introducing conventions for inducing tractability at the expense of realism, which effects the usefulness of such models in pragmatic application.

This can result in social and political disarray that is serious enough to lead to conflict. But even if it does not, it can produce in anti-social consequences instead of the pro-social result that free markets, free trade and free capital flows promise based on the erroneous assumptions.

Many economist do not stay abreast of developments in economic anthropology, economic sociology, social science in general, evolutionary theory, and other fields that impact economics. Many do not even consider institutionalism as important, and even deprecate accounting, money & banking, and finance as relevant. Even in economic matters per se, many economists dismiss or deprecate externality, market imperfection, distributional factors, etc. as relevant to their field. Moreover, the insist that the methodological debate is over and they won it — end of discussion.

Economics needs to expand its horizon to remain relevant. 

Lars P. Syll’s Blog
Economics — too important to be left to economists
Lars P. Syll | Professor, Malmo University

5 comments:

AXEC / E.K-H said...

The problem with economics as a discipline
Comment on Lars Syll/Tom Hickey on ‘Economics — too important to be left to economists’*

Tom Hickey maintains: “The problem with economics as a discipline, and this generally includes all forms of economics including heterodox economics to some extent, is ‘economics.’ That is is to say, economists assume that economics is chiefly or exclusively about economic behavior when economic behavior is embedded in social and political behavior and includes the entire ‘human condition.’ The only ‘economist’ that really grasped this in depth was Karl Marx, and he was a philosopher coming from a Hegelian background rather than being an ‘economist’ in today’s terminology.”

This is a typical Hickey-hallucination. He overlooks that J. S Mill was quite explicit about economic methodology: “What is now commonly understood by the term ‘Political Economy’ is not the science of speculative politics, but a branch of that science. It does not treat of the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive; except those which may be regarded as perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costly indulgences.” and “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.”

So, the triviality that economic behavior is embedded in the entire ‘human condition’ was certainly known to economists long before the philosopher Marx came along. On the other hand, the philosopher Marx never understood how the monetary economy works. Marx got profit and exploitation wrong and because of this the whole analytical superstructure of Marxianism has no sound scientific foundations.#1, #2 This does not matter for politics, though, because in the whole history of mankind politics NEVER depended on scientific insights but on beliefs of obvious socio-pathological quality. Obvious, for an emotionally detached clinical observer, that is.

The common methodological blunder of both J. S. Mill and Marx consisted of the rather commonsensical belief that economics is about human behavior, i.e. that economics is a social science. NO, economics is NOT a social science but a system science and the system is NOT the social system but the economic system.#3 It was Niklas Luhmann who put sociology on systemic foundations.#4 The economic system, on the other hand, is an ABSTRACT entity that is defined by the objective relationships of economic variables, e.g. employment, output, income, profit, saving, wealth, etcetera. Nobody can see or touch or smell ‘the economy’ or deduce its functioning by observing individual/social behavior.

The problem of economics is to this day that economists waffle about Human Nature/motives/behavior/action which is NOT their subject matter but have NO idea what profit, i.e. the foundational magnitude of their subject matter, is. Neither J. S. Mill nor Marx had any idea of the macroeconomic Profit Law. And things have not improved with Keynes, or MMT, or Lars Syll, or Tom Hickey.#5

See part 2

AXEC / E.K-H said...

Part 2

The problem with economics as a discipline is that economics is NOT a science, and economists are NOT scientists but clowns/useful idiots/agenda-pushers in the political Circus Maximus. Most of them are directly or indirectly on the payroll of the Oligarchy. J. S. Mill was for the better part of his life an employee of the East India Company, Marx was sponsored by the Capitalist Engels. To present Marx as a philosopher, by the way, is a bit euphemistic. He was a journalist, which, in turn, is a euphemism for propagandist or, in modern parlance, troll.#6

Economics is fake science beginning with Econ 101 to textbooks to the peer-review process to methodology to the history of economic thought#7 to the EconNobel. Marxians have always been an integral part of the greatest scientific hoax in modern times.

Egmont Kakarot-Handtke

* Lars P. Syll Blog
https://larspsyll.wordpress.com/2020/01/11/economics-too-important-to-be-left-to-economists/

#1 Marx and Marxists ― too stupid for the elementary algebra of profit
https://axecorg.blogspot.com/2019/11/marx-and-marxists-too-stupid-for.html

#2 Links on Karl Marx
https://axecorg.blogspot.com/2019/09/links-on-karl-marx.html

#3 Cross-references NOT a Science of Behavior
http://axecorg.blogspot.com/2015/12/behavior-cross-references.html

#4 See on Amazon Social Systems

#5 Lars Syll, MMT, and the other failures of New Economic Thinking
https://axecorg.blogspot.com/2020/01/lars-syll-mmt-and-other-failures-of-new.html

#6 Marx started as editor-in-chief of the Rheinische Zeitung “ein von der preussischen Regierung gefördertes Unternehmen” [an enterprise sponsored by the Prussian government]. For more details see Waldner, Kindle edition, p. 45 ff. Later he wrote for the New York Tribune and other bourgeois newspapers.

#7 Macroeconomics and the fake History of Economic Thought
https://axecorg.blogspot.com/2019/11/macroeconomics-and-fake-history-of.html

Peter Pan said...

Economics - Too important to be left to the whims of the elite.

Matt Franko said...

“ economists are NOT scientists but clowns/useful idiots/agenda-pushers”

They’re not clowns they are operating as typical Liberal Art trained people... ie Thesis + AntiThesis = Synthesized Thesis

AXEC / E.K-H said...

Matt Franko

You say: “They’re not clowns they are operating as typical Liberal Art trained people... ie Thesis + AntiThesis = Synthesized Thesis”

Education is a serious problem but not the most important one. The lack of scientific integrity is the primary problem of economics.#1, #2

There is no difference between Mainstream and Heterodoxy in this regard and MMT is no exception.#3 Economics is one large swamp.#4

To recall, economics is about the economy and NOT about economists. That academic economics is rotten is a problem for science policy and NOT for economics.

So let us do economics: which of the two balances equations is true (a) (I−S)+(G−T)+(X−M)=0 or (b) (I−S)+(G−T)+(X−M)−(Q−Yd)=0?

Who cannot answer the question is out of economics no matter what his formal education was.

Egmont Kakarot-Handtke

#1 There is NO such thing as “smart, honest, honorable economists”
https://axecorg.blogspot.com/2019/01/there-is-no-such-thing-as-smart-honest.html

#2 Feynman Integrity, fake science, and the econoblogosphere
https://axecorg.blogspot.com/2017/05/feynman-integrity-fake-science-and.html

#3 Stephanie Kelton: “All deficits are good for someone” Yes, Someone=Oligarchy
https://axecorg.blogspot.com/2020/01/stephanie-kelton-all-deficits-are-good.html

#4 Getting out of the economics swamp
https://axecorg.blogspot.com/2017/05/getting-out-of-economics-swamp.html