Friday, April 6, 2012

It might be economics, but it's not science

No sooner do I coin a well-received definition of economists, to wit: 

 “…the study of economics is not a science. Note that I did not write “exact science”.It is not a science at all. It is a set of beliefs that are held by individual practitioners and invoked under any and all conditions. Economists are Keynesians, Monetarists or follow the Austrian School in the same way as the devout adhere unquestionably to Mohammed or Christ or L.Ron Hubbard. Economists cannot agree among themselves on the right course of action under any given set of circumstances and they most certainly cannot predict what will happen in the future”. (See "Vincent Browne and the Euro) 

than a group of them comes along and seems to make every effort, in the pages of The Irish Times, to support my thesis.

An article in the paper of record on Friday 6th April and signed by no less than 43 academics, many in economics positions, is entitled “Austerity without growth a guarantee of stagnation”. It points out that a subset of the same group argued, two years ago, against spending cuts and tax rises as a means of dealing with the economic crisis on the grounds that it would kill growth and create high unemployment and debt. The current article seems to be claiming that this prediction has been proved correct, 24 months later. But two years is a mere blip in terms of the time required to create the economic conditions that would come close to being defined as normality.

“The evidence is clear”, they say, “contractionary fiscal policy does indeed restrict economic activity and employment”. This is an example of the kind of wooly thinking that's indulged in by those who have misappropriated scientific terminology. The statement is certainly reasonable, and one could even be persuaded to base policy upon it in certain circumstances. There is however no evidence, never mind clear evidence, in this opinion piece to support it.

The article is unscientific in that it never addresses other, feasible, hypotheses. For example, the proposition that taxes on high income groups actually reduce the tax take because they make it economically viable for the rich to simply remove themselves to another tax jurisdiction. Or that the EU / ECB / IMF solution to current woes - austerity now (but nothing like what the global financial markets would impose on countries like Greece and Ireland if they were to have a disordered sovereign default) to repair and consolidate Euro-zone peripheral economies so that the E-zone as a whole can prosper and grow in the future – might be the correct course of action.

The article could conceivably contain contradiction. At the start it is arguing against tax increases on low and average earners as the means of raising the funds for growth in infrastructure and other labour intensive projects. Less than 800 words later it’s calling for …”taxation targeting high-income groups, property assets, unproductive activity and passive income…”, “…stronger local taxation…”, “…the potential of social insurance and local taxation to broaden the tax base…” and claiming that “…PRSI [another form of taxation] can be expanded and combined with general taxation to provide free (sic) universal healthcare and earnings-related pensions”.  Many hold that all these measures simply trickle down as costs to middle and low earners through market forces.

Definitely not science. The scientific method has no room for ideology, for expediency or for plain, old fashioned, wishful thinking.

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