There are no economic laws

In just the last few months we have had a number of elections in which we reelected incumbents who had performed, at best, somewhere within the zone of mediocrity. We received a timid federal economic statement that makes gestures in the right directions – on inequality and climate and helping those already struggling to get through these tough times – but doesn’t do enough to move the yardsticks or really help families facing impossible choices, say, between heating and eating – and promises more cuts to operational spending when our public services and public servants are already stretched. And the official opposition complain that even timid tidbits of help are too much in this time of inflation – global inflation we should remember – proposing instead to cut spending even more and cut taxes – the formula the Republicans are running on to the south and the very same that the UK’s Truss, formerly PM Truss, recently announced, roiling the markets and costing her the job of PM. And now we are seeing fundamental rights of workers blithely legislated away.

We seem to keep voting for politicians who tell us we can’t have nice things. Or that those things we all want will only come from making some people very rich and somehow that will make us all better off – sooner or later. Or at least that we have to stop trying to harness the market but rather free it, that government’s role is to protect the market and those who benefit most from it. We keep voting for politicians who in one way or another say we have no alternative. And why do we have no alternative? Because, we are told, the laws of economics so dictate. Economic laws, for example, that tell us that there is only one way to tame inflation – squeeze demand, dampen workers expectations – whatever the circumstances, laws that tell us that reducing taxes increases growth whatever the circumstances, laws that tell us that public debt is toxic whatever the circumstances.

How to sell policies that nobody wants? Lie, distract or hide behind the laws of economics. The latter approach is perfectly captured in Matthew May’s review of a bizarrely positive biography of Calvin Coolidge. In his review he hopes that the biography will resurrect Coolidge’s mean depression-deepening policies because, he says, we are spending ourselves into ruin. He concludes:”The laws of man can be bent and broken; the laws of economics can not.” But there are no economic laws. Economics is not physics as much as economists may wish it so (and even the laws of physics are not immutable as our knowledge evolves). So much of what is taken as law in economics is based on a model of humankind as perpetual calculating machines seeking to maximize profit. No doubt we are often that. But we are very often other things. Altruism is every bit as human as self interest. Evolutionary biologists have shown us that our ability to cooperate is our species advantage. We are social beings. We seek belonging and purpose. We are meaning searchers at least as much as we are profit maximizers.

We are seeing the “no alternative, follow the laws of economics” view playing out big time as central banks drive us closer to recession and governments pull back spending even as we face multiple layered crises. But now is a time for collective choices, a time to decide what matters most to us, what kind of world we want to strive for and leave behind, and what are the greatest risks to what we value.

So, no. Economic laws do not trump human-made laws. No to those who would so readily discard choice – and therefore democracy. Whenever we are told that there is no alternative, rest assured that not only do alternatives exist but we would probably prefer them if they were on offer. If we are to truly renew democracy we need a new common sense shaped not by so-called economic laws, a new common sense that restores our political imagination, our sense of possibility that we can live in harmony with one another and the planet.

Comments
17 Responses to “There are no economic laws”
  1. Steven Megannety says:

    Come out of retirement and explain to the supply-siders that, yes, there are economic laws, but they are exactly the same as our traffic laws; they work if we follow them and they MUST benefit the whole society.

    Liked by 1 person

    • himelfarb says:

      Those aren’t economic laws, Steven, they are economic choices that recognize that the economy does not exist as somehow outside of society and nature and must be judged on the basis of, as you say, whether we all benefit, including those not yet able to vote and those not yet born. On the other matter you raise, retirement is very cool.

      Liked by 1 person

  2. Bruce Manion says:

    Well said Alex..

    Liked by 1 person

  3. David Nash says:

    When voting, think for yourself. Why vote for measures that concentrate wealth in few hands? The owners of those hands are telling you to that you have to accept their priorities. Nobody listening to and accepting their message is thinking of everyone else, often including himself!.

    Liked by 1 person

  4. Mark Hammer says:

    1) I worked with many economists during my public service years, and was even foolishly classified as one. But in all that time, I rarely heard any economist use the word “estimate”, as either a noun or a verb. It’s a noble discipline and profession, but for heaven’s sake, PLEASE acknowledge when you’re just guessing. Quantifying things is helpful to thinking about them, but numbers are only as good as the models and methods used to generate them.

    2) There is ‘economic model’ time, and there is ‘human’ time. Do things sometimes work out the way the models predict? Yeah, sometimes. But if it takes 2-3 years for a glut of house-building to trim the excess off new home prices, that won’t pay my mortgage or rent next month, or make something available that is affordable, post-“renoviction”. Public policy *should* consider predicted (and predictable) long-term consequences, and should not be knee-jerk reactive, but its goal is to address those challenges facing citizens and the nation NOW in as timely and fulsome a manner as possible, and not consider 2-3 year timespans as meeting those needs.

