Economics - Criticisms - Criticisms of Assumptions

Criticisms of Assumptions

Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify the proofs of desired conclusions. Examples of such assumptions include perfect information, profit maximization and rational choices. The field of information economics includes both mathematical-economical research and also behavioral economics, akin to studies in behavioral psychology.

Nevertheless, prominent mainstream economists such as Keynes and Joskow have observed that much of economics is conceptual rather than quantitative, and difficult to model and formalize quantitatively. In a discussion on oligopoly research, Paul Joskow pointed out in 1975 that in practice, serious students of actual economies tended to use "informal models" based upon qualitative factors specific to particular industries. Joskow had a strong feeling that the important work in oligopoly was done through informal observations while formal models were "trotted out ex post". He argued that formal models were largely not important in the empirical work, either, and that the fundamental factor behind the theory of the firm, behavior, was neglected.

In recent years, feminist critiques of neoclassical economic models gained prominence, leading to the formation of feminist economics. Contrary to common conceptions of economics as a positive and objective science, feminist economists call attention to the social construction of economics and highlight the ways in which its models and methods reflect masculine preferences. Primary criticisms focus on failures to account for: the selfish nature of actors (homo economicus); exogenous tastes; the impossibility of utility comparisons; the exclusion of unpaid work; and the exclusion of class and gender considerations. Feminist economics developed to address these concerns, and the field now includes critical examinations of many areas of economics including paid and unpaid work, economic epistemology and history, globalization, household economics and the care economy. Feminists such as Marilyn Waring also argue that the discipline of economics ignores women's unpaid work and the value of nature.

Philip Mirowski observes that

The imperatives of the orthodox research programme leave little room for maneuver and less room for originality. ... These mandates ... Appropriate as many mathematical techniques and metaphorical expressions from contemporary respectable science, primarily physics as possible. ... Preserve to the maximum extent possible the attendant nineteenth-century overtones of “natural order” ... Deny strenuously that neoclassical theory slavishly imitates physics. ... Above all, prevent all rival research programmes from encroaching ... by ridiculing all external attempts to appropriate twentieth century physics models. ... All theorizing is held hostage to nineteenth-century concepts of energy.

In a series of peer-reviewed journal and conference papers and books published over a period of several decades, John McMurtry has provided extensive criticism of what he terms the "unexamined assumptions and implications, and their consequent cost to people’s lives." For example, he writes

This is why we might conclude that economics ceased to be a science or an investigation once it presupposed an engineering physics model as its methodological given. It became instead the defining software of a machinal system with no place for life in its money-sequence operations. Like the received dogma of another epoch, its formulations decoupled from reality in a scholastic formalism, its priesthood would not acknowledge the right of any but trained believers to speak on issues designated by the subject, and its iron laws subsumed all that lived as material ready to be made productive by transformation into the system’s service. ... Yet it would be a very great mistake to simply reject economics as a resource of analysis. It provides an articulated lexicon of exact referents, operations and principles of the global market mechanism which it presupposes as the natural order. And its resources are invaluable in coming to understand the system of rule which the global market now implements across the world in its restructuring operations. One has to expose and understand the principles the doctrine assumes in order to examine and unmask their implications for life-organization. One has to follow the assumptions its theoreticians take as given to see the trail of consequences for reality which obedience to this unseen metaphysic unleashes on the world. One has to connect across the logical lattice of the covert value system the defining axioms and co-ordinates it bears to see what it means for the planetary life-web as an integrated whole. One has, in short, to do what the economist avoids as the explosion of his own identity – open up its value structure to examination. This is what the study which follows does ...

Nassim Nicholas Taleb and Michael Perelman are two additional scholars who criticized conventional or mainstream economics. Taleb opposes most economic theorizing, which in his view suffers acutely from the problem of overuse of Plato's Theory of Forms, and calls for cancellation of the Nobel Memorial Prize in Economics, saying that the damage from economic theories can be devastating. Michael Perelman provides extensive criticism of economics and its assumptions in all his books (and especially his books published from 2000 to date), papers and interviews. For example, he says:

The disconnect between what purports to be objective analysis and the underlying power relationships fascinates me. Like Moliere's bourgeois gentlemen, who was unaware that he was speaking prose, economists have developed a culture in which they communicate without any recognition of how much they have internalized the distorted perspective of a capitalist system. What is more surprising is how thoroughly the economists were able to propagate their flawed worldview throughout much of society. The economic worldview loses sight of essential elements of the world economists analyze. Once their simplistic world of economics spins out of control, economists' instinct is to explain away their deficiencies rather than finally coming to grips with the real world. In that sense, I feel that a critical study of economists and their economics becomes useful as a means of self-defense against the tyranny of markets. ... In their published books, the political economists at the time ignored the injustices associated with the enforcement of the feudal game laws, as well as the enormous economic damage done by the hunters. Instead, they described the economy as the result of voluntary transactions between willing buyers and sellers. Away from the public eye, these same economists applauded the displacement of rural masses, which was providing new bodies for the emerging proletariat. In this sense, capitalism was invented as I described in The Invention of Capitalism. Capitalism was invented in another sense. The early economists described the emergence of capitalism as a voluntary system that benefited everybody. This falsification of history, which was central to their analysis, was a very creative invention ... In The Invisible Handcuffs, I tried to show how economists tried to frame capitalism as a system of voluntary transactions, as I mentioned . One can understand how the economists could have gotten away with this evasion of reality in a world when literacy was limited and communications expensive. In a modern world, to be able to get away with such nonsense is an audacious act of genius. Economic theory also abstracts from virtually anything having to do with time.

Despite these concerns, mainstream graduate programs have become increasingly technical and mathematical.

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... Economics has been subject to criticism that it relies on unrealistic, unverifiable, or highly simplified assumptions, in some cases because these assumptions simplify ... Examples of such assumptions include perfect information, profit maximization and rational choices ... Primary criticisms focus on failures to account for the selfish nature of actors (homo economicus) exogenous tastes the impossibility of utility comparisons ...

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