by From Joachim H. Spangenberg and Lia Polotzek Next to the inability to describe long-term developments and to take into account the structural uncertainty of complex systems, there is a more fundamental problem regarding current economic modelling manifesting itself in IAM/DSGE models. It consists of the fact that economic models are presented as being purely descriptive, while they actually carry quite some normative baggage. This becomes particularly relevant as the function of economics in society changed from depicting and explaining the reality of the economic system to serving as a tool to facilitate political decision making processes. Through the rise of the rational choice paradigm and economics’ development into a science of choice, it has become vague whether its approach
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from Joachim H. Spangenberg and Lia Polotzek
Next to the inability to describe long-term developments and to take into account the structural uncertainty of complex systems, there is a more fundamental problem regarding current economic modelling manifesting itself in IAM/DSGE models. It consists of the fact that economic models are presented as being purely descriptive, while they actually carry quite some normative baggage. This becomes particularly relevant as the function of economics in society changed from depicting and explaining the reality of the economic system to serving as a tool to facilitate political decision making processes.
Through the rise of the rational choice paradigm and economics’ development into a science of choice, it has become vague whether its approach to decisions is more of a descriptive or of a normative character. Usually, in neoclassical economics, expected utility theory is claimed to be used as a purely descriptive theory. Yet this claim is false as the idea of rational choice in conjunction with utilitarian assumptions is inherently tied to a specific concept of welfare and its normative assumptions (Muthoo, 1999). These circumstances have made it almost impossible for economists to draw a precise line between a descriptive and a normative approach, although few are aware of this challenge. This is dangerous as it disguises the outcomes of economic models as purely rational, whereas in fact they contain a plethora of underlying normative assumptions representing a specific world view (Spangenberg, 2016).
This has some very real and direct consequences when it comes to climate scenarios and the corresponding IAM/DSGE models: they are built in order to find solutions on how to achieve certain emission reduction targets (Kuhnhenn, 2018). The underlying economic models are optimisation models, which – under given boundary conditions – try to maximise the social utility function, most often represented by the GDP. Thus, in IAM/DSGE models, what is presented as the “optimal” outcome is more wealth in a national economy, in monetary terms (distribution plays no role). In such models, any measures leading to a reduction of GDP growth would not be regarded as an “optimum” as they would be regarded as “expensive” in and by the model. The consequence is that measures, which might lead to less production and consumption either cannot be depicted or are not used (Kuhnhenn, 2018). This is striking as changes of the consumption patterns and levels are a necessary condition for reaching the climate goals, as described above. In summary, it is our very standards of evaluation, which lead to deeply ideologically biased policy recommendations being presented as “objective” scientific insights, which has made economics the favourite legitimation science of neoliberal decision makers in politics and business.
http://www.paecon.net/PAEReview/issue87/SpangenbergPolotzek87.pdf