Economic Fundamentalism

We saw last time that the goal of Chicago School free market economics was to promote “noncontaminated capitalism,” which in turn would generate societal economic utopia:

“The market, left to its own devices, would create just the right number of products at precisely the right prices, produced by workers at just the right wages to buy those products — an Eden of plentiful employment, boundless creativity and zero inflation.”

The Shock Doctrine:  The Rise of Disaster Capitalism, Naomi Klein (2017)

To the School’s free market advocates, these ideas were pure science:

“The starting premise is that the free market is a perfect scientific system, one in which individuals, acting on their own self-interested desires, create the maximum benefits for all. If follows ineluctably that if something is wrong with a free-market economy — high inflation or soaring unemployment — it has to be because the market is not truly free.”

The Shock Doctrine

Scientific method requires that theories be falsifiable:  you have to be able to objectively prove them wrong.

“The philosopher Karl Popper argued that what distinguishes a scientific theory from pseudoscience and pure metaphysics is the possibility that it might be falsified on exposure to empirical data. In other words, a theory is scientific if it has the potential to be proved wrong.”

But Is It Science? Aeon Magazine, Oct. 7, 2019.

But how do you prove an economic theory based on “uncontaminated capitalism” in an economically contaminated world?

“The challenge for Friedman and his colleagues was not to prove that a real work market could live up to their rapturous imaginings…. Friedman could not point to any living economy that proved if all ‘distortions’ were stripped away, what would be left would be a society in perfect health and bounteous, since no country in the world met the criteria for perfect laissez-faire. Unable to test their theories in central banks and ministries of trade, Friedman and his colleagues had to settle for elaborate and ingenious mathematical equations and computer models.”

The Shock Doctrine

Mathematical equations and computer models aren’t the same as empirical data collected in the real (“contaminated”) world. If falsifiability is what separates scientific knowledge from belief-based ideology, then Friedman’s free market theory is the latter. Some scientists are worried that this spin on scientific theorizing has become too prevalent nowadays:

 “In our post-truth age of casual lies, fake news and alternative facts, society is under extraordinary pressure from those pushing potentially dangerous antiscientific propaganda – ranging from climate-change denial to the anti-vaxxer movement to homeopathic medicines. I, for one, prefer a science that is rational and based on evidence, a science that is concerned with theories and empirical facts, a science that promotes the search for truth, no matter how transient or contingent. I prefer a science that does not readily admit theories so vague and slippery that empirical tests are either impossible or they mean absolutely nothing at all…. For me at least, there has to be a difference between science and pseudoscience; between science and pure metaphysics, or just plain ordinary bullshit.”

But Is It Science?

The Chicago School believed so ardently in the free market theory that its instructional approach took on the dynamics of belief-based indoctrination:

“Frank Knight, one of the founders of Chicago School economics, thought professors should ‘inculcate’ in their students the belief that economic belief is ‘a sacred feature of the system,’ not a debatable hypothesis.’”

The Shock Doctrine

This dynamic applies to every ideology that can’t be falsified — verified empirically. The ideology then becomes a fundamentalist belief system:

“Like all fundamentalist faiths, Chicago School economics is, for its true believers a closed loop. The Chicago solution is always the same:  a stricter and more complete application of the fundamentals.:

The Shock Doctrine

Journalist Chris Hedges describes the dynamics of “secular fundamentalism” in I Don’t Believe in Atheists. (The book’s title is too clever for its own good — a later version adds the subtitle “The Dangerous Rise of the Secular Fundamentalist.”)

“Fundamentalism is a mind-set. The iconography and language it employs can be either religious or secular or both, but because it dismisses all alternative viewpoints as inferior and unworthy of consideration it is anti-thought. This is part of its attraction. It fills a human desire for self-importance, for hope and the dream of finally attaining paradise. It creates a binary world of absolutes, of good and evil. It provides a comforting emotional certitude. It is used to elevate our cultural, social, and economic systems above others…. The core belief systems of these secular and religious antagonists are identical.”

Thus we have Nobel prize-winning economist Milton Friedman famously saying, “Underlying most arguments against the free market is a lack of belief in freedom itself” — a statement entirely in keeping with the Mont Pelerin  Society’s idealistic Statement of Aims, which we looked at last time.

And thus we also have Nobel prize-winning economist Joseph Stiglitz countering with his thoughts about economics in a contaminated (“pathological”) world:

“The advocates of free markets in all their versions say that crises are rare events, though they have been happening with increasing frequency as we change the rules to reflect beliefs in perfect markets. I would argue that economists, like doctors, have much to learn from pathology. We see more clearly in these unusual events how the economy really functions. In the aftermath of the Great Depression, a peculiar doctrine came to be accepted, the so-called ‘neoclassical synthesis.’ It argued that once markets were restored to full employment, neoclassical principles would apply. The economy would be efficient. We should be clear: this was not a theorem but a religious belief.”

As we also saw last time, historical socialism and communism join free market capitalism in their fundamentalist zeal. In fact, some think that economics in general has become today’s dominant cultural form of belief-based thinking. More on that next time.

Author: Kevin Rhodes

Kevin Rhodes draws insight and perspective from his prior career in law, business, and consulting, from his studies in economics, psychology, neuroscience, entrepreneurship, and technology, and from personal life experience.

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