Recently, mainstream economists have been debating yet again why ‘economics’ was unable to see the global financial crash coming and/or provide effective policies to end what I have described as the Long Depression that has endured since the end of the Great Recession in 2009.
Mainstream economists John Quiggin and Henry Farrell summed up the debate in a paper: “some blame non-academic economists. Others blame prominent academics. Others still say that economic advice doesn’t really matter, because politicians will pay attention only to the advice that they wanted to hear anyway.”
But Quiggin and Farrell reckon the real reason that mainstream economics failed to be of any use was the lack of agreement among economists on what to do. Economists could not agree on whether austerity was good or bad for the economy; or on whether economists had any influence over politicians. And the reason for this lack of agreement was not due to differences on theory but to “sociology”. By this they mean that mainstream economists are not pure objective ‘economists’ but are “deeply bound up with the political systems that they live within”
As I also pointed out in my book, The Long Depression, Quiggin and Farrell explain that, “prominent academic economists, far more than other social scientists, are likely to go back and forth between universities and roles in the Treasury Department, Federal Reserve, International Monetary Fund and World Bank. This means that economics has far more political clout than other social sciences, but it also has reshaped the profession, turning external policy influence into an important form of internal disciplinary prestige.”
In other words, economists with jobs in government and the central bank go with the flow (from the forces of capital): “So the world of economic politics and the world of economic thought are deeply intertwined. Channels of influence rarely flow only in one direction, as some economists have discovered to their dismay.”
This conclusion seemed to surprise as well as upset Quiggin and Farrell. Yet, if they had read Marx, they would have expected nothing else. As Marx pointed out 150 years ago, in a footnote to the chapter on Commodities and Money in Capital, while making the distinction between classical economics and vulgar economics: “Once for all I may here state, that by classical political economy, I understand that economy which, since the time of W. Petty, has investigated the real relations of production in bourgeois society, in contradistinction to vulgar economy, which deals with appearances only, ruminates without ceasing on the materials long since provided by scientific economy, and there seeks plausible explanations of the most obtrusive phenomena, for bourgeois daily use, but for the rest, confines itself to systematizing in a pedantic way, and proclaiming for everlasting truths, the trite ideas held by the self-complacent bourgeoisie with regard to their own world, to them the best of all possible worlds (p. 174 – 175).
Even earlier, Frederick Engels had anticipated the trend of economics in his Outlines Of A Critique Of Political Economy in 1843: “The nearer to our time the economists whom we have to judge, the more severe must our judgment become. For while Smith and Malthus found only scattered fragments, the modern economists had the whole system complete before them: the consequences had all been drawn; the contradictions came clearly enough to light, yet they did not come to examine the premises and still accepted the responsibility for the whole system. The nearer the economists come to the present time, the further they depart from honesty”.
And in Theories of Surplus Value, Marx described “the vulgar economists—by no means to be confused with the economic investigators we have been criticising—translate the concepts, motives, etc., of the representatives of the capitalist mode of production who are held in thrall to this system of production and in whose consciousness only its superficial appearance is reflected. They translate them into a doctrinaire language, but they do so from the standpoint of the ruling section, i.e., the capitalists, and their treatment is therefore not naïve and objective, but apologetic.”
In other words, all the obstruse theory presented by modern mainstream economics is presented as purely neutral, unbiased and logical, but in reality it is not “naïve and objective” but merely an apologia for the capitalist mode of production. “It was henceforth,” Marx wrote, “no longer a question whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. Pure, selfless research gave way to battles between hired scribblers, and genuine scientific research was replaced by the bad conscience and the evil intent of apologetic”. Capital, vol. 1, p. 97
Recently, two mainstream economists (Identification in Macroeconomics Emi Nakamura and Jon Steinsson ´ ∗ Columbia University September 30, 2017) started their paper: “Any scientiﬁc enterprise needs to be grounded in solid empirical knowledge about the phenomenon in question. Milton Friedman put this well in his Nobel lecture in 1976: “In order to recommend a course of action to achieve an objective, we must ﬁrst know whether that course of action will in fact promote the objective. Positive scientiﬁc knowledge that enables us to predict the consequences of a possible course of action is clearly a prerequisite for the normative judgment whether that course of action is desirable.”
Sounds good, but unfortunately, “Many of the main empirical questions in macroeconomics are the same as they were 80 years ago when macroeconomics came into being as a separate sub-discipline of economics in the wake of the Great Depression. These are questions such as: What are the sources of business cycle ﬂuctuations? How does monetary policy affect the economy? How does ﬁscal policy affect the economy? Why do some countries grow faster than others? Those new to our ﬁeld or viewing it from afar may be tempted to ask: How can it be that after all this time we don’t know the answers to these questions?” Indeed!
However, the authors remain optimistic. For them, the problem is not that economists are locked into an apologia for the capitalist system, but that it is difficult to ‘identify’ the right variables in any causal analysis. In other words, economics is a positivist science like physics but it is just behind in its understanding of ‘the economy’ compared to physics because of the extra difficulty in empirical work.
Economics could progress in the same way that ‘natural science’ has. “Macroeconomics and meteorology are similar in certain ways. First, both fields deal with highly complex general equilibrium systems. Second, both field have trouble making long-term predictions. For this reason, considering the evolution of meteorology is helpful for understanding the potential upside of our research in macroeconomics. In the olden days, before the advent of modern science, people spent a lot of time praying to the rain gods and doing other crazy things meant to improve the weather. But as our scientific understanding of the weather has improved, people have spent a lot less time praying to the rain gods and a lot more time watching the weather channel. “
Unfortunately for the authors, such progress towards the truth will not take place in economics. To think so is just naïve. To quote Milton Friedman as the epitomy of unbiased, objective positivist scientific analysis demonstrates that naivety. Friedman was the peer example of an ideologist for capital, including his job as an advisor for General Pinochet after his coup against the democratically elected government of Chile in the 1970s (see my book, The Great Recession for more on Friedman).
Yes, economics is a science, in my view. More accurately, as Marx says, it is political economy, the study of the social relations of the capitalist mode of production. Yes, we need to test economic theories against the facts by identifying the causal variables. Indeed, we should make predictions to test our theories.
But do not expect the body of mainstream economics to do so in any systematic way. It has been hopelessly distorted by the need to preserve and defend the capitalist system. As the authors say: “Policy discussions about macroeconomics today are, unfortunately, highly influenced by ideology. Politicians, policy makers and even some academics have held strong views about how macroeconomic policy works that are not based on evidence but rather on faith.”
They remain confident, however, that: “The only reason why this sorry state of affairs persists is that our evidence regarding the consequences of different macroeconomic policies is still highly imperfect and open to serious criticism. Despite this, we are hopeful regarding the future of our field. We see that solid empirical knowledge about how the economy works at the macroeconomic level is being uncovered at an increasingly rapid rate. Over time, as we amass a better understanding of how the economy works, there will be less and less scope for belief in “rain gods” in macroeconomics and more and more reliance on solid scientific facts.”
Unfortunately, as the global financial crash and the Great Recession showed, mainstream economics has not progressed as much as meteorologists in predicting storms and hurricanes. Economists still look to the raingods because it’s a matter of faith not reason.