David Ramsey's Weblog

December 10, 2009

Wither Economics?

Filed under: Economics and Financial — David Ramsey @ 6:05 am

Economics fascinates me. It’s the one pseudo-science that seems to grip the political sphere as deeply as astrology once did. And yes, it’s a pseudo-science, not a science. Economists do not submit to peer review. They do not use the scientific method. Mostly economists are philosophers who think they are scientists just because they say they are. But claiming to be Julius Caesar does not make one Julius Caesar.

Of particular note, I find the detachment between economics and physics, biology, and systems engineering to be disturbing. Economics is about large systems, economic systems. Economic systems interact with the real world (physics) and the living creatures in the real world (biology) yet most economists appear to be massively ignorant of these real sciences. For example, Steven Keen (not a neoclassical economist) writes about long term debt from a systemic perspective in Debtwatch No 41, December 2009: 4 Years of Calling the GFC and cannot understand why most economists fail to grasp the systems perspective. I hesitate to give my own interpretations but it’s quite obvious that neoclassical economists fail in this regard.

The complete failure of mainstream economists to either foresee or the adapt to the current crisis is further proof of the absurdity of considering economics as a “science” of any sort. Ben Bernanke is perhaps the most prominent of those who did not foresee and who have failed to understand this current crisis. His pronouncements from before the recession began and into the recession have been nothing short of stunningly wrong.

On the other hand, I’ve found people who are not “trained” economists tending to get more right about the current situation and issuing more accurate predictions based upon their models than those of the “professional” economists.

I strongly recommend that people start thinking broadly and outside of the box. This crisis is not like any other post-WWII financial crisis. All of those have been crises associated with excess inventory and productive capacity. This one is different. While there is excess inventory and capacity, those are only sideshows to the real issue here – we’re reached a secular peak in debt and people want it paid down. That shift in thinking will echo across the next two generations of Americans and alter buying habits for at least the next 20 years.

We’re not in Kansas anymore, Toto. The only question is where we’ll be when we finally land.



  1. Ahem, David… I do introduce myself socially as an “anti-economist”, but I do have formal qualifications in economics and I am an Associate Professor of Economics and Finance at the University of Western Sydney.

    I’m representative of a small but significant minority within economics who are critics of “Neoclassical” economics, which is the dominant group from which Bernanke and his ilk emanate. Possibly 10-15% of academic economists are critics of the Neoclassical school, and subscribe to some other approach–Post Keynesian (who argue that Keynes was badly misinterpreted by mainstreamers like Samuelson), Austrians (who reject the Neoclassical obsession with equilibrium), some Marxists…

    Where I differ from my confreres is that I also have significant training in non-economics areas–mathematics formally but also systems dynamics informally–and I am very much in touch with and a supporter of physicists in their incursion into economics, known as Econophysics.

    Also, I heartily agree that economics is not a science–but the Neoclassicals persuade themselves they are in what I and others laughingly dismiss as “scientism”. But it does have peer review–and that is one of the problems. Whereas peer review in sciences subjects your paper to scientific review, peer review in economics subjects you to religious review: if you don’t believe what the neoclassicals believe, you won’t get published in their journals even if your arguments are correct.

    Comment by Steve Keen — December 10, 2009 @ 6:33 am | Reply

    • Thanks for the reply, Steve. I’ve heard of people like yourself trying to move economics out of the stage of alchemy and into the early stages of becoming a real science. I do really wish you the best of luck. Despite our technological advances, our financial systems are still governed by thinking more akin to the dark ages than the 21st century, and this latest financial crisis proves that in spades. The Friedmans and Krugmans of the world need to sit down and start looking at what people like you are doing.

      Comment by David Ramsey — December 10, 2009 @ 4:36 pm | Reply

  2. Thanks David,

    But the more I work in this field, the more I subscribe to Max Planck’s observation about the behaviour of those committed to an obsolete paradigm, even in a true science like physics: “Science advances one funeral at a time”.

    The problem is that funerals aren’t enough for economics–it seems to have a means to regenerate itself in the young after a crisis–and to ignore one while it happens anyway. So my proposal is to “open economics up to competition”: let any department teach economics using its methodology, since the (neoclassical) monopoly on economics has so clearly led to a failure in the marketplace of ideas.

    Comment by Steve Keen — December 10, 2009 @ 6:06 pm | Reply

    • TANSTAAFL – There Ain’t No Such Thing As A Free Lunch.

      I’m pretty sure that the seduction of economics is the search for a free lunch. There’s that problem in physics, that of the perpetual motion machine, but the physicists have those pesky laws of thermodynamics and before they’ll submit to even examining a claim about perpetual motion machines, you have to get past those pesky laws and disprove them or define an exception, which no one has yet done.

      If economics had its equivalent to the laws of thermodynamics, oddball ideas about free lunches would get tossed before they got much beyond early consideration. As it is, we instead get people thinking that they are clever enough to outwit compound interest, something that I’ve also never yet actually seen happen.

      Comment by David Ramsey — December 10, 2009 @ 6:26 pm | Reply

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