I have dabbled in economics from time to time. The first thing I noted is that it uses mathematics to hide gross ignorance. Macroeconomics is especially prone to this. Lots of hand waving and assuming elephants had wings and then one is off to the circus.
Skidelsky has written an interesting piece. He notes:
The problem with quantitative easing (QE), quipped then-US Federal Reserve Chair Ben Bernanke in 2014 about the Fed’s bond-buying program, “is it works in practice but it doesn’t work in theory.” One could say the same about macroeconomic policy in general, in the sense that there is no robust theory behind it. Governments routinely “stimulate” the economy to “fight” unemployment, but with a theory that denies there is any unemployment to fight.
Macros generate tons of large scale data and then they try to understand this data via modela which may or may not be verifiable. Their models assume human behavior models which all too often are wanting. He continues:
The key assumption here is that everyone optimizes: they choose the best available option for themselves. Work is always available at some price. Therefore, unemployment is optimal for the unemployed. Given the assumption, the logic is unassailable.
He proceeds as follows:
The relationship between theory and practice is thus not as Bernanke saw it. Monetary policy works in theory but not in practice; fiscal policy works in practice but not in theory. Fiscal Keynesianism is still a policy in search of a theory. Acemoglu, Laibson, and List supply a piece of the missing theory when they note that shocks are “hard to predict.” Keynes would have said they are impossible to predict, which is why he rejected the standard view that economies are cyclically stable in the absence of shocks (which is as useless as saying that leaves don’t flutter in the absence of wind).
Theories after theories. We are now facing and massive macro upheaval and it appears that having no rudder, compass, and not even seeing the sunlight, we sail ahead possibly over the abyss.
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