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Criticism and Modern Economics

Contrary to popular belief and university propaganda, academia do not always foster an independent mind. In their first course on microeconomics, every budding economist is confronted with the notion of rational economic man allocating his scarce resources to fulfill as many of his stable and given preferences as possible. If these budding economists are like me, they will find this very hard to stomach. I buy my groceries in the supermarket that is closest to my home. I buy a certain brand and type of computer if my tech-savvy friends recommend it and I find myself influenced by advertising on a daily basis. So, far from making rationally informed choices, I am a lazy uninformed creature of habit. My preferences are not stable and given, but depend on social ties and advertising. Moreover, behavioral economists have shown that such deviations from rationality are the norm rather than the exception (e.g. Thaler 2015). So, far from confirming the theoretical starting point, subsequent experiences and observations in economics have proven it to be even more misguided than it already appeared at first sight.

I was told however, that none of these misgivings mattered. Economic rationality was not to be taken as a simplified description of real behavior, but rather as a ‘center of gravity’. People could deviate from rationality for a while, but the market would discipline them in the end so the trend would be as our model predicted. I couldn’t see how or why that would occur. If people buy their groceries dearer than necessary, this does not usually leave them so deprived and penniless that they are forced to rethink their shopping strategy. Thus, the irrational behavior of many people may well persist forever. But if this is so, markets cannot be expected to equilibrate. At this point, my microeconomics professor had had enough: ‘Mr. Damsma, if you want to be an economist it is crucial that you get a hold on this stuff. Insight will come, I promise.’

The moral of this story is that independent, critical thinking is often fine for card carrying members only. Undergraduates will have to learn the rules of the discipline first. So, far from fostering an independent mind, it can be said that academics often only accept criticism that follows disciplinary rules.  Any attempt to debate the suitability of these rules themselves is likely to be met with skepticism: if someone does not accept a discipline’s starting point, s/he probably has not had proper training and is thus not worth talking to. Thus, having an independent mind hurts your academic career, while uncritical assimilation helps it forward.

And so, like many students before me (and undoubtedly many after me), I swallowed my criticism, silenced my intuition and set to work manipulating model after model. I could not believe this would ever help me understand reality and my professors hardly ever tried to demonstrate that it did either. Microeconomics 101 is not based on empirical data, nor is its truth demonstrated by them. As my studies continued, it became clear why my misgivings about rationality and equilibrium were silenced. It turned out that not only micro-economics, but modern macroeconomics too, was based on these counterintuitive and factually absurd representations of economic agency.

As my studies continued, ‘the abstract theories intensified [and] the equations multiplied’ (Raworth 2017: 2) but insight never came. Sure, I learned to fit models to data, but the data hardly ever supported the model. It was rather the other way round: parameters in the model had to be adjusted until the model fitted the data. But if every situation requires a new and unique model specification, it can hardly be said that the model helps us understand the data (Romer 2016). Unfortunately, economists are not rewarded for enhancing our understanding of empirical data.  Instead, they are rewarded for showcasing their ability to force them into a framework in which rational agents interact to equilibrate demand and supply in markets. Thus, this ‘wholly counterintuitive doctrine (…) drives away all but a high-morale in-group that is enough to keep the sacred flame burning’ (Solow in Colander 2007).

After the financial crisis, more and more economists started to doubt whether this institutionalized silencing of critical thinkers was such a good idea. Krugman speaks of a ‘Dark Age of macroeconomics’ (2009) in which conformity with conventional wisdom (viz. rationality and equilibrium) trumps critical thinking and an honest pursuit of truth. Others explain ‘the systemic failure of academic economics’ with reference to ‘self-reinforcing feedback effects within the profession [which] led to the dominance of a paradigm that has no solid methodological basis and whose empirical performance is, to say the least, modest’ (Colander, Föllmer, Haas, Goldberg, Juselius, Kirman, Lux & Sloth 2009 in Kolb (ed.) 2010). Rodrik chimes in by saying ‘Macroeconomics may be the only applied field within economics in which more training puts greater distance between the specialist and the real world, owing to its reliance on highly unrealistic models that sacrifice relevance to technical rigor’ (2009). Levitt makes essentially the same point when he writes: ‘The single easiest way to make a mark in a modern macro paper is to solve a problem that is really, really hard mathematically. Even if it is not relevant to anything, it is seen as a sign that the author has “impressive skills”, which is enough to get a job – and even tenure sometimes – at top universities’ (2009).

The list goes on and on, with similar sentiments being voiced by Nobel laureates like Stiglitz or former governor of the U.S. Federal Reserve System Meyer. This begs the question as to why students still need to learn this stuff. If so many prominent economists believe their theories have led us astray, why do students still need to learn them? Are professors in modern macroeconomics willfully ignorant? Perhaps some are, but even those that have seen the writing on the wall, are frequently unable to break the mold. After all, they rose to prominence by being incapable of independent thoughts or willfully ignoring them (I, for one, do not see how else one could persist and flourish in a ’wholly counterintuitive doctrine’).

So, even if they know deep down that their profession is broken beyond repair, they have built their career on their extraordinary ability to ignore reality and manipulate absurd models rather than their skills in contemplating and assessing more realistic alternatives. So they continue to assess their students by the only yardstick they know: their ability to manipulate and build models in which rational representative agents optimize outcomes and equilibrate markets. Students that want to transform their discipline, thus have to navigate a minefield. If they are to become experts whose knowledge is relevant, they have to approach their discipline like the joke that it is. At the same time, they can only be taken seriously if they gain respect by getting excellent grades.

Perhaps modern macro-economics is best approached like a psychiatrist would approach a delusion. A psychiatrist is usually genuinely interested in the contents of the delusion and the implications it has for his patient. Thus, the psychiatrist studies the delusion with zeal and enthusiasm in order to understand his patient’s inner world, but he never contemplates moving to that world himself. Similarly, economics’ students can try to get a firm grasp of the paper world their discipline presents them with in order to get to grips with economic pathology. Understanding your discipline’s delusions is the first step to dispelling them. Once dispelled, recovery can begin.

As the quotes above indicate, the profession is open to therapy, but it needs a friendly nonjudgmental outsider that understands the delusion’s appeal to guide it out of it. It knows that its delusions are harmful, but is afraid to live without them. The profession needs a therapist and students may be well placed to take on that role.


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