Economics – what utter cobblers….

I am reading Thomas Piketty’s excellent book, Capital in the 21st Century. It deserves to be as influential as Keynes’ General Theory. 

I have also been following up some other research into the question of inequality, and have found some interesting work going back to the 1950s by influential economists such as Kaldor and Kuznets. The empirical data seems to be that a relatively low level of inequality is fairly well correlated with growth: see, for example, this IMF Staff Discussion Note by Ostry, Berg and Tsangarides, which was recently cited in a speech by Mark Carney. 

Citation-surfing led me to: The Tradeoff Between Inequality and Growth by Jess Benhabib, Professor of Economics at New York University. Benhabib was trying to show that the relationship is non-linear, a result I would expect. But when I read the paper….

That tenured academics are paid good money to produce such rubbish is incredibly depressing. In a social science, there is simply no point in such pages of algebra. So far as I can tell, not one of the variables in the reams of equations can ever be empirically determined. How can these theories ever be tested?  

I’m not great at maths, but I know enough to know that it has incredible beauty in its pure abstract depths, the more remarkable because the same abstract language describes reality so accurately. But this “economic modelling” does nothing of the sort. The “agents” to which it refers have no basis in reality. It’s not wrong, mathematically. It’s just pointless. It’s mathematical self-abuse, an abuse of mathematics – and if it’s the sort of theory that’s been used to inform real, public economic policy it’s hardly surprising we’ve made such a mess of things.

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