All entries for Wednesday 08 September 2010
September 08, 2010
Writing about web page http://whatpaulgregoryisthinkingabout.blogspot.com/2010/09/do-we-need-new-economics-101.html
It's economics bashing time again.
The latest to have a go is Gideon Rachman in yesterday's Financial Times. "Sweep economists off their throne!" he demands. He compares economists unfavourably to historians, "archive grubbers" who at least have a sense of modesty about their claims to rigour. He goes on to complain about the "brash certainties, peddled by those pseudo-scientists, otherwise known as economists."
As an economic historian -- and I do grub around in archives -- I suppose I have some sympathy for this view. Only a year ago I was writing about the advantages of history in helping us see what's coming round the next corner.
But as a trained economist I think it misses the point.
Good economics isn't brash and doesn't make unjustified claims of predictive power. Specifically, good economics is not the handmaiden of the journalists and politicians who most want economics to support their nostrums and interventions. My Hoover colleague Paul Gregory makes a powerful case that what our first year students have been learning is still pretty much on the button in today's world. It is, above all, an economics that promotes scepticism, critical thinking, and the avoidance of Type I errors.
My point is that there is not just "economics." There is good economics and bad economics. I don't care if it is radical, liberal, conservative, or what. It's interesting that good economics of every school or tradition has more in common with the good economics of other schools than it has with bad economics of any school.
The problem is that there is always a demand for bad economics and there is also a plentiful supply of it. Why? We won't discuss good and bad physics, because that annoys too many people. Instead, think about bad art. On the supply side, untalented artists exceed the number of talented ones by a large margin. So, bad art is abundant. The same is true of economists; there are many more people like me that are writing about economics, for example, than there are Keyneses, Hayeks, and Friedmans. (I hope there's an even larger number of economists that are worse than me, but that's not for me to say.)
On the demand side, many people (myself included) are not really sure of the difference between good and bad art. Also, there are many reasons why we positively desire bad art: because it is comfortable; because it fits with the decor of the room we live in; because it promotes our fantasies without transcending them; and, particularly, because some critic tells us it is good when it's not. I'm sure I personally subscribe to at least some bad art for each and all those reasons.
The demand for bad economics is similar. In fact, just as critics and reviewers mediate the demand for bad art to the public, bad economics has a bunch of people that do the same job of telling the public to buy it. Who are they? Well, many of them are politicians and, er, journalists.
Since this is about economics, we should also think about price. Good economics is relatively scarce, difficult, and uncomfortable; it's designed for truth, not reassurance. In short, the price is high. Bad economics is abundant, soft, and easily absorbed. For all these reasons, it's cheap.
In fact, I'm fairly sure some of the journalists that are now hopping mad at economists are mad just because they themselves previously invested too much of their beliefs in bad, cheap economics. I once had a rather ill-mannered go at Anatole Kaletsky of The Times on this score. Not all of them are to blame, though, and specifically not Gideon Rachman. (I checked out what Rachman was blogging about before the crisis broke in 2007. At least, he wasn't promoting buy-to-let.)
Anyway, let's get back to sweeping the bad economists off their throne. Get rid of them; then what? Who are we going to ask about the economy? Sociologists? Some guy in the pub? Use common sense?
The trouble is, this is a surefire way of replacing bad economics with ... more bad economics. It was Keynes, himself a great economist, who wrote:
Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.