Any attempt to develop ideology-free economics will fail and pragmatism won’t help the profession, according to professor Allen J Scott of the University of California.
“…all forms of economic knowledge, from complex formal models to simple empirical descriptions, are always shot through with ideological content…,” Scott said in a letter published today by the Financial Times (FT).
Scott was replying to a comment published in the newspaper last week by UK economist John Kay who called for pragmatism in the teaching of economics.
“…Professor Kay’s statement to the effect that good old British pragmatism is essentially all you need to clear the air…is an impossible fantasy,” Scott said in the letter.
Economics2030 says that Kay and Scott are in fact both right but both fall short of a complete response to the challenge facing economics.
In advanced economies where services are dominant, value is created exclusively in the constructive interaction at the level of the individual. Value is intangible and immeasurable. Models of advanced economies drawn from the physical sciences will consequently fail to reflect reality.
People are motivated by ideas more than facts.
When they are involved in a service transaction, their feelings about the other party will heavily influence the amount of value that is created and, therefore, can be shared. If one doesn’t like the other, then value creation will be lower than if they get on.
This is intuitively obvious to anyone involved with service value creation. Just ask a teacher!
But people’s decisions are conditioned by physical constraints. You can’t drive a car unless you’ve got one no matter how much you think you do!
That means that Scott is right to say that economics must take into account ideology.
But human behaviour, particularly when creating value in intangibles, is unpredictable. Kay is, therefore, right to call for economists to deal pragmatically with each transaction and each market.
Economics needs a new theory that deals coherently with the impact on human behaviour of ideas and facts better than the conventional model does. That means the subjective and the objective should be restored to economics to complement the the profession’s study of price, market-clearing or otherwise.
You can read more about the rise of the service economy and the fall of the market-clearing price here: The rise of services
https://edmundosullivan.com/economics2030/the-rise-of-services/