Toward a rigorous challenge to mainstream economics

We live in momentous times. At this juncture in history, it is patently undeniable that public policy debate is necessarily global in scope. Fittingly, there is now a worldwide economic policy ideology called, logically enough, 'globalization.' The proponents of globalization, for the most part, are content with their rhetorical ammunition consisting of simply the 'laws of economics.' Common sense pretty much everywhere recognizes the utter futility of trying to argue with the laws of science.

Yet, for all the published research establishing that capitalism (specifically deregulatory capitalism) is the only 'economic system' compatible with the laws of economics, opposition to public policy informed by natural law persists. Angles of attack vary, but the opposition camps have come to be known collectively as the 'anti-globalization movement.' Anti-globalization activists in general find themselves constantly put on the defensive, and the means by which this is accomplished almost always amount to denouncing as mere negative attitude the practice of framing one's worldview in terms of what one is against, while prodding the dissident for alternative policy ideas. This tactic, of course, is designed merely to bait the anti-globalist to propose policy ideas based on whatever alternative to laissez-faire capitalism they happen to believe in, be it regulated capitalism, mixed economy, social democracy, protectionism, anarcho-syndicalism, or virtually anything else. The next move on the part of the pro-globalist is to denounce whatever solution is proposed as something that has already been tried, and of course proven unworkable by human history, as well as of course the laws of economics.

This essay proposes challenging the field of economics itself, not by offering mysticism or ideology as a replacement for the scientific method, but by challenging the scientific legitimacy of at least major portions of the body of knowledge known as economics, at its current stage of development. It is proposed that we not tamper with accepted research methodology, but that we do question the assumptions under which it has been applied to economics.

Economics as empirical science

Economics, like any established field of scientific inquiry, is advertised as a set of principles and cause-and-effect relationships, that is testable under real-world conditions. Economics is generally held to be one of the social sciences. For this reason, it is generally expected by economists and others that economics is an inexact science, in which mathematical relationships are verified by statistical inference rather than by direct measurement. Nevertheless, it is also asserted that the verified laws of economics are immutable and non-negotiable laws of the universe, as are the laws of any empirical science.

Experimental methods of inquiry

Experiments are tests of scientific hypotheses performed under controlled conditions, in order to isolate a small number of variables and directly observe the effect of changes in one variable on changes in another variable. The experimental method has had limited application to research in the social sciences for a number of obvious reasons. People have a general distaste for the idea of people as experimental subjects. When informed consent is obtained from people for their participation in scientific research as experimental subjects, informational problems persist which have to be remedied by creating 'double-blind' research protocols. Another limitation to experimentation on people, of course, is the self-referential paradox of humanity studying itself.

Experiential methods of inquiry

Proponents of mainstream economic theory are always well-prepared to demonstrate that the rigorous study of economics leads to results that are counterintuitive, which is to say, demonstrate that the way the economy operates, in objective terms, differs profoundly from the way it seems to operate, from the perspective of an economic actor (i.e., an individual) who has an emotional investment in economic outcomes such as landing a job, haggling over a price, or seeing one's investments appreciate. At the same time, the literature of mainstream economics demonstrates mathematical measurements (or at least models) of such arguably subjective phenomena as utility (usefulness), customer satisfaction and even happiness.

Proponents of free-market oriented public policies are equally assertive in dealing with individuals and movements claiming that economic conditions are unfavorable, based on claims that getting a job is getting harder, or that the pursuit of a livelihood entails more risk and less reward than it used to. The leading economic indicators show that the economy is more prosperous than ever; so claims or conclusions to the contrary that are based on subjective experience are obviously mistaken.

Economics as quantitative science

Economic theory is usually expressed in the economics literature in quantitative terms. The theory of microeconomics (or 'price theory,' as it's come to be called) is stated largely in terms of two scalar variables, called 'price' and 'quantity.' According to current theory, 'price' is objective, while 'value' is subjective. Both are said to be measurable in scalar terms, in units of 'currency.'

