Rethinking Economics — the Case Against Modern Economics

“How are issues of progressive taxation, redistribution and universal government provision so much like, say, the issues of public utility regulation, antitrust, consumer protection, workplace safety and labour standards, enviro protection, financial regulation, insurance regulation, land use controls, housing regulation, agricultural regulation, healthcare regulation, transportation regulation, energy regulation, and so on?”¹

For such a remarkably scientific discipline, the partisanship that strikes at the heart of modern economics is remarkable. Apparently not “slaves of some defunct economist”,² living economists are nevertheless beset by partisan predictability. Take their ideas on energy regulation, and you will know their ideas on antitrust. This is of course a thoroughly human problem. But it is a problem that economics, in its express pride as a discipline unto itself — “a larger science in human action”³— should be immune to.

Given “it is the economy, stupid!” is a rallying cry for political caution, it should follow that the discipline was certain, free from normative error and not otherwise beset by motivated partisanship. Conservative parties across the globe still hold traction in their claim to being the better economic managers, presupposing a fixed knowability to the economy that few economists in fact advocate for. But certainly in its own mathematised and scientific complexity — inaccessible to all but itself — economics is imbued with an elevated aura and status.

The curious state of modern economics is that it provides a plausible and reflexive defence to any legitimate criticism. The idle wealthy profligately spend their money on trivial and environmentally negligent consumer items? Their demand creates industries. Wages have stagnated for decades despite protracted increases in productivity? A strong “profit share” of national income allows for future investment.⁴ Continued accelerations in wealth that only benefits the already rich, whilst the ‘worst off’ are actually becoming worse off (note that staple liberal, Rawlsian argument that the lot of the ‘worst off’ was improving)?⁴ Profit incentives allow the efficient allocation of resources.

Let’s keep playing. Inordinate increases to CEO wealth despite stagnation in productivity growth and (non-government funded) technological development? Division of labour. Resisting minimum wage laws despite evidence that the minimum wage laws have not markedly disrupted unemployment and consumer price signals?⁵ Natural market equilibrium. Wealth gains no longer reflecting productive growth or wealth creation (such as the creation of a new factory, business or technology) but instead being distributed through speculation and enclosure? The efficiency and social stability of private ownership.⁶

Such lazy, generalised tropes allow many to not critically examine areas that are plainly up for examination; or, at a minimum, stow away each issue as an isolated ‘bad apple’ incident. This will usually only happen after the fact or some crisis, as we saw with the belated paradigmatic shift in economic thinking that naturally occurred only after 2008.⁷

Yet equally, when confronted with authorities supporting the power of markets and voluntary exchange, many throw their hands up and decry the whole of economics as fictitious, dominated by ‘sycophants of capital’ and the domain of ‘sophisters and calculators’.⁸ In doing so, we forget that truly classical economists — David Ricardo, Adam Smith and Henry George — were more radical than most social commentators today, especially in their study on wage growth, labour and land and their critique of inequality.

Without the apparent cowardice of sweeping aside a complex field in one sentence, distinctions can be made. You can support markets without being unabashedly neoliberal, you can acknowledge that markets are a legal construct (rather than some organic science of human action) without thinking that economics is some elite conspiracy, and, of course, you can support decentralised economies even while being appraised of the inherent contradictions of western capitalism, such as its disavowal of monopolistic practices yet co-existing endorsement of private property. More modestly, one might even divorce what free market liberalism extols (competition, inclusivity, no barriers to entry, etc), with the inevitable reality of its practice, such as the reality of monopoly from the Gilded Age monopolies in oil and steel to the Silicon Valley tech giants of today.⁹

More than this, however, is that there is no better time to think more deeply about our economic arrangements. We are all too aware of our cost of living crisis, as the collective mood is deteriorating from apathetic acceptance to division and resentment.

Accordingly, this economics series offers one such answer to the crisis. The following series will be split into a variety of propositions, questioning the dominant orthodoxies of mainstream economic thought. These set down major, often overlapping criticisms of the economics field that it certainly is half-conscious of, but most certainly has not integrated nor seriously tackled. Such criticisms bear explanatory power on our current predicament, but also contain the seeds of a new economic approach altogether.

