Not A Science

Economics is not a science. Or not an exact science anyway. To make the general public believe that it is an exact science, like chemistry, physics or astronomy, is one of the biggest and most pernicious lies of our age.

Don't let the Nobel prize for Economics fool you; economics is not a hard science. The problem is not that there even exists a Nobel Prize in economics, but that there are no equivalent prizes for sociology, anthropology and psychology. This elevates economics to the level of exact, hard sciences like physics or chemistry, which changes the way we think and speak about economics and, more importantly, the economy. Treating economics like an exact science brings with it the implication that the human world operates like the physical world, that it can be described and understood in neutral terms and that it can be captured in models, like the movement of planets and stars.

The Nobel prize for economics isn't one of the original Nobel Prizes either. Its official full title is "Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel", and was established in 1968 by an endowment "in perpetuity" from Sweden's central bank, to commemorate the bank's 300th anniversary. So it's not one of the five Nobel prizes which were established by Alfred Nobel's will in 1895 (physics, chemistry, medicine or physiology, literature and peace), but it is still commonly referred to as the Nobel prize in Economics and administered by the Nobel Foundation. The fact that this prize was created by a bank should tell us something about the sense of self-aggrandizement in the people making up the institution.

It's astounding to me that economists can keep up the appearance of being the legitimate guardians of scientific knowledge. To illustrate the danger behind this belief, look no further than the 1997 Nobel prize in economics awarded to economists Myron Scholes and Robert Merton. They set up a hedge fund called Long-Term Capital Management and had a lucrative trading strategy working with derivatives, but only one year after they won the Nobel prize, Long-Term Capital Management lost $4.6 billion in less than four months, requiring a bailout to avert a threat to the global financial system. And only one decade after that, we had the global meltdown, once again due to deregulation and "complex financial products".

Why regulate when the science is sound? Why regulate when the models predict every possible outcome? We don't regulate the movement of the planets in the solar system, do we? Whenever the models fail, these malfunctions are, without exception, ascribed to external calamitous factors. And these are described in naturalistic terms, like a "hurricane" or a "tsunami" or a "depression". The solar system could be shook up by a couple of extremely large asteroids too, right? Sure.

Economics is, if anything, a "soft" science or a social science, like sociology or psychology. Human knowledge about human behavior is fundamentally different from human knowledge about the natural world. And the difference between economics and those other social sciences is that they are at least open and honest about their innate limitations, such as verifiability, selection bias or observer bias. Not so in economics; economists were unable to imagine that bankers would be able to run their own banks into the ground because they reckoned not with basic human behavior.

You see, banks and other financial institutions for the past decades have fallen prey to the technocracy, partially as a result of economics being granted the same stature as the hard sciences. Also they've adopted a zero-security hire-and-fire culture, breeding a zero-loyalty mentality; if you can be fired in a few days, your horizon becomes a few days. An anthropologist could have told you that, but bankers, who effectively regulate themselves, rely on the models provided to them by economists with a five day horizon.

Economics isn't just a "soft" science, it's a vehicle for a specific ideology. We need only look at the way the economy is measured and graded in common parlance. It's no coincidence that the decisions about what to include in GDP are highly ideological and there is nothing neutral about the decision not to give greater weight to the explosion in housing and stock market prices when calculating inflation or interest rates. Economics is more often than not politics disguised as technocracy; we need to acknowledge that for the political debate about fundamental change to open up.

For a much more scientific and genuine perspective on the capitalist economy I recommend all to have a look at the works of Karl Marx. His economic theory is based in Historical Materialism, an objective and scientific exploration of the methods of production throughout human history, and a clear explanation of the ways the material world interacts with humans on an individual and societal scale. We're currently cursed with a myopic and ideologically one sided view on economics, the economy and politics; our entire society is drenched with the capitalist ideology to the point that it's almost become a religion with the economists as the new high priests. To get you started, here's a short introduction to Marxist ideas by Richard D. Wolff.

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