ECONOMICS BECOMES A RELIGION
In his July 14, 2012 Blog Paul Krugman stated that economists' refusal to acknowledge the errors in their "...prognostications..." despite empirical evidence is a form of intellectual corruption. I have to disagree. I believe that the problem occurs because economics has moved from the world of science to the realm of religion. I first stated this on August 8, 2011 (The Sophistry of the Job Creator Argument) when I wrote"...they have turned their economic philosophy into a religion..." This is based upon the oft stated argument that "...religious dogma is the continuation of belief despite empirical evidence to the contrary..." The sophist of the right have continued to worship the "...'Confidence Fairy' (thank you Dr. Krugman),' Say's Law' (Supply Creates its own demand), and the myth that Investment Demand is derived from something other than the demand for the goods and services the investments produce (ie.unlike the demand for other production inputs, investment is not a Derived Demand).
The religious nature of their argument is proven when we see governments such as Britain's engage in the supposed confidence building policies that the sophists advocate but, subsequently, business investment and surveyed confidence continue to fall. The dogma that reducing the cost of capital though tax breaks is all that is need is to increase investment is shouted loudly despite empirical evidence that tax cuts don't improve investment (Tax Breaks Don't Boost Investment, CFO On Line, April 2004). Lastly, if Say's Law was workable in a down economy, our historically low interest rates would be leading to extremely high rates of investment spending.
As I look at the state of the American view of science, I fear for our future because the religionization of science is not confined to the economic realm.The rejection of "Climate Change", the insistence that "Intelligent Design" be taught as science, and Dr. Krugman's observation of economists rejection of empirical evidence are all symptoms of the movement toward the religionization of the sciences. When dogma dominates governmental policy we end up with the equivalent of an economic inquisition where empirical data is thrown into a dust bin and decisions are made based upon belief instead of evidence.
This problem is not confined to the realm of Macroeconomics. It is also prevalent in Financial Economics. Although he doesn't use the religious analogy, Emanuel Derman, in his book "Models Behaving Badly" identifies many areas in Financial Economics where belief trumps evidence. I addressed this same problem July 5, 2009 in my Blog Post: "Profit vs. Value" and I plan to address it again in a future Blog Post.
