A Critique of the Abstraction and “Numbers Only” Approach of Mainstream Economists

Steve Talbott, of the Nature Institute, (dedicated to neo-Goethean ‘wholistic’ science approaches) is a very thoughtful author on technology, who publishes a stimulating newsletter called Netfuture.

In the December issue, he reflects on the meltdown and what has been wrong with the justifications of the economists.

Here’s only the introduction. The full text is well worth reading.

Steve Talbott:

Between November 1997 and March 1998 I published three articles in NetFuture under the title, “Beyond the Dreams of Avarice”, where I commented on certain destructive misunderstandings of capitalism. I subsequently conflated those three articles into a single chapter of my recent book, *Devices of the Soul: Battling for Our Selves in an Age of Machines* (O’Reilly Media, 2007). While streamlining and condensing the presentation, I found no need to alter the text substantively. And, in the current economic crisis, that text now seems to me at least as relevant as when I first wrote it over ten years ago. So I’ve decided to offer the book chapter here, by kind permission of the publisher. (You’ll find ordering information at the end of the article.)

Given that our elected representatives in Washington, all the way up to the president and president-elect, seem to have little choice but to follow the direction of their esoterically educated economic advisers, and given that economists themselves — more and more by their own admission — have grossly failed in their understanding of what is happening to us, it might seem presumptuous for people like you and me to weigh in on the issues.

Certainly *I* would be incapable of engaging the economists on their own erudite ground. But that ground — or, rather, the lack of any solid ground — is exactly the problem. We’ve allowed economics to become a kind of intellectual castle in the air, too immaculate and pristine for contamination by the common reality in which we are all rooted. Just as, following the discovery of the double helix in the 1950s, scientists were so transfixed by beautifully describable “genetic mechanisms” that they radically falsified the living reality of the organism — a falsification evident to anyone who actually looked at the organism itself — so likewise the economists’ infatuation with much-too-neat “market mechanisms” has radically betrayed our understanding of actual economies.

In other words, economists may need outside help in bringing them back to reality.

While most of us have no claim to any penetration of the sophisticated theories and formulas of the economic guild, we do have one advantage over most economists: as guild-outsiders, we are free to refer, without blinders, to *all* the realities of human economic life. We are not so likely, therefore, to fall for patent absurdities, such as the (now former?) belief that unfettered trade in things like currencies and derivatives can help eliminate inefficiencies in the marketplace.

The fundamental problem here is precisely the distance between the resulting play with detached numbers on the one hand, and actual goods and services on the other. Such distance does not foster acuity of vision for spotting true economic inefficiencies, but only for grasping at economy-bending, profit-making opportunities. Among the factors helping to disguise this truth from theorists has been their commitment to the perverted, fairy-tale doctrine that self-seeking is an essential virtue of capitalism, magically converted by an Invisible Hand into social good. This doctrine is a primary focus of the article below.

How could we ever have imagined that sending people off on profit-making schemes — in an abstract, quantitative realm where the numbers are detached from real values and needs — could do anything other than create continually new and undreamt-of (and *never* adequately regulatable) opportunities for market disruption? How could we have imagined that banks and investments houses — supposedly serving the needs of the real economy — could forever reap profits totally out of line with the increased productivity of that economy without introducing terrible distortions *somewhere*?

1 Comment A Critique of the Abstraction and “Numbers Only” Approach of Mainstream Economists

  1. AvatarJames

    Hi Michel,

    I’ve was just yesterday struck with a new insight that dovetails very nicely with the underlying principle underlying the post. What inspired the insight was reading E.F. Shaumacher’s less well-known work, The Guide to the Perplexed, where on the topic of the over-reliance that modern society has on science to provide us with an understanding of the world. He brought attention to a quote by a psychiatrist by the name of Victor E. Frankel, who wrote,” The present danger does not really lie on the loss of universality on the part of the scientist, but rather in his pretence and claim of totality…What we have to deplore is not so much the fact that scientists are specialising, but rather the fact that specialists are generalising.”

    How that relates to the topic at hand, is that just like the scientists in the quote above, economists are merely the students of one particular body of knoweledge. That knowledge is a merely a fragment and inevitably incomplete. Yet like the scientists, in their hubris and conceit and the economists believe that their incomplete body of knowledge can be utilised to apply their model across the breadth of human endeavour without consideration or reference to other ways of understanding the totality of collective human action. The danger lies in the fact that they have managed to convince not only government and business leaders that their model is completely objective and free from value judgements and thus can be applied to all nations and societies without signicant adaptions or modifications, when neither claim is true.

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