Discourses around economic policy in India seem to be pulled in different directions, some motivated by political ideologies and others by empirical facts and interpretations which again are not always entirely detached from ideologies. However, what appears lacking is a totalising coherency that renders these discourses accessible to the larger public, many of whom are intuitively aware of the troubled waters, yet fail to see a unified picture emerging from the accounts of experts who put across these complex, jargon-infused economic critiques and defences.
It is, however, anticipated that a simple thesis that questions the entire substratum of the dominant economic philosophy may not be easily palatable to the large sections of intellectuals who dominate the economic sciences, i.e., those who are trained in the neoclassical or orthodox schools of economics.
The inevitable impact of such a homogenising trend in neoclassical discourse is the widening gulf between the theory and the practical-world situations from which new knowledge is continuously derived. The failure to accommodate emerging knowledge into the theoretical edifice of an evolving discipline signals a serious shortcoming of the scientificity of economics, the experts of which sometimes dogmatically assert the laws of the market, isolating them from the changing socio-political contexts.
Before delving into the specifics of these flaws, a preliminary outline of the philosophical underpinnings of dominant economic methods can shed some light on the fundamental question: in what precise sense is economics a science?
Why philosophy matters in economics
One of the most frequently asked questions about economics is why it is not able to forecast certain events (like financial crises) with the same accuracy that a natural scientist can while predicting weather patterns, or when exactly two planets will be in conjunction with each other. The answer to this is quite intuitive to many of us, although not clearly articulated enough. It is simply because economics as a social science deals with objects of a social world which consists of open systems where interactions between the elements (i.e., individuals, firms, families, states, nations, and so on) are widely varied and complex, therefore the laws that govern them will be just as complex and evolving.
On the other hand, the objects of enquiry that natural sciences are concerned with are constituted by relatively closed systems, so that, for example, if you have a few variables like speed, direction, distance, mass, etc., predictions about planetary-scale events can be made with no errors.
Now this does not mean that it is impossible to identify laws in the social world because just like in the natural world, there are patterns and trends in the social world where objects (or elements) act/operate under the structural limitations of laws. However, one of the grave errors that orthodox economists have committed is to rely on the rather simplistic ontological presuppositions about the social world to create mathematical models that emulate the formalist, mathematical representations that natural scientists often rely on.
A realist social scientist cannot reduce social structures and mechanisms into mathematically driven processes and experimental models, much of which bases its assumptions on statements like ‘keeping everything else constant…’ which presupposes a closed system of interactions.
According to Roy Bhaskar, a philosopher of science, the essential ideology that drives this line of reasoning is that of positivism and empiricism whereby structures and laws are interpreted merely as an ‘invariance’ or ‘constant conjunction of events’. Tony Lawson, a philosopher of economics, claims that investigative economists can indeed conduct social research experiments to identify event regularities, but this should not be equated with social laws or structures, which are much more enduring than the heterogeneity of events generated by those very structures, hence laws have to be identified retroductively through explanatory research.
If in a social experiment, one notices that event A is followed by event B (statistically more times than its counterfactual i.e., event A does not lead to event B), what follows from this is that there are partial-regularities at work which gives us important insights into causal structures and mechanisms that generates these events transfactually (that is, independent of the conditions produced in that specific experiment).
That is, causality and laws are not to be identified merely with events or a conjunction of events (correlationism), but with ‘tendencies’ — “Just as autumn leaves fall to the ground much of the time, so women [tend] to be concentrated in secondary sectors of labour markets…” or to take an Indian example, lower-caste people among casual workers tend to be discriminated against in terms of wages and occupational segregation.
In the last two examples, it is not the empirical consistency of data from the ground that establishes its scientificity, but the identification of specific structures (patriarchy in the first case, and caste in the second) that ‘tend’ to generate those event-outcomes. These structures are, of course, socio-cultural in nature as they have peculiar emergent properties that cannot entirely be reduced to economic processes. Therefore, any economic policy on the basis of ‘laws’ that are taken out of their socio-political and cultural contexts are merely masquerading as sound reforms, when they are actually driven by an ideology that is essentially characteristic of both liberals and conservatives alike.
Shifts and changes
There appears to be a growing trend on the world stage where some economists and their studies have challenged the consensus among both liberal and conservative economists regarding some central laws that have been unquestioned for a long time. A good example is the studies conducted by the winner of the Nobel Prize in Economic Sciences 2021, David Card and his colleagues, on whether minimum wage reduces employment.
