Economics as Ideology (1): Introduction

This is a first of a series in which I will investigate the role that economics plays in distorting our perception of reality.


The coronavirus pandemic has exposed the bankruptcy of social thought. As the crisis gathered pace in the United States towards the end of March 2020, in an unprecedented show of bipartisan unity, Congress passed a $2 trillion economic stabilization package. The Fed, responding to the escalating market volatility, had moved even earlier by cutting the policy rate down to zero, purchasing hundreds of billions of dollars in Treasuries and mortgage-backed securities, and extending credit to nonbanks. Other hard currency-issuing central banks were not far behind. The European central bank announced a 750-billion-euro bond buying program. The Bank of Japan, the pioneer of ‘yield curve control,’ signaled its intention to double its asset purchases. The Bank of England lowered its benchmark rate to 0.5 percent, the lowest in history. Downing Street let it be known that it was preparing an economic support package “unprecedented in the history of the British state.” Tokyo made similar gestures. Germany unveiled a 350-billion-euro stimulus package. Perhaps responding to the country’s reputation for Swabian tight-fistedness, Chancellor Angela Merkel made it clear that “we won’t be asking everyday what it means for our deficit.” The IMF set aside $50 billion to lend to countries facing financial crisis, while the World Bank said it would provide $12 billion in financing to developing nations hit hard by the pandemic.[i]

The central banks and the elected governments of the most powerful industrial nations were responding with institutional muscle memory. As the dimensions of the economic fallout became evident, they reached into the playbook articulated in the aftermath of the Western financial crisis of 2008. No one thought to ask whether restoring economic activity might worsen the pandemic. Given that the novel coronavirus spreads through contact and that greater economic activity necessarily implies greater interpersonal interaction, restoring economic activity may very well prolong and intensify the pandemic. Yet, no one bothered to even pose the question. It was simply unthinkable that it may not be wise to respond to the economic shock with the familiar weapons; that we may have to bear the economic fallout in order to temper the grim toll of the most virulent pandemic in modern history. At any rate, there was a tradeoff between economic stabilization and effectively controlling the spread of the coronavirus. What is interesting and revealing is that the issue was never discussed; even if the point was raised somewhere in the bowels of the technocracy, it never saw the light of the day. It was as if our governing institutions and leaders could not even conceive of circumstances in which it may not make sense to maximize economic activity.

The tunnel vision of global leaders and the wider discourse of the articulate class is symptomatic of a deeper malaise. Put simply, we are in the grip of a very powerful ideology. It is an ideology that subordinates all goals, including the survival of our species and the web of life with which it is inextricably intertwined, to the goal of maximizing economic growth. But it does much more. Economics as ideology distorts our perception of contemporary and historical reality. It misguides us into flawed explanatory schema for the most important historical explananda. It sharply narrows the possibility space of human action. And, most important of all, it closes off all rational courses of action that may thwart the collapse of world civilization that is increasingly getting backed-in as we ride up the hockey stick of doom.

Discourse is stronger than reality. By this we mean something more than what Robert K. Merton called the Thomas Theorem: ‘If men define situations as real, they are real in their consequence.’[ii] It is not simply that discourse, our picture of the world, has consequences quite independent of physical reality. It is that the lens, the simplifying schema, we use to examine the world necessarily distorts our perception of reality. And this distortion can have dramatic consequences for the adequacy or otherwise of our response to the challenges that the world throws our way. But ideology is not simply a distorted lens through which we look at the world.

Lenses are not optional  — we cannot commune directly with reality in the wild, as it were. Even in physics, our theories are not exact; they are simplifications. Put another way, we know that they are false. The ‘double-slit’ experiment illustrates this perfectly. At one end we have a light source, at the other end we have a photon detector, and in the middle we have a screen with two slits. Now, we have two physical descriptions of light. One describes light as waves such as we observe on the surface of water; another describes light as composed of particles called photons — these are our two lenses. When we run the experiment what we observe is very strange indeed. When only one of the two slits is open, the pattern recorded by the detector exactly matches what we would expect if light were particulate — each photon seemingly travels in a straight line through the open slit until it makes contact with the detector. When both slits are open, however, the pattern recorded by the detector exactly matches what we would expect if the wave description of light were correct but not the particulate description — we get the classic interference pattern just like the one we observe on the surface of water when two waves collide.

