Max Speaks, I Listen

Max Sawicky has a list of Ten Economic Orthodoxies Which Suck.

I want to stress a point he makes in passing "I believe much of what follows is recognized by mainstream, orthodox economic doctrine. It's just that economists act as if it is not."

This is a key point which I think should be repeated (and repeated and repeated as is shown by my revealed preference).

There are two economics orthodoxies -- modern economic theory and economics 101. When advising policymakers, economists tend to stick to economics 101. When economics 101 is refuted by the data or criticized as clearly nonsense, they note that modern economic theory is much more flexible, that economics 101 is a simplified introduction and that the evidence does not prove that our theories are false.

The problem is that modern economic theory is so flexible that no evidence could possible prove that it is false, thus it isn't even a set of hypotheses let alone a theory. Of course, it also means that it is useless as a guide to policy.

The trick is that, except when confronted with contradictory evidence, economists assume that the economics 101 simplifying assumptions are a good approximation to reality and so we should assume that they are true. Thus economists are invulnerable to evidence as we can always claim we are defending only the unfalsifiable and yet able to dictate policy to those foolish enough to listen as we claim that implications of assumptions which are known to be false and made for simplicity are known to be approximately true.

Consider Max point 7 (any one would do just as well)

7. Capital fundamentalism. As with reductionism of the S&D model, growth modeling zeroes in on private capital accumulation, even though a) other factors are demonstrably important and beg for attention; and b) private capital accumulation may be a consequence of other factors, rather than a cause and appropriate object for policy. Out of an obsession with this premise, the International Monetary Fund has screwed up a lot of countries too weak to ignore its advice.

Sawicky states the conclusion of almost all researchers who have studied economic growth especially including right wing ideologues like Robert Barro. There are basically one or two economists who take capital fundamentalism seriously. They are named Brad DeLong and Larry Summers. I am not joking. There was a strong Barro vs DeLong and Summers debate in which Barro et al argued that education was the key to growth and DeLong and Summers said it was investment. Neither side allowed their academic work to have any effect on their views on policy.