Social Europe

  • EU Forward Project
  • YouTube
  • Podcast
  • Books
  • Newsletter
  • Membership

Science and subterfuge in economics

Jayati Ghosh 6th March 2019

A big argument of neoliberal economics is that unemployment is reduced by labour-market deregulation. Lack of robust evidence doesn’t seem to get in the way.

neoliberal economics

Jayati Ghosh

Mainstream economics has a tendency to decide on some ‘established’ conclusions, and then hold to them, notwithstanding all evidence to the contrary. This is bad enough, but what may be worse for a discipline that lays claim to being a science is the lack of insistence on the replicability of empirical results. This is both standard and essential in most natural sciences; in economics, by contrast, there is mostly indifference and occasionally even fierce resistance to it. In some cases, the data that must be used to replicate conclusions are denied to other researchers.

The reason is often deeply political, because the results which are promoted and disseminated accord with visions of the economy that support particular ideological positions and associated policy stances. For example, empirical work that supports fiscal austerity or market deregulation is cited extensively and becomes the basis for advancing those particular policy outcomes. Very rarely is such work subject to the scrutiny—for example, challenging its assumptions and questioning its statistical procedures—that would be the norm for research in the natural sciences.

Consider the claim made by Stephen Moore and Arthur B Laffer that the Trump tax cuts in the US would not only pay for themselves but actually bring down the government deficit while generating more private investment. Their claim was completely wrong but somehow economic reality seems to have had little impact on those who continue to believe the assertion of the ‘Laffer curve’ that lower tax rates will generate higher tax revenues.

Famous trope

Now, a new paper by Servaas Storm effectively demolishes another famous trope of neoliberal economics—the argument that labour-market ‘rigidities’ depress output and employment. One of the empirical investigations most often cited for this argument is a paper by Timothy Besley and Robin Burgess, using manufacturing data across Indian states for the period 1958-92. Besley and Burgess claimed to show that pro-worker regulations in some states resulted in lower output, employment, investment and productivity, and even increased urban poverty, relative to states that did not adopt such regulations.

This conclusion came to underpin the conventional wisdom that labour-market regulation is harmful for industrial expansion, and that the way to increase production and employment in manufacturing is to promote more labour-market ‘flexibility’ by repealing laws that protect workers. This wisdom prevailed not only in India; it influenced policies accordingly across a wide range of developing countries. Although various economists raised serious concerns about the methodology Besley and Burgess adopted, their criticisms never gained much traction among policy-makers.

But Storm’s critique is more fundamental, because his study reports a failure to replicate the findings of Besley and Burgess and demonstrates that their conclusion concerning the impact of labour regulation on manufacturing performance is statistically non-robust. He finds that the results are not just inconsistent with the authors’ own theoretical assumptions but are also internally contradictory and empirically implausible. Storm comes to the devastating conclusion that ‘the paper is a professional embarrassment … it almost perfectly illustrates how a combination of scientific pretension and a deep desire for respectability can lead to a gratuitous empiricism in which priors trump evidence’.



Don't miss out on cutting-edge thinking.


Join tens of thousands of informed readers and stay ahead with our insightful content. It's free.



Deep complicity

So how did Besley and Burgess get away with it, and why have such results not been more comprehensively trashed in the literature and in policy circles? After all, this article was published in a top-tier, double-blind peer-reviewed economics journal. It was used to justify a wave of labour-market deregulation across the world, actively harming workers. The deep complicity of the economics profession—and of the mainstream academic journals which confer ‘respectability’ on such research—needs to be called out for this.

It is no secret that mainstream economics has operated in the service of power. John Kenneth Galbraith noted in 1973 that establishment economics had become the ‘invaluable ally of those whose exercise of power depends on an acquiescent public’. If anything, economists’ embrace of that role has grown stronger since then. But it has also made the subject less relevant and reduced its legitimacy and credibility. Economists are no longer seen by much of the public to be asking the right questions or seeking to answer them with integrity.

To recover credibility, economics needs to become more open to criticism of assumptions, methods and results. The inconvenient truths spoken by dissenting voices cannot be ignored indefinitely. Sooner or later, reality bites.

Republication forbidden. Copyright: Project Syndicate 2019 Science and subterfuge in economics

Jayati Ghosh
Jayati Ghosh

Jayati Ghosh, professor of economics at the University of Massachusetts Amherst, is a member of the Club of Rome’s Transformational Economics Commission and co-chair of the Independent Commission for the Reform of International Corporate Taxation.

Harvard University Press Advertisement

Social Europe Ad - Promoting European social policies

We need your help.

Support Social Europe for less than €5 per month and help keep our content freely accessible to everyone. Your support empowers independent publishing and drives the conversations that matter. Thank you very much!

