Neither A Science Nor A Theology

Like Martin Luther five hundred years ago, Steve Keen -- who teaches at the London School of Economics, -- has called for a reformation of his discipline. Larry Elliott writes:

Keen and those supporting him (full disclosure: I was one of them) were making a simple point as he used Blu Tack to stick their 33 theses to one of the world’s leading universities: economics needs its own Reformation just as the Catholic church did 500 years ago. Like the medieval church, orthodox economics thinks it has all the answers. Complex mathematics is used to mystify economics, just as congregations in Luther’s time were deliberately left in the dark by services conducted in Latin. Neoclassical economics has become an unquestioned belief system and treats anybody who challenges the creed of self-righting markets and rational consumers as dangerous heretics.

Neo-liberal -- some call it neo-classical -- economics has assumed theological status. It has become a dogma which is beyond question. But the evidence shows that the models it proposes simply don't work. The new economics should be built on the following principles:

Firstly, listen to consumers, because it is pretty obvious that they are unimpressed with what they are getting. The failure of the economics establishment to predict the crisis and its insistence that austerity is the right response to the events of a decade ago has meant the profession has rarely been less trusted.

Secondly, we should stop treating economics as a science because it is nothing of the sort. A proper science involves testing a hypothesis against the available evidence. If the evidence doesn’t support the theory, a physicist or a biologist will discard the theory and try to come up one that does work empirically.

Thirdly, economics needs to be prepared to learn from other disciplines because when it does the results are worthwhile. One example is the way in which auto-enrolment has increased pension coverage. If humans were truly economically rational, it would make no difference whether their employers automatically enrolled them into pension schemes: they would decide whether to join schemes on the basis of whether they deemed it worth deferring consumption until they had retired. Yet, basic psychology says this is not the way people actually act. They are far less likely to opt out of something than they are to opt into something.

Fourthly, economics needs to be demystified. One of the big battles between Catholics and Protestants in mid-16th century England was over whether the bible should be in Latin or English, a recognition that language matters. The easy part of an economic Reformation is to attack the current establishment; the difficult part is to present a compelling story without resorting to jargon. Control of the narrative – as George Osborne realised when he criticised Labour for failing to mend the roof while the sun was shining – is crucial.

It's high time we stopped worshipping at the temple which Milton Friedman and Fredrick Hayak built. Economics is neither a science nor a theology.

Image: Pinterest