Throughout the 2000s, until some weeks after the 'credit crunch' crisis around September 2007, I was *extremely* interested in economics.
In fact, for several years I was reading a lot of economics blogs every day without fail (about ten of them?), plus their links.
I had also purchased or borrowed and read several dozen books on economics subjects, including basic textbooks.
In fact, five years ago, if you were to interrupt me at any hour of the day, there would be a reasonable chance that I would be reading economics.
So for a 'layman' I was pretty well-informed on economic matters, and felt positively about the subject.
But after observing the response of the economics profession to the current economic crisis - the mortgage meltdown, the credit crunch - I very quickly turned against economics and almost all economists and now very seldom touch economics; indeed I regard economics as a dangerously dishonest and bogus subject.
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Why did this happen? What made me - quite suddenly - turn-against economics and economists?
Probably the main fact was that I observed that economists were dishonest careerists. Not in any special or distinctive way, but just the normal politically correct way.
I had assumed that economics was a 'tough-minded' subject; that economists would believe their own assumptions and follow where their logic led - but I was wrong about that.
I saw that economists almost instantly trimmed their economic opinions to the prevailing political trends - no, that is too weak: they would reverse their opinions for advantage.
And economists were apparently unaware they were doing all this; because their thinking was so shallow, so un-rooted, so detached from principles and integrity that they had no gut-feelings or instincts to warn them. No basic morality.
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A key event that finished-off economics for me was when Paul Krugman - the most egregious exemplar of all that is rotten about economics, was awarded a solo economics Nobel Prize at the exact moment of this crisis and in a blatant attempt to influence US politics; and when this decision was treated with respect, was defended and supported.
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As a young man I tended to believe that economics was a bogus psuedoscience used rhetorically as an indirect justificiation for prior beliefs.
Through my middle age, I was gradually convinced that this was wrong, and that modern economics was a genuine body of useful scientific knowledge - so I set about learning it.
But now I believe that I was hoodwinked during my middle years, and that (for once!) my youthful instincts were correct.
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If not, then what?
Since I have lost all trust in economists, and since I believe it is hazardous to base policy on a mixture of lots of nonsense and a few platitudes, my feeling is that the discipline of economics should be be broken-up and destroyed.
Economics should be taken from the realms of science and returned to the realms of common sense; because actually economics is not an autonomous science like physics or biology (I mean real physics, and real biology); economics is - properly - subsumed within human activity in general.
18 comments:
I recommend successful money managers with an Austrian viewpoint.
Jim Rickards and Felix Zulauf.
Also
historian Niall Ferguson and
http://israelfinancialexpert.blogspot.com/
Ronald Reagan had the same opinion about economists.
I can't remember where I read it recently, but I believe it was the Polish writer Ulam who remarked that there were no non-trivial economic discoveries. In response, someone came up with Ricardo's comparative advantage as the *only* non-trivial economic discovery ever.
@Dennis - I have heard this said about Ricardo, too - I think I read it first in Matt Ridely's Origins of Virtue.
Of course, CA is really an explanation for an observation: i.e. that under stable conditions of trade (which only prevail in certain circumstances) the people who trade do (under certain conditions) tend to specialize (e.g. farmers focus on one crop or animal, craftsmen on one skill) and Ricardo was presumably seeking to 'explain' this (?obvious) observation with a 'law'.
But comparative advantage is only true if a very large number of things are held constant or kept small - e.g. it only works under conditions of stability and trust - where cycles of exchange tend to repeat themselves, where there is high trust between producers, and dependability of producers, where costs of exchange such as transport are relatively small etc.
Probably CA also only works in populations which have a long-termist cognitive aptitude and tendency - i.e. populations which have been practising agriculture for many generations, and have evolved the necessary heritable psychology +/- entrenched cultural practices.
I don't see much evidence of comparative advantage among hunter gatherers who probably have an average IQ of around 50 (i.e. about that of an average 8 year old European/ East Asian).
You're throwing the baby out with the bathwater. There is a lot in economics as a field of study that is useful and applicable to the current situation. There is also a lot of blatant lying going on by those (like Krugman) who have some emotional or financial stake in a particular ideological approach. Just because some people misuse the tools does not mean the tools are useless.
Vox Day and Karl Denninger have had quite a bit to say from an economic perspective about the events of the past few years. Understanding what is going on, and why, and what can be expected in the future, is not something to be dismissed; it is useful. The problem is to be able to recognize who is speaking sensibly and who is speaking nonsense - it isn't as easy to differentiate as in physics or mathematics because the experiments aren't as simple or reproducible.
