Science Won and Truth Lost

Since the 1890’s, when the scientific methodology became dominant there has been a steady decline in understanding the economics. What has happened is not the progress of knowledge but the decline of knowledge. The idea that there are economic laws, the law of supply and demand, law of consumer behavior, are wrong as there are no such laws but consumer behavior is determined by the social norms of society. If we say that we should live a simple life, we should not go beyond our needs then we’ll have different type of law of consumers. But if we say that the objective of life is to maximize the consumption then we'll have different type of society. There is no mathematical formula which shows what every man must do regarding what he believes. In this battle science won but the truth lost and there has been loss of understanding in economics. Currently the economic theories are just false the latest evidence for this is the Global Financial Crisis of 2007 and out of seven none of school of thought could predict this crisis. Even after the event it was very difficult to understand what has happened because according to standard classical economic theory this could not happen. In fact it was told to economists that something very unusual is happening in the stock market and there is fear of collapse of financial market due to bubble economy. But Fama said no there is no such thing as bubble because people are rational. Other famous economists said that financial market cannot collapse but actually it doing very well.

We can say that economic theory is responsible for this crisis because not only they didn’t predict but confidently argued that such a thing could not happen. In fact after the crisis the Congress of US made a commission to investigate how economic theory causes this crisis. It means that economic theory led to this crisis. Robert Solow testified and said the standard economics theory that economists are currently using (DSGE model) is actually responsible for this because DSGE model cannot take into account the problems that led to this crisis. If DSGE model is used then we cannot possibly understand why the crisis occurred but this model is currently dominant model used to study macroeconomics.