How to re-establish trust in economics
30 July, 2012 at 12:21 | Posted in Economics, Theory of Science & Methodology | 11 Comments
Attending social science conferences is no happy occasion for an economist nowadays.
Economics – and especially that of the mainstream neoclassical ilk – has as a science lost immensely in terms of status and prestige during the last years. Not the least because of its manifest inability to foresee the latest financial crisis – and its lack of constructive and sustainable policies to take us out of the crisis.
How do we re-establish credence and trust in economics?
Five changes are absolutely decisive.
(1) Stop pretending that we have exact and rigorous answers on everything. Because we don’t. We build models and theories and tell people that we can calculate and foresee the future. But we do this based on mathematical and statistical assumptions that often have little or nothing to do with reality. By pretending that there is no really important difference between model and reality we lull people into thinking that we have things under control. We haven’t! This false feeling of security was one of the factors that contributed to the financial crisis of 2008.
(2) Stop the childish and exaggerated belief in mathematics giving answers to important economic questions. Mathematics gives exact answers to exact questions. But the relevant and interesting questions we face in the economic realm are rarely of that kind. Questions like “Is 2 + 2 = 4?” are never posed in real economies. Instead of a fundamentally misplaced reliance on abstract mathematical-deductive-axiomatic models having anything of substance to contribute to our knowledge of real economies, it would be far better if we pursued “thicker” models and relevant empirical studies and observations.
(3) Stop pretending that we have laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability.
(4) Stop treating other social sciences as poor relations. Economics has long suffered from hubris. A more broad-minded and multifarious science would enrich today’s altogether too autistic economics.
(5) Stop building models and making forecasts of the future based on totally unreal microfounded macromodels with intertemporally optimizing robot-like representative actors equipped with rational expectations. This is pure nonsense. We have to build our models on assumptions that are not so blatantly in contradiction to reality. Assuming that people are green and come from Mars is not a good – not even as a “successive approximation” – modeling strategy.
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We suffer from similar nonsense in political science, even more so now that economists like Acemoglu and Robinson have brought their nonsense into our domain.
Comment by Dwayne Woods— 30 July, 2012 #
“Why Nations Fail” fails in telling the story as the story of history is written over long periods and future crises in China and India will force these analysts to revisit their analytical frameworks –although this is never a problem in the orthodox neoclassical paradigm where the traditional rejoinder to being wrong is to ignore and state that “there is no alternative.”
Comment by Arijit Banik— 30 July, 2012 #
Not really a problem. Why would a purtian economist want to visit a Social Science conference? Hoi polloi would just pester them with irrelevant issues such a contexts and that there actually is some prior research done on the field of inquiry they have just discovered. If for example Acemoglu and Robinson would do such a thing someone might point out to them that they are in fact die hard, old school Marxists.
Comment by Olle J.— 30 July, 2012 #
Olle J’s comment is somewhat confusing. In any case, A&R are many things but not Marxists, although they share a reductionist predisposition similar to Marxism!
Comment by Dwayne Woods— 30 July, 2012 #
No, really?
Comment by Olle J.— 31 July, 2012 #
Great post.
I’d add that in a financialised world ignoring finance doesn’t seem credible.
Comment by Dave Holden— 30 July, 2012 #
Thanks. And your point on finance is very apt!
Comment by Lars P Syll— 30 July, 2012 #
Great Lars! Thank you! The best I’ve read about economics in many years! Be real well in “way down south of river Nissan” Lars
!
Comment by Jan Milch— 30 July, 2012 #
[...] Lars P. Syll writes (in an otherwise great post), Stop pretending that we have laws in economics. There are no universal laws in economics. Economies are not like planetary systems or physics labs. The most we can aspire to in real economies is establishing possible tendencies with varying degrees of generalizability. [...]
Pingback by Economic Law | Economic Thought— 30 July, 2012 #
As a sociologist who’s forced himself to read economics textbook, IMO the subject is beyond repair and the sooner it’s confined to the dustbin of history the better. Even the parts of the discipline where, economists claim, “new insights” are being derived (e.g. experimental and behavioural economics) is a fraud. For example, the idea that social norms, reciprocity may influence strategic exchange situations has been well known to sociologists and psychologists for decades. Experimental Economics offers nothing new to social science, except regurgitating decades old research and adding a neoliberal twist.
The same with the new “political economy” promoted by the likes of Acemoglu, Besley, Buchanan. Their application of neoliberal neoclassical ideology into political science (e.g. median voter theorem, theories of bureaucracy) has severely damaged the discipline as Dwayne Woods says.
Geography as well hasn’t escaped economic imperialism. Krugman’s “Nobel” was in fact based on work done by Economic Geographers decades prior to his publications, but he doesn’t acknowledge any of their work. Moreover, his “economic geography” bears no relation to proper economic geography, that has a much more progressive outlook on the world and focuses on issues of economic dislocation, class, spatial inequalities and other real world issues that economists ignore.
Thankfully, the era of economic imperialism is coming to an end and is in fact reversing. The subdisciplines of economic geography, economic sociology, economic antropology are all thriving, and have started to study the subject matter of economics but from a progressive perspective, far removed from the neoliberal treatment given by economists.
I long for the day this pseudoscience disappears from university prospectuses. It is pure snake oil, and has caused untold damage to the world.
Comment by SR819— 30 July, 2012 #
I agree with the sociologist mostly, but I’m not ready to jettison snake oil altogether.
Comment by Dwayne Woods— 30 July, 2012 #