Also one should not expect that economics is a complete science. It involves human beings and human behavior, which is hard to run proper experiments on. Some theories can be popular for a long time because the disproof is not always easy - or because they are poorly applied. Keynesian economics is falling into great disrepute right now, but it should be pointed out that a fundamental part of Keynes' theory was that governments would save money in good times - and that has never, ever happened. They spend in good times because they have it, and then spend in bad times because the theory tells them to - they're changing the rules. Now I happen to think it's pretty clear Keynesian stimulus doesn't work, but it isn't as if the so-called Keynesians have actually been giving the theory a fair shot; they've been moving the goalposts whenever it suits them. That's not science. It's not a failure of the science, it's a failure of the people posing as scientists.
"Ulam who remarked that there were no non-trivial economic discoveries." Once you've completely absorbed the lessons of Smith, they seem obvious. But they didn't at the time.
Anyway, here's my economic law. All economics is either (1) footnotes to Smith and Ricardo, or (2) error.
I intended on getting a textbook on economics from the library in a few days - maybe I should not bother.
Why am I not surprised to hear you talk of dishonest economists? Is there any field of study which is honest anymore?
@Rollory - when there is so much more bathwater than baby, and indeed the baby is not separable from the bathwater, you do need to chuck them both out together...
@Dearieme - ... or alternatively one could chuck-out everything except the very old stuff, from before economics was a profession - retaining Smith, Ricardo and Malthus, maybe.
@aliialiacensent - "Is there any field of study which is honest anymore?" the literature devoted to studying JRR Tolkien and C.S. Lewis and their works seems to be mostly honest and well-motivated. Otherwise, I can't think of anything offhand...
I can't remember where I read it recently, but I believe it was the Polish writer Ulam who remarked that there were no non-trivial economic discoveries.
This is a lot like saying that the language in Hamlet is just a bunch of cliches strung together.
And, contra our host, comparative advantage and the benefits of specialization are different non-obvious ideas. As is Smith's "invisible hand."
More generally, the problem with this idea that the ideas of economics are obvious is how utterly alien those ideas seem to most people initially. The fact that you can bring bright people around to at least understanding them and even to regarding them as obvious isn't evidence that they are, in fact, obvious. Rather, it is evidence that they are right.
To Dr Charlton's main point, economics is like other academic disciplines. It has been aggressively entered by careerists and corrupted by the same combination of peer-reviewed journals, peer-reviewed grant-making, and promotion based on counting that other disciplines have been.
Economics is now a courtly discipline, owing to the above-mentioned factors, the strictures of PC, and the bizarre power lust of its current elite (i.e. their desire to please and consort with political power). Thus, what little anti-PC discussion goes on, goes on sub-rosa or in small group discussions. Singling out economics for criticism is somewhat similar to singling out English-speaking whites for criticism over slavery. Economics did not really become corrupt until the 90s, long after public health and biomedicine fell. Needless to say, the humanities and other social sciences either fell much earlier or were born corrupt. So, the differences between economics and other disciplines favor economics. Our host was not deceived, the discipline changed. This is much discussed among the small minority of us who aren't big fans of the change.
However, at present, economics has a problem similar to, although less severe than, most disciplines, and this is made manifest in discussion of the current crisis. It is kosher to talk about the complexity of mortgage-backed securities; it is kosher to talk about the difficulties of sensible bank regulation in the presence of "financial innovation;" it is even kosher to question whether "financial innovation" is a positive good. But it is definitely terefah to talk about the "minority mortgage meltdown," the obvious fraud at the ratings agencies, or the fact that everyone from the brokers originating the loans up to the investment bankers creating the MBSs were conscious con men.
See however, the papers by Nelson and Vytlacil listed here which make some of the relevant points if read carefully by someone who understands that everything must be said in code. Particularly courageous is one paper's citation of a survey in which Hispanics say they feel a lesser moral obligation to repay than do non-Hispanic whites.
And, singling out economics for being broken up is silly. Universities need to be completely destroyed, so that not one rock lays upon another. Maybe the engineering schools are worth saving, but that's about it.
@Bill - "contra our host, comparative advantage and the benefits of specialization are different non-obvious ideas. As is Smith's "invisible hand." "
Not contra me - obviously they are different.
"the problem with this idea that the ideas of economics are obvious is how utterly alien those ideas seem to most people initially."
They were (and are) indeed alien when expressed abstractly. However, the actual phenomena of specialization, trade and selection of economic institutions existed long before they were abstractly stated.
And, indeed, the abstractions are only true in quite specific situations.
""Is there any field of study which is honest anymore?" the literature devoted to studying JRR Tolkien and C.S. Lewis and their works seems to be mostly honest and well-motivated. Otherwise, I can't think of anything offhand..."
