A review of Economyths: Ten Ways Economics Gets it Wrong, by David Orrell

David Orrell, a mathematician who works on biological problems, recently published a book called Economyths: Ten Ways Economics Gets It Wrong. Economyths is a terrible, willfully ignorant, deeply anti-intellectual book. The characterization of economic thought presented is ridiculous. The level of scholarship is abysmal.

To avoid misunderstanding: Economics, like every other discipline, benefits from criticism. Anyone who’s ever attended an economics seminar knows that economists are vicious critics of each other, and criticism from other fields builds knowledge as well. However, criticism must be informed to be valid or valuable. Economyths is uninformed criticism.

The story Orrell tells over and over: Mainstream economists believe the economy is a perfect, stable, “God-like” machine which maximizes human happiness. All markets are always perfectly competitive, and the income distribution which results from markets is completely fair. Since the market is perfect and fair any all government intervention necessarily reduces happiness. “The price is right,” always and everywhere, as Orrell repeatedly puts it. There is little or no empirical work done by economists, theory tells us everything. There is only one type of government intervention economists support: subsidies to failing firms. Economists believe these things because this is what we are taught by senior economists, and senior economists are “part of a giant global conspiracy — an attempt to distract us from the real game that is being played behind the scenes.” (I am not making this up.)

To illustrate the level of scholarship on display, Orrell spends several chapters discussing the scandalous fact that economists oppose any and all government intervention to protect the environment, whereas ecologists argue we should instead implement policies invented by non-economists, such as carbon taxes or tradable emission permits, to reduce environmental damage. Of course, these are actually standard policy prescriptions in mainstream economics; last week there was a bit of an internet debate over whether there is even single economist who opposes carbon taxes to mitigate climate change.

Economists oppose carbon taxes and all other environmental interventions, according to Orrell, because “such schemes violate the neoclassical principle that we shouldn’t monkey with the market.” There is a field called “environmental economics,” Orrell notes, but the entire field just consists of one result: the First Welfare Theorem, which environmental economists interpret as a mathematical proof that environmental policies can only possibly do harm. To demonstrate this is so, Orrell quotes an environmental economics textbook (Hanley et al 1997) apparently plainly stating as much:

As one textbook on environmental economics states, in a perfect market, “prices ration resources to those that value them the most and, in doing so, individuals are swept along by Adam Smith’s invisible hand to achieve what is best for society as a collective. Optimal private decisions based on mutually advantageous exchange lead to optimal social outcomes.”34

If we look up the passage in the textbook, we find Orrell has curiously omitted the remainder of the passage:

Rather, prices ration resources to those that value them the most and, in doing so, individuals are swept along by Adam Smith’s invisible hand to achieve what is best for society as a collective. Optimal private decisions based on mutually advantageous exchange lead to optimal social outcomes. But for environmental assets, markets can fail if prices do not communicate society’s desires and constraints accurately. Prices often understate the full range of services provided by an asset, or simply do not exist to send a signal to the marketplace about the value of an asset. Market failure occurs when private decisions based on these prices, or lack of them, do not generate an efficient allocation of resources.

This is from the introductory chapter of the textbook, which proceeds to discuss habitat destruction in Madagascar as an example of a situation in which government intervention is very desirable.

The quote is taken entirely out of context to the point of outright deception. Orrell is not entirely to blame here, the reference is given in Economyths is not directly to the textbook, it’s as quoted in another piece. Instead of actually reading anything at all about what economists think about the environment, Orrell defers to English Literature professor Robert Nadeau‘s ridiculous hatchet job in pop magazine Scientific American. Orrell is not off the hook: this is a level of scholarship which would be considered unacceptable at the grade school level.

Anyone who has so much as skimmed an Economics 101 textbook or even the Wikipedia page on environmental economics knows that environmental economics does not begin and end with “the price is right.” If I type “what do economists think about the environment?” into Google, the first hit is a piece by Don Fullerton and Robert Stavins overturning popular myths about what economists think about the environment. “Myth #l: “Economists believe that the market solves all problems.” Shouldn’t someone writing a book on what’s wrong with modern economic thought understand basic economic ideas at a level a complete layman could obtain in ten minutes of Googling or flipping through an Econ 101 textbook, or for that matter even vaguely keeping up to date on current events by reading newspapers?

