versus economics: keeping it real
Gay (PhD student at the University of Stirling, UK)
© Copyright 2003, Daniel
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
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
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.
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
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
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.
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
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
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
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.
Akerlof, G. (1970) ‘The Market
for Lemons: Quality Uncertainty and the Market Mechanism’, The Quarterly
Journal of Economics, 84:
Brander, J. and B. Spencer (1985) ‘Export Subsidies and International Market
Share Rivalry’, Journal of
International Economics, no.
Foucault, M. (1980) Power/Knowledge (London, Harvester Wheatsheaf) (Ed. Colin Gordon)
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,
Solow, R. (1956) ’A Contribution to the Theory of
Economic Growth’, The Quarterly Journal of Economics,
vol.70, Issue 1 (February):
Daniel Gay, “Politics Versus Economics: Keeping It Real“, post-autistic
economics review, issue no. 2 April 2003, article 1, http://www.paecon.net/PAEReview/issue19/Gay19.htm