1-2

This means that both our lens, the wave description and the particulate description, are incomplete. More precisely, we know that either of them cannot be right in any strict physical sense.[1] This does not mean that we cannot use these lenses. In fact, the double-slit experiment was first carried out by Thomas Young in 1801, long before relativity and quantum mechanics revolutionized physics in the early-twentieth century. Before and after these revolutions in our picture of the physical world, physics has continued to use both descriptions with great success.

The limits of our theoretical schema are not confined to physics or science. They hold in complete generality. In order to explain any phenomena, or what amounts to the same thing, to comprehend any phenomena, at all, we must begin by throwing out the vast bulk of reality. We have no choice but to isolate a small number of features that are relevant to understanding the phenomena at hand. All lenses, reference frames, explanatory schema, models, theories, paradigms, or whatever you want to call them, are necessarily drastic simplifications of reality. We do not ask of them if they are true or false. They are known to be false. The job of models, reference frames, and so on, is not to be right or wrong; it is to be useful. And the criteria for their usefulness is whether they make phenomena intelligible. That is, whether they can help us comprehend the phenomena under investigation. The moral of the story is that it is perfectly sensible for us to develop simplifying schema to comprehend the world. Indeed, there is no other way to do it. So ideology is not simply a distorted lens through which we look at the world.

Ideology consists of widely-shared lenses that are worn unconsciously. It is when we are not aware of our limits applicability of our reference frame, when we mistake the map for the territory, that we are being ideological. More often than not, we are simply unaware that we are using a specific lens to interrogate reality. Ideology manifests itself in widely-shared and unarticulated premises. It is most evident in things that are simply assumed to be true and require no justification whatsoever — mere assertion suffices. But even though widely accepted, such premises may not hold. A gap thus opens up between discourse and reality. Such gaps are a recipe for disaster. All man-made catastrophes are due, in large part, to such gaps.

The politico-military realm furnishes the most dramatic examples. One thinks here of the generals on the western front in World War I, who, in the grip of ‘the cult of the offensive,’ sent an entire generation of men to be slaughtered in fruitless frontal charges.[iii] Or the Germans in World War II, who went full of apprehension to the west, thinking that the war against France would last for years (it lasted for six weeks), but soon after went east, full of self-confidence, expecting Soviet capitulation in a matter of weeks (it lasted for years and ended in their defeat).[iv] Or the Kennedy intellectuals who were convinced that the United States simply had to hold the line in South Vietnam against ‘communist subversion in the grey areas’ even though no strategic interest of the United States could be identified with ‘the survival of its own counterfeit creation’.[v] Or, to take a more recent instance, of Bush administration officials, who, expecting to forge a pro-Western market democracy in Iraq, instead ended up handing over the country to Iran.[vi]

Gaps between discourse and reality are in no way confined to the realms of military affairs and power politics. Asset price bubbles furnish some fantastic instances. At the peak of the Japanese asset price bubble in 1989, the grounds of the Imperial Palace were valued at more than the entire state of California. Before the onset of the Western financial crisis, it was believed by all concerned that US house prices simply did not fall under any circumstances. During the week of the Lehman collapse, bank analysts claimed that they had seen 3 six-sigma events back-to-back — if they were actual six-sigma events, the chance of their occurring in the same week would have been 10-17; ie, 1 in 100,000,000,000,000,000. That’s five orders of magnitude more than the number of days that have passed since the Big Bang, 5 x 1012. At the peak of the dot-com bubble in 2000, as the Dow surpassed 10,000 for the first time, Roger Ibbotson, professor emeritus of finance at Yale’s business school and the author of numerous well-regarded books on finance, was going around giving talks titled “Dow 100,000.”[vii] He was far from alone. Nor was it very different in other speculative bubbles. In terms of sheer asset price growth, Bitcoin surpassed the Mississippi bubble, the South Sea bubble, and even the Tulip Mania of the seventeenth century Dutch Republic. Having hit nearly $20,000 per Bitcoin, it fell below $5,000 in March 2020. Much like Tulips in Holland, the value of Bitcoin is pure discourse; entirely devoid of any anchor in reality.