The rest of the book is no better. Orrell begins by explaining the Economics 101 version of supply and demand in a way that would get an 18 year old flunked out of Economics 101, and it’s all downhill from there, one wrong claim about what economists believe after another. A few of the amazing (-ly wrong) things I learned about economics from this book:

  • If asset prices are variable, supply and demand is wrong.
  • There do not exist any empirical estimates of supply or demand curves.
  • If expectations over future prices affect current demand, supply and demand is wrong.
  • If future asset price movements are not forecastable, then supply and demand is wrong.
  • Economists have never heard of emergent properties.
  • Economists insist on using math. Instead we should use agent-based models. Which are apparently not mathematical.
  • “Finally, another thing missing from neoclassical economics – and again it’s a big one – is the future. Because neoclassical economics assumes that the economy is at or near equilibrium, it ignores the effect of time and concentrates on maximizing utility in the short term.”
  • “Economists are taught that the economy is the net result of the actions of individual investors, who act independently of one another to maximize their own utility.”
  • Economists think everything is Gaussian. Finance folks in particular have never considered fat-tailed distributions.
  • Economists categorically reject bubbles everywhere and always.
  • The efficient markets hypothesis only exists in its strong form, and all mainstream economists believe it to be true.
  • Economic theory says that firms should only act in their short-term interests, because if a company considers the long term it will be taken over by competitors. “Economics likes to live only in the present.”
  • Economic theory says discrimination cannot exist, so economists don’t study discrimination.
  • (1) The world income distribution is becoming more unequal. (2) This is occurring because CEO pay is rising. (3) Economists control this process and are to blame for inequality.
  • Economists believe economic growth is always and everywhere a good thing.
  • Mainstream economics has nothing to say about oil or other natural resources. Such things are ignored by economists, who just assume everything is infinite [My personal favorite anti-economist canard: Economists just don’t understand scarcity!]
  • Economists believe money and happiness are the same thing.

I should emphasize this is hardly an exhaustive list of errors in the book, and the omissions are equally glaring—there is nothing an interested layman could possibly learn from this book. Contrast with informed criticism from outsiders. A good, albeit old, example is Steven Rhoads’ The Economist’s View of the World. Rhoads is a political scientist who spent a decade immersing himself in economics before publishing his book, which consists of an accurate and insightful summary of many elements of economic thought, followed by Rhoads’ criticism. This is informed criticism: even when I disagree with Rhoads’ objections to what economists believe, I don’t disagree on Rhoads’ description of what economists believe. I don’t think there’s a single sentence about what economists believe in Economyths with which I agree.

It’s fascinating and disturbing this sort of work is taken seriously in some circles. Then again, Of Pandas and People has been published continuously since 1989.

19 Responses to “A review of Economyths: Ten Ways Economics Gets it Wrong, by David Orrell”

  1. Apologies Chris, I may have got you into a blog war by posting a link to your article at this site, which also has a review of the same book. http://ryviewpoint.blogspot.com/2010/08/david-orrells-economyths-ten-ways.html

    I have sent RYviewpoint a follow up comment letting him know that it was me, and not you, who made the original comment on his blog (although all my comment included was a link to your blog, and a short non-descript sentence)

  2. Thanks. I’ve responded on his blog:

    David Orrell’s book is “full of venom and accusation” towards the entire community of economists. It is Orrell’s claims which are absolutist and demonstrably wrong. There is no “common ground,” Orrell has no interesting criticism of economics at all because he is attacking an economics which does not exist.

