Is Economic Theory a Pseudoscience ?

The subject area covered by economics can be divided into three broad categories: "Economic" behavior, human material interactions, and the theory of value. In all three areas, economic theory fails to accurately describe, model, or predict the real world, and is in conflict with the best understanding provided by noneconomic disciplines.

First, as a behavioral science, economics assumes that people are fairly rational, well-informed agents working in their own self-interest, with little or no concern for the effects of their actions on others or on society as a whole. Many economists would put this even more strongly, claiming that people are highly rational, and fully (and equally) informed. Not only is this view very culturally narrow, being applicable primarily to western societies of the last 200 or so years, it isn't even accurate within its cultural limits. Numerous studies (not to mention empirical observation) demonstrate that people are not very rational, are often not well-informed, and are certainly not equally informed. Consider a counter-example to the economic viewpoint: advertising. If the economic view of human behavior were correct, advertisements would do nothing more than provide accurate, useful information in order to convince consumers that it makes sense to buy the product being advertised. There would be no place for such irrational factors as emotional appeals, brand loyalty, sex, and so on. Clearly, this does not describe most mass media advertising. What's going on? Either emotional, non-rational advertising works -- which can only be true if consumer behavior is not rational -- or else such advertising doesn't work -- in which case producers are behaving irrationally by continuing to employ ineffective sales methods. Even in very simplified situations, such as experimental studies of economic behavior, people seldom behave in a fully rational manner.

Economics as the study of human material interactions hardly exists at all. All economic transactions involve the transportation or transformation of matter and energy (even if only to alter the information content). The laws of physics and biology, most especially the limit laws (such as the laws of thermodynamics), must apply to any such interactions. Yet most economists are oblivious to such matters. The few who are aware either argue that the limit laws do not apply to economics (the most notorious proponent of this viewpoint is Julian Simon), or just get it wrong. (e.g., by asserting that any economic activity will increase the entropy of the earth. Since the earth is not a thermodynamically closed system, activity will not necessarily increase the earth's entropy, although it must increase the entropy of the universe as a whole.)

Economic theory claims to describe how economies maximize, or fail to maximize, value. Yet philosophers have demonstrated (as most economists will readily admit) that economists don't really know what they are talking about when the talk about value. Economic theory has been reformulated in various ways to try to circumvent this problem. But most such fixes are nothing more than circumlocutions, substitutions of other words or phrases for "value".

There are also other, more technical, issues (e.g., economic theory is oriented toward static equilibrium models while the real world involves dynamic, ongoing processes; "proofs" of economic theories often rely on fixed-point theorems which require the absurd assumption that all economic quantities are continuous; and so on.)

All the above criticism would be, if not negated, at least blunted, if economic theory were actually useful, if it could predict or help us to understand events in the real-world economy. This is where it becomes most obvious that economics is a pseudoscience. In science, theories and models are tested against reality. If they are contradicted by confirmed events, theories are either modified or rejected. In the long run there is a winnowing out process which selects one or a few theories as being most probably correct. In a pseudoscience, no such winnowing out occurs: when confronted with strong evidence against a pseudoscientific theory, either the evidence is dismissed or reinterpreted to conform to theory, or the theory is reinterpreted to make it consistent with the data. Abandonment of the theory is never even an option. There has been no winnowing out of economic theories. When an "impossible" event occurs (e.g., "stagflation"), data or theory is simply reinterpreted to conform to the new situation.

Economics has all the earmarks of a pseudoscience. I believe it is leading us astray and should be abandoned, and that we should try to develop a true science of economy.