ADEREMI MEDUPIN

What is reality?... It’s the ultimate scientific quest – to understand everything that there is. But the closer we get, the further away it seems. Can we ever get to grips with the true nature of reality? We humans have a bit of a problem with reality.

Disposing of a Controversial Sub-title

 Can there be a game without a referee? Well, to Stuart Carrington, the answer is NO. In his August 27, 2020 piece with focus specifically on football and published on the website of Keys to Referee, the response is slated bluntly in its title: “Without a Referee, There is no Game: The Philosophy Behind the Statement”. At the core of the negative verdict is the argument that “the game cannot physically take place without an official, much like it cannot take place without the players or a ball”. Given Carrington’s focus on a physical game, the negative verdict is evidently logical and acceptable, unlike in the case of our ‘economic theory versus economic reality’-without even geographical boundaries. However, the power of the logic of Carrington’s argument has been reinforced by a commentator with a concluding rhetorical question: “In soccer, the referee makes the call. Sometimes it goes your way, sometimes it doesn’t. But here’s an interesting thought: what would have happened if there was no referee? What if it was left up to the players on both teams to agree on what actually transpired?” Surely, this scenario would be absurd.

Interestingly, much earlier in June 2017, an article titled “The Sport with No Referees” published on a Canadian e-platform, The Walrus, authored by Hadiya Roderique explained how a sport described as ultimate is played without a referee because “­ultimate relies on the principle of “spirit”. . . ­according to which the players themselves shoulder responsibility for fair play. There are no referees in international matches, and players are guided by their own conscience when enforcing the rules.” Whereas the kind of ‘game’ we’re discussing here is far more complex than the cases cited above, they have served in disposing of any potential controversy around the topic’s sub-title. As an aside, we take along the loaded statement, “Life is a game with many rules but no referee”, credited to Joseph Brodsky.

But, to start with and coming to grasps with the topic of the discussion, there is the challenge of pinning down ‘reality’ to concrete specifics.

 Confronting Reality

One of the most slippery concepts in usage is: ‘reality’. To put it directly: What is reality? An analyst quoted as asserting that “there is but one reality” is at best vague and of contestable validity. According to Wikipedia, “Reality is the sum or aggregate of all that is real or existent within a system, as opposed to that which is only imaginary.” It goes further to elaborate, noting: Certain ideas from physics, philosophy, sociology, literary criticism, and other fields shape various theories of reality. One such belief is that there simply and literally is no reality beyond the perceptions or beliefs we each have about reality. Such attitudes are summarized in the popular statement, "Perception is reality" or "Life is how you perceive reality" or "reality is what you can get away with". It’s difficult to pin this offer to a definitive clarification on the subject, coherent as it may sound.

The difficulty in pinning down reality conceptually and practically comes through clearly in the New Scientist issue of January 29, 2020 while examining the subject from the angle of Physics under the topic:  “What is reality? Why we still don't understand the world's true nature” by the trio Jason Arunn Murugesu, Joshua Howgego and Gilead Amit who drew attention to the fact that:

It’s the ultimate scientific quest – to understand everything that there is. But the closer we get, the further away it seems. Can we ever get to grips with the true nature of reality? We humans have a bit of a problem with reality. We experience it all the time, but struggle to define it, let alone understand it. It seems so solid and yet, when we examine it closely, it melts away like a mirage. We don’t know when it began, how big it is, where it came from and where it is going, and we certainly have no clue why it exists.

For sure, the task on our hand is huge and complex-yet it has to be discharged-scaled down to the economic terrain.

Essence and role of Economic Theory

In response to the question: What is economic theory?- the editorial team of Indeed webpage provided an inadequate but usable response, with the explanation that:

An economic theory is a set of ideas and principles that outline how different economies function. Depending on their particular role, an economist may employ theories for different purposes. For instance, some theories aim to describe particular economic phenomena, such as inflation or supply and demand, and why they occur. Other economic theories may provide a framework of thought that allows economists to analyze, interpret and predict the behavior of financial markets, industries and governments. Often, though, economists apply theories to the issues or occurrences they observe to glean useful insight, provide explanations and generate potential solutions to problems.

