Economics — too important to be left to economists

11 Jan, 2020 at 14:25 | Posted in Economics | 2 Comments

Bad economics underpinned the grand giveaways to the rich and the squeezing of welfare programs, sold the idea that the state is impotent and corrupt and the poor are lazy, and paved the way to the current stalemate of exploding inequality and angry inertia. Blinkered economics told us trade is good for everyone, and faster growth is everywhere. Blind economics missed the explosion in inequality all over the world, the increasing social fragmentation that came with it, and the impending environmental disaster, delaying action, perhaps irrevocably.

Two of last year’s ‘Nobel Prize’ winners in economics, Esther Duflo and Abhijit Banerjee, are back with a follow-up to their 2011 book Poor Economics. In the new book — Good Economics for Hard Times — they set out to show that although few people nowadays trust economists, there is a way to “make economics great again.” What has undermined the general public’s trust in economists is bad economics, and there has been, and still is, plenty of it (the authors take trade liberalisation, growth theory, migration, inequality and climate change as poignant examples.) The alternative, good, economics is — as was argued already in the earlier book — what results when economists work more like plumbers and “solve problems with a combination intuition grounded in science, some guesswork aided by experience, and a bunch of pure trial and error.”

Although yours truly agrees with most of the picture the authors give of present-day bad (mainstream) economics, I’m less convinced of their alternative.

Duflo and Banerjee think that economics should be based on evidence from randomised experiments and field studies. But to give up on ‘big ideas’ like political economy and institutional reform and instead go for solving more manageable problems the way plumbers do, is in my view not sufficient to move economics forward and make it a relevant and realist science. A plumber can fix minor leaks in your system, but if the whole system is rotten, something more than good old fashion plumbing is needed. The big social and economic problems we face today are not going to be solved by plumbers performing RCTs. We need to dig deeper than plumbers and make sure we get at the deep causal mechanisms behind the present stagnation of capitalism and the climate catastrophe it has landed us in.

There is also a rather disturbing kind of scientific naïveté in the Duflo-Banerjee approach to combatting socio-economic and environmental problems. The way they present their whole endeavour smacks of not so little ‘scientism’ where fighting problems becomes a question of applying ‘objective’ quantitative ‘techniques.’ But that can’t be the right way! Fighting problems like poverty and inequality is basically a question of changing the structures and institutions of our economies and societies.