Economists should stop defending Milton Friedman’s pseudo-science

Another hard hitting article questioning Milton Friedman and his blind followers. Noah Smith just questioned relevance of Friedman’s permanent income hypothesis

This one is on one of Friedman’s core ideas – assumptions don’t matter as long as predictions are in line with the model/theory:

It was 1967 when I first read Friedman’s essay on “The Methodology of Positive Economics” in which the above billiard-player analogy can be found. I was dumbfounded. To say an expert billiard player plays “as if he knew . . . complicated mathematical formulas” may be an interesting analogy, but it tells us nothing about billiard players. It was obvious to me at the time that Friedman’s argument to the contrary is circular: How do we know expert players play this way? If they didn’t play this way they would not be expert players. And I was not at all impressed by the fact that Friedman’s logic is firmly rooted in his “belief” that this makes sense.[1]

Friedman poses this analogy in the midst of a convoluted argument by which he attempts to show that a scientific theory (hypothesis or formula) cannot be tested by testing the realism of its assumptions. All that matters is the accuracy of a theory’s predictions, not whether or not its assumptions are true. He attempts to demonstrate this by examining “the law of falling bodies” where he tells us that it “is an accepted hypothesis that the acceleration of a body dropped in a vacuum is a constant—g, or approximately 32 feet per second per second on the earth . . . .” (p. 18) According to Friedman, it is meaningless to argue this law assumes a vacuum. The only thing that matters is the accuracy of the predictions obtained if we assume bodies fall as if they are falling in a vacuum. It is the role of the scientist to “to specify the circumstances under which the formula works or, more precisely, the general magnitude of the error in its predictions under various circumstances.” Even though a more general theory exists that can give more accurate predictions “it does not always pay to use the more general theory because the extra accuracy it yields may not justify the extra cost.” [Friedman (pp. 18-9)]

Assumptions are as crucial:

It’s as if mainstream economists are so enthralled with Friedman’s billiard-player analogy that it is virtually impossible for them to even imagine the possibility that the acceptance of a lack of realism in their assumptions, fostered by a free-market, ideological bias, is the reason for their inability to come to a consensus with regard to the nature and cause of the economic catastrophe we are in the midst of today. This is the legacy of Friedman’s pseudo-scientific as if methodology.

The processes by which the paradigmatic revolutions took place in the physical sciences are examined in detail by Kuhn in terms of the empirical evidence against the assumptions embodied in an accepted paradigm growing until the paradigm collapses and is replaced by a new paradigm. A similar revolution took place in economics following the 1930s collapse of the nineteenth century classical/neoclassical economic paradigm embedded in a free-market ideological view of reality. That paradigm was replaced following World War II by what became known as the neoclassical-synthesis embedded in a Walrasian mixed-economy ideological view of reality. The collapse of the neoclassical-synthesis in the 1970s led to its integration with the old nineteenth century free-market paradigm into what is referred to by Goodfriend and King as the new-neoclassical synthesis. That synthesis, as with those that came before, proved to be little more than a house of cards resting on a foundation of sand.

It is not at all clear what kind of paradigm will emerge from the chaos within the discipline of economics that has resulted from the dramatic failure of the new-neoclassical synthesis to provide a context within which the Crash of 2008 and its aftermath can be understood or explained. It is clear, however, or at least it should be clear, that continuing to adhere to Friedman’s as ifmethodology, guided by a Walrasian free-market ideology, and ignoring the unrealistic nature of the assumptions on which mainstream economic theories and arguments are based is not going to provide a useful guide to solving the economic, political, and social problems we face today.

Most of us so called students of modern economics would not even know how all these ideas have shaped up. We are just mindlessly doing things as Prof. Friedman has said so..

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