The orthodox economic consensus was that minimum wage increase does, in fact, reduce jobs and increase unemployment, based on the supply-demand laws that stated how the increase in the cost of labour would push the prices and disturb the equilibrium wage at which supply and demand for labour were cleared. Studies by Card and his colleagues show that contrary to the expectation, in a vast number of cases, unemployment did not rise with moderate rise in minimum wages across multiple fast-food restaurants in the US.
The study had initially faced a lot of rejection from orthodox economists and some experts even suggested, according to finance journalist Tom Bergin, that Card’s studies were ‘an equivalent to a denial that there is even minimal scientific content in economics’. Evidence from the UK and USA also shows that the policy experts’ suggestions that carbon tax on fuels are the most efficient measure to tackle automotive emissions (neoclassical logic suggests that certain ‘bad’ consumer behaviour can be disincentivized through such taxes) have met with failure as the car purchasing pattern did not see any substantive changes in either country.
These are impasses that either point towards an infeasibility of universal economic laws, or ‘hidden variables’ that account for these heterogeneous event-outcomes. To find out what these hidden variables are, investigative economists and policy experts need to ask the question of what structures operate in specific contexts and how they are placed within a stratified and dynamic world system in order for such events to occur or potentially occur.
There is, however, a new kind of empiricist ideology emerging within economics, which points to an implicit conclusion that trans-contextual economic laws do not exist at all, and that policies that are universally relevant are no longer possible as the variables are simply too complex to account for. This is essentially a near-postmodern variant of economic philosophy, which propounds that policy experts need not concern themselves with ‘structures’ or ‘laws’, and should simply find out what works and what doesn’t in specific contexts.
Randomised Control Trials (RCTs) are essentially a symptom of this ideology which, despite its short-term beneficial insights, cannot produce any realist conception of the ‘world as differentiated, stratified and changing’ (Bhaskar, 1975), and therefore reduce policy practice to just a multitude of trial-and-errors, which of course is neither sustainable nor ethical.
In the Indian context, the problems are not clearly identified by many, especially since both the ruling regime and the opposing majority have similar ideological stakes in policy making and, therefore, most of the critiques tend to condemn the fiscal and monetary policies without even comprehending them fully (i.e., through a social-ontological lens). However, there are a few economists like Prabhat Patnaik who are providing valuable insights into these issues. In his recent article, Patnaik has tried to address the question of why government policy privileges inflation over unemployment, by enlarging the latter to control the former.
In trying to give a scientifically consistent economic answer to the problem, he commits the Marxist error by saying “this has nothing to do with any belief in a stable “trade-off” between the two, namely, in a stable curve that links the two,” effectively implying that the ‘real’ practice of economics exists independently of socially-held beliefs and ideas, thereby reducing all scientific errors in economic policy to pure class interests.
The fact is that there exists a widely held consensus on how economics itself ought to be practiced scientifically, and policy experts who believe in a necessary trade-off between binaries like inflation-unemployment, efficiency-equity, etc. are not merely parroting their class interests (although that is definitely implicit), but are being terribly misled by the irrealist scientific conception of the social world as ‘a closed system of atomistic events’ (Lawson) that can be reoriented and corrected through a set of prescribed market solutions.
Patnaik is astute in his observation that part of the reason why the state is incapable of maintaining high levels of employment while adopting measures against inflation like direct price-controls (supplemented by rationing) is that “capitalists do not want too much direct interference by the government in the economy, for that undermines the social legitimacy of the system by raising the question in people’s minds: what good is a system if it needs so much direct interference by the government to rectify its ills?.”
This is precisely a dominant social belief that market structures tend to generate at this point in history. The follow-up question of how to reorient such beliefs and positively transform these structures is not an easy one at all. However, it won’t be too naïve to suggest that a change in the discursive style of critics and dissidents to help the agents locate the bigger problems within their own familiar lifeworld contexts can go a long way towards exposing all social stakeholders to certain fundamental problems that we face today; realist science and its practice would mean nothing if it is far removed from the everyday experiences and observations of common-people.
(The authors, alumni of Azim Premji University, are Research Interns at the Institute for Global South Studies and Research, Kerala.)