Mathematics and the physical sciences are largely uncorrupted (string theory being the one real exception, but that by its nature is getting away from actual physics and into pure guesswork). Largely because it is perfectly clear when dealing with those that one cannot lie to reality.
That is also where one is likely to find conservative university professors.
As for separating baby and water, if you don't _want_ to, or if you are convinced you can not do it, fine. That's certainly a choice you can make. It's not by any means proven it's the only possible answer.
@Rollory - I don't know about mathematics remaining pure, but I understand that physics has by now fallen into corruption.
Excellent post.
I too spent a few years reading all the economics books, both pop-econ (Freaknomics et al) and texts. I went so far as to earn a masters in economics.
I've since moved on to accounting (also earning a graduate degree). Accountancy is a much more coherent and useful framework with which to understand commerce.
Our current disaster is a 'balance sheet recession'. Simple explanation: We're broke. The elite look to economists to solve what is essentially a problem of insolvency. They want to push some buttons, talk up the economy (behavioral economics) and print money and actually believe that the situation will improve. It is a bought ideology. The Fed dishes out the lions share of influence over the profession and the Fed is merely an arm of the banks.
The accountant looks at the banks and quickly sees that they are broke. They need to fail, their 'assets' (our debts) liquidated at fair value and the system reset with the toxic junk gone.
The example of trade is another area that economics fails. NAFTA is not "Free Trade". We do not have free trade. It is managed trade. Poorly managed. As long as economists see it as free trade, and hold up free trade as the ideal, the failing managed trading system can't be fixed.
@BD - thanks for this.
FWIIW, it was Samuelson who had that quip with Stan Ulam. Personally, I don't really believe in Ricardo's theory any more than I would have believed Samuelson that the Soviet Union would economically dominate the United States because it was a more efficient system (he really said this). While Samuelson was pretty good at math, virtually every useful statement he made about reality was precisely wrong.
Even if Ricardo's theory of comparative advantage were true on some kind of global/national scale, it is no comfort to a worker whose life has been ruined when his job is outsourced. Big deal; the country as some kind of abstract whole gets richer. That doesn't mean all of its citizens get richer. They may get a *lot more poor* -and voila, that's more or less what has taken place in the United States.
I don't know that you turned against economics. You turned against economists.
Useful, productive economics are not math, not science, but liberty. Smith's idea, which Madison thought to take him up on, was rooted in liberty: the invisible hand demands liberty. Hayek explained what that was--
"Our civilization depends, not only for its origins but also for its preservation, on an extended order of human cooperation known as capitalism. The extended order resulted not from human design or intention but spontaneously: it arose from unintentionally conforming to certain traditional and largely moral practices, many of which men tend to dislike, whose significance they usually fail to understand, whose validity they cannot prove, and which have nonetheless fairly rapidly spread by means of an evolutionary selection–the increase of population and wealth–of those groups that happened to follow them. The unwitting, reluctant, even painful adoption of these practices kept those groups together, increased their access to valuable information of all sorts, and enabled them to multiply. This process is perhaps the least appreciated facet of human evolution.
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
The extended order is transcendent–that which far surpasses the reach of our understanding, wishes and purposes, and sense of perception. It incorporates and generates knowledge which no individual brain and no single organization could posses or invent.
To extend human cooperation beyond the limits of human awareness requires being governed not by shared purposes but abstract rules of conduct."
Garet Garrett, essentially, translated Hayek--
"In the sense that there is a Communist ideology there is no capitalist ideology and never was. Communist ideology begins with the idea of a designed society, conceived by reason alone, directed by master minds, with nothing left either to God or the spontaneity of the human spirit.
Capitalism was not designed. It came not from thinking but from doing. In the beginning and for a long time it had no more theory about itself than a tree; like a tree it grew, and its only laws were remembered experience. When the writers of political economy began to provide it with a theory they had first of all to study it to find out how it worked. Many capitalist were innocent of its existence. What could theorist tell them about what they were doing every day? The shivering ghost that now inhabits the words laissez faire was once an unconquerable fighting spirit. It did not belong to capitalism. It belonged to liberty; and to this day its association with capitalism is valid only insofar as capitalism represents liberty."
26 September 2010 05:55
@xlbrl - I think I turned against 'economics' as a distinct discipline. I regard economics as a 'second thing', useful if not taken too far; but it must be kept in touch with, and subordinated to, 'first things'.
In fact economics always is subordinated to other things (especially politics) in practice, as we have seen in the aftermath of the 'mortgage meltdown' (economics is just about completely subordinate to leftism/ liberalism - which are more similar than they are different in this context) but the denial of this de facto subordination is distorting of understanding.
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