Politics Versus Economics: Keeping It Real
by
Daniel Gay
(PhD student at the University of Stirling, UK)
post-autistic economics review
Issue no. 19; April 2, 2003
For someone who previously thought of duality as part
of the Kama Sutra and the business cycle as an
environmentally-friendly way of getting to work, the
last year has been a struggle. A struggle not foremost
in understanding complicated mathematical techniques
and learning theory (although these tasks were far
from easy), but a battle to understand why otherwise
clever people devoted so much time to limiting their
horizons.
Following my British undergraduate education in
politics, philosophy and economics I completed a
mainstream masters degree in political theory. After a
few years as a journalist trying to decode the
pronouncements of the dismal science, I returned to
university to study a masters in economics. But if I
hoped for a clearer understanding of how real people
share out scarce resources, I was maximising the wrong
function. If I thought I would gain a better
understanding of real economies, I was sorely
mistaken. If I believed I would at last hear the God
Oikonomos, I was surely beyond redemption.
Here, I would like to compare my experiences of
learning politics and economics as a postgraduate. I
found that three features of mainstream economics
teaching made it less helpful for understanding real
life than political theory: its shortage of rigour,
the dogmatic way it uses concepts and its lack of
usefulness.
Rigour not figures
Rigour, according to the latest edition of the Oxford
English Dictionary, means "the quality of being
extremely thorough, exhaustive or accurate". Usually
someone is considered rigorous if they have delved
into an issue and thought about every angle, arriving
at a conclusion that attempts to tie up loose ends.
Mainstream economics, as is well known, prides itself
on its rigour. Applying a general equilibrium approach
requires showing with numbers how demand and supply
interact simultaneously in several markets to produce
prices for all goods. The practitioners of mainstream
economics castigate those in other social sciences for
"hand waving" and failing to quantify variables.
Political theory, like sociology, is particularly
vulnerable since many strands of the discipline openly
dispute the idea of measuring society. For instance
much of Marxism denies the possibility of reducing
human society to individuals that can be added or
subtracted.
But if political theorists are idle gesticulators,
then mainstream economists are invisible hand-wavers.
Their version of economics is, in fact, unrigorous
because it leaves out so many possibilities. It is not
thorough because it mostly analyses only things it can
measure. It isn't exhaustive because it is implicitly
bound by an uncritically positivist and strictly
utilitarian worldview that precludes uncertainty. It
is inaccurate; economists themselves endlessly repeat
the mantra that they are no good at forecasting levels
* only directions * and often even these are wrong.
And if accuracy is judged by explanation rather than
prediction, then many important parts of economics
only appear rigorous insofar as they assume their
results. For example that jewel in the crown of the
new classical tradition * real (surreal?) business
cycle theory * simply assumes a close approximation of
real economic fluctuations and therefore produces
similar predictable output movements to the data.
Nelson and Plosser's well-known test disputing
predictable trends in GDP over time might be one part
of the argument against government intervention but it
surely shouldn't be considered a conclusive piece of
evidence when teaching the theory of economic
fluctuations.
If I had handed in a politics essay containing within
its argument only the blind empiricism of
econometrics, it would have been graded a 'D'. In
politics, years are spent drumming in the need to
combine facts, theory and values in the correct
combination to achieve a compelling syllogism. Simply
pointing out a historical relation between several
variables, however complicated the maths, is
considered insufficient to prove a case. True rigour
is achieved only through a combination of
argumentative forms and evidence; empirical,
theoretical, epistemological, ontological. To misquote
Paul Krugman: a half-hearted cheer for formalism, and
reserve the other two for broad-mindedness.
Creative concepts
The analytical pretensions of economics derive in
large part from the dogmatic way it uses concepts.
Where politics frequently strays into the never-never
land of creativity, economics steadfastly sticks to
its tried and badly-tested tools. In political theory
we read the creative writing of Hilaire Belloc and GK
Chesterton for their espousal of community values, or
the novels of Jean-Paul Sartre for their subjectivist
approach to existentialism, concepts that couldn't be
communicated through standard philosophical works. But
in economics we paced the well-worn treadmill of
Samuelson, Solow and Sargent * geniuses no doubt, but
hardly the free-thinkers of their generation.
Economics sticks to prefabricated concepts because it
thinks it is gradually improving its grip on the
world. But what it fails to recognise is that the real
world is dynamic and elusive, and that understanding
it requires an ever-changing and nuanced approach. A
variety of human activities that can be described as
economic cannot be understood by strictly analytical
tools. Does it clarify matters to label the Indonesian
exchange rate between 1997 and 2000 * a period during
which it swung between 2,500 and 15,000 to the US
dollar and back again * by an ageing metaphor borrowed
from physics? Or would it make more sense to question
and redefine the concept of equilibrium in crisis
situations?
Because economics builds up an edifice of analytics,
it is simply hard to understand. That is why so many
undergraduates drop out early on and take up more
intuitive subjects. It is easier to grasp subjects
that obviously relate to changing, everyday life. Most
of the physical sciences change their views of the
world around us, as do the humanities and social
sciences. Economics is almost alone in the way it
clings so tightly to past ideas. If it was open to
wholesale re-evaluation * like physics accepted the
quantum revolution * it would be much easier to
understand and more popular.
Most students can see straight through the attempts of
economists to present the subject as a seamless whole.
I remember countless post-lecture whinges: about how
if Akerlof and co. say that information is distributed
asymmetrically then why does general equilibrium
theory assume that it isn't? Or about why many
Brander-Spencer type arguments for strategic trade
think that assumptions should be realistic, while the
rest of macroeconomics argues precisely the opposite.
