Economics – The Religion that Lost its Lustre

Pity the experts. Economists in particular feel they’re getting a bad rap in this new age of populism. After decades during which they were treated like sages, dispensing advice like pearls while every politician worth his salt competed for their endorsement, they now find themselves blamed for everything from the Great Stagnation to the purported destruction of America. United in their warnings that voting for Brexit or Donald Trump will bring economic Armageddon, they’ve watched stunned as millions gleefully ignore their advice.

So they go back to their carrels, reassuring themselves with Galileo-like ‘still it moves’ confidence that they will be vindicated in the end. ‘You can’t just change the laws of economics,’ a colleague of mine once said, ‘any more than you can vote down the law of gravity.’

Well, actually, you can. The big failure of economics has been the hubris that it is a science in the first place. Economists will remind you that they, alone among social scientists, get a Nobel Prize for ‘economic science.’ So what? The Nobel Prize in economics only exists because the economists created it, and it’s a science only because – no prizes for this one — the economists called it a science.

As a new book by Avner Offer and Gabriel Söderberg argues, back in the 1960s, the Bank of Sweden was trying to wrest its independence from the government. As any good social democratic government then did, the politicians maintained that elected representatives should decide monetary policy. The Bank of Sweden, however, insisted it was a science best left to the experts. To then burnish its expert credentials, the Bank asked the Nobel Foundation if they could use its name to endow a prize in what they called ‘economic science.’ But it is a Nobel in name only since it is awarded separately from the Foundation’s prestigious prizes.

In reality, economics is wholly unlike any other science that exists. In fact, when you peer beneath the hood, you’ll see that it hardly resembles science at all. For starters, it rests on a set of premises about the world not as it is, but as we – or at least, the economists — would like it to be. Just as any religious service begins with a profession of faith, economists begin their inquiries with certain core convictions about human nature. Among other things, they believe that we humans are self-interested, rational, essentially individualistic, and prefer more money to less. These articles of faith are taken as self-evident. As the economist Lionel Robbins wrote in a seminal essay, they resulted from ‘deduction from simple assumptions reflecting very elementary facts of general experience,’ and as such were ‘as universal as the laws of mathematics or mechanics, and as little capable of “suspension.’

Now, deducing laws from a priori premises is a time-honoured method. But that, the technique of medieval Scholasticism, is exactly what Galileo argued against. Modern scientists usually insist on testing assumptions empirically before proceeding further with them. Economists take their for granted. But on the few occasions when the articles of economic faith have been subjected to empirical examination (usually not by economists), they have been found to be wanting, or at best terribly nuanced and complicated.

Nevertheless, just as saying ‘Jesus is the son of God’ or ‘Mohammad is God’s prophet’ can affect the entire way you lead your life, so too can believing in the articles of economics determine the way you live and behave. Research has found that people who study economics tend, over time, to become more self-oriented in their behaviour. In other words, by changing our beliefs, we can create a society in the image of economics.

That, As I write in my upcoming book Twilight of the Money Gods (Simon & Schuster 2017), is the whole purpose of economics. From its foundation as a discipline, economics aimed to make the world a better place. So we can’t fault economists for trying to make us behave in a way they believe will improve our well-being. Persuaded that we are selfish and want to grow richer, they recommend social and political changes that will help us reach those goals. They are, in that respect, true idealists.

But that still doesn’t make what they do a science. Compare economics to physics, not only because physics is often considered the scientific ideal – the true science — but also because most economists model their discipline on physics. Physicists strive only to understand nature. They, however, can’t change it. Getting us to all stop believing in gravity won’t stop gravity. But if, say, we all stop believing house prices will rise, then lo and behold they will stop rising (since people will no longer see them as a good investment, and will stop buying them). Economics thus differs from science in that it goes beyond merely trying to discover the laws of nature, to actually making them.

People in Western societies often say they live in a post-religious time. Actually, we’re as religious as ever. It’s just that economists have been our priests – and we are losing our faith.

 

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