On Pieria: What’s Wrong With Economics?

My latest article, trying to sum up the problems with economist’s approach – in 3 words, “it’s too narrow”:

The question of whether mainstream (neoclassical) economics as a discipline is fit for purpose is well-trodden ground…

….[I think] economic theory is flawed, not necessarily because it is simply ‘wrong’, but because it is based on quite a rigid core framework that can restrict economists and blind them to certain problems. In my opinion, neoclassical economics has useful insights and appropriate applications, but it is not the only worthwhile framework out there, and economist’s toolkit is massively incomplete as long as they shy away from alternative economic theories, as well as relevant political and moral questions.

As Yanis Varoufakis noted, it is strange how remarkably resilient the neoclassical framework is in the presence of many coherent alternatives and a large number of empirical/logical problems. However, I actually think this is quite normal in science – after all, it is done by humans, not robots. Hopefully things will change eventually and economics will become more comprehensive/pluralistic, as I call for in the article.

It’s good to sum up my overall position, but I think I’ll probably lean more (though not entirely) towards positive approaches from now on, some of which I mention in the article. Though I strongly disagree with Jonathan Catalan that heterodox economists are “more often wrong than right”, I agree with his sentiment that it’s probably better to “sell [one’s] ideas” that to endlessly repeat oneself about methodology and so forth. So maybe expect a shift from general criticisms of economics to more positive and targeted approaches!

PS Having said that, my next post definitely doesn’t fit this description.


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  1. #1 by Magpie on August 23, 2013 - 1:06 am

    In truth, I oscillate between skepticism and agnosticism on the subject of the desirability of pluralism in economics.

    Having said that, although I have some quibbles, I’ll admit you made some good points.

    Any way, Prof. Ruccio also seems to favor this notion of pluralism. He writes about it occasionally in his own blog:


    • #2 by Unlearningecon on August 23, 2013 - 11:23 am

      I had somebody say to me on twitter that they were taught by heterodox and Marxist economists, and if that’s the way forward we are all doomed.

      Maybe ‘economics’ as a separate field of study is the real problem.

      • #3 by Magpie on August 23, 2013 - 1:04 pm

        “they were taught by heterodox and Marxist economists”


      • #4 by Unlearningecon on August 24, 2013 - 12:19 am

        Apparently in the University of Évora in Portugal, a largely communist university.

  2. #5 by metatone on August 23, 2013 - 12:02 pm

    A lurking problem, underneath it all, is the assumption in economics that, like Physics, they are observing a “natural world” with laws that can be deduced and will be thus universal, consistent, etc.

    But economies are part man-made machine, part self-emergent organism. There are universal laws in the background, but you have to work a lot harder than economists do to find them. Instead, too often, economists christen something as a “natural law” when it’s just an artefact of the machine. And then the use that law to impose misery on millions, promising long-run prosperity that somehow doesn’t ever arrive.

    • #6 by Luis Enrique on August 23, 2013 - 12:35 pm

      metatone what basis do you have for that accusation? I don’t think that’s true at all.

      • #7 by Unlearningecon on August 24, 2013 - 2:44 pm

        Larry Summers did once explicitly say the laws of economics were like the laws of engineering.

      • #8 by Luis Enrique on August 26, 2013 - 11:53 am

        good catch UE.

        interesting he chose engineering (man made materials etc.) not physics. I hope he meant things like “people respond to incentives” are universals, rather than “rules” of the sort “fertilizer subsidies are always bad ideas”

      • #9 by Unlearningecon on August 28, 2013 - 1:58 pm

        Based on the experience of post-communist countries and the IMF’s one size fits all approach, I’d sadly say it was the latter.

        I’d also argue that incentives are more complicated than economists make out, but that is for another time 🙂

  3. #10 by Roman P. on August 23, 2013 - 2:20 pm

    I think that the main problem of economics is a fragmentation of knowledge. There are many very interesting theoretical and empirical results that are not known by most, including even the stuff done by the neoclassicals (SMD, general disequilibrium of F. Fisher, etc). I guess that this is a problem that is common to all sciences – a physicist after all cannot be aware of all experiments and theories, nor can the chemicist or historian – but economics is hit especially hard because its basic textbooks are crap. In comparison, physics textbooks are rock-solid.

    Maybe what is needed is a departure from the textbooks that use Samuelson’s classic text as a template. Perhaps as new methodologies like SFC or agent-based models are developed, they will replace the old stuff.