On March 19, 2022, a well laid out Paper- authored by four academics extracted from four different universities spread across USA and France, was published –as PIER Working Paper 22-013, under the title: “Economic Theories and Their Dueling Interpretations”, which abstract provides a mouthful to digest concerning the essence and scope of economic theory. Here it goes:

The interpretation of economic theories varies along several dimensions. First, theories can describe reality, illustrate a recommended state of affairs, or analyze the logical consistency of a possible world. Second, theories can be used for prediction or for explanation. Third, theories can relate to reality in a rule-based or case-based manner. Fourth, theories can be statements about economic reality or about the act of economic reasoning itself. Fifth, theories can offer predictions or merely critique reasoning.

This is obviously a creative and comprehensive rendition on the subject; however, it is so elastic that it can accommodate literally anything conceivable. The saving grace for their definition is the additional comment that: “theories are often open to multiple interpretations which can shift depending on the context in which the theory is applied, the surrounding economic literature, and the argument made by the interpreter”. However, the authors evidently derailed when they seek to force all economists under a homogenizing theoretical umbrella-worse still, hiding the reality of conflict of interests in the society, as they assert with baseless and mischievous magisterial finality that:

Among the social sciences, economic theory is arguably unique in embracing a single, unifying conceptual framework. Most research in economic theory assumes that each agent maximizes an objective function subject to constraints, and the analyst then focuses on the equilibria defined by including other agents’ behavior in these constraints. Not only is this conceptual framework a fair description of the state of affairs in economic research, but many economists espouse it as a normative stance or even an ideological position

Hal R. Varian- in the Paper, “What use is Economic theory?”, presented at Conference themed, ‘‘Is Economics Becoming a Hard Science?’’ held 29--30 October, 1992, in Paris, France.- brought out the absolute hollowness and lack of seriousness on the part of traditional economists with the resort to the celebration of the purely entertaining power of economics even if irrelevant at the level of addressing concrete human economic challenges. To Varian, economics is satisfying once it carries aesthetic beauty-elegantly conveyed in the usual graphs and illustrative diagrams gleefully deployed by academic economists. Hear the apologist:

Why is economic theory a worthwhile thing to do? There can be many answers to this question. One obvious answer is that it is a challenging intellectual enterprise and interesting on its own merits. . . No one complains about poetry, music, number theory, or astronomy as being ‘‘useless,’’ but one often hears complaints about economic theory as being overly esoteric. I think that one could argue a reasonable case for economic theory on purely aesthetic grounds. Indeed, when pressed, most economic theorists admit that they do economics because it is fun.

This is nauseating, to say the least. However, in order to avoid being labelled as an unduly intolerant reviewer of a renegade’s perspective, we opt to bend over backwards and accommodate the speech maker’s point to the effect that, “. . . economics is a policy science and, as such, the contribution of economic theory to economics should be measured on how well economic theory contributes to the understanding and conduct of economic policy”. This is indeed perhaps the real point at which to explore and expose the ideological alignment of economic theorists and their consequences for public policy. Unfortunately, by the time one got to the end of the speech, in particular the section tagged ‘Summary’, and coming across the following assertion: “I have argued that in order to understand why economic theorists behave in the way they do one has to understand the role of economic theory’s contribution to policy analysis. The fact that economics is fundamentally a policy science allows one to explain many aspects of economic theory that are quite mysterious otherwise”, one is left to conclude that the writer is either a clown or an idiot-or both.

If, by 'the economist' we mean the human agent who observes, classifies and analyses economic reality and, by 'economic theory' we mean the main intellectual product emerging from the economist's effort to analyse the economic reality under investigation, the influence of ideological loyalty among economic theorists must be appreciated. As a world view of the economist, ideology and its relationship with economic theory may not be linear and straightforward given the complexity and dynamism of reality, but there can be no denying the fact that ideology plays a great role in the fashioning of economic theories and public policy recommendations, hence the diversity of perspectives.

