First, they came for the economists…

March 16, 2009

Jim Manzi is one among many commentators on the economic crisis who is using it as an opportunity to question the discipline of economics:

If Mankiw’s list is the best economics can do, it sure seems like a naked emperor moment to me. Where’s the beef?

My challenge would be simple: please list 14 useful, non-obvious predictive rules that economics provides that have survived rigorous, replicated falsification trials.

If you were to provide this challenge to physics or biology, it would be easy to come up with 1,400. Hence, human invention of aircraft, space travel, mobile phones, antibiotics, vaccines, MRI scans, the internal combustion engine and so forth. This – not the attempt to create pressure on public officials to support the policy preferences of most economics professors – is why actual science education is so important.

Manzi is not alone. While public sentiment and political action are pulling in the direction of Keynesian interventionism, the discipline of economics is still rolling on the track laid down by the neoclassical gang. The Times’ Patricia Cohen writes:

Prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.

The failure of economics to respond credibly and quickly to the unfolding crisis has led some, Manzi among them, to criticize the field as a whole. In comment threads such as these, Joes of all trades have emerged to put in their two utils about how economics is wrong, useless, or “not real.” Some choice quotes:

The sole determinant of everything in economics is human behavior, meaning that economics is a farce.

Economists serve a useful role in society. They help fill an oversupply of endowed chairs at prestigious universities, they give “street cred” to the usury of bankers, and they are able alchemists for the aristocracy.

Economics is not a science. It’s not even even a pseudo-science. It’s like trying to quantify lust or rage in the form of equations. Your rants about your fellow economists are of that of a shaman accusing animists of being ignorant.

Most economists are in the propaganda business. That includes evidoers Greenspan and Bernanke. Economists must bear blame for this crisis.

In the words of a Chick tract, when it came to economists foreseeing or averting the economic crisis, somebody goofed. But this should not condemn the entire enterprise of economics to the scrap heap. Whatever its faults have been in recent years, economics can still claim at least these few defenses against swarming critics of the discipline as such.

1. Social science is complex. Recall Manzi’s “challenge” to economics: Manzi congratulates “real” science – that is, the physical sciences – on producing “useful, non-obvious predictive rules.” Why, Manzi asks, can’t economics produce such rules, too? Distilling reality into predictive rules is hard, and it likely gets harder as academics lop off greater and greater slices of reality to explain. By virtue of being “purer” than the social sciences, the hard sciences have limited themselves to explaining increasingly limited portions of reality, and even here their job isn’t done yet. So the least “pure” social science has before it the grandest task: to model systems which have been studied by layer upon layer of “purer” hard sciences. Thus, if economics hasn’t come up with infallible laws yet, perhaps it is because of the inherent complexity of markets and market behavior.

2. Social science is probabilistic. The above suggests that given enough time and effort, economics will produce infallible laws. This is not entirely reasonable. Any useful (i.e., sufficiently simple) social scientific theory will have to be probabilistic, even given perfect information about how its subject works. Thus, economic theories cannot say that A will lead to B, but only that all else being equal, A will lead to an increased likelihood of B. Contrary to Manzi’s standard for theories, any social scientific theory can therefore be falsified (in the strict sense), given enough trials – but this fails to describe either its accuracy or usefulness.

3. Social science dramatically alters that which it studies. Social science is complex and probabilistic in large part because its effects on its subjects are so profound. People are not bacteria in a petri dish – they are consumers of social science as much as they are its subjects. Manzi asks economics to produce rules that are non-obvious and predictive. Well, obviousness is a matter of perception – what is obvious to one is questionable to another, and impossible to a third. In economics, mercantilism was an innovative theory that became obvious and was later discarded. How many of the “obvious” things Manzi knows about the market had to be codified and disseminated by economists? And as for the predictive quality of economic theories, such theories exists in a complicated feedback loop with the phenomena they study, with successful or famous theories introducing great distortions in the social reality. To wit, just because a certain economic theory has predictive power today, it may not necessarily have such power in the future, once word of the theory gets around to workers, consumers, investors, or the government.

The badge of a Ph.D. in economics should not shield its wearers from well-deserved criticism. However, disagreement with a particular thinker or theory should not be cultivated into a rejection of economics as a discipline.

(h/t to beeveedee)


2 Responses to “First, they came for the economists…”

  1. Jim Manzi Says:

    Thanks for the thoughtful comments.

    As reference, I agree entirely with your bolded points 1 and 2 (and have written quite a lot about point 1). I don’t think (obviously) that these contradict my asertions. In effect, they are partial explanations for why social science has not achieved the results of physical sciences.

    I don’t agree entirely with 3 (the text for this point makes several points, some of which I agree with.) Why such “observer impacts” are surely real to some degree, it would take a lot of evidence to support this adequately, and it is not necessary to explain why macroeconimics has so little practical utility.

    Best regards,
    Jim Manzi

  2. grandmute Says:

    Just a thought: macroeconomics may have little practical utility because it has raced ahead of the still-developing microeconomics, attacking more complex problems (e.g. aggregate demand) before their component processes (individuals’ economic activity, in this case) have been fully or adequately understood.

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