The point here is not necessarily revolution, nor even the much maligned ‘reform’. But it is unquestionably a call on an otherwise self-satisfied profession to question its futility in an obviously non-futile area. Economic arrangements dominate and dictate the fate of millions, so I very much plead: where are the economists?

The first of these propositions concerns the spurious assertion that economics is a science. This is not to deride the social sciences (as distinct from the natural), for the below reveals the motivated reasoning and obfuscated smokescreen the scientific justification provides, which is particular to economics. It does suggest however that if the scientific basis can successfully be doubted, then economics — with apologies to credentialists, specialists and technocrats alike — remains in public hands.

No economic kings, economists under this arrangement have a far more modest yet noble goal. Democratically bound by the public good, economists exploit their skills for social progress and public benefit. No longer preaching inalienable economics law that only they can distil, economists are borne of this world and bound by it. Created by humans and adapted for humans, economics is no longer decoupled from social aims of human progress, dignity and well-being, it instead becomes one of our many tools — or disciplines — geared towards human flourishing.

Economics is no science

“Economics is a spurious science in so far as it is used to tell us what we ought to do because questions of what we ought to do in politics or as a society are unavoidably moral and political, not merely economic questions, and so they require democratic debate about fundamental values.”¹⁰

A ‘dismal science’, economics suffers from its own professionalisation. So inordinately crucial to our lives, economics has — much like the rest of academia — become incomprehensible to the public, naturally the same public whose interactions constitute the economy. More than just failed predictions, abstracted models and buried economic criticisms of inequality that are surprisingly found in the 18th century,¹¹ economics falters philosophically. Rather than a tool designed to solve real life problems, modern economics elevated instrumental rationality and deliberately neglected any discussion of principles, ends or values.

For Hilary Putnam, the dangerous legacy of the scientific thrust of the 20th century was its emphasis on the fact-value dichotomy. Proponents would deride value judgments (what ‘ought to be’) as meaningless and subjective. Because they are not factual — they do not describe the natural world as it is — they are simply meaningless. Ignoring the heavily value-laden term ‘meaningless’, this dichotomy has taken hold in modern economics.

The economist Lord Lionel Robbins once opposed welfare and the redistribution of income in the heart of the great depression because, in his view, ‘interpersonal comparisons of utility were meaningless’ (which in any case, ‘presupposes value judgments, which are outside the scope of rational argument.’)¹² Similarly, Daren Acemoglu once justified American inequality on the grounds that America’s ‘sink or swim’, cutthroat model is more likely to produce the next iPhone model.¹³ Such descriptive claims are held with authority, only for one to dig a little bit deeper and hear these same scientific economists simmer in values (see how Thomas Sowell discusses welfare: he espouses anti-paternalism and the ‘necessity’ to work to live).¹⁴

For others, economics took a bad turn 150 years ago when it reasoned that well-being and happiness was hard to quantify and so gave up and instead only measured consumer preferences.¹⁵ We see this most obviously with the great neoclassical economist Alfred Marshall, whose work on economic marginalism helped take the “political” out of “political economy”, thus ‘quantifying and de-moralizing economic thought.’¹⁶

More broadly, the problem with the scientific conception is, whether intentionally or not, it inoculates economics from rational criticism. Even if one thinks we were better to never have been, one does not rally against the existence of atoms to do so. And so if economics is truly “a larger science in human action” as the leader of the Austrian school of economics Ludwig Von Mises first declared, there is simply no realm in which we can explore alternative models or critique structures as they lay before us. This is very much what Mark Fisher meant by ‘capitalist realism’ — deprived of vision, we do not even bother exploring alternative possibilities.

For this, we can blame the influence of the Austrian School and economic marginalists (or neoclassical economists), who so modestly purported to describe economic life just as it was, thereby immunising economic structures from any criticism as to how it should be. Is it surprising then, that the same schools that propound this scientism (of course not making value judgments of their own) advocate for the structures that already exist — the free market, a limited State and comparative limits on the provision of welfare and redistribution — and denounce the possibility of alternatives?

When it is a science, it is natural. Being natural, there is no scope for judgments, only observation. As observers, we do not need to engage in questions of inequality, redistribution or human suffering, as these are value judgments, unfalsifiable and meaningless. Inequality and the concentration of the wealth are therefore not issues that raise ethical concern or a social desire to solve. They just are. If that is how the economy is, then that is how the world is.

