Jul 26, 2010
Why economics is not a science
If you're not familiar with the Prisoner's Dilemma, here's a nice Wikipedia article about it for you. For the purposes of this discussion, all you need to know about it is that it's a simple experiment that has shown, time and time again and all over the world, that people almost never make the choices they'd be expected to make if they were purely rational beings.
Rational choice theory (oh, alright - but do your own Googling next time!) is the theory that says that even though that is patnetly the case, we should still govern our lives (and set policy, and make economic predictions) as if they did. Because it's the right, or more correctly "rational" thing to do. I very much suspect that rational theorists' definition of "rational" is "that which will make our mathematical models work".
Imagine if medicine was run that way: "yes, sometimes people don't respond as they should to treatment, but that's just because they're irrational! Everyone will have penicillin shots and peanut butter for breakfast, because that's what's best for them. Even when it isn't."
Modern economics - mostly microeconomics, but macroeconomics takes some of the former's assumptions and runs away with them, too - just can't be made to work without the assumptions of rational choice theory. And rational choice theory is flat out wrong, in the scientific sense of being incogruent with observed reality.
Which is why we should be very, very wary of anyone who dismisses our objections to, e.g., severe public spending cuts on the basis of economic forecasts and economic theory. Not because it's always and necessarily wrong, but because it is an ideology dressed up as science. So we should evaluate the claims of the current government as ideological rather than evidence-based: not "is it necessary, based on economic forecasts, to privatise GP surgeries and cut housing benefit?" but "is it the right thing to do to expose surgeries to potential bankruptcy and people to potential homelessness?".