Economics has long been called the “dismal science”. This derogatory term was originally coined in response to the theories of Thomas Robert Malthus, who made the depressing and “dismal” prediction that the human race would starve if population increased at the then observed rate (which proved to be wrong because of dramatic changes in the “science” of food production).
However, I think the term is today very applicable in its more direct meaning, in that, as a “science”, economics is “dismal”.
The scientific method(29) is the process by which scientists, collectively and over time, endeavor to construct an accurate (that is, reliable, consistent and non-arbitrary) representation of the world. Recognizing that personal and cultural beliefs influence both our perceptions and our interpretations of natural phenomena, the scientific method aims through the use of standard procedures and criteria to minimize those influences when developing a theory. As a famous scientist once said, "Smart people (like smart lawyers) can come up with very good explanations for mistaken points of view." The scientific method attempts to minimize the influence of bias or prejudice in the experimenter when testing an hypothesis or a theory by insisting that it can be verified independently and repeatedly.
Strictly speaking the above applies to the “natural sciences”, such as physics, chemistry and mathematics, and in fairness, economics is a “social science”, such as anthropology, law and linguistics, which focus on the study of human interaction and societies. Although modern social science endeavors to use the scientific method, it is generally understood that the ability to test hypotheses by repeated and independent experiments is virtually impossible because of the multitude of “externalities” which cannot be adequately controlled.
Economists, in formulating their theories and models, take account of these uncontrollable externalities by explicitly or (unfortunately mostly) implicitly attaching the ceteris paribus (all else being equal) qualification to all of their theories and models. In practice the ceteris paribus qualification is most often used as an all-purpose escape clause when economists are called out on the inability of their theories and models to make meaningful predictions in the real world.
In a fascinating paper by Deirdre McCloskey, The Secret Sins of Economics(30), she argues that the excessive use of mathematics and statistical significance to an almost absurd degree hides the weaknesses inherent in most of the models developed by economists in predicting real world outcomes. McCloskey argues that rather than revel in the elegance and beauty of their mathematical models, which are mostly useless in predicting real world results, economists would do better to use the wealth of available data (observed facts) to calibrate (computer) simulations, which would be more useful in predicting actual real-world outcomes.
Another side effect of the weak (to non-existent) predictive capabilities of most economic models and theories (i.e. “statistically significant” but basically meaningless), as described by McCloskey, is that the same data can often be used to both prove and disprove the applicability of a model’s conclusion.
By becoming infatuated with elegant mathematical constructs and models, many renowned economists have lost touch with reality. According to a NewYorker article(31), Prof. Paul Krugman, for example, was incredulous that companies could/would actually cook their books until the Enron scandal invaded his dream world. And we all know about the infamous statement from Mr. Greenspan in his testimony before Congress after the financial crash.
This New Yorker article, like McCloskey’s paper, contains some eye-popping discussions about the economists’ obsession with elegant mathematical models at the expense of their real-world relevance. For example, it recounts that Prof. Krugman’s most “successful” paper (in terms of being referenced in other people’s work) described a model about “target zones” (a hybrid between fixed and floating exchange rates), where many of the model’s very strong predictions were completely wrong.
Strictly speaking economics aims to explain (not very well, as we described above) how economies work and how “economic agents” (buyers and sellers, for example) interact. But through a combination of intellectual dishonesty (neglecting to explicitly and forcefully emphasize the “all else being equal” restrictions of all their theories and models, and thus their weakness to actually make relevant real-world predictions), and chutzpa (the implicit or explicit claims of their models’ “mathematical sophistication” and “statistical significance” - not to be confused with real-world relevance), economists now dominate fields such as business, finance and government. Moreover, in what some are calling “economic imperialism”, “economic analysis” is now applied in such fields as crime, education, the family, health, law, politics, religion, social institutions, war, and even science.
What is especially insidious about economists’ use of “models” (graphs and mathematical formulas) is that it gives economics the completely false sheen of quantitative predictability and exactness. By feeding this notion to a scientifically unsophisticated population, economists have usurped for themselves a completely inflated role and credibility in virtually every facet of political and social decision making. The fact that all political persuasions can refer to “economic theory” to justify their often diametrically opposing positions only highlights the fact that economic theory, as presently constituted, is virtually useless.
In American society today, therefore, economists have been elevated (or have ingratiated themselves in) to the role “wise men” or “medicine men” without whose approval and blessing no decisions can be made. This has been made possible by the pseudo scientific babble economists engage in, cloaking themselves in the mantel of their complex mathematical models which they claim can provide “meaningful” (actually statistically significant, which is not the same) predictions on the economic viability or outcome of different policy alternatives. What is left unsaid by economists is the “all else being equal” cop-out, and since in fact “all else is NEVER equal”, their predictions and projections are usually meaningless at best, or, more insidiously, depending on which economist you ask, you can obtain exactly the prediction and projection which satisfies your particular political bias.