    You uncritically repeat Orrell’s claims without making any attempt to verify them. Your assertions about what it means to say a model is an “equilibrium model,” about rational expectations, and about behavioral economics are just repetitions of Orrell’s claims, and they’re demonstrably incorrect. For example, saying a model is an “equilibrium model” means that the predictions of the model are generated by comparing equilibria as some forcing variable changes, not that the economy is perfect and “God-like.” The model of a monpolist’s behavior taught in the first few weeks of Econ 101, for example, is an equilibrium model, but the equilibrium is not efficient. Even in models in which the market outcome is efficient, it is not true that at the equilibrium happiness is maximized, nor that the outcome is fair, nor that intervention might not be socially desirable. You can verify that what I am saying is true and verify that Orrell’s claims are demonstrably wrong by reading any undergraduate microeconomics textbook.

    I am genuinely somewhat baffled your defence of Orrell. If an outsider says a group of experts believes X, and a member of that group says that X is a ridiculous mischaracterization of expert belief, doesn’t it seem strange to leap to the conclusion that the experts are simply lying about they themselves believe?

    I challenge you to try to verify some of Orrell’s claims. Start with his claims about what economists believe about the environment, which do not hinge on anything technical. To get you started, here’s a link to the piece by Don Fullerton and his coauthor I cited in my review: Fullerton and Stavins. Here is a link to openly right-wing economist Greg Mankiw’s public call for higher gasoline taxes, carbon taxes, and other environmental interventions. Where are all these mainstream economists who oppose all environmental interventions of whom you speak? Name three.

    Read anything else written by mainstream economists you like. Try to find even a single economist saying anything that resembles what Orrell claims we universally believe.

  3. This response is a pretty bad demonstration of mainstream economist’s general attitude – misrepresentation, accusations of ignorance and possibly the clearest case of psychological projection I have seen in a while.

    I have the ‘benefit’ of being trained in economics so I can confirm that Orrell’s impression of economics is, taken as a whole, correct.

    Orrell’s main points:

    – There are no economic laws.
    – The economy is not in equilibrium.
    – The economy cannot carry on growing forever.
    – Neither people nor markets maximise anything.
    – Economic theory has a strange tendency to benefit the rich more than the poor, and capitalism creates inequality.

    He demonstrates these incredibly adeptly without making the kind of absolutist statements you attribute to him. You may find areas where economists have paid lip service to limitations, but they do not incorporate into the heart of their analysis which is precisely his point. You can only add epicycles for so long.

  4. Many of the “absolutist statements I attribute to him” are direct quotes. The rest are paraphrases which can easily be verified. None of those claims is correct. Notice how basic the issue is: Orrell’s claims take the form: “Economists believe X, which is wrong for reasons Y.” I’m not giving you “propaganda,” as you put it, asserting X is actually right because Y is bad criticism, in all cases my response is: Economists don’t believe X at all. What exactly is your theory here—I and all other maintream economists just lie all the time about we really believe, including consistently lying in textbooks, journal articles, and public statements?

    Do biologists react well to books like Of Pandas and People? Are they polite? Do they seek “common ground” with insane criticism of biology? Is it “projection” if a biologist says that someone who thinks evolution is wrong because “monkeys still exist, so how can we have evolved from monkeys?” just doesn’t understand basic ideas in biology? How do climatologists react to books claiming climate change is not occurring and accusing climatologists of a grand conspiracy to deceive the public? Why do you think economists would react any differently to analogous criticism of economics?

    You have accused me of misrepresenting Orrell, but you don’t give any examples. One of Orrell’s more ludicrous claims is that it is the mainstream position that all environmental interventions are bad policy. Why are you unable to find even a single quote from an economist asserting as much? Why does every economics textbook state the opposite—how can it be the mainstream position? You claim to be trained in economics, why don’t you quote the textbooks you used asserting that all environmental interventions are bad interventions?

    Look at the way Orrell quoted the Hanley et al textbook. Look at the actual passage. Anyone can easily see the book actually makes precisely the opposite point that Orrell claims it does. How can you not see you’re being deceived?

