Where are the economists when we need them?

February 15, 2012 by
Filed under: Social Brain 

Simon Jenkins’s typically trenchant piece in yesterday’s Guardian opened with a strong assertion, followed by a striking assumption, leading to a pertinent question:

“Inflation is falling, debt is rising, growth is static and credit is edgy. All these are facts. There must be an economic equation that says what to do next. So where are the economists when we need them?”

“There must be an economic equation that says what to do next.” ?

Well no, not really. The problem is precisely that it is becoming increasingly clear that the equations of academic economics do not adequately speak to problems in the real world.

Ha-Joon Chang, author of  23 things they don’t tell you about capitalism captured the problem succinctly in his talk to the RSA:

“You have to know that academic economists today are not even interested in the real world. In the economics profession today, interest in the real world is an indirect admission that you are not very good. If you are really smart you do really abstract mathematical modelling. If you are a bit less good you do econometrics, basically manipulating statistics. If you are really down in the pits you are interested in the real world…It’s a strange academic culture… when you say these uncomfortable things, people refuse to listen to you.”

Perhaps the main reason academic economists are not very interested in the real world is that much of economic theory rests on axioms that are not true to the real world. In Transforming Behaviour Change, we explore this point in some detail. The following quote by economist John Gowdy captures the jist of the problem:

“The most serious shortcoming of the standard economic model — the mathematical
formulation is called the Dynamic Stochastic General Equilibrium (DSGE) model — is that
it must assume that human behaviour is self-regarding. The mathematical constraints of the model dictate that decisions of one individual cannot be influenced by the behaviour of others. Without the assumption of independent preferences the whole mathematical edifice of the DSGE model comes crashing down like a house of cards, and with it many if not most of the tools of contemporary economics (marginal analysis, constrained optimization techniques) and policy recommendations (privatization, more trade).”

So in response to Jenkins’s question(albeit a somewhat rhetorical one) it is not clear that what we really need at the moment are economists, but in so far as we do, the reason they are not as accessible as they might be is that they are probably beginning to sense – due to significant theoretical challenges and major economic and financial problems – that the legitimacy of their discipline, at least as it has been classically conceived, is very much in doubt.

Comments

  • Indiatlarge

    It would be good if you get yourself rid of conservative biases and look at the economists that have been forecasting the current state of the economy rightly. These articles clearly show how difficult it is people at the RSA to apply their minds and how challenged it is when it comes to economics and has to resort to inflammatory rhetoric to advance its ideology. Scientific examination of facts seems to be an effort lost on its members.
    Economists like Krugman have been getting it right on the UK from across the pond applying sound economic principles developed here in the UK by Keynes.

    • Jonathanrowson

      “Applying our minds” ? “Conservative biases.” ? 
      I don’t understand.I quote two academic economists who are questioning the validity of their own fields based on their own experience, and these are two of very many. I could have mentioned Quiggin, Keen and many others who have made a similar argument. It is hardly ‘inflammatory rhetoric’. And the fact that economics as a discipline may lack the valid analytic foundations that it often claims to have doesn’t mean that there are not economists out there with a sound understanding of what has happened(sometimes in spite of rather than because of economic policy) and what might need to be done. Sociology and anthropology, for instance, also lack stable foundations, but it doesn’t mean they don’t have important things to say.And as long as we have an economy, of course we cannot do without economists of some sort- I just wish they were more like Keynes, for instance, whom you allude to, who was clearly very interested in the real world, or Krugman whom, I agree, has a much more balanced and worldly view of economics than many in his profession.