45dabb02f863877419636a00_pa2599c.jpg Paul Lachine

John Stewart Mill vs. the European Central Bank

When demand for government bonds is high, as it is nowadays, governments should increase the supply. That lesson, bequeathed to us by John Stewart Mill, is one that the core economies of the global North, as well as the European Central Bank, do not seem to have learned.

BERKELEY – One of the dirty secrets of economics is that there is no such thing as “economic theory.” There is simply no set of bedrock principles on which one can base calculations that illuminate real-world economic outcomes. We should bear in mind this constraint on economic knowledge as the global drive for fiscal austerity shifts into top gear.

Unlike economists, biologists, for example, know that every cell functions according to instructions for protein synthesis encoded in its DNA. Chemists begin with what the Heisenberg and Pauli principles, plus the three-dimensionality of space, tell us about stable electron configurations. Physicists start with the four fundamental forces of nature.

Economists have none of that. The “economic principles” underpinning their theories are a fraud – not fundamental truths but mere knobs that are twiddled and tuned so that the “right” conclusions come out of the analysis.