    I am hesitant to even respond to what you interpret as Orrell’s main points because they require some actual understanding of economic theory to see that Orrell’s claims are wrong, whereas any honest person can easily determine that Orrell’s claims about economists’ beliefs about the environment and other policies are flat-out wrong. I will try:

    – Economists almost never speak of economic “laws.” Off the top of my head the only common one I can think of is the “law” of demand, and I don’t know of any clear exceptions to that “law.” I agree economists should not in general speak of “laws,” and we don’t, contrary to Orrell.

    – Economists don’t believe “the economy is in equilibrium,” the charge is methodologically confused. Almost all models in all quantitative disciplines are equilibrium models. Perhaps you still wrongly believe “equilibrium model” is equivalent to “model in which the economy is a perfect God-like happiness-maximizing machine.”

    – The economy actually can keep growing indefinitely, because there is no reason environmental damage must grow with the value of the economy. A sustainable path can involve indefinite growth. To ensure there’s no misunderstanding: no one is claiming demands on the ecosystem can keep growing indefinitely.

    – Various systems are commonly MODELED as maximizing something in many sciences, for example, biologists and ecologists studying animal behavior often MODEL animals as maximizing something. No one thinks that that assumption is literally true in economics nor the other applications of this common methodology.

    – Economic theory is an attempt to understand aspects of how society works and does not in and of itself affect income distribution in any manner. When it comes to policy recommendations based on theory and evidence, the vast majority of economists support government intervention to reduce disparity in income. Understanding the distribution of income is a big part of the big field of labor economics, and more generally economists pay careful attention to the effect of any policy proposal on income distribution. Or, then again, maybe Orrell is correct, none of that research exists, and economists are part of a “grand conspiracy” by the wealthy. It’s true, I confess. The last big meeting was just last June. We met on a UFO.

    Economists don’t just “pay lip service” to anything other than late 19th century versions of general equilibrium models, rather, dynamic, stochastic, game theoretic, and informational considerations have been critical to economic methodology for many decades. Importantly, more economics than not is empirical, in constrast to Orrell’s comedic claim that we don’t use data at all. The notion that the market is “perfect” has never been anything resembling a mainstream view. You can read Adam Smith (1776) to verify that. Orrell attacks an economics which does not and has never existed.

    Again, I encourage you to try to verify Orrell’s claims instead of accepting them at face value. Don’t believe David Orrell. Don’t believe me. Instead, go read some economics and find out for yourself.

  5. Mr YankeeFrank, your political beliefs are not in any way relevant, nor anyone else’s, and I don’t think I’ll let you anonymously accuse me horrible misdeeds here, so I’ve unposted your remarks.

  6. You offer a few direct quotes but most of your statements are misrepresentations. You have either completely missed the point of the book or have an axe to grind. For example:

    ‘If asset prices are variable, supply and demand is wrong.’

    Orrell never states the first quote (which barely even makes sense, btw); he simply shows that supply and demand are not inviolable laws.

    ‘Economists almost never speak of economic “laws.” Off the top of my head the only common one I can think of is the “law” of demand, and I don’t know of any clear exceptions to that “law.” I agree economists should not in general speak of “laws,” and we don’t, contrary to Orrell.’

    Economists almost never speak of laws except when we do. Just to show you quickly that demand isn’t a law – when the price of something goes up on the stock market, do you think demand goes up or down? It’s not a ‘law’. Orrell deals with this in far more depth (did you even read the book properly?)

    Now, not *all* economists speak of laws, but he provides a quote from Larry Summers to show it is not a straw man. Recently I have seen Brad Delong, Tyler Cowen and Geoff Tily (a fairly diverse group of economists) refer to S & D as laws. Some also refer to CA as a law (in fact, Wikipedia does too).

    ‘Economists have never heard of emergent properties.’

    Again, your use of ‘never’ exhibits a complete inability to consider a middle ground. He doesn’t state this; what he does state is that they do not consider them EXPLICITLY in their analysis.

    This is a recurring problem that Orrell draws attention to – economists pay lip service to the problems with their models but do not incorporate it into the heart of their analysis, instead compartmentalising them as an obscurity.