    • #11 by Unlearningecon on August 24, 2013 - 2:44 pm

      This had me wondering what I would like an introductory textbook to look like. Perhaps producer theory (not MC=MR nonsense; studies of actual businesses), consumer theory (again, no utility), trade theory (discussions of both comparative and absolute advantage, and capital flows), theories of effective demand (maybe AD/AS would suffice as a pedagogical tool?) and obviously basic accounting/banking operations.

      Anyway, yes: I think even mainstream economists have admitted the fragmentation of economics was what led them to miss systemic risk and volatility.

      • #12 by Roman P. on August 24, 2013 - 9:50 pm

        1) Double-entry bookkeeping, theory and practice of both business accounting and national accounts. Godley-type SFC models.

        2) Production cycles & the physical side of the industrial system (you could the production of commodities by the means of commodities) – for example, where all resources for production come from and what are current constraints?

        AD/AS is a very bad model, though expounding why it is bad could be useful for understanding the shortcomings of partial equilibrium thinking. If anything else, Krugman’s Baby-Sitting Co-op is better and more intuitive.

      • #13 by Unlearningecon on August 28, 2013 - 2:12 pm

        Although the babysitting story does omit banks.

  4. #14 by thehobbesian on August 23, 2013 - 6:12 pm

    Off topic, but I just wanted to let you know that I have responded to your question about Becker in one of my earlier posts. I wanted to remind you here simply because its been a couple of days since you left it as it took me a few days to create a response because I’ve been away on vacation much of this month. Hopefully it helps you out, if you have any more questions about the trends in American law and the legal field (I am a lawyer by profession so I should be able to help you or at least point you in the right direction) I will be glad to help you out.

  5. #15 by Magpie on August 24, 2013 - 10:10 am


    There’s been a lot of talk everywhere about the role of maths in economics. I was wondering, what’s your take on this subject?

    • #16 by Unlearningecon on August 24, 2013 - 2:38 pm

      Honestly I wouldn’t be able to put it much better than this:

      The prob­lem starts when econ­o­mists attach names to their mod­els. Instead of sim­ply describ­ing a way of relat­ing vari­ables, these mod­els sud­denly describe “volatil­ity,” “intertem­po­ral dynam­ics,” or “risk aver­sion.” With a sim­ple name, a basic math­e­mat­i­cal rela­tion­ship sud­denly is labeled a descrip­tion of the world. So long as it fits a gen­eral descrip­tion of the con­cept, we are con­sid­ered closer to under­stand­ing volatil­ity, eco­nom­ics over time, or people’s psy­cho­log­i­cal reac­tion to risky decisions…

      …this is where it all returns to a name. When con­fronted with unfor­tu­nate rev­e­la­tions that volatil­ity can­not be cap­tured in a mea­sure so bla­tantly sim­ple as vari­ance, econ­o­mists now have an answer. “Do you have a bet­ter ‘model of volatil­ity’?” Because they call it a model of volatil­ity and risk, sud­denly, they get to claim to have a “model,” even if it demon­stra­bly fails at its stated pur­pose. The effect of this ques­tion is sub­tle, but it is impor­tant. It shifts the bur­den of proof to the chal­lenger. If the chal­lenger does not come up with an alter­na­tive, they keep the old, failed “model.”

      See also this old post on Keen’s book.

      • #17 by Magpie on August 24, 2013 - 11:04 pm

        I’m relieved to see among the heterodox there are still some, like yourself, who have avoided infection by the “maths is evil” meme (which is the other side of the coin from those who say that only maths confers scientific status to a corpus of knowledge).

        Call me paranoid; say that I am over-simplifying things or that I am obsessive. I don’t care (hopefully, you’ll be proven right and I am just making a storm in a tea cup).

        But among the discontent with mainstream economics there’s a tendency to dismiss reason as suspect; to embrace _sophistry_ as the means of choice to build arguments and win discussions: the more bullshit one adds to one’s “argument”, if properly peppered with glib remarks, a few jokes, ad hominem and pseudo-intellectual jargon, the more “sophisticated” (which etymologically is quite appropriate, btw), the more avant-garde.

        In reality, behind all this sophistication, this is no more than a cult of darkness, wanting to reverse history to a pre-Enlightenment time (Enlightenment, together with maths, being another of the heresies these people declared anathema).

        To be honest, if I had any power to dictate economic syllabi I’d make logic and critical thinking a compulsory subject, to be taken before mathematics, philosophy of science and history of economic thought.

