Where are the economists when we need them?
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.