Why economists are(n’t) the answer to all our problems

October 27, 2010

Over at the Curious Capitalist, my former colleague Steve Gandel asks me to react to this NYT article about how economists manage to disagree on such fundamental questions as whether the government should spend more or less money in response to economic malaise. I’ve been perplexed by this sort of thing before. In this post from August, I worried about the influence of ideology, and then decided that maybe the bigger take-away is that we should spend less time listening to economists, who, after all, represent just one possible lens onto the world of human behavior, decision-making and social dynamics:

[T]he economy is as much a product of sociology and policy as it is pure-form economics. Yet we’d not expect a sociologist or a political scientist to be able to write a computer model to accurately capture system-wide decision-making. The conclusion I’ve come to: while economists may have an important perspective on whether it’s time for stimulus or austerity, maybe we should stop looking to them as if they are people who are in the ultimate position to know.

After rereading my post, I started to wonder how economics and its famously flawed assumption of rational behavior came to dominate the discussion. If confidence is such an important part of getting the economy growing again, then why aren’t we taking advice from legions of social psychologists? If multinational corporations are back to profitability but still not adding jobs, then why aren’t we asking the organizational behavior experts for their models?

In search of an answer, I took a cue from Steve: I called Justin. He had all sorts of interesting things to say, like how economists after WWI thought long and hard about why they hadn’t played a larger role in the war effort (ostensibly hoping to do better next time), and how in the 1960s economists moved to get everyone working from the same basic model partly because a unified voice would be more influential. That is to say, economics won out over other social sciences, at least in part, because the discipline got its act together. (Justin may fill in more of the details later, but, if not, you’ve always got his history-packed book to turn to.)

So what do we do now that economics doesn’t, in fact, have all the answers? Well, some of us try to shoe-horn other approaches, like psychology, back into the picture. And some of us denounce academic economics altogether. But most of us just listen to the debate among economists and don’t quite understand how it can be happening because these are the guys and gals who are supposed to know this stuff. We have so completely absorbed the economic world view in so many aspects of our lives—public policy is determined by cost-benefit analysis, doing good in the world has become return on social investment, efficiency has morphed from the best way to reach a goal to the goal itself—that it doesn’t even occur to us that there could be a more illustrative starting point for asking a question or framing a debate.

That’s one idea, anyway. The economists disagree because they don’t have the tools to see the big picture. And most of us can’t see that.


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They are the problem.

Posted by EmilianoZ | Report as abusive

Q: What do you call somebody who can shift the outlook of a whole nation?

A: We call them “leaders”.

We could use a strong leader, more than a legion of economists and social scientists.

Posted by TFF | Report as abusive

Economists are tools for politicians, who use them as cover for the policies they want to implement. The politicians usually do not understand the math behind the economists’ theories, but they don’t care, as they are usually just trying to sell a tax cut or spending program. The economists abuse and misinterpret statistics and history to support their wishful thinking, ignoring the fact that the conditions and factors for past economic events and trends are never the same for the present.

Politicians love their jobs, and want to keep them, so they will use whatever tool is at their disposal to achieve that goal. Economists, for some reason, like their jobs, too, so they are always happy to get endorsement from politicians, as it helps them keep their jobs. I think it’s called a co-dependency.

Posted by OnTheTimes | Report as abusive

The interesting thing to me is that economists can’t take a single dataset and apply varying situations to them and at least agree on a RANGE of outcomes.

Posted by Richard3 | Report as abusive

It’s misleading to lump everybody in the profession together and speak of them as one thing, “economists.” There’s a reason economics is a disputatious profession: it sits on the nexus of self-interest and community interest.

Quite a few economists work, essentially, for the wealthy. (I understand Charles Ferguson’s ‘Inside Job’ sheds some light on this.) But not all of them do. And of the ones who don’t there are some damn good ones.

Posted by mattski | Report as abusive

Economics has the tools to do the job; rational expectations is not–with all due respect to Mr. Fox, of which there is much–in itself problematic. (The Law of Large Numbers will abide, and using Economics to predict The Mule would be like trusting Senator-to-be O’Donnell to run a test of our ICBMs–oh, wait…)

The problem is more that the models used only include limiting borrowing constraint; the existence of c(0) isn’t covered, and any decent size of population hanging around c(0) will skew anything. (Collaterally, this is why Economic Development theory varies so much from how actual Economic Development has occurred.)

There will always be Liquidationists and other such sadists pushing silliness in economics; ignore them at your peril not due to their economics, but rather their backers. But working with a model that is not robust and assumes normalcy in the midst of increasing skew is a mug’s game.

Posted by klhoughton | Report as abusive

[…] Why economists aren’t the answer to our […]

Posted by FT Alphaville » Further, further reading | Report as abusive

@mattski: I wasn’t disparaging economists– some of my dearest friends are economists! My point is that economics-framed thinking, while super-useful, fails to address some pretty big problems, including a few that we’ve come to define almost exclusively as problems of economics. But you do raise an interesting point. There are a lot of high-paying jobs for economics PhDs. I’m not sure the same is true for other social science disciplines.

Posted by BarbaraKiviat | Report as abusive

Barbara, I guess I’m confused then. Which exclusively economic problems are economists failing to address?

You wrote: “The economists disagree because they don’t have the tools to see the big picture.” I don’t think that’s right. Economists disagree because they have different preconceptions and different motivations. (They’re people after all!)

I don’t see any problem with expecting economists to address economic questions, nor do I see anything surprising about them disagreeing on these questions. I think that if you do your own critical reading and think about the issues seriously then chances are you’re going to side with some economists and disagree with others. I mean, I find Krugman highly persuasive. I wouldn’t say the same about the Chicago school.

Posted by mattski | Report as abusive

I remember a guy (Bob Mcnamara) who, if not an actual economist, sure was a guy who liked to use numbers and analysis. He was the best and brightest.
The only people demonstrated to know less than he were the ones who listened to him.

Posted by fresnodan | Report as abusive


One side is wrong in this argument. This accounting identity for GDP:

GDP = C + I + G + NI

is true for any one currency. It can be rearranged into:

Private Savings = Public Deficits

Until all economists accept basic accounting, the profession is doomed to disagreements.

Mr. E
Counter Insurgency, Deficit Terrorist Unit

Posted by MrE23 | Report as abusive