Empirical methods of data collection

According to theory, the market price of a given good at a given place and time is evidenced by actual transactions transacted by actual people in the real world. A record of an actual transaction (such as a receipt) constitutes empirical evidence of an actual price actually mutually agreed on by a vendor (supplier) and a purchaser (demander). What seems to be lacking is a published research study based on a large collection of data points established in this way. Such data are readily available from the financial markets, where participants are obviously (when it comes to current market prices, anyway) on the same page, informationally speaking, thanks to the time-honored information technology known as the 'ticker tape.' But what of the market for tangible goods? What of the labor market? Outside of the financial markets (the markets in 'financial paper') records of actual transactions, especially in machine-readable or otherwise tabulated form, are considered proprietary information. It would seem obvious that published research on prices in tangible goods markets are of necessity based on indirect measurements and estimates. It would also seem apparent that the most plentiful and accurate data in price theory are available for proprietary rather than published research, since direct observation and verification of real-world exchange is trivially easy to the owners of intellectual property in the form of databases generated by point-of-sale systems, credit and debit card transaction processing systems, and various other types of proprietary information systems. With the passage of time, it would seem reasonable to question whether the most powerful research tools in existence in the field of price theory are also proprietary and perhaps even unknown to the academic community. It is proposed here that published research in price theory should be considered of questionable empirical authority. It should also be noted that, historically, the putative obsolescence of the notion of 'microeconomics' by generalization to 'price theory' is approximately concurrent with the generalization from the traditionally academic discipline of 'inferential statistics' to 'data mining,' a field characterized, so far, much more by trade secrets than by published research.

Data collection given the existence of disinformation

Economic theory during the last century has been informed more and more by findings in information theory. This is appropriate, since in their simplest and most 'restricted' form, theories of economic behavior assume 'market transparency,' which is to say that market participants know what goods are available, and what prices the market will bear for those goods. Obviously, the development of market models is generalized to allow dropping the assumption of transparency, by allowing for the possibility of 'information asymmetry,' or the idea that some market participants possess information that others lack. Ideally, it should be possible to measure information asymmetry, using direct observation of economic activity in the real world.

Many questions dealing with information itself are also of obvious economic importance. Many (perhaps most) business models in use today treat information as an economic good, to be 'created' (invented or discovered), sold, shared, bought, hoarded, given legal status as property, etc. Now that the Internet has irrevocably evolved into a commercial institution, dazed and confused open source enthusiasts still muse about whether 'information wants to be free.' One thing that has been known for some time is that disinformation is far easier to generate than it is to analyze. Encryption of information is far easier than decryption. These facts should beg the question of whether a shared body of human knowledge is possible, let alone whether the published findings in economics can be treated as 'natural law,' let alone a valid basis for public policy. If nothing else, it should be clear that anyone purporting to be doing empirical research on human behavior, including economic behavior, had better come equipped with the tools of informational warfare.

Economics as social science

General social science as multidisciplinary enterprise

In the early days of 'scientific' economics, known as the 'classical period,' most economic scholars were affiliated with university departments of 'political economy.' In more recent years, economics and political science have come to be treated as social sciences in their own right, with their own bodies of theory and evidence, with each science having its own collegial affiliations and research journals. Meanwhile, in the natural sciences, new sciences appeared with such 'hybridized' names as 'biochemistry' and 'astrophysics.'

In recent years, critiques have been made of economic theory for not accounting for the existence of political power, and for modeling economic actors as 'economic man,' a mythical being who pursues self-interest within a free and open marketplace. In the real world, especially as experienced by low-income people, economic activities as basic as comparison shopping for consumer goods, or negotiating terms of employment, are heavily constrained by limitations in information (e.g. 'digital divide') and transportation (automobile as de facto economic necessity).

Adversarial research methodology

Economic researchers in these times simply do not have the luxury of taking official or published sources of economic data at face value. The annual reports of corporations are prepared by accountants, whose professional praxis has at least occasionally been shown to include 'cooking the books.' The (U.S.) Bureau of Labor Statistics defines inflation in terms of standardized market baskets, defines unemployment in a way that excludes what it terms 'discouraged workers,' and even assumes a nationwide 'poverty line.'

The methodology of economics must borrow techniques and tactics from the field of journalism, which operates under the assumption that information sources are sometimes hostile toward the process of informing the public. The notion of 'forensic economics' must become as widely understood and matter-of-fact as 'forensic accounting.' Absent this development, it would not be wise to assume that the published findings of economic science are reliably applicable to reality.

Economics as systems theory

Mathematical modeling and its limitations

Many readers will no doubt recognize the advertising slogan 'math is power.' As a point of fact, it is, but not for the advertised reasons. Much of the power of mathematics lies in its ability, in some cases, to provide unambiguous answers to questions stated in unambiguous terms. This makes mathematics one of the most useful bu__sh__ detectors available, in a variety of situations. This is a property of applied as well as pure mathematics. Applied mathematics is more problematic than pure mathematics, when it comes to authoritativeness of solutions, because mathematical models (generically, applied math's universal method) of 'real world' phenomena necessarily make a priori assumptions in order to enable calculations over a manageable number of variables.

Mathematical proof vs. scientific theory

It is a serious mistake to confuse mathematical methods with scientific methods. This fact is becoming very problematic right now, because mathematics and science are being jointly promoted as the subject area[s!] in which America's schools are dangerously unambitious and uncompetitive. The thesis of the statement, while debatable, is plausible. The problem arises to the extent that the public interprets the statement as implying that mathematics and science are closely related fields.

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