Do We Need Economists?

Not really.

They don’t seem to add much value.

This will not shock many of you, but it should cause some reflection amongst economists. The basis for my reflection on this is the comment Brad DeLong made recently that the solution to the economic and financial crisis could be found in ideas developed in the 1930’s, and in some cases in the 1890’s. So, to the naive eye, it is worth asking what have all those economists been doing since?

Not much apparently.

Well, one thing they’ve been doing a lot of is arguing. Take, for instance, the current spat between Paul Krugman and John Taylor. Both extremely well educated and intelligent economists who have very different interpretations of the recent increase in government spending.

One the one side, Taylor suggests that there has been an enormous increase in the government. As you know such an increase is a red flag to right wingers like Taylor, for whom the magic of the market is sacrosanct. To him the absorption of so much activity into the inefficient realm of “big” government is a dangerous sign of imminent demise for us all.

On the other side Krugman responds by pointing out that, while the increases are real, they can be explained not by resort to criticism of Obama and his supposed “big government” agenda, but by simple arithmetic. Since the private sector has shrunk, as it does during a recession, and government safety net spending has risen, as it does also during a recession, the apparent increase in government as a percentage of the economy is ephemeral. It is a manifestation of the private sector’s implosion, not the public sector’s explosion.

Ah, says, Taylor: that’s fine in the short term, but why is government still growing out in the future, let’s say in 2020, after the effects of the cyclical shift are presumably corrected?

Krugman answers that one with ease as well: demographics. Lots of demographics. Without one single policy added by Obama government spending will rise into the foreseeable future as the baby boomers all retire and start becoming part of the Medicare and Social Security world.

Phew.

Two grown up and highly educate economists adding very little to anything except to display their respective ideological views. Both right in their own way. Both wrong in others.

Then there is the inestimable Robert Lucas, whom as you all know I blame for the current irrelevance of economics to economies. Yes I know I am being unfair, so I apologize, but I feel I am allowed to be. Why? because Lucas, on one hand argues that economics should stay clear of practical policy making since it is simply the study of utopian systems – his words not mine – and is thus only precariously tied into reality where policy must be made. Then on the other he thinks nothing of appending his name, and thus his prestige, to letters to Congress urging draconian cuts in government spending. That’s called trying to have it both ways. Or hypocrisy. Depending on how harsh you want to be.

The point is this: economics is a giant mess. Economists know this. They excuse themselves by saying that it has always been this way, and that scholarly disagreements are the stuff of academic progress. From this hurly-burly springs forth new ideas and thus a greater contribution to society. So they say.

Except.

As DeLong points out, this argument is going nowhere. Indeed it seems to be preventing progress. It has simply devolved into an ideological spat. And is making economists appear useless. There is an economist to defend any hair-brained policy proposal. Anything a politician cares to suggest can be given a well argued, and reasonable defense by a well respected and tenured professor from somewhere.

And when economists are hopelessly wrong? Are they fired? Are they pilloried and thrown out of their tenured positions to suffer the voluntary unemployment lines they condemn others to? Dean Baker has recently thrown a hissy fit over this. Of course not. Failed economists are a dime a dozen in our best schools. They are still teaching whatever they first thought. No amount of empirical data threatens their prestige. Why? Here’s the great scam: because economics is a self-contained, self-referential pursuit disconnected, very deliberately and carefully, from the dangers of having to be useful. It is thus immune from disproof. All that Popperian conjectures and refutations mumbo-jumbo is not applicable to economics. Economists have constructed their world so as not to have to be practical. Instead they are quasi-philosphers, quasi-mathemeticians, quasi-physicists, quasi-psychologists, and quasi-sociologists. By so being they can dodge between the bullets of practical questioning and never have to improve their art. Being quasi-everything is a great defense. You can confuse all the specialists and answer to no one. Except yourself.

Think about this for a moment.

No one doubts that the study of economies is a very serious and potentially socially valuable pursuit. Most of its great advances have been at times when there were big political and social upheavals and dangers that required insight into the way in which an economy works. A real one. Not a made up one. Early economists were intrigued and influenced by the processes and challenges of industrialization. Prior to that they had been embroiled in arguments over taxation and trade, both of which were contentious and relevant topics to the newly emerging nation states of the 1600 and 1700’s.

Then along came Marx, who thundered away at the disruptive issues of early capitalism and its satanic mills. His critique was sufficient to demand a right wing response, which came in the form of marginalism and Walrasian systemic thinking. Those advances were an attempt to make economics scientific and thus immune to the implied Marxist charge that the early theories were simply justifications for capitalist favoring policies.

That attempt to shift economics from being politically motivated towards being scientific, and thus cleansed of political taint, gathered momentum and led to even greater discord in the 1930’s and later. One part of economics wandered off into the supposed safety of the self referential community I mentioned above, content to manipulate ever more abstract models until it ended up with people like Lucas openly calling his analysis utopian. The other channel was filled with people trying to engage a more “realistic” set of theories that recognized the vagaries and complexities of the world. But because those vagaries are intractable, or have been, to the tools economists inherited from their political economy origins, and because much of the subject’s key topics are still framed in 1800’s terminologies these realists have made less of an impression. They don’t appear as scientific. Their models are kluge-like and not filled with impressive mathematics. So the so-called scientists won. They invented “positive” economics, where theoretical discussions disdained empirical proof, and where math wizardry counted for more than connection with practical policy.

Which is why a recent poll of economics post-graduate students showed a belief that being good in math is more important to being a good economist, than knowing anything about the economy. Abstraction for abstraction’s sake is the watchword of modern mainstream economics.

This, in turn, is why DeLong is correct: our crisis could be solved using old ideas. Thus, I wonder whether we need economists. Especially those who don’t study real things.

I know. I know. This is all old stuff. But it continues to irritate me. Especially when we see supposedly big name economists wading into politics and advocating policies that will have a huge impact on the lives and futures of millions of their fellow citizens.

You’d think that, at the very least, they would stress test their advice. That they would check their theories against some evidence of their efficacy. That they would have the ethical decency to do no harm. Before, that is, and not after, they urge policies whose consequences, both intended and unintended, we all have to live through.

Is that too much to ask?

And if not, why do we need economists?

If we are to salvage economics from its current cul-de-sac, and I for one hope we can because of its enormous social consequences, we need to acknowledge the failure of its positive tradition. All economics begins with ideological content. It cannot avoid its attachment to politics simply because it is seeking answer questions that society asks, and which society will benefit from. And such a process is carried on within a political framework.

So there are as many forms of economics as there are political positions. And economics is an archipelago not a continent.

There’s nothing wrong with that. It’s called being realistic.

We should just make sure we teach it that way, and not as a monolith.

But that’s another question.