If economics is just a religion then worth getting the tenets right

The Guardian has a long read about how economics is just a religion, doncha' know, and therefore something or other. The thing being that if you want to claim something is a religion then it's worth working out the details of what the tenets are. We do not comment upon Methodism for example, we do not know what split the Primitive and Wesleyan types nor what prompted them to become United either. We do not wade into such debates therefore.

This has not stopped John Rapley of course:

Although Britain has an established church, few of us today pay it much mind. We follow an even more powerful religion, around which we have oriented our lives: economics. Think about it. Economics offers a comprehensive doctrine with a moral code promising adherents salvation in this world; an ideology so compelling that the faithful remake whole societies to conform to its demands. It has its gnostics, mystics and magicians who conjure money out of thin air, using spells such as “derivative” or “structured investment vehicle”. And, like the old religions it has displaced, it has its prophets, reformists, moralists and above all, its high priests who uphold orthodoxy in the face of heresy.

There is no moral code in economics, it is a positive endeavour, not a normative one. We can thus rather throw the concept out at the beginning. But there is also that ill-knowledge of what it does in fact say:

Once a principle is established as orthodox, its observance is enforced in much the same way that a religious doctrine maintains its integrity: by repressing or simply eschewing heresies. In Purity and Danger, the anthropologist Mary Douglas observed the way taboos functioned to help humans impose order on a seemingly disordered, chaotic world. The premises of conventional economics haven’t functioned all that differently. Robert Lucas once noted approvingly that by the late 20th century, economics had so effectively purged itself of Keynesianism that “the audience start(ed) to whisper and giggle to one another” when anyone expressed a Keynesian idea at a seminar. Such responses served to remind practitioners of the taboos of economics: a gentle nudge to a young academic that such shibboleths might not sound so good before a tenure committee.

Which is why absolutely every government, Treasury and central bank model works on broadly New Keynesian principles. 

The data used by economists, however, is much more disputed. When, for example, Robert Lucas insisted that Eugene Fama’s efficient-markets hypothesis – which maintains that since a free market collates all available information to traders, the prices it yields can never be wrong – held true despite “a flood of criticism”, he did so with as much conviction and supporting evidence as his fellow economist Robert Shiller had mustered in rejecting the hypothesis. When the Swedish central bank had to decide who would win the 2013 Nobel prize in economics, it was torn between Shiller’s claim that markets frequently got the price wrong and Fama’s insistence that markets always got the price right. Thus it opted to split the difference and gave both men the medal – a bit of Solomonic wisdom that would have elicited howls of laughter had it been a science prize.

The EMH does not insist that market prices cannot be wrong. It says that given the information available prices will be right given the information available. Yes, it is tautologous. Further, Shiller's claim is that incomplete markets will not incorporate all known information, complete ones will. Thus his insistence that a futures market allowing one to go short on housing would have tempered the US housing bubble. And yes, Shiller is a very useful extension to Fama, that's why the joint prize.

This amuses:

For example, Milton Friedman was one of the most influential economists of the late 20th century. But he had been around for decades before he got much of a hearing. He might well have remained a marginal figure had it not been that politicians such as Margaret Thatcher and Ronald Reagan were sold on his belief in the virtue of a free market. They sold that idea to the public, got elected, then remade society according to those designs. An economist who gets a following gets a pulpit. Although scientists, in contrast, might appeal to public opinion to boost their careers or attract research funds, outside of pseudo-sciences, they don’t win support for their theories in this way.

Friedman got the Nobel in 1976, rather before either of those two were elected to national office.

At which point:

The 2008 crash was no different. Five years earlier, on 4 January 2003, the Nobel laureate Robert Lucas had delivered a triumphal presidential address to the American Economics Association. Reminding his colleagues that macroeconomics had been born in the depression precisely to try to prevent another such disaster ever recurring, he declared that he and his colleagues had reached their own end of history: “Macroeconomics in this original sense has succeeded,” he instructed the conclave. “Its central problem of depression prevention has been solved.”

No sooner do we persuade ourselves that the economic priesthood has finally broken the old curse than it comes back to haunt us all: pride always goes before a fall. 

Well, yeeees, We did in fact prevent a depression (usually defined as a 20% fall in GDP) by noting that the first one was caused by the actions of the Federal Reserve. So, we didn't do that again, instead we did QE and so on, our solution coming from the work of Milton Friedman and Anna Schwartz in their Monetary History of the United States, published in 1963. Which, umm, sounds like a solution to us, a problem met and solved.

There are undoubtedly religious beliefs in certain forms of economics, the magic money tree coming to mind, the labour theory of value and so on. But to be able to critique the tenets one should actually know them, something not greatly in evidence from this new book.