Greenspan's crisis of faith exposes the scientific veneer of economics for what it is, revealing what amounts to a religion
Last year the former head of the Federal Reserve, Alan Greenspan, made a quite astonishing admission. Asked if his beliefs that free markets were an "unrivalled way to organise economies" had clouded his judgement and ability to prevent the financial crisis that tipped the global economy into recession, Greenspan responded that it might have, but it was now obvious that there was a "flaw in the model that I perceived is the critical functioning structure that defines how the world works". Finding this flaw had made him "distressed".
Greenspan's confession was seen by many for precisely what it was: a crisis of faith, the faith that unrestricted free markets would always act benevolently. It revealed what a few had been arguing for some time, that the character of neoliberal economics is essentially religious. This is counter-intuitive. Surely the policy of Greenspan and others is based on an understanding of the science of economics, particularly in the mainstream neoclassical form that is most often taught in universities around the world? It is certainly the case that neoclassical economics appears scientific. This is because it deploys huge quantities of complex mathematics, giving it the veneer of being what it has long hoped to be, a kind of social physics.
As Philip Mirowski has argued, the major equations of the "marginalist revolution" that forms the basis of neoclassical thought were lifted wholesale from the emerging science of energetics in the 1870s. Neoclassical economics looks like physics because the equations were those of physics. Its history is a history of problematic borrowings from the natural sciences, leading to a mathematical sophistication increasingly divorced from reality. Mark Blaug calls neoclassical economics "sick", a "soporific scholasticism" of mathematical formalism where the slogan "No reality, please, we're economists" rules. Equations prove free markets work, but only in a sterile world of mathematical abstraction that relies on ridiculous assumptions such as perfectly competitive markets. It is little surprise then that Jean-Philippe Bouchaud, writing in the journal Nature, calls for a "scientific revolution" in economics.
Once economics loses its status as science, its religious aspects become more obvious. Robert H Nelson has spent his career trying to show that economics is religious in character. Through "the gospel of efficiency" after the second world war, Nelson argues that economists promised progress, a removal of sin, heaven on earth. Economists play the role of priests, defining good and bad behaviours that make this salvation possible. Nelson's ultimately neoliberal analysis descends into anti-Keynesian polemic and he never questions the efficacy of free markets. They are still for him "the most powerful instrument of economic advance ever conceived by human beings" (pdf). We must radicalise his interpretation and see neoliberalism as practised by Greenspan and his ilk as making capitalism a religion, the market a god and economics a form of theology. When critics of free markets point to instances of severe poverty, market supporters promise that eventually, since a rising tide floats all boats, the poor will be lifted up, that what is now apparently problematic is ultimately for the "greater good" in a way we cannot discern. It is clear that this is a market theodicy, justifying the ways of the market to men. When neoliberal politicians warn against governments interfering in the market, lest the irrational and temporary will of the electorate interfere with the "spontaneous order" of markets, this now seems like a dire warning that we must not "play God" and attempt to control the mysteries of the market that in our finitude, our "bounded rationality", we cannot properly fathom.
In this regard Rowan Williams was utterly right last year that aspects of free markets needed their own Richard Dawkins and Christopher Hitchens. There could not be a more pressing problem for theology and philosophy of religion than shattering these idols once and for all, before they have the chance to reassert themselves. Only then can any form of reconstruction of the moral bases of our economy begin, on religious grounds or otherwise.
Copyright Speakers Corner 2017