The irrelevance of mainstream economics…?

Lars Pålsson Syll is a well-known critic of mainstream economics. He grounds his counterarguments on methodological foundations, claiming that mainstream economics through its highly abstract and idealized framework is completely unable to describe the socio-economic reality which we are directly living in. I hope, he himself would not angry with me either for this summary of his arguments.

For me, such counterarguments always seem to be dubious. Theories should be evaluated together with their scopes of relevance. However, such a scope should be carefully established or judged. In other words, it is a difficult question whether a theory can justifiably be applied in one area or another. For mainstream economics, traditionally, this area is the realm of fundamental economic laws or tendencies at least. Maintream theorists have been looking for the fundamental laws similar to the laws of physics which govern our everyday social and economic life. Doing so, they have been quite successful, because during the last 150 years we could learn a big deal about the functioning of ’typical’ macrosystems.

Describing our social and econimic life as it is, i.e. in its totality, is a different job to do. It can be done from a phenomenological aspect, for example, but other approaches and other aims are also justifiable. Since 2008, it is an often repeated complaint that mainstream theory could not predict the occurrence of the last world economic crisis. Is it really the duty of mainstream theorists to predict such a disaster? I do not think so. Economics is somehow similar to biology or medicine: it is bound to scrutinize the recurrent events in search of common patterns which, later, will called ’laws of economics’. The problem is that a crisis per definitionem is an extraordinary development, so it lies outside of the territory of mainstream theory ’finetuned’ for studying peace time events. In other words, financial managers should have predict the crisis, not mainstream theorists, I think.

Of course, searching for the common patterns of financial crises can also be regarded as a reasonable way of inquiry, but it belongs to a different subdiscipline of econonomics, taken ’economics’ in a broad sense now. For example, it was the main concern for Hungary’s famous economist Prof. Alexandre Lamfalussy in his Henry L. Stimson lectures. Moreover, in an interview, Nobel laureate Tom Sargent called attention to the fact that some new researches were started in order to extend mainstream theory towards new fields, such as behavioral economics. To put it in other words, the traditional ideal type of the economic man does not enable us to scrutinize some special issues. We are constantly deepening our knowledge, but the relevant fileds of inquiry should not be mixed up.