Zachary Karabell [ht: gh] is right on two counts: First, the “laws of economics” are often invoked to rule out policies and strategies, including alternative institutions, to solve pressing economic and social problems. And second, “laws of economics” don’t actually exist.
Referencing “the laws of economics” as a way to refute arguments or criticize ideas has the patina of clarity and certainty. The reality is that referencing such laws is simply another way to justify beliefs and inclinations. I may agree that the war on drugs is flawed, but not because it violates “laws of economics,” but rather because it fails in most of its basic goals. The test of whether government spending or central bank easing is good policy should be whether they succeed in ameliorating the problems of stagnant growth and high unemployment, not on what the “laws of economics” erroneously say about certain future outcomes.
But the so-called laws of economics don’t exist because people aren’t rational or because economics is based on a limited amount of information. Laws in economics are only artifacts of particular models and theories, and therefore particular sets of assumptions. You only get a law of the sort “if x then y” (e.g., if demand decreases, then price falls or if the government runs a deficit and debt increases, then all hell will break loose and we’re on our way to Greece) because of particular sets of assumptions (often unannounced and overlooked) buried in particular models, which are themselves products of particular economic theories.
Thus, we can have neoclassical laws and Keynesian laws and Marxian laws—but not laws of economics in general.*
The real problem, however, is the invoking of economic laws to stunt the discussion of policies and strategies, of options that might be chosen but are then taken off the table. And that’s part of a more general “economizing” of political debate within contemporary capitalism, especially by the Right. The right-wing within politics and the right-wing within the discipline of economics. (I know, the Left also often invokes laws, which in my view is a problem, but they’re less of a player in contemporary debates.) We as a society can’t do something—tackle poverty or unemployment, tax the rich or create democratic enterprises—because, right-wing politicians and economists say, it would violate the so-called laws of economics.
That’s subordinating society to economics, a product (in Karl Polanyi’s language) of disembedding the economy, of reducing society to obeying the so-called laws of a self-regulating market system.
But a self-regulating market system, just like the laws of economics, doesn’t exist. The real problems arise in the attempt to create such a system, by invoking the laws of economics to eliminate any and all constraints on economic activity. That’s what got us into the current mess in the first place. And following the so-called laws of economics, whether neoclassical or Keynesian, won’t get us out of it anytime soon.
*Although, to be clear, on my interpretation, there are no laws of economics (or, for that matter, of history) in Marx. The laws we find, for example, in Marx’s Capital were actually promulgated by the classical political economists, which Marx then showed were the result of endogenous tendencies within capitalism—rather than, as the classicals tended to argue, the product of an exogenous and transhistorical condition. And, of course, as with the tendency of the general rate of profit to fall, Marx then proceeded to demonstrate how a set of counter-tendencies might move things in a different direction. So, no iron laws, just tendencies, which themselves depended on a particular set of economic and social conditions.