This paper explains how short- and medium-term macroeconomic projections are undertaken within the Danish Ministry of Finance (DMF) by the use of an annual macroeconometric model, ADAM, together with a theoretical, structural general equilibrium model, DREAM.* DREAM** is used to calculate the structural public sector budget deficit, which by law is required never to exceed ½ percent of GDP. This legal restriction on fiscal policy gives the structural model (and the ‘model-operators’) a hitherto unseen political power. This ‘institutional’ status of DREAM causes a number of questions about democracy to be asked. First, why has an elected government accepted to surrender its legal right to undertake an active fiscal policy? Secondly, how can it be that DREAM – a neoliberal general equilibrium model without proper empirical tests and operated by anonymous civil servants – has been elevated to a position akin to a high court’s? The paper demonstrates how this model set-up within the DMF reproduces reality poorly. Therefore, these models should rather be seen as social constructs predetermined be neoclassical/neoliberal economic theory, which has to be acknowledged as a democratic challenge.
Mainstream economists claim that economics is an objective and empirically tested science – contrary to the humanities and soft social sciences. According to this view, economics is beyond the influence of ideology. It represents the rational way of analysing economic welfare – not influenced by political consideration. Therefore, it is explicitly stated within the Treaty of Lisbon that the board of directors of the European Central Bank must not take any direct instructions from the European Council to secure objectivity in the European monetary policy. Unfortunately, economic theory is not neutral. It cannot be separated from the vision and the fundamental assumptions which lay behind the economic model employed when policies are decided upon. The so-called general equilibrium model is firmly relying on market theory and ordo-/neoliberal ideology.