Contending economic theories

The Monthly Labor Review of January 2014 gracefully featured a review of a book jointly authored by Richard D. Wolff (an American Professor of Economics who runs a highly educative You Tube series called Democracy At Work) and Stephen A. Resnick-entitled: Contending Economic Theories: Neoclassical, Keynesian, and Marxian- in which the fact and explanation of heterogeneity of perspectives among economists are laid bare. As the reviewer noted: “It should come as no surprise that neoclassical, Keynesian, and Marxian economists all promote their respective theories as the most consistent with reality while dismissing alternative theories as inadequate. But, per the authors, what many theorists are reluctant to admit is that their evaluation of ‘relevant historical facts’ is always guided by a specific logic that governs the selection of those facts. In other words, the way we interpret reality is heavily dependent on our own theoretical assumptions, in addition to a wider array of political, social, and economic conditions in which we find ourselves. . . ” [emphasis added-AM]. Need I add here that what is at work is ideology as motif and guide? In practical illustration, if economists see reality from the perspective of free market forces as being the most reliable means to harness and allocate resources even in a neocolonial context like Nigeria, we should not be surprised at the irrelevance of their theoretical edifice and its routine collapse before a reality conveying poverty, inequitable income distribution and overall underdevelopment. Indeed, such economists will not fully comprehend the essence of these burdens and weaknesses of the system they study.

A hint at the limitation of mainstream economics and its being largely bereft of realism has been provided by the quartet, Shankar Vedantam, Maggie Penman, Kara Mcguirk-Allison and Max Nesterak in their May 28, 2020 article, “Theory Vs. Reality: Why Our Economic Behavior Isn't Always Rational”. Apart from being an indictment of mainstream economics, the article also implicitly underscores the fact of heterogeneity of economics. I seek the reader’s indulgence to cite the article at length-for the avoidance of doubt and for full desired impact. Here go the quartet:

We don't always behave the way economic models say we will. We don't save enough for retirement. We order dessert when we're supposed to be dieting. We give donations when we could keep our money for ourselves. Again and again, we fail to act rationally and selfishly — the way traditional economics expects us to. We've seen this during the coronavirus crisis: People selflessly mobilizing to help each other, like the retired Kansas farmer who sent an N95 mask to New York to help a nurse or a doctor. At the same time, though, we've also seen some people do exactly what economic theory assumes they will: Place their own self-interest above everything else. There are those who have even tried to profit from the pandemic, like the man in New York accused of stockpiling N95 masks to sell at an inflated price. Think about this man who hoarded masks and the man who donated a mask

This long excerpt brings to our attention the important and indeed historic fact that mainstream economics-which the cited authors refer to as ‘traditional economics’- has demonstrably omitted the social and humane element in man as opposed to the strictly self-centred image portrayed in the solely materialistic label, homo economicus. Of course, there are selfish, extremely self-centred people in the world and if their ranks is growing it is due to the economic system of individualism promoted by ‘traditional economists’.

Explaining the Conflict between theory and reality

Of all conceivable sources, the Forbes Magazine would have been the last expected to comment on the possible conflict between economic theory and economic reality. However, here we are with a ‘Senior Contributor, Freelance business, economics and tech journalist’, Erik Sherman, writing on: “When Economic Theory Clashes With Reality, Individual Workers Get Hurt” through that medium-on January 20, 2021. Interestingly, the blow delivered against traditional economists is in the category of a knock out-wrapped in this package:  “Economists cement the back and forth into solid walls that deliver ping-pong policy. Too much faith in “laws” that are crude approximations of periodic observations. Not enough questioning of presumptive infallibility”. Note that the commentator is recalling the analyses of erratic President Trump’s economic policies.

