It’s time to put my humanities hat on for a bit. Obviously there are political scientists and economists who do good work. And we need people studying politics and economics, of course. But the idea that there is anything scientific about these fields compared to what historians or philosophers or literature critics do is completely laughable. As I tweeted at some point right after the election, the silver lining to November 8 is that I never have to even pretend to take political science seriously as a field ever again. Of course that’s overstated, but despite the very good political scientists doing good work (including my blog colleagues!) the idea that this field (Sam Wang, Nate Silver, etc., very much included) had some sort of special magic formula to help us understand politics this year, um, did not turn out to be true. They are just telling stories like I do, but with the pretense of scientific inquiry and DATA(!!!) around it. It’s really the same with economists, far too many of whom are completely deluded by their own models and disconnected from the real life of people. Luckily, there are economists who agree with this point and doing their part to make their own field better. But that’s a tough battle.
Before 2008, the experts thought they had things under control. Yes, there was a bubble in the housing market, but it was no worse, current Fed Chair Janet Yellen said in 2005, than a “good-sized bump in the road.”
So why did they miss the storm? This was exactly the question Queen Elizabeth of Britain asked a group of economists in 2008. Most of them wrung their hands. It was “a failure of the collective imagination of many bright people,” they explained.
But some economists supported a dissenting – and much more damning – verdict, one that focused on the failure of economics education. Most economics students are not required to study psychology, philosophy, history, or politics. They are spoon-fed models of the economy, based on unreal assumptions, and tested on their competence in solving mathematical equations. They are never given the mental tools to grasp the whole picture.
This takes us back to John Stuart Mill, the great nineteenth-century economist and philosopher, who believed that nobody can be a good economist if he or she is just an economist. To be sure, most academic disciplines have become highly specialized since Mill’s day; and, since the collapse of theology, no field of study has aimed to understand the human condition as a whole. But no branch of human inquiry has cut itself off from the whole – and from the other social sciences – more than economics.
This is not because of its subject matter. On the contrary, the business of earning a living still fills the greater part of our lives and thoughts. Economics – how markets works, why they sometimes break down, how to estimate the costs of a project properly – ought to be of interest to most people. In fact, the field repels all but connoisseurs of fanciful formal models.
This is not because economics prizes logical argument, which is an essential check on faulty reasoning. The real trouble is that it is cut off from the common understanding of how things work, or should work. Economists claim to make precise what is vague, and are convinced that economics is superior to all other disciplines, because the objectivity of money enables it to measure historical forces exactly, rather than approximately.
Not surprisingly, economists’ favored image of the economy is that of a machine. The renowned American economist Irving Fisher actually built an elaborate hydraulic machine with pumps and levers, allowing him to demonstrate visually how equilibrium prices in the market adjust in response to changes in supply or demand.
If you believe that economies are like machines, you are likely to view economic problems as essentially mathematical problems. The efficient state of the economy, general equilibrium, is a solution to a system of simultaneous equations. Deviations from equilibrium are “frictions,” mere “bumps in the road”; barring them, outcomes are pre-determined and optimal. Unfortunately, the frictions that disrupt the machine’s smooth operation are human beings. One can understand why economists trained in this way were seduced by financial models that implied that banks had virtually eliminated risk.
What unites the great economists, and many other good ones, is a broad education and outlook. This gives them access to many different ways of understanding the economy. The giants of earlier generations knew a lot of things besides economics. Keynes graduated in mathematics, but was steeped in the classics (and studied economics for less than a year before starting to teach it). Schumpeter got his PhD in law; Hayek’s were in law and political science, and he also studied philosophy, psychology, and brain anatomy.
Today’s professional economists, by contrast, have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.
With rare notable exceptions, the field of Economics totally explains the modern economy effectively.