Not that there's anything wrong with contradiction.
Reality is contradictory. The point is that economics
would be much more honest explicitly to admit its
points of difference, and would arrive at better
conclusions if it was creative in its use of concepts.
The only compulsory course on my political theory MSc
was entitled: "Methods and Controversies in the
History of Political Thought." Method, controversies
and history are all practices studiously avoided by
conventional economic thought. But arguing about and
redefining concepts is part of good science.
Useful or toothless?
A lack of rigour and rigid use of concepts might be
excusable if economics was useful. It isn't. Even
though many students study economics to postgraduate
level instrumentally * usually to gain a career in
finance * they rarely use the tools they learn. Nobody
would become an investment analyst if the strong form
of the efficient markets hypothesis were true. Many
financial professionals carry at the back of their
minds a vague intuition that supply and demand are
supposed to equilibriate, and so on, but much more
useful is a practical understanding of how real
exchange rates move, and of how stock and bond markets
work in different countries.
Even some students academically interested in
economics grumble about its uselessness. It is an
oft-heard refrain that microeconomics is a cosy
exercise easily performed in an exam, but trying to
pin it down in research is much harder because reality
starts to intrude. For me, microeconomics asserted a
kind of Stockholm syndrome * in the end I grudgingly
indulged my imprisoner. But it was less useful than
the techniques learnt in politics.
You might think that political theory was about as
abstract as it is possible to be. How can a discipline
whose sole intent is * by definition * theory, have
anything to offer everyday life? But because political
theory is self-critical and pluralistic, it offers
tools that are much more useful. Economics may purport
to get down to the nitty-gritty details, but because
of its rigidity it remains hopelessly stuck in its own
nether world of axioms, lemmas and symbols.
Reading the business pages of a newspaper becomes a
lot more informative if you have studied Marx's theory
of ideology, whereas much of academic financial
economics is irrelevant. Michel Foucault's definition
of power relations says more about the behaviour of
actors within the capitalist firm than does
microeconomics. The Weberian theory of legitimacy
offers a broad and adaptable understanding of the
political state because it doesn't depend on unusual
assumptions and can therefore be applied in a variety
of situations. As a number of authors have shown,
using unrealistic assumptions as an heuristic device
often robs economic concepts of real world validity.
Students often accuse academics of being out of touch,
but it is university economics above all that refuses
to engage with the ordinary world.
Conclusions
Of course a lot of economics is realistic. As I have
suggested, applying some models from the new trade
theory requires realism of assumptions. John Maynard
Keynes gives a nod to real people by making
uncertainty central to the general theory; the more
uncertain agents are, the more likely they are to hold
money and the higher the interest rate. Critical
realists identify the existence of a deeper level of
economic reality of which we can gain open-ended
knowledge.
Political theory is only more realistic than economics
because of certain features common to all broad-minded
sciences * including pluralism and disagreement over
certain basic issues. It has no inherent superiority.
Parts of political theory can be woolly, distant and
difficult to use. It is plainly harder to apply the
knowledge of a diverse discipline. The so-called
analytical thinking of economics at least has the
merit of being able to supply answers, albeit in a
limited sense.
But therein lies the problem: reality is messy and
difficult to grasp. Usefully comprehending messiness
and difficulty requires intuition, an open mind and
common sense. And just because a discipline is hard to
apply, it doesn't mean we shouldn't try. What are we
doing, if not trying to understand real life? Are our
ivory-tower proclamations aimed at constructing a cosy
scheme that holds internal consistency, or are we
highlighting and explaining useful features of real
life with a view to changing them?
Rigour, flexibility and usefulness are linked. A
discipline must at least show willingness to
comprehensively rethink its use of terms if it is to
remain objective and rigorous. If it doesn't, it is
not as useful as it could be. If it can't incorporate
a number of different tools then it is neither fully
rigorous nor useful. If it isn't useful, it should
surely think again about the concepts it uses.
Avoiding rigour, dogmatically adhering to old concepts
and forgetting that knowledge must be useful, all
ultimately deny realism.
Economics could easily rise from the status of idiot,
to idiot savant of the social sciences. And
elucidating economics could be at least as rewarding
as pontificating about politics. But only when
economists remove their blinkers.
Bibliography
Akerlof, G. (1970) 'The Market for Lemons: Quality
Uncertainty and the Market Mechanism', The Quarterly
Journal of Economics, 84: 488-500
Brander, J. and B. Spencer (1985) 'Export Subsidies
and International Market Share Rivalry', Journal of
International Economics, no. 18: 83-100
Foucault, M. (1980) Power/Knowledge (London, Harvester
Wheatsheaf) (Ed. Colin Gordon)
Keynes, J. M. (1936) The General Theory of Employment,
Interest and Money (London, Macmillan)
Krugman, P. (1998) 'Two Cheers for Formalism', The
Economic Journal, 108 (Autumn): 1829-1836
Lawson, T (1997) Economics and Reality (London,
Routledge)
Samuelson, P. (1947) Foundations of Economic Analysis
(Cambridge, Harvard University Press)
Sargent, T. (1987) Macroeconomic Theory (Boston,
Academic Press)
Solow, R. (1956) 'A Contribution to the Theory of
Economic Growth', The Quarterly Journal of Economics,
vol.70, Issue 1 (February): 65-94
post-autistic economics review
Issue no. 19; April 2, 2003
http://www.btinternet.com/~pae_news/review/issue19.htm
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