    Examples: Akerlof/Stiglitz, Behavioural economics

    ‘Economists insist on using math. Instead we should use agent-based models. Which are apparently not mathematical.’

    Jees. He is referring to a certain type of maths, not all the maths in the world. Can you not see how ideologically blinded you are being?

    ‘Economists think everything is Gaussian. Finance folks in particular have never considered fat-tailed distributions.’

    The fact you have the temerity to defend financial modelling is symbolic of the confirmation bias economists exhibit when confronted with contradictory evidence. Again, Orrell doesn’t say ‘never’, but he does convinceingly demonstrate there are far better ways to model financial markets than those currently in use.

    ‘Economists don’t believe “the economy is in equilibrium,” the charge is methodologically confused. Almost all models in all quantitative disciplines are equilibrium models. Perhaps you still wrongly believe “equilibrium model” is equivalent to “model in which the economy is a perfect God-like happiness-maximizing machine.”’

    Economists don’t believe the economy is in equilibrium but we model it in equilibrium. You’ve contradicted yourself from earlier because you mentioned agency models, which are not equilibrium models but are what Orrell is explicitly suggesting economists use.

    So your points are a mixture of straw men and red herrings.
    You have completely missed the point of the book, which is to attack the FOUNDATIONS upon which much of [macro]economic theory sits.

    It doesn’t matter that there is x model where you’ve added an epicycle and it resembles reality (like Krugman’s recent private debt paper), and that ‘at a more detailed level’ you explore these things. The theory is flawed from the ground up, built on a foundation of sand. Orrell demonstrates this extremely effectively.

    ‘Or, then again, maybe Orrell is correct, none of that research exists, and economists are part of a “grand conspiracy” by the wealthy. It’s true, I confess. The last big meeting was just last June. We met on a UFO.’

    Jees. He explicitly states that he doesn’t believe it is a conspiracy but an emergent property (!). The evidence suggests that economics has been a victim of corruption throughout its life. Watch Inside Job, read ‘the corruption of economics’ by Mason Gaffney, note that the MP society was funded by banks, that right wing think tanks are all funded by big business, the Mises depended on grants from Rockefeller in his early career. Big money and ‘free market economics’ certainly have a closer relationship than they should.

    On the environment: I actually agree the environmental chapter misrepresents economist’s views a bit, however, you are still misinterpreting it.

    It does not matter that economists do not disregard the environment entirely, but that is not his point – it’s the WAY they model it. He suggest we model the economy as INSIDE the environment, which is categorically NOT what happens – in fact, the environment is presented as external.

    I’m not the Orrell defence league – the book had flaws. His knowledge of Keynes is questionable and he meanders off into Greek history a bit too much. He also uses a fair few stories that you will have read 10 times if you do a lot of reading, though I guess I can’t blame him too much for that.

    ‘Again, I encourage you to try to verify Orrell’s claims instead of accepting them at face value. Don’t believe David Orrell. Don’t believe me. Instead, go read some economics and find out for yourself.’

    I am a third year student, which I alluded to in my first post, so I have read plenty of economics. The general picture Orrell has of economics (macro, anyway) is correct: it does not resemble the real world. He attacks the ridiculous Arrow-Debreu theory, among others, directly, so he is simply not straw manning as you make out.

    You have exhibited the kind of behaviour that I have come to expect from economists when their discipline is challenged – Orrell is attacking straw men, he doesn’t understand economics, etc. Read any review of a heterodox book by an economist and you will find the exact same rhetoric.

    I would ask you to rerad the book with an open mind, particularly chapters 1-4 and chapter 7, and at least come up with some substantive criticisms of his use of fractals, positive feedback loops and other mathematical models, which I found incredibly convincing.

    However, since 2008 (and 1929, for that matter, or 1837, or…), I’m inclined to side with the guys who are doing the criticising.

  7. Cahal, I am stunned by your claim to be a third year economics student. How can you reconcile any of Orrell’s claims with what you’ve studied? Which introductory economics textbook did you use? In which course did you learn that “external” in this context means “external to the economy”?