The gap between discourse and reality may be no less disastrous outside the realms of finance and military affairs. Before the Fukushima disaster, the Japanese Nuclear Safety Commission insisted that the probability of a disaster at the plant was lower than that of a one-in-a-million-year event.[viii] Before the Arab uprisings of 2011-2013, both Western political scientists and Arab rulers themselves believed that the strongmen regimes of the Middle East were virtually invulnerable.[ix] Despite the vast army of Sovietologists and intelligence analysts cultivated by the Cold War state, no one predicted the collapse of the Soviet empire either.[x] More recently, pollsters were confident that Britons would vote remain. And few indeed predicted the triumph of Donald Trump; either in the Republican party or in the general election.

The title of this essay echoes the title of Richard Lewontin’s Massey Lecture, Biology as Ideology.[xi] In the dispatches that follow, I will try to map the ways in which economics functions as ideology. It is, in part, an intellectual history of the West. It is also a treatise of sorts on Western political economy. But this is an essay; not a monograph. What I am attempting here is to uncover widely shared premises of modern intellectuals through a series of probes into various explananda that seem to me to be important in the general development of Western thought over the past century or so. While the focus is on intellectual history, we must pay equal attention to the political economy and the class foundations of widely accepted premises. We shall have occasion to analyze the standard narratives of economic history, military affairs, wartime intelligence, prehistory, anthropology, international politics, American electoral politics, Sovietology, climate change, and the intellectual history of science.

A word on what this series is not about. It does not attempt to grapple with naïve economism — the idea, widely shared among non-economists, that economics offers ‘simple, pseudo-mathematical axioms’ that the world must obey, and that this is what economists believe.[xii] Nor is this essay an attempt to take down economics as a discipline. Every discipline must isolate a realm of reality for investigation or it cannot serve as the container of generative research agendas.[xiii] Most economists are serious intellectuals trying to grapple with important questions. Economists know very well that their domain of investigation is a sharply bounded realm of reality. And while it often offers interesting explanations of worldly phenomena and policy prescriptions for many problems beyond those usually considered economic, it does not offer even an approximately complete toolkit to intellectuals and policymakers as they grapple with the often unexpected challenges thrown up by our crowded world. As we shall see, when it is applied beyond its proper domain, it is a recipe for disaster. What is attempted here is not to poke holes in a perfectly legitimate discipline but to cut it down to size. Finally, the author is not a Marxist and the attack is not mounted from a Marxian perspective. It is the position of this analyst that capitalism is oversold. As we shall see, our recent obsession with capitalism, whether as an engine of progress or as the scourge of the earth, is yet another symptom of economics as ideology.


Notes

[1] As far as we can tell, wave-particle duality holds in general. Every particle displays wave-like character and vice-versa.

[i] Council on Foreign Relations. Web (https://www.cfr.org/backgrounder/coronavirus-how-are-countries-responding-economic-crisis). Accessed April 6, 2020.

[ii] Merton, Robert K. “The Thomas theorem and the Matthews effect.” Soc. F. 74 (1995): 379.

[iii] Van Evera, Stephen. “The Cult of the Offensive and the Origins of the First World War.” International Security 9, no. 1 (1984): 58-107.

[iv] See my Farooqui, Anusar. “Western Perceptions of Soviet Strength During the Soviet-German War.” Unpublished, 2017.  Web (https://www.researchgate.net/publication/321837484_Western_perceptions_of_Soviet_strength_during_the_Soviet-German_War). Accessed April 6, 2020.

[v] Anderson, David L. Trapped by Success: The Eisenhower Administration and Vietnam, 1953-61. Columbia Univ Press: 1991, p. 197. Quoted in Farooqui, Anusar. “The Logic of the Kennedy Escalation, 1954-1968.” Unpublished, 2020. Web (https://www.researchgate.net/publication/338113200_The_Logic_of_the_Kennedy_Escalation_1954-1968). Accessed April 6, 2020.

[vi] See my Farooqui, Anusar. “Saddam Must Go.” Unpublished, 2014. Web (https://www.researchgate.net/publication/331961163_SADDAM_MUST_GO). Accessed March 14, 2011.

[vii] Shiller, Robert J. Irrational Exuberance. Princeton University Press, 2015, p. 43.

[viii] Japan Nuclear Safety Commission. Web (http://www.nsc.go.jp/NSCenglish/topics/safety_goals.htm). Accessed April 6, 2020.

[ix] Gause III, F. Gregory. “Why Middle East Studies Missed the Arab Spring: The Myth of Authoritarian Stability.” Foreign Affairs (2011): 81-90.

