Economic Ignorance?

Ha-Joon Chang nails it.

But I wish he hadn’t.

You see, I agree with his analysis of the inverse nature of status within the economics profession. As a useful general rule the more notable you are within the profession the less you know about the economy. This is a result of the perverse nature of what economists actually do: they are amongst the very few disciplines — perhaps they are unique — who invent the artifacts that they then seek to explain and study. This relieves them, as you can imagine, from having to engage with the mucky real world.

You might wonder how this came about. It is quite a puzzle isn’t it? All those extremely clever people resolutely avoiding contact with the very substance that their chosen topic of study presents them from outside; averting their eyes from the glare of reality; turning inward as they search for clarity and that song sought after simplicity that so beguiles them.

It’s actually quite dispiriting for anyone who dares imagine that economics has relevance to humanity and its ability to chart a course towards a generally more prosperous world.

So how did this disconnect happen? How is it that the very best are the most ignorant?

Two causes come to mind: math and math. No, I am joking. Only one cause is math. The other is ideology.

Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves — with a straight face too. This makes plotting and explaining their activity very hard. In fact it often makes it impossible. So, if you want to locate general ‘laws’ that govern all that bizarre behavior, you have to ignore it. Or you simply get people out the equation altogether and substitute ‘agents’ in their place. The great advantage that these ‘agents’ have over ‘people’ is that the former are artificial and can thus be trained to act according to rules that can be modeled mathematically.

So, if you want economics to become more mathematically rigorous you are forced to exit reality and enter the realm of the artificial. At least that’s what happened in economics beginning around the 1860’s. Don’t forget that everyone back then was seduced by the thought that everything could be explained through the lens of math. So why not economics?

Besides, the period right before the 1860’s — from 1848 onwards — was one of social turmoil and push back against the rise of industrialization and who was working that angle most effectively? Marx was. Now, Marx may have had his history all wrong, but his critique of capitalism was pretty much on the mark. By this time economics was already deeply concerned with explaining the efficacy of free markets as opposed to the dead hand of government, so the Marxist critique has to be dealt with — at least within the confines of economics. What better way than pretending that the ‘laws’ of economics were natural forces and were not human-made? If those ‘laws’ were, indeed, natural, then mucking around with them à la Marx was a silly delusion.

And once you have launched yourself into the search for natural ‘laws’, what better way to explain them than with math? It makes it extra hard to understand and so acts as a barrier to entry into the domain of higher understanding.

The rest, as they say is history. Once on that trajectory into the world of imagination, and away from reality, each step had, logically, to reinforce the last. It had, in other words, to travel deeper into the imagination. For to do otherwise would be to retreat. The journey was arduous. Along the way alls sorts of sensible ideas had to be jettisoned. The search for imagined purity can claim all sorts of victims, not least the sensibility of its most ardent students. Conversely, in order to rise up within the ranks of economics, students had to demonstrate a dedication and a willingness to believe in magic. The higher reaches of the profession became almost occult. So only those most willing to leave behind the real world, to adhere to the most fantastical beliefs, to tell the least real stories, and to dabble most diligently in the magic itself could become the masters of the profession.

Thus we arrive at the world that Ha-Joon Chang is describing.

My only disagreement is that I would, on reflection, reverse everything. I would borrow from Dante. To enter the highest echelons of economics, is to descend into the deepest error. Thus to any student pondering whether to study economics I say — to paraphrase somewhat — “beware all ye who enter here”.

Which do you want? To lose your mind? Or to study actual economies?

If the latter, think twice about studying what is called economics: because that’s the former.