Friday, November 7, 2008

The nature of economics

I really don't want to seem to be an economics basher, but the exigencies of blogging sometimes brings things into my orbit that I want to comment on, and I really can't ignore them just because I already said something a few days ago. Just Tuesday I had yet another post in which I was critical of economics, mainly because its practitioners profess a sureness at odds with the inherent limitations of the field, and their theoretic solutions often make little sense for real people.

Now comes a post on the blog Capital Gains and Games by Stan Collender (I apologize to whoever tipped me to this, I misplaced the link). He's disappointed that fellow economist James Galbraith believes that members of their profession should have raised the alarm about our current crisis. Collender is especially aggrieved that Galbraith writes:
It's an enormous blot on the reputation of the profession.

This statement seems to have been made out of anger, embarassment, and sadness. But for a number of reasons, it is an overstatement.

  1. Economics (and, as a result, economists) has never been good at predicting things; It has always been much better at explaining what has already occurred. This might not be what we would like, but it is what we have.
  2. Economics (and, again, economists) are best maing straight-line extrapolations. It has never been good at hairpin turns.
  3. My guess is that the majority of the "15,000 professional economists" mentioned in the question that Galbraith was responding to specialize in areas that would not have given them any expertise on any aspect of the current situation so they shouldn't be held responsible or thought of poorly because they didn't. That's like getting angry at every doctor because he or she hasn't yet found a cure for cancer even though only a very small percentage are experts in that field.

But, and most important, even if an economist, or economists, saw the current situation coming, policymakers would not have wanted to hear it. We've gotten to the point in the policymaking world where, and completely contrary to what Aaron Wildavsky, one of the godfathers of the public policy field, used to say, power no longer wants to hear the truth, it wants to hear things that will enhance and keep it in power.

That means that no matter how well thought out and substantiated, statements by economists that the sky was about to fall would have been met with extreme skepticsm and ridicule.
Golly, where do we start with this? Here's what Collender is saying: Economists aren't capable of doing the one job that everyone assumes they can do; for all their charts and graphs and equations, in the end all they can do is draw straight lines; they consistently refuse to recuse themselves from situations on which they have no expertise; and they are too cowed by potential consequences ("In extreme cases, academic credentials would have been questioned,
promotions delayed, research grants to their institutions threatened,
or new business to their firms stopped") to demonstrate even minimal integrity.

Here's the deal, economists occupy a fairly exalted position in our employment spectrum. Something bad happens, and the call goes out for an economist to fill one or more seats on a talk show panel or a university Q and A. And rarely does anyone ask, "What happened?," except as a warm-up for the far more important question of, "What's going to happen next?" If every economist were honest and admitted they have no way of knowing unless the future falls on a straight line, or they aren't experts in that aspect of the field, or they could lose money by being honest, they wouldn't be asked back.

So we're hearing that economics is, at its heart, a dishonest profession, one which provides powerful incentives for lying in the extremely rare instances when truth can be discerned. Please note, those who would defend economics, that I am quoting one of its own, and the rest of us are being allowed a peek behind the curtain.


Greg said...


Now, if you've read Freakonomics, you'll see that Levitt doesn't even claim to be an economist. He's more of a social scientist who looks for correlations. At least he's more honest.

Citizen Carrie said...

We're adult enough to know that it's very difficult to predict the future, and I can cut the economists a little bit of slack. However, when we're told that the U.S. needs to implement certain policies simply based on the advice of economists, then I feel we are entitled to hold them to stricter standards of accountability.

Androcass said...

Greg, that's the main reason I found Freakonomics the most acceptable of the pop economics books (Cowen's Discover Your Inner Economist was painful in spots).

CC, I don't have a problem with their inability to predict the future, but with their unwillingness to admit it if it compromises their interests. To say that being truthful is unacceptable because it's career-limiting is pretty weak (sort of blows up the whole need-for-tenure theory).

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