Unsurprisingly, economics has moved to obfuscating models and impenetrable mathematical theorems. Descriptive claims being the order of the day, one does best by not being understood. Much like the inconceivable jargon of postmodernists,¹⁷ there is a strategic goal in being deliberately inscrutable. The economist Paul Romer deems this ‘mathiness’, where researchers gloss their work with models and known mathematical techniques as a smokesecreen disguise their political intentions.¹⁸ Some take it further, suggesting the universal invocation of maths and science means “restricting your microfoundations in advance to guarantee a particular political result and hiding what you are doing in a blizzard of irrelevant and ungrounded algebra”.¹⁹

At its heart, general mathiness provides for the ability to shroud and obfuscate. Gailbraith was famously cynical towards economics’ mathematical obsession, for in his view it, and modern economics more broadly, it denied the presence of power and political interests.²⁰ Hayek, that great economist reviled by socialists and progressives alike, was similarly scepticial of “scientism” in the social sciences. Hayek’s Nobel Prize winning speech, labelled the “Pretence of Knowledge” offered exactly this warning: the social sciences such as economics are not useless, but they are not analogous to the natural sciences.²¹

Yet Hayek, when seemingly praising the mathematical method, seemed unaware that his praise showcased exactly how non-empirical (i.e. abstracted from data) mainstream economic models had become: the “great advantage of the mathematical technique” is “that it allows us to describe, by means of algebraic equations, the general character of a pattern even when we are ignorant of the numerical values which will determine its particular manifestation”. And so when economists suggest that economics must remain true to its scientific foundation so as to avoid perpetual political disagreement,²² you might hope that economics actually starts empirically, with data and numerical values.

Consider economics’ scientific contribution to other social sciences, that of public choice theory in political science. Continuing that long standing tradition of antipathy towards democracy — running from the ancient Greeks, Edmund Burke and the conservative tradition, James Madison and the founding fathers to the technocratic and well-educated elite that handed Trump his 2016 and 2024 base — public choice theory systematically attacks democracy, and it does so by mathematical and scientific methods.

From intriguing studies that mathematically showed the inevitability of entirely random outcomes (where no predictable outcome or preference orders could come) from voting patterns, public choice theorists took it on themselves to draw dire implications for the whole of our democratic apparatus. Immodest politicking of professed scientists aside, the area got a whole lot more questionable, as Nancy Maclean famously traced the funding and reputation of Nobel Prize winning public choice theorist and economist, James Buchanan, to those impressive scoundrels, the Koch brothers. A scientific grounding might very well anchor economics objectively, but it certainly will not insulate it from bad actors and partisan politicking.

Further, this stultifying approach to economics produces narrow windows of acceptable discourse. Take the example of Melissa Dell, a recent winner of the Clark Medal, who arguably would not have won that medal if the discipline was not coming more to terms with the problems of ‘blackboard economics’. Much like the work of Acemoglu and Sen, Dell placed central importance of institutions in economic development, an importance that had hitherto been ignored given its difficulty of squeezing into precise, mathematical models. This is very similar to Richard Thaler’s contention in his book ‘Misbehaving: The Making of Behavioural Economics’, where he documented how economists ignored real world phenomena because they did not fit into mainstream mathematical models.²³

Methodologically, as a ‘science’, it is not overly impressive either. Economics, like social choice and public choice theory, takes as its object individual preferences (and we wonder why libertarians adorn economics) and therefore explains social order by reference only to individual choices. This is a nonsense, and of no assistance in explaining cultural divergences between nations. Take Gough Whitlam’s dismissal. It doesn’t take much to conceive of a different country where the leader would simply refuse to concede power. Here, a purely individualistic, economic account of political life cannot explain why it is that Gough Whitlam didn’t call out the army to entrench his leadership. This suggests that economic accounts will rarely assist in explaining social facts, or more simply, the world around us. Denuded of cultural meaning and limited only to individual preferences, economics struggles to explain the origin of customs and restraints of permissible behaviour.