[x] Gilpin, Robert G. “No One Loves a Political Realist.” Security Studies 5, no. 3 (1996): 3-26.

[xi] Lewontin, Richard. Biology as Ideology: The Doctrine of DNA. House of Anansi, 1996.

[xii] Kwak, James. Economism: Bad Economics and the Rise of Inequality. Pantheon, 2017.

[xiii] Waltz, Kenneth N. Theory of International Politics. Waveland Press, 2010, p. 8.

12 thoughts on “Economics as Ideology (1): Introduction

  1. I’m reminded of Albena Azmanova’s “Capitalism on Edge.” Azmanova claims that capitalism has entered a fourth phase in its development in which the so-called legitimacy deal of capitalism–that economic opportunity and risk should be correlated and that the state should enforce this– has been violated.

    She writes, “Thomas Piketty’s findings (2014) are so disturbing not because they offer impressive statistical evidence for something we have known all along—that market societies are economically unequal, and increasingly so. The upsetting part is the disclosure of the mechanism that amplifies the opportunities for those who are already advantaged, without the penalty of exposure to considerable risk. If the rate of return on capital, as a rule, outstrips the growth rate of the economy, as Piketty makes clear, this means that people with the capacity to invest their nonconsumed wealth in the stock market, especially if their capital is large enough to allow diversification of investment risk, have additional opportunities unavailable to those who lack surplus wealth to invest. If this added opportunity comes without effort and without the corresponding penalty of risk-taking (as, say, an investment in the real economy would be), then this violates the basic principles that made capitalism palatable for democracy. The public outrage over the reckless conduct of financial capital and the privileges of the affluent is thus wholly justified; it does not stem from a frivolous envy over superior consumption capacity. It is anger with undeserved opportunities while society is being put at risk.”

    I envy your facility with mathematical statistics, incidentally.

  2. “A word on what this series is not about. It does not attempt to grapple with naïve economism — the idea, widely shared among non-economists, that economics offers ‘simple, pseudo-mathematical axioms’ that the world must obey, and that this is what economists believe.”

    Well, no, the claim is that orthodox economics is largely complex mathematical axioms that economists mistakenly believe at least approximate reality. The math itself is (usually) sound, and often very elegant and clever. But it usually also means exactly nothing and doesn’t remotely connect to reality.

    One thing that’s fascinating to me about economists is how damn bad they are at their jobs, at least from the perspective of the bulk of a nation’s population. They’re the only social scientists (and that’s what they are, despite their pretensions to being hard scientists. And that is indeed a widespread pretension among them) that are consistently given a seat at the policy table, and their track record there is abysmal. If you are running a government you are usually better literally not consulting a professional economist at all. Great economic success stories were often run by lawyers or people with other, non-economics qualifications.

  3. Why disavow Marx? Marx got the prediction right–that capitalism over time [r>g] leads to massive income and wealth inequality and ultimate collapse (with a lot of pump-and-dump help from the Fed and NYC bankers)–but the solution wrong, i.e., socialism/communism.

    “Economic discourse” carefully avoids looking at people, only at tendentiously selected macro variables. At least now the government seems to be noticing that ~100m people have no incomes and no food [no comment on the origin of the current “virus augmented” crisis].

    The problem, aside from the blatant massive corruption in NYC/DC, is the joint-stock company, i.e., the corporation, IMHO. Until employees are granted mandatory profit-sharing at a level to “govern” the tendency to runaway inequality and collapse, “capitalism” as a system based on the control of the means of production through corporations, will fail.

    The advantage of low-inequality capitalism at least in its early post-collapse stages historically is that it harnesses the healthy motivation for self-betterment through effort to acquire private property. The Soviet Union and Communist China illustrate the depravity that can accompany a “communist” state takeover, and Cuba, Venezuela et al., of a “socialist” system.

    Just my $0.02!

    Thanks, PT!

  4. Interesting piece! Here via Naked Capitalism. This is great: “Ideology consists of widely-shared lenses that are worn unconsciously.”

    Hope you’ll be bringing the work of another physicist David Bohm, who actually developed alternatives to ideology, Bohm’s Dialogues.

    https://en.wikipedia.org/wiki/David_Bohm

    Look forward to future installments.

  5. Cuba is communist: Complete state ownership of the means of production. People were not even allowed to legally sell home made empanadas not sandwiches nor anything. It was only done ilkegally

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