ECONOMICS IS NOT A SCIENCE

Interview with Claus Peter Ortlieb

[This interview published in: Frankfurter Allgemeinen Sonntagszeitung 5/9/2010 is translated from the German on the Internet,

http://www.exit-online.org/textanz1.php?tabelle=autoren&index=3&posnr=448&backtext1=text1.php.]

What comes to a mathematician’s mind these days on the theme Greece?

What is striking to me first of all is the nationalist rage at the “bankrupt Greeks” as fomented by some media which diverts from the German contribution to the Greek misery. The German export world championship is ultimately owed to exports to Southern Europe financed by debts. The sudden tipping over of the situation from a normally indebted national economy into bankruptcy is a very interesting point. What limit was crossed? That is not really clear to me.

In Greece 120 or 130 billion are lacking. Germany will help with 22 billion. Are we slowly losing sense for great sums?

In fact, only huge numbers dominate discussion since the Lehman bankruptcy. A billion has become the smallest unit so to speak. No one can really conceive such numbers. Even mathematical training hardly helps. The following per capital calculation illustrates this. 8 billion Euros to tax funds spread among 80 million equals 100 Euros per person. This is misleading because politico-economic numbers are simply broken down to individual households.

When politicians throw numbers around, they give the impression of competence – even if no one can check these numbers. Why is this?

With numbers, there is at least the fiction of verifiability. Whoever throws a number in the air is exposed to the danger of being refuted. This is hardly possible on talk shows where people like to argue with any numbers.

Amazingly politicians and even some economists connect the supposedly rational world of numbers with the world of magic when the theme is the “magical five-million-number” with unemployment statistics.

Such number fetishism could be described as the magic of enlightenment or clarification. In the modern age, numbers have experienced an incredible inflation of meaning. Economics tries to imitate the natural sciences in understanding itself as social physics. This leads to magical thinking. Society as a whole obviously cannot be grasped with mathematical methods alone.

Are you disturbed that economists rely so much on mathematics?

No, that does not bother me. On the contrary, as a mathematician, I earn my money in that mathematics is used in other sciences and even outside the sciences. The question is in what areas and on what problems can mathematical-natural science methods be applied reasonably. There are exaggerations or overstatements, to put it mildly. In the mathematical natural sciences, the connection between mathematics and reality lies in the experiment where ideal mathematical conditions are first produced in the laboratory. A mathematical natural law first appears there in its full splendor and glory. If not, the underlying theory is revised. Observations are central in a subject like economics where experiments are not possible. Here the truth criterion bound with the mathematical-natural science model is dropped. What then takes its place? Difficult methodological questions result. When I criticize mathematical economists and am really disturbed by their procedures, this is because they do not grapple with this problem, at least not in a way that I recognize.

Why does mathematics play such a great role in economics?

On account of its undeniable success, mathematical natural science has assumed the function of a key science. In the time around 1900, there were attempts in many other sciences to adopt its methods even in the economy. The idea of transferring the exactness of mathematics to a science was and is connected with that. This cannot easily function without the possibility of experiment. But it does not seem to happen any more. Economists are present as political advisors and in the media and must try to impress there. Mathematics helps. Its application is regarded as a mark of quality. With it, people are deluded into believing in an exactness and scientificness that do not really exist. When the economic models are not correct from their assumptions and are not even verified by reality, much mathematics does not help for the truthfulness of the results.

Do you question the neoclassical model with its supply- and demand curves?

Yes. With the so-called Marshall cross, the neoclassical model of the simple market, special presuppositions with several idealizing or unrealistic assumptions are made about the conduct of economic subjects and about the framing conditions on the market. However nothing can be said under the aspect of mathematical models. That is the way it is. A model is not simply true for false but has a more or less large area of applicability. A model is misused when the area of applicability is exceeded and the model is applied to situations where its presuppositions are not fulfilled. This happens when the model of the simple market is applied to the breaking point in every conceivable situation. In a standard textbook, the related diagram appears more than ninety times on 800 pages. The author was not worried anywhere whether his presuppositions were actually fulfilled. The knowledge gain in such a procedure is almost zero. Here mathematics is misused to transport a certain ideology, namely the neoclassical harmony theory of the market: markets supposedly function always and everywhere when they are left alone.