  6. #18 by Economic bunker on August 27, 2013 - 5:58 pm

    Economics is a funny subject, as it doesn’t serve a clearly defined purpose (in my opinion of course). It encompasses both social and physical sciences and yet does not adhere to any of their laws. On one hand, we have the ‘true’ social sciences (psychology) that set out to describe the mental patterns/functions that affect our behaviour and choices, on the other we have physics and chemistry which describe all of our technological progress and the subsequent wealth. Mainstream economics, striving to describe the allocation of the latter through postulations regarding the former, is more of an applied philosophy rather than a science, while the heterodox schools either act as a counter-force in the same position, or simple fall into the scientific world ( thermoeconomics, neuroeconomics etc. )

    • #19 by Boatwright on August 28, 2013 - 1:33 pm

      “It encompasses both social and physical sciences and yet does not adhere to any of their laws.”

      ….and is therefore mostly produces grand visions about how the world ought to be, rather than testable hypothesis about how the world actually works.

      It seems that economics is doomed to be second-rate until it begins with a foundation of real science. I would suggest looking at basic physical laws — those governing energy and other resource flows, ecology, etc. — as fundamental to any sound economic theory.

      An example: Classical economics relies on a simple linear equivalence to describe the substitutability of resources: As one resource becomes scarce its price will rise, more will be produced and/or a substitute will always be found, etc.. Empirically, thermodynamically, and ecologically this is simply foolish.

      • #20 by Unlearningecon on August 28, 2013 - 1:56 pm

        I agree that economics doesn’t have too much of a clearly defined purpose. It is roughly defined as ‘the study of how we allocate scarce resources’, but this is pretty similar to the definition of politics. Economists argue that they ask how and politics asks why, but as I mention in the post, to ask ‘how’ is to inevitably make judgments regarding what is important and which systems should be in place.

        In any case, economics doesn’t seem to get us very far: economists come up with theories based on their framework, and then empirical evidence is usually mixed or inconclusive. So really we’re just back to politics: within reason, it’s not clear what impact most policies will have, so if they’ll benefit people then why not go ahead with them?

      • #21 by Boatwright on August 28, 2013 - 2:43 pm

        Meaningful economic statements MUST be constrained by physical and ecological realities.

        When economists start talking about how resources are allocated, whether it be by market forces or by social contract, they are inevitably led to making value judgments and moral pronouncements. This is politics, not economics.

        Many political debates are lost in a fog of “economic” blather. In the US we often hear claims that our Social Security system is bankrupt, foolish statements about a “Trust Fund”, and so forth — as if there had been a pile of silver dollars somewhere waiting to pay the bills of our older citizens. Economists regularly weigh in with opinions on the matter, when the simple truth is at any given moment what we are deciding is how to allocate the available surplus among our non-productive seniors. What is real is not the fictive account balance. but the food at the grocery store for them to eat.

      • #22 by Unlearningecon on August 28, 2013 - 10:27 pm

        Yes – ‘free market’ economists will insist we are too supply constrained to help the poor/old in the short term, but not that we are constrained by fundamental ecological realities in the long term. Seems delusional to me but there you go.

  7. #23 by Philippe on August 29, 2013 - 1:16 am

    Hi Unlearning,

    Who are the two guys on the right hand side of your photo?

    • #24 by Unlearningecon on August 29, 2013 - 9:00 am

      Piero Sraffa at the top and Hyman Minsky at the bottom.

      • #25 by Boatwright on August 29, 2013 - 12:59 pm

        Hyman Minski, mentor of Steve Keen, who’s multi-variable computer models of banking, money, and business cycles may point the way out of the swamp.

        These models, which are based on scientific and engineering maths, produce results which are chaotic*, and closely follow actual patterns in the real economy. Keen is rejected by many as a provincial and a crank. However, his critics also chose to ignore and fail to address his extremely thorough, mathematically based demolition of many of the fundamental assumptions of classical theory.

        Keen has also said that future developments of economic theory, to be mathematically rigorous, must include resource constraints and ecological concepts.

        For those unfamiliar with his work, I suggest spending some time with the lecture series available on YouTube.

        *Chaos: “When the present determines the future, but the approximate present does not approximately determine the future.” – Edw. Lorentz

      • #26 by Boatwright on August 29, 2013 - 1:03 pm

        Sorry about the dead link above. Try pasting this to your browser.