Take for example some of the current (early 2011) political discussions.
You can hear both that the national debt is dragging the nation and the economy down, or that we need to go deeper into debt to help the economy recover.
You are told by different economists that continuing the large tax cut for the top one per-cent of the income bracket will encourage “small businesses” to create jobs, or that this tax break will bankrupt the country.
Depending on your politics, and the economists on your side, you can argue that extending unemployment benefits will cause long-term unemployment, or that these benefits are an effective government transfer payment which will prevent even deeper recession.
Politicians will trot out their favorite economists to argue that government-sponsored infrastructure projects are either a cost effective way to jump start economic activity, or that such projects are inefficient government boondoggles.
In my youth I studied aerospace engineering, hoping to become part of the effort to put a man on the moon. If the models we used in those efforts were like those of economists, NASA could have predicted a landing on the Moon or on Mars, or the Apollo capsule could have been catapulted into deep space, with about equal “statistical significance” (admittedly our mathematics was not as “elegant” as those of economic models).
So after all my polemics about economics and economists how does this all connect up to my contention that economists contributed significantly to the death of democracy in America?
Understand that I have no problems with economists building esoteric, mathematically sophisticated models within their academic communities and try to outshine each other with the “beauty” of the mathematics, hurl papers at each other denigrating the work of other economists and generally being arrogant academics. After all, in the academic world it is “publish or perish” and real-world relevance, if at all, is very low on the list of things academics are judged against.
However, when economists hijack, through a combination of intellectual dishonesty and academic arrogance, a significant role in the political discourse and decision making process of virtually all aspects of public policy, then we have a right to expect them to make a constructive contribution to this decision making process by offering relevant solutions to real-world problems. We have a right to expect them to add substance to these policy discussions in order to educate the citizens/voters so that they in turn can make more informed decisions in the voting booth. As it is, economics just lends its latest Nobel Prize stars as backups for the political mud-slinging, using meaningless platitudes about “self-regulating markets”, the “job-killing impact of taxes and government regulations”, the “benefits of deficit spending during recessions”, all of it without any definitive data to support their positions.
If you have economists arguing with equal convictions on both sides of each and every public policy position, then economics is useless as an analytic tool to come to closure on policy debates into which economists have insinuated themselves. A case in point is the current (Feb 2011) heated debate about cutting the national deficit. Rep. John Boehner attached a letter by some 150 top academic and corporate economists urging the President to support the $100 billion in cuts proposed by the Republicans. It would be a simple matter to find 150 equally prestigious economists to argue for $100 billion or even more in additional stimulus spending as a means to reduce unemployment and kick-starting the economy.
On balance economists have contributed to the confusion of the public and the dumbing down of the political policy debates because they have no verifiable, substantive and definitive real-world contributions to make. If, instead of engaging in their academic self-gratification by coming up with ever more complex but irrelevant mathematical models, they would devote at least some of their time and resources to analyzing the mountains of statistics being collected and available at the tip of their fingers to come up with real answers to real policy questions, they might actually have something to offer.
In fairness, there are probably thousands of “lesser” economists toiling away at trying to make sense of these mountains of statistical data. However, their possible contributions to meaningful and rational policy debates are overshadowed by the “star-power” economists, the multitude of Nobel Prize winners who are more interested in enhancing their (academic) reputations than making meaningful and honest contributions to policy debates.
Conclusions:
The key points I want to make in this section about how economics and economists have contributed to killing American democracy are:
- Through a combination of intellectual dishonesty (“models” and “theories” with false sheen of quantitative predictability and exactness) and publicity campaigns (“talking head” on news shows), economists have insinuated themselves into virtually every aspect of public policy debate.
- Their theories and models cannot make predictions and projections which stand up to real-world data, but rather can and are used by different political camps to support diametrically opposing policies.
- In addition to the inherently misleading and often false information of the corporate media dominated public discussion, these contradictory and misleading “economic projections” only serve to further confuse and mislead the public in trying to exercise its democratic responsibilities.
- Economists’ infatuation with unconstrained free-market capitalism, and its supposed self-regulating and resource-optimizing characteristics, and their ability to “sell” this notion to the general public, is one of the reasons America became captivated with laissez-fare capitalism, another of of the deadly blows to American democracy (Chapter 2).
Footnotes:
(29)See, for example http://teacher.pas.rochester.edu/phy_labs/appendixe/appendixe.html
(30) See http://www.prickly-paradigm.com/sites/default/files/McCloskey_Paradigm4.pdf; also see Wikipedia for more details on McCloskey’s critique of modern economics: http://en.wikipedia.org/wiki/McCloskey_critique
(31) The Deflationist, How Paul Krugman found Politics, by Larissa MacFarquhar, The New Yorker, March 1, 2010
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