Nevertheless the neoclassical dogma is nearly without competition. Why is that?

That is due firstly to the practical failure of Keynesianism. I recall the so-called stagflation of the 1970s. Afterwards the triumphant advance of neoliberalism, the driving back of the state in favor of the market, began. Neoclassicism was the pseudo-scientific vehicle for that advance. For thirty years, it provided the substantiation for what happened in neoliberalism and thus was on the side of the winners. Secondly, the appeal of the neoclassical dogma, speaking polemically, consists in its conventional thinking resulting from the so-called methodological individualism. This means explaining the functioning of a national economy from the perspective of individual economic subjects. This explanation often consists in simple arguments that seem plausible on first view but simply transfer everyday economic situations to whole national economies. In other words, they work with analogies and get caught. These explanations fill the business pages of many daily papers and define the thinking of the political class.

Angela Merkel even recommended the frugality of the “Schwabian housewife” as a strategy for mastering crisis.

This strategy should now be prescribed to the Greek economy. This obviously cannot work. Indebted private households may be helped when their members are only taken for a ride and practice consumer renunciation for three years. But this cannot be transferred to a national economy. Renunciation on consumption brings production to a standstill and can only lead to depression.

That is a standard argument of leftist economists. The Greek misery can hardly be overcome by simply keeping house or being busy as in the past.

You are probably right. The situation is hopeless. I have no prescription to offer to bring the Greek economy to a green recovery. The erroneousness of such argumentation in standardized conventional thinking consists in the simple delegation of internal reflections to the macro-economic plane. For the result to be correct, I must insist as a scientist on the logical correctness of the arguments.

As a mathematician, do you regard the economy as a genuine science?

Neoclassical dogma is an ideology embellished scientifically. In VWL-textbooks, the reality of the capitalist economy is not even reflected. Instead ideological prejudices are poured into mathematical models that are simply put on reality. In fact, the discipline economics has abandoned its subject and lost its scientific status, strictly speaking.

What should be done in your opinion?

The subjects, foundations and methods of the discipline should be broadly discussed in the FAZ (Frankfurter Allgemeiner Zeitung newspaper) for example. The capitalist crisis phenomena have made a fool of the neoclassical harmony theory of the market. Hopefully a new beginning will result by completely shaking off the neoclassical dogma. As a mathematician concerned with mathematical training, the true and false use of mathematical models should be thematicized. Application of mathematics does not lead automatically to true results. Rather mathematics can be misused to transport ideology. Much would be gained if this insight could be anchored in public consciousness.

RELATED LINKS

Hirsch, Joachim: “Worldwide Economic Crisis 2.0 or the Crisis of Neoliberal Finance Capitalism,” 2008

http://portland.indymedia.org/en/2010/11/403829.shtml Schuhler, Conrad: “Market Failure Wherever One Looks,” July 2010

http://portland.indymedia.org/en/2010/10/403029.shtml VIDEO: "21ST Century Enlightenment"

http://www.wimp.com/centuryenlightenment/ Workers Action, “The Struggle for a Workers’ Recovery,” October 13, 2010

http://portland.indymedia.org/en/2010/10/402968.shtml Free Internet Book "Culture Change" by Alexis Zeigler

http://conev.org/ren14x.pdf Free Internet Book “Enough is Enough” by Herman Daly, Brian Czech and others, June 2010

10-page summary:

http://steadystate.org/wp-content/uploads/EnoughIsEnough_Summary.pdf 130-page report:

http://steadystate.org/wp-content/uploads/EnoughIsEnough_FullReport.pdf related videos from CASSE:

http://steadystate.org/leeds2010/videos/