    Liked by 1 person

    • himelfarb says:

      Well said, Mark. I’d add that models cannot be a substitute as they too often are from examining what’s actually happening rather that going with what our model tells us should be happening. That means imposing assumptions rather than testing them.

      Like

      • dreessen says:

        Hi Alex,

        David Dawson’s article (his “first foray into the history of economic thought”) is a near-classic case of a straw man argument: Set up a wrong thesis and then prove that the answer is no. It’s near-classic because in this case the author ends up confessing that he was pursuing the wrong thesis.

        It is a remarkably in-depth romp through that history, from Aristotle till the present day, with special attention to the theory of value and the relation between money and the price level. The goal of his inquiry is to see whether there are any deterministic laws in economics as there are in physics. (He does not acknowledge that, with quantum mechanics, physics laws are no longer considered deterministic — science has moved on since Newton.) Any economist (or other social scientist) could have stopped him right there: Of course there are not. Economics and other social sciences try to understand and predict human behaviour. Human cells (the author’s specialty) obey physics laws, human beings do not.

        Throughout, Dawson confuses analogy (language) with identity. Even the Marginalists, who are copiously quoted (understandably, because they were especially fond of the comparison with the laws of physics), were not so foolish as to believe that economics IS physics and none of his quotes say that.

        In his discussion of the “law of supply and demand” he fails to see that the “scissors” diagram is just a teaching tool. Ditto for Irving Fisher’s hydraulic model of general equilibrium.

        In the section on his second “candidate economic law,” the quantity theory of money, he recognizes that the classic truism, MV = PQ, actually offers some insight and, in the case of hyperinflation, even points to causality. Again, the comparison with the first law of thermodynamics is just that: An analog.

        Does this mean that there are no laws or rules in economics? Certainly not! But any proclaimed laws may be derived from ideology and need to be verified by data. To his credit, Dawson cites the claim that tax cuts create jobs as a particularly insidious example. Ever since Reagan and Thatcher right-wing economists continue to bring it up and decision makers fall for it even though there is zero evidence of its validity, as Paul Krugman never tires to point out.

        You also criticized my mention of “all else equal.” This puzzles me to no end, as this proviso is essential for any scientific analysis. In the “law of supply and demand,” for example, it means that the curves presume unchanged endowment distribution, unchanged level of competition, etc.

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      • himelfarb says:

        no you misunderstand – the so-called laws of economics are not laws of economics because their assumptions are never realized in the real world. The “all things equal” is an admission that the economy never plays out as the so called law would predict because in the real world all things are never equal. To put this in other terms they are mathematical laws not laws of how economies work. Of course there are economic theories that offer important insights. But there is no theory or model that deserves the status of a law of economics. And thinking of these theories as law-like has done enormous damage in my view.

        Like

      • himelfarb says:

        and go back to Richard Livesy and his “theory of the second best”

        Like

  5. dreessen says:

    Methinks, Alex, that you’re going a little bit too far in saying that there are no economic laws. Provided one understands what’s “behind” demand and supply curves (i.e. the infamous “all else being equal”) there clearly is a “law of supply and demand.” That trickle-down economic policy does not work has been proven so often that one may as well call it a law (although neo-liberal apologists keep claiming the opposite). These are just two examples. But no disagreement with your main point that economic laws do not trump human laws and that there always are alternatives.

    Liked by 1 person

    • himelfarb says:

      Thanks Erwin but no there are no economic laws, not even supply and demand as we have learned that sometimes supply shapes demand – and price – and sometimes demand shapes supply – and price – and sometimes the expected relationships don’t materialize at all. I might add that “all things” are never equal. There are no perfect markets, no perfect competition, among perfectly constructed profit maximizing machines. There are people with various needs, interests, beliefs and degrees of power pursuing multiple ends in a world of natural limits. There are some useful, even important, “economic” ideas and generalizations worth taking into account but no economic laws, none, zilch, nada.

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      • dreessen says:

        With respect, I covered that off by invoking ceteris paribus. Once one has “fixed” these interactions etc., then a marginal increase in demand will increase price and a marginal increase in supply will reduce it. That’s the law and as a first approximation it’s useful. (I can’t believe that, after all these years as a convert to ecological economics, I’m now defending basic economics!)

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      • himelfarb says:

        With respect, it’s not a law if it never applies. That’s like saying there’s no speeding unless other drivers speed or go too slow or ….Bottom line, what happens theoretically in circumstances that are never found in the real world cannot be a “law” because, simply, nothing ever works that way and so much works in other ways. The phrase “all things being equal” is camouflage when we know that all things are ever as the so-called law assumes eg that we are profit maximizing calculating machines, that perfect competition can exist, that power doesn’t play…..

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      • dreessen says:

        Thanks. Certainly coming out of an unusual corner. I’ve downloaded it for later reading.

        Liked by 1 person

  6. ndabarithuku says:

    There are no economic laws but cartels-induced choices to favor the elites

    Like

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