Economic theory as ideology

Ideology and science are diametrically opposed to one another. An ideology is a set of beliefs that is maintained even in the face of strong empirical evidence to the contrary. Science is primarily concerned with explaining empirical evidence. Theories which conflict with observations are rejected.  This does not mean that ideology is necessarily wrong or bad — we must maintain our belief in justice, morality, honesty, trust and integrity, without any empirical evidence; indeed, even when strong empirical evidence suggests that these beliefs will not bring us popularity or personal benefits. However, ideological beliefs in the wrong ideas can blind us to the facts and prevent learning, which is essential to progress. Nobel Laureate Joseph Stiglitz observed that modern economics represented the triumph of ideology over science. This essay explains the reasons for his remarks.

Modern economic theory is founded on axioms for rational behaviour, which is equated with selfish behaviour by economists. No empirical evidence is presented for this axiom; rather it is taken to be self-evident. In the 1980s some psychologists, perplexed by the economic theories of human behaviour, decided to test these theories via some experiments. Amazingly, nearly all experiments conducted showed human behaviour to be strongly in conflict with economic axioms. A widely replicated experiment is known as The Prisoner’s Dilemma. This game is similar to many real-life situations, where an individual can benefit by betraying a social agreement, as long as other parties stick to the agreement. However, if all people betray the agreement, then everybody loses. Economic theory predicts that selfish individuals will betray agreements, and social conventions of cooperation will break down. However, real life experiments show that cooperation and maintenance of social conventions, even with complete strangers, is quite common.  Generally, economic theory assumes that selfish motives dominate all others. However, real-life behaviour in experiments displays a large variety of motivations, based on reciprocity, trust, generosity, charity, morality, and other motives which are assumed absent in economic theories.

For a very long time, economists refused to take results from experiments seriously, because these were in direct conflict with axioms at the heart of economic theories. The empirical failure of economic axioms led to the creation of ‘behavioural economics’, which studies the actual behaviour of human beings. In any scientific field, behavioural economics would be the centre of attention, since it matches the observational evidence about human behaviour. Furthermore, the axiomatic theory, which is contradicted by empirical evidence, would be a long-forgotten idea belonging to the primitive history of economic science. Surprisingly, mainstream economic textbooks, used all over the planet, continue to teach axiomatic theories of human behaviour as if they are true, while behavioural economics remains neglected and ignored.

Why do economists maintain an ideological commitment to patently false theories of human behaviour? Certainly, it is not because these theories are noble and elevating. In fact, many observers have argued that these theories lead to immoral behaviour, by teaching that selfishness without concern for morality or society, is rational for everyone and good for society. For example, Nobel Laureate Milton Friedman taught that businesses should maximise profits, without any concern for social responsibility. Given this license, multinational corporations have gone on a rampage, exploiting natural resources by using methods which threaten to destroy the planet. The easiest way to make a profit is to appropriate a priceless natural treasure, like a rainforest, and chop it down for timber. The losses from industrial wastes are changing the composition of the atmosphere, oceans, lakes and rivers, and inflicting costs on all human beings, but creating profits for corporate coffers. This strategy is referred to as ‘socialising losses and privatising gains.’ With massive profits, it is easy to buy politicians to prevent environmental concerns from getting in the way. The book Merchants of Doubt documents a well-funded campaign to create doubt about climate change, so that corporations can continue to make profits while destroying the planet. The persistence of economic theories which celebrate and glorify these poisonous ideologies of personal greed and social irresponsibility can be traced to corporate funding of think-tanks and research which promote ‘free markets’. The charms of ‘freedom’ propagated by economic ideologies conceal the ugly reality of corporate freedom and wage slavery of the masses.   

Published in The Express Tribune, July 11^th, 2016.

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