Economics has no claim to authority
Congratulations to Thomas Sargent and Christopher Sims for having won the Sveriges Riksbank Prize in Economic Sciences! Never heard of it? It’s commonly and quite fraudulently called the Nobel Prize in Economics but it has absolutely nothing at all to do with Alfred Nobel who died in the 19th century, well before the economics prize was first issued in 1969. In short, it’s more than a bit of false advertising to identify the Sveriges Riksbank Prize with Alfred Nobel. Not that a prize with Nobel’s name on it, an armaments tycoon, has any particular claim to great Nobility either. That his name sounds Noble probably takes us a good way toward understanding its undue royal mystique.
Anyway, it’s interesting to briefly look into what Sargent and Sims did for the coveted Sveriges Riksbank if only to remind ourselves of the utter worthlessness of economics as a profession. Would anything be lost if the entire output of economics were thrown into the sea save Keynes’s “General Theory of Employment, Interest, and Money”, some insights by Minsky and Kalecki, and the monetary works of Abba Lerner and Modern Monetary Theory? (I’m not considering Marx and Veblen as economists here.) Most of economics is arcane mathematics built on a foundation of absurd assumptions which, according to Keynes himself, “are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols”. The important point in this post, especially for the rising protest movements, is that what needs to be understood regarding economics is straightforward and fully communicable in plain English. What’s learned in PHD level economics is not relevant to an understanding of the difficulties our society faces and we should therefore place zero weight on any claims to authority by economists. This especially goes for the likes of Krugman and Stiglitz, both prior winners of the Sveriges Riksbank, who hide their orthodoxy behind a faux progressivism and receive special prestige for having supposedly won the Nobel Prize.
Let’s look very briefly at the work of our new laureates using this information piece issued by the Royal Swedish Academy of Sciences. According to the document, Sargent and Sims developed a means of forecasting how economic policy will effect “different macroeconomic variables such as GDP, inflation, employment and investments”. Wow! What an incredibly useful discovery and also what a way to get rich in the stock market! But of course it’s all sleight of hand and the work contains absolutely no path to enlightenment or to gold . Since the work of Sargent and Sims is similar, I’m just going to look at the former.
Sargent, according to the document, developed a three step process to determine his forecasts. Step 1 is a fairly straightforward exercise requiring nothing other than coming up with “an accurate mathematical description of the economy”. Should we laugh? An accurate mathematical description of the economy has been the holy grail of economics for the past century and it’s failed miserably. If this is only the first step of his process, we have a very long road to travel. But this is what economists do. They endlessly concoct formulas that have no value outside the simplistic models.
It gets even better. Step 2 “consists of solving the mathematical model”. Sargent wants to determine mathematically what expectations various actors may have for the future as they relate to ever changing macroeconomic variables. You’d think this would be an incredibly difficult task requiring years of psychological and anthropological research to even begin to hazard a guess. Not to mention the complexity of ever changing feedback loops as society itself influences how an individual may think and behave. How can our laureate reduce such complexity to a formula? Are humans that simple? Well, no; but the model is. Our laureate, as only an economist can do, brilliantly eliminates all complexity and simply assumes that expectations are exactly what the model itself forecasts! Self-referentiality at its best.
Step 3 simply looks at historical correlations using past statistical data and assumes such relationships will continue as policy options are changed.
Of course no meaningful forecasts have ever been made using this three step process, it gives us no insight into the key drivers of macroeconomic outcomes, and it tells us nothing on how to overcome our societal problems. Sargent and Sims’s work is undoubtedly mathematically complex, but it’s worthless as a way to understand our socio-economic system of power and hierarchy. It’s way past time to place economics into the junk bin of history.