    I’m not going to go through all your claims one by one, what I said above stands. I agree with you that much of the content of the book is parrotting “heterodox” criticism, which is low quality. Orrell has added many of his own comically nonsense claims to the mix. I don’t, however, react like most economists, contrary to your claim: as I have lamented on this blog before, unlike climatologists and biologists, economists tend to just ignore silly criticism of economics.

    But I don’t think we should ignore bad criticism. When intellectual garbage like Economyths is published we should say it is garbage, and yes, I am happy to shout it to the hills: the book attacks ludicrous strawmen, and David Orrell does not understand even the most basic economic ideas, nor anything about the discourse of economists.

    I’ll end my contribution to this discussion by letting Fullerton and Stavins respond to the implication that economists think Arrow-Debreau (1954) proves the economy is Orrell’s perfect happiness-maximizing machine, which you claim is not a strawman. This is mainstream economists describing mainstream economics to a lay audience. How does this mesh with Orrell’s claims?

    By clarifying the conditions under which markets are efficient, the [ First Welfare Theorem ] also identifies the conditions under which they are not. Private markets are perfectly efficient only if there are no public goods, no externalities, no monopoly buyers or sellers, no increasing returns to scale, no information problems, no transactions costs, no taxes, no common property, and no other “distortions” that come between the costs paid by buyers and the benefits received by sellers. Those conditions are obviously very restrictive, and they are usually not all satisfied simultaneously. When a market thus “fails,” this same theorem offers us guidance on how to “round up the usual suspects.” For any particular market, the interesting questions are whether the number of sellers is sufficiently small to warrant antitrust action, whether the returns to scale are great enough to justify tolerating a single producer in a regulated market, or whether the benefits from the good are “public” in a way that might justify outright government provision of it. A public good, like the light from a light house, is one that can benefit additional users at no cost to society, or that benefits those who “free ride” without paying for it….

    Thus, clearly, the market by itself does not solve all problems. Indeed, in the environmental domain, perfectly functioning markets are the exception, rather than the rule. Consequently, governments can take a variety of actions to try to correct these market failures. For example, the government may restrict pollutant emissions or limit access to open access resources. If undertaken wisely, government interventions can improve welfare, that is, lead to greater efficiency.

    Edited October 3, 2011, to add second paragraph to quote. CA.

  8. ‘Cahal, I am stunned by your claim to be a third year economics student. How can you reconcile any of Orrell’s claims with what you’ve studied? Which introductory economics textbook did you use? In which course did you learn that “external” in this context means “external to the economy”?’

    Erm, I can’t reconcile them, that’s the point. Much of what is taught in university macro is abstract and worthless.

    I have used Mankiw’s textbook as well as Williamson’s (based on recommendations), though I admit I’m not much of a textbook person. I’m not sure which textbooks my lecturers work from.

    ‘I’m not going to go through all your claims one by one, what I said above stands. I agree with you that much of the content of the book is parrotting “heterodox” criticism, which is low quality. Orrell has added many of his own comically nonsense claims to the mix. I don’t, however, react like most economists, contrary to your claim: as I have lamented on this blog before, unlike climatologists and biologists, economists tend to just ignore silly criticism of economics.’

    This is a horrendous paragraph. You are not going to respond to my criticisms; you are right. Heterodox criticism is automatically low quality (despite the fact that economics models have repeatedly failed to make sense of the world, whilst heterodox ones do a better job).

    Economists certainly ignore criticisms; they also ignore empirical facts (facts like the money supply is endogenous and M3 leads base money) that contradict their theory.

    ‘But I don’t think we should ignore bad criticism. When intellectual garbage like Economyths is published we should say it is garbage, and yes, I am happy to shout it to the hills: the book attacks ludicrous strawmen, and David Orrell does not understand even the most basic economic ideas, nor anything about the discourse of economists.’