Social Europe Membership

Click here to become a member

Most Recent Articles

u4219834dafae1dc3 2 EU’s New Fiscal Rules: Balancing Budgets with Green and Digital AmbitionsPhilipp Heimberger
u42198346d1f0048 1 The Dangerous Metaphor of Unemployment “Scarring”Tom Boland and Ray Griffin
u4219834675 4ff1 998a 404323c89144 1 Why Progressive Governments Keep Failing — And How to Finally Win Back VotersMariana Mazzucato
u42198346ec 111f 473a 80ad b5d0688fffe9 1 A Transatlantic Reckoning: Why Europe Needs a New Pact Beyond Defence SpendingChristophe Sente
u4219834671f 3 Trade Unions Resist EU Bid to Weaken Corporate Sustainability LawsSocial Europe

Most Popular Articles

u4219834647f 0894ae7ca865 3 Europe’s Businesses Face a Quiet Takeover as US Investors CapitaliseTej Gonza and Timothée Duverger
u4219834674930082ba55 0 Portugal’s Political Earthquake: Centrist Grip Crumbles, Right AscendsEmanuel Ferreira
u421983467e58be8 81f2 4326 80f2 d452cfe9031e 1 “The Universities Are the Enemy”: Why Europe Must Act NowBartosz Rydliński
u42198346761805ea24 2 Trump’s ‘Golden Era’ Fades as European Allies Face Harsh New RealityFerenc Németh and Peter Kreko
startupsgovernment e1744799195663 Governments Are Not StartupsMariana Mazzucato
u421986cbef 2549 4e0c b6c4 b5bb01362b52 0 American SuicideJoschka Fischer
u42198346769d6584 1580 41fe 8c7d 3b9398aa5ec5 1 Why Trump Keeps Winning: The Truth No One AdmitsBo Rothstein
u421983467 a350a084 b098 4970 9834 739dc11b73a5 1 America Is About to Become the Next BrexitJ Bradford DeLong
u4219834676ba1b3a2 b4e1 4c79 960b 6770c60533fa 1 The End of the ‘West’ and Europe’s FutureGuillaume Duval
u421983462e c2ec 4dd2 90a4 b9cfb6856465 1 The Transatlantic Alliance Is Dying—What Comes Next for Europe?Frank Hoffer

Foundation for European Progressive Studies Advertisement

Spring Issues

The Summer issue of The Progressive Post is out!


It is time to take action and to forge a path towards a Socialist renewal.


European Socialists struggle to balance their responsibilities with the need to take bold positions and actions in the face of many major crises, while far-right political parties are increasingly gaining ground. Against this background, we offer European progressive forces food for thought on projecting themselves into the future.


Among this issue’s highlights, we discuss the transformative power of European Social Democracy, examine the far right’s efforts to redesign education systems to serve its own political agenda and highlight the growing threat of anti-gender movements to LGBTIQ+ rights – among other pressing topics.

READ THE MAGAZINE

Hans Böckler Stiftung Advertisement

WSI Report

WSI Minimum Wage Report 2025

The trend towards significant nominal minimum wage increases is continuing this year. In view of falling inflation rates, this translates into a sizeable increase in purchasing power for minimum wage earners in most European countries. The background to this is the implementation of the European Minimum Wage Directive, which has led to a reorientation of minimum wage policy in many countries and is thus boosting the dynamics of minimum wages. Most EU countries are now following the reference values for adequate minimum wages enshrined in the directive, which are 60% of the median wage or 50 % of the average wage. However, for Germany, a structural increase is still necessary to make progress towards an adequate minimum wage.

DOWNLOAD HERE

S&D Group in the European Parliament advertisement

Cohesion Policy

S&D Position Paper on Cohesion Policy post-2027: a resilient future for European territorial equity

Cohesion Policy aims to promote harmonious development and reduce economic, social and territorial disparities between the regions of the Union, and the backwardness of the least favoured regions with a particular focus on rural areas, areas affected by industrial transition and regions suffering from severe and permanent natural or demographic handicaps, such as outermost regions, regions with very low population density, islands, cross-border and mountain regions.

READ THE FULL POSITION PAPER HERE

ETUI advertisement

HESA Magazine Cover

With a comprehensive set of relevant indicators, presented in 85 graphs and tables, the 2025 Benchmarking Working Europe report examines how EU policies can reconcile economic, social and environmental goals to ensure long-term competitiveness. Considered a key reference, this publication is an invaluable resource for supporting European social dialogue.

DOWNLOAD HERE

Eurofound advertisement

Ageing workforce
The evolution of working conditions in Europe

This episode of Eurofound Talks examines the evolving landscape of European working conditions, situated at the nexus of profound technological transformation.

Mary McCaughey speaks with Barbara Gerstenberger, Eurofound's Head of Unit for Working Life, who leverages insights from the 35-year history of the European Working Conditions Survey (EWCS).

Listen to the episode for free. Also make sure to subscribe to Eurofound Talks so you don’t miss an episode!

LISTEN NOW

Social Europe

Our Mission

Team

Article Submission

Advertisements

Membership

Social Europe Archives

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Miscellaneous

RSS Feed

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

BlueskyXWhatsApp