This may sound strange, coming from an economist, but it is unfortunately quite true that we would all be better off not listening to economists. What I mean by this is that economics over the past eight or so decades has been misguided and therefore blind, which means pretty much everything economists have to offer in terms of explanations, predictions, and policy recommendations are… wrong.

I have already argued (for example, here and here) that the method used in economics is wrong because it is the so-called Scientific Method (better capitalized) that is a pretty good fit for the natural sciences but a disaster in the study of social phenomena. The reason for this can, though it is a gross simplification, be illustrated by the fact that the Scientific Method relies on experiments that are repeatable and rely on comparatively simple causality. You can let a stone roll down a hill and measure the gravitational pull as well as frictions and other things. You can even take the same stone from the bottom and place it at the top to do it again.

If you take human beings and put them through a specific experiment they may behave in a certain way. But if you have them do it again, they will apply the knowledge gathered in the previous round – they will behave differently. And this is not simply an issue about the repeatability of experiments, but about what the experiences and knowledge the participants of the experiment hold at the beginning. We all have different experiences and theories about the workings of the world, you see. So we behave somewhat differently.

This means that while history may indeed “repeat itself,” it does so to the extent knowledge has been forgotten and to the extent the individuals involved choose to disregard certain pieces of knowledge. But just by saying this, we have already assumed that the situation is comparable – and that is hardly ever the case. In the social world there is no such thing as repeated events; they are all in some respect unique. If for no other reason, so because the situation includes a different set of people with different experiences, values, thoughts, and so on. Or, alternatively, the same people – but who have learned something.

So what do modern economists do that is so wrong? They use the method of the natural sciences to try to explain and predict social phenomena. But this is not the biggest problem. A method is not better than its assumptions, and the fundamental assumption in modern economics is a sad one indeed.

I do not refer to assuming that people are [hyper] rational or that they are so-called homo economicus, to use the commonly used condescending term. Assuming rational actors may actually be a useful simplification in a many models – as long as one is aware of the implications of such simplifying assumptions. No, what I refer to is the assumption based in the misguided arguments based in wishful thinking used in the socialist calculation debate. Or, more specifically, the view that society as such can be rationally planned – and that it might even be better or more efficient (less wasteful).

It is true that a large part of the very few economists who are aware of their discipline’s history wrongfully believe that the market socialists won against the Austrians in the aforementioned debate. However, Mises’s argument about the impossibility of a socialist economy remains unanswered. But whether or not economists, who are commonly terribly ignorant of the discussions that shaped their discipline, share this rather commonly held belief, they act as if it were the case. The common denominator in all the economic models is the assumption that society can achieve economic efficiency. (Note that efficiency doesn’t mean increased productivity, but a perfect state or general equilibrium.)

This quote from Keynes’s “The Great Slump of 1930” is typical, even though modern mathematical models often include a lot of advanced mathematical BS to account for potential information asymmetries, probabilistic risk, and so on. Says Keynes:

We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time – perhaps for a long time.

The problem lies in the words “delicate machine.” This view is very common among economists and, of course, even more common among the political class. Many of us have heard the phrase used in political discourse that economic policy aims to get the “wheels spinning” again. This refers to the economic “machine” that needs fine-tuning to get working more efficiently. Or, perhaps, it needs to be refueled.

Even those critical of the neoclassical mathematical paradigm share this view, as I have shown in a recent article (ungated older version here) on Ronald Coase. It is such a widespread belief that it is almost impossible to argue against it – there is a lack of fundamental understanding of what the implications of sticking with this assumption are. The economy, we should realize, is much more of a living organism or ever-changing framework than a machine. The economy doesn’t have a specific purpose or function, which is true of a machine, but serves the purpose of those acting within it. It cannot be fine-tuned, fuelled, or upgraded.

This is in a sense the same problem as anthropomorphism, the phenomenon when people tend to project their humanity on animals or things. A stone doesn’t have a will or purpose, just like the economy doesn’t. The economy is “only” the spontaneous order that arises from a myriad individual exchanges made by individuals aiming to become better off through utilizing voluntary and peaceful means. We can derive general truths about the aggregate level only by understanding what it means to be human, but we cannot test it and we cannot measure it.

Assuming the economy is like a machine means one treats it as a thing in itself that can be used for a specific purpose. It can also be predicted, since it supposedly works in a specific way. And, consequently, it can be changed, improved, steered, and planned. In other words, we immediately find ourselves willing to make predictions as well as policy recommendations – and assume that things “are” in a certain way.

Well, what does it mean that things “are” a certain way in a market consisting of several billion individuals with their own values, goals, and experiences? There is nothing static about seven plus billion people constantly acting in order to make themselves better off in the best way they see fit. Note the third to last word in the previous sentence: the best way they see fit. The machinery analogy would work if all the parts of the machine were correctly anthropomorphized – if every lever, tube, and cog had a will of its own and worked using its judgment for how to best satisfy its wants, and then that the result of such “part behavior” caused a machine.

But a machine is nothing like society, and society is nothing like a machine. It is only treated as though it were one by political rulers and economists wishing to be close to power. But treating it like one doesn’t make it so, and that’s why economic policy almost always fails – and why economic predictions are never true. Whenever the goals of economic policy are reached, they are reached in spite of the policy – not because of it.

This is the reason why we are, generally speaking, better off ignoring economists. Of course, this statement is itself dependent on the individual economist’s view, work, and theoretical point of departure. But to the degree it is an elaboration of the argument put forth in favor of socialist calculation, which is unfortunately the case ever so often, it is definitely better to ignore economists.