    He attacks:

    – Equilibrium models (used extensively)
    – Financial models (demonstrably flawed)
    – ‘Laws’ (obviously not applicable to a social science)

    I’m not sure which economists you hang out with and where you’ve been for the last 30 years, but many do argue circularly that ‘the market determines this therefore it is right’. For example, Orrell directly quotes Friedman throughout his book as saying such things. Deregulation, privatisation and cuts have been the orthodoxy for decades, with economic theory as their intellectual justification, and with disastrous results.

    Yes, economists *do* pay some attention to the environment and non equilibrium, but they do not incorporate it into the heart of their analysis, which is his point. It’s all about the overall framing of the subject, not necessarily specific details.

    The closed mindedness of academic economists in the wake of the fields recent abject failures is truly remarkable. If a scientific model failed so abyssmally it would simply be thrown out, no ifs, no buts. The neutrino at the LHC is the obvious example of this, where a tiny discrepency has physicists ready to contemplate overthrowing Einstein.

  9. “Just to show you quickly that demand isn’t a law – when the price of something goes up on the stock market, do you think demand goes up or down? It’s not a ‘law’. Orrell deals with this in far more depth (did you even read the book properly?)”

    Well, price and quantity are equilibrium objects (uh oh..) so simply observing price and quantity data can’t tell us much about the underlying structural relationship. This is a famous identification problem in economics. The law of demand is a statement about the structural relationship, not the observed correlation in the data.

    I could keep on going…

  10. Chris, no point reasoning with idealogues (in this case the ideology of ignorance). Let them live their fantasy world, they aren’t making no difference.

  11. I think the issue here may be more pedagogical than has been acknowledged. It’s not surprising that someone near the beginning of his third year of undergraduate Economics feels that what he’s seen only pays “lip service” to the complicating issues. Incorporating them into models is extremely difficult – how do we measure externalities or the various model frictions that result in market failure? – and they can’t be seriously addressed without the basics. One cannot say anything meaningful about the real world without them. They have to be taught and understood, as they serve as the best basis for further study that we have.

    This is the same as in every academically rigorous discipline. It’s why physicists start with general mechanics and why philosophy students still start by reading Plato’s Republic. You have to put in the work. You can’t just jump to the frontier of knowledge and be productive. This is not an dogmatic “paying your dues” thing, it’s just a fact of life.

  12. Andrew,

    ‘Well, price and quantity are equilibrium objects (uh oh..) so simply observing price and quantity data can’t tell us much about the underlying structural relationship. This is a famous identification problem in economics.’

    The ‘law’ of demand, among other things, states that demand goes down when price goes up. I have provided an example where this is not so, which automatically violates the idea of it as a ‘law’.

    ‘The law of demand is a statement about the structural relationship, not the observed correlation in the data.’

    You’ve basically just said to me that your ‘law’ cannot be disproved using empirical evidence. I’m not sure how to respond to that…

    Peter,

    ‘This is the same as in every academically rigorous discipline. It’s why physicists start with general mechanics and why philosophy students still start by reading Plato’s Republic. You have to put in the work. You can’t just jump to the frontier of knowledge and be productive. This is not an dogmatic “paying your dues” thing, it’s just a fact of life.’

    There is a profound difference between the way economics is taught and the way hard sciences are. In hard science:

    – You explore previous theories, how they were contradicted by experiments and how new theories were born. You are told that everything is open to revision.

    – Assumptions that are made, for the most part, eliminate *known* variables. Assuming 0 air resistance is not the same as assuming homogentiy.

    In economics:

    – You are given a list of assumptions and then presented with a diagram. You are not told how the assumptions lead to the diagram. You are not told why or how the theory was developed. You are presented with theories that contradict themselves internally, and ones for which empirical evidence is ambiguous or absent (Sweezey’s kinked demand curve, for example, is basically impossible to verify empirically).

    – Assumptions are swept under the rug. Anyone who questions this is told that we can’t analyse without them, ignoring the incredibly interesting field of dynamic and complex modelling, some of which Orrell explores.

