Bad economic content starts with bad methodology. Ever since John Stuart Mill in the 1840s, economics has been described as a deductive discipline of axiomatic assumptions. Nobel Prize winners from Paul Samuelson to Bill Vickery have described the criterion for economic excellence to be the consistency of its assumptions, not their realism. Typical of this approach is Nobel Prizewinner Paul Samuelson's conclusion in his famous 1939 article on "The Gains from International Trade":
'In pointing out the consequences of a set of abstract assumptions, one need not be committed unduly as to the relation between reality and these assumptions.'
This attitude did not deter him from drawing policy conclusions affecting the material world in which real people live. These conclusions are diametrically opposed to the empirically successful protectionism by which Britain, the United States and Germany rose to industrial supremacy.
Typical of this now widespread attitude is the textbook Microeconomics by William Vickery, winner of the 1997 Nobel Economics Prize:
Economic theory proper, indeed, is nothing more than a system of logical relations between certain sets of assumptions and the conclusions derived from them ...
'The validity of a theory proper does not depend on the correspondence or lack of it between the assumptions of the theory or its conclusions and observations in the real world. A theory as an internally consistent system is valid if the conclusions follow logically from its premises, and the fact that neither the premises nor the conclusions correspond to reality may show that the theory is not very useful, but does not invalidate it. In any pure theory, all propositions are essentially tautological, in the sense that the results are implicit in the assumptions made.'
Such disdain for empirical verification is not found in the physical sciences. Its popularity in the social sciences is sponsored by vested interests. There is always self-interest behind methodological madness.
That is because success requires heavy subsidies from special interests who benefit from an erroneous, misleading or deceptive economic logic. Why promote unrealistic abstractions, after all, if not to distract attention from reforms aimed at creating rules that oblige people actually to earn their income rather than simply extracting it from the rest of the economy?
Essentially, Michael is highlighting statements from some of the pioneers of modern economics in which they assert that the quality of an economic theory is independent of the theory’s ability to describe reality. Instead they suggest that economic theory is valid if it is supported by a series of logical constructs that begin with sound premises.
The economics profession has thus denounced its own usefulness, and relegated itself to the same epistemological bucket as astrology, voodoo and tarot card reading.
Hudson goes on to attribute the ubiquitous acceptance of modern ecnomics as sound 'science' to the special interests who stand to benefit from a perpetuation of the status quo.
Investors and policy-makers take note. Forewarned is forearmed.