 When Ben Fine and Laurence Harris-in their nuanced piece on: “Ideology and Markets: Economic Theory and the 'New Right'” quoted a third author, A. Walters, it is easy but incorrect to infer their endorsement of the quoted author  who is reported as writing what is clearly subtle racism, as follows: “If you ask an economist to explain how he would predict the exchange rate between fish and fowl in an African village, he would use more or less the same analytical discipline as he uses for explaining the exchange rates between financial instruments in the complicated markets of the West. The basic analytical laws are the same . . . in the African jungle as in the boardrooms of the City.” The righteous indignation of Fine and Harris-well known progressive economists-is evident from the footnote they added to the effect that, “Here we have a confession that the economic adviser to Mrs. Thatcher employs a range of economic principles which is as limited and as biased as is his knowledge of the fish and fowl, uncomplicated, jungle African economy!” Note that the author under reference had served as Economic Adviser to the militant conservative British Prime Minister, Margaret Thatcher of the “There is no alternative” (TINA) bogey- to be addressed on this platform at a future date.

An interesting article written by Prachi Juneja- vetted and published by online Management Study Guide, is perhaps the most honest admission of the failure of mainstream economic theory, with the submission that:

The world has been in economic turmoil for the past century. One crisis after other has struck in different parts of the world. This is happening simultaneously with growing emphasis on economic education. Universities and schools all over the world are devoting more resources and manpower to economics than they have ever done before. Yet the results are dismal to say the least. It seems like economic studies are actually detrimental. First no one seems to know what the correct course of action is and second there are many contradictory points of view that add to the confusion!

The Juneja’s article under reference actually has a robust critique of mainstream economics, albeit in a defensive tone, in the submission that: “Many argue that this [failure of economics] is because economics is inherently unstable since it has been built on a set of false assumptions”. Specific weaknesses of economic theory are then highlighted-especially at the level of assumptions made in the discipline to include the following, accompanied with comments as evidence of the faults; these are: Rational Behaviour, Perfect Knowledge, Homogeneity: and Self-Corrective assumptions-all proven to be defective and unrealistic

A case of ‘no victor, no vanquished’?

It is appropriate at this point to highlight the fact that economics discipline is structured into two broad branches: microeconomics and macroeconomics. While the former studies the behavior of individual economic agents typified by households and firms, macroeconomics analyses economic development, output, employment, inflation and interest rates. In spite of the fact that the myriad of defects in the assumptions underpinning microeconomics as enumerated earlier, it indeed at the level of macroeconomics that the failure of economics is more concerning given the nature of the issues it covers.

There is need to avoid being boxed into an analytical corner where we are faced with so much conceptual confusion that we become unable to pronounce on the true state of economic forces and how theory intersects with observed reality. For practical purposes, the question to be addressed is: which is having the upper hand-economic theory or economic reality- in the context of undisputable dynamics where the popular saying-the only condition that is permanent is change-assumes extraordinary validity and relevance. After all, in times past, economic theory has been formulated and promoted undisguised as instruments in the service of national economic interests. For example, Mercantilists believed that governments should promote exports and that governments should control economic activity and place restrictions on imports if needed to ensure an export surplus, a perspective that the Classical economists under the leadership of Adam Smith rose to challenge later, advocating free trade in the context of a strong local economy. In this vein, the validity of the charge that “mainstream economics earned its position due to its “serviceability”, not due to its “correctness”, holds firmly.

Before ending this discussion, we must not fail to mention what has been described as “classic double in ideology”-referring to “theories claiming to show which policies are in 'the national interest' and provide a cloak for policies to further the class and sectional interests of the bourgeoisie.  Form an existential perspective, the role of economic theory is to help in the design of public policies to effect change in economic reality considered to be unacceptable. When reality remains stubborn-what next? The only logical option is to interrogate theory and rework it as necessary-to fit with reality-just that the prevailing reality was also an outcome of past policies informed by theory. Thus both theory and reality are evolving. The tragedy of our situation is that for ideological and emotional reasons, some schools of economic thought and adherents of extant theories insist on holding on to and bandying ineffectual theoretical positions. I come in peace, please.