    Yes, at higher levels other things are incorporated, but it doesn’t matter when the foundations are built on sand.

    I can’t believe you guys are characterising me as an ideologue – your responses simply demonstrate complete rigidity, valuing theory over facts, and a hell of a lot of hand waving. It’s no substitute for real debate given your fields recent failure. If anything, the burden of proof lies on you to defend your field, not me to attack it.

  13. Seems to me you are doing the same thing you accuse Orrell of doing, namely quoting him out of context. According to you, he says that “senior economists are ‘part of a giant global conspiracy— an attempt to distract us from the real game that is being played behind the scenes.'”
    The full quote is: “In the final chapter, we therefore ask the inevitable, and entirely reasonable question: is neoclassical economics all part of a giant global conspiracy – an attempt to distract us from the real game that is being played behind the scenes?” He later concludes that, rather than a conspiracy, the financial system is better described as an “emergent property” of which we are all a part.
    By leaving out the first part of the quote, you are changing the meaning.

  14. Tony, I do not agree that the quote is out of context; Orrell does not go on to argue that that “inevitable and entirely reasonable question” is in fact nonsense, he rather goes on to answer in the affirmative by arguing that mainstream economics is a “scheme” specifically perpetuated by economists who know it’s harmful and wrong but teach it anyways to line their pockets, e.g.,

    “The scheme [mainstream theory] has also made sure that participants are adequately incentivised. Anyone working at senior levels is well paid, sometimes extravagantly so…. And the system has a powerful network of contacts at top universities, institutions like the World Bank and the IMF, and the highest ranks of world governments — all of which employ or are run by neoclassical economists…

    “The tricky part, obviously, is that the machine is guarded by an elite group — the orthodox economists — whose sole function is to protect it from interference. Their loyalty is guaranteed by the special bond of tenure… and occasional lucrative contracts in the private sector.”

    Orrell does acknowledge that there is “no single mastermind” running this grand conspiracy, but that doesn’t change his inevitably affirmative answer to his question.

  15. I think we can agree that by omitting that part of the sentence you are changing the meaning of the quote – right? It changes a question into an assertion.
    You now say that he calls mainstream economics a “scheme”. In fact, he is talking about the economy as a whole. Here is what he writes: “Now, it would of course not be correct to say that the scheme known as the ‘world economy’, with its accompanying neoclassical sidekick, is directly equivalent to a Ponzi scheme in which there is no actual investment or growth. However, there are a number of points in common, which are worth exploring.”
    The fact that he later describes the financial system as an emergent property, of which we are all a part, directly contradicts the idea of a conspiracy.

  16. Tony, again, I do not agree that my quoting is out of context; no, that’s not just a question, it’s a rhetorical question foreshadowing the argument in the last chapter. Moreover, “scheme” refers not just to “the world economy” but the world economy and its “neoclassical sidekick… and essential lynchpin,” neoclassical economics.

    Consider the following. Is the speaker technically claiming that there’s a conspiracy? Does it really matter? Would you be here splitting hairs to defend this nutter’s accusations?

    Medical researchers have produced a large body of false research purporting to show that vaccines are not harmful. How could this happen? We should ask the inevitable and entirely reasonable question: are medical researchers part of a giant global conspiracy— an attempt to distract us from the real game that is being played behind the scenes? Of course, there is no single mastermind running the pharmaceutical industry scheme, but the sole function of medical researchers is to protect pharmaceutical industry profits, which they do in exchange for tenure and the occasional lucrative consulting contract. Millions suffer and die as a result of this fraudulent research.

  17. I suggest you talk to someone about this at your university, maybe someone with experience in journalism, about the rules for appropriate use of quotations. One rule is that if leaving out words materially changes the meaning of the sentence, then you have to leave them in. You could have done that just by saying that the author compares the world economy with a Ponzi scheme (which in any case is not that original). That is not the same thing at all as saying there is a global conspiracy. That might be your interpretation of his meaning, but if you want to use a quote to back up your argument, then you should use it properly.

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