This is not to let the Marxists off the hook either. If Marx’s historicism is not conducive to individual rights (note he was a powerful critic of human rights²⁴), the same can be said of his ‘scientific socialism’. With the unflinching confidence of a scientific veneer, the social development of mankind is no longer organic and chaotic, but rather a predetermined necessity that requires state intervention. Nor is it an approach that will ever invigorate the masses, either. Reduced to unfalsifiable historical and economic laws, all of society is reduced to class struggle and modes of production, including everything that makes life worth living.

Positively, although a common charge outside economics, the consensus appears to be changing within. The award of the 2021 Nobel Memorial Prize in Economic Sciences went to three empirical economists including David Card. Card’s work is of such a calibre that it draws significant ire from the scientific economists. When Card’s work was first published, one Nobel laureate declared it ‘equivalent to a denial that there is even minimal scientific content in economics’.²⁵

Nevertheless, the motive to wrap economics in scientific prestige is obvious. If economics does not involve the scientific and methodological study of economic laws, then it is no more than freewheeling politics. Economics would simply be a human fiction, with the obvious implication being that as we create it, we can control it. For many, the political implications of this reasoning are ghastly (note the inextricable political taint to the scientific argument): bigger government, increased centralisation and increased regulation. This is why Klein, when explaining the epigraph, noted prophetically that economists are motivated at a basic level by their feelings about governmentalisation.

But this is exactly the point. Economics is not syphoned away in an ideological vat. Nor is it a field which can merely prescribe political policies, whilst remaining immune to outside criticism. It is a product of us, our interactions and our values. As it very much dictates our daily and political life, we’d do better to speak of the invisible hand of public control.

This is not to say that science is impossible in economics. But it is to say that values, arbitrary concerns and outside influences proliferate. When economists such as William Riker prefer a liberal nightwatchman state and castigate majority democracy, they are not engaging scientifically. Of course, even the most “scientific” of disciplines are affected by the “values” of those who research and practice the vocation.²⁶ But when our fate is inextricably tied with our economic arrangements, it is a subjectivity that we must be alert to.

This leads to the next piece, which explores the neutrality of economic methods. In the spirit of philosophical pragmatism, it will make the claim that if economics is neither neutral or scientific — if its claims at truth and predictive diagnosis are faulty — then economics cannot lay claim to being a discipline unto itself. Its justification can only be in its practical use, or its contribution to social progress. And this is as commonsensical as it is in the true spirit of democracy. In an impending climate catastrophe and cost of living crisis, one should not have to wonder “where are the economists”?

[1] Daniel Klein.
[2] John Maynard Keynes
[3] Von Mises.
[4] See here. Note the ‘stagflation’ in the 70s when workers’ wages were high. Note productivity is still growing, but slowing down.
[5] See here.
[6] See here.
[7] Richard Posner, whose neoliberal, economic approach to law dominated academic circles in the 1980s, after having spent his whole career flogging rational choice, laissez faire economic models admitted some rather existential pause following the GFC — see Posner’s Failure of Capitalism.
[8] For the benefits of voluntary exchange in the legal context, see here. The quotes can be ascribed to Karl Marx and Edmund Burke.
[9] While antitrust law is intended to constrain such monopolies, as the eminent economist Alfred Chandler pointed out long ago (commenting on the 1890 Sherman Act), at best such statutes tend to “create oligopoly where monopoly existed and to prevent oligopoly from becoming monopoly.”
[10] Michael Sandel.
[11] See David Ricardo and Adam Smith, discussed below.
[12] A.C. Pigou famously argued that, owing to the law of diminishing marginal utility, transfers of money from the rich to the poor would increase social welfare, other things being equal. If interpersonal comparisons of utility were meaningless however, this could no longer be the case.
[13] See here.
[14] See here.
[15] Jeffrey Sachs has stated such an argument.
[16] See here.
[17] Compare with Orwell’s brilliant ‘Politics and the English Language.’
[18] See here.
[19] This argument was made by J. Bradford DeLong.
[20] See here. See also Gailbraith’s quote: “There can be no question, however, that prolonged commitment to mathematical exercises in economics can be damaging. It leads to the atrophy of judgment and intuition.”
[21] see here.
[22] See, eg, Paul Romer.
[23] As noted by Justin Fox here.
[24] See Marx, “On the Jewish Question”.
[25] See here.
[26] Anna Ruth Putnam, “Perceiving Facts and Values”, Philosophy 73, 1998