Is economics bunk?
Tuesday, November 16, 2010
There’s a lot of support for the idea of reforming economics, ever since the Queen of England asked of a group of economists in November 2008, why did no economist predict the credit crunch? Many people, including some economists, have been wondering what’s wrong with economics, whether some time back it didn’t take a fatal turning which made a lot of it wrong or useless.
A huge obstacle to rethinking economics is the view that it is like physics: in the double sense that human behaviour is subject to natural laws and in the sense that economics discovers these laws as it progresses from error to truth. No one really suggests we should start physics all over the again. And if economics is really like physics, we do not need to reform it, only to refine and improve its truths.
Like physics, economics discards its past. The- natural sciences are littered with theories proven to have been false or useless, and economics imagines itself to be in the same position. “We need spend only ten minutes on Keynes”, Robert Lucas used to tell his students at Chicago, “We know it doesn’t work”.
The best of the older theories are reckoned to have been culled and incorporated into true later accounts, so there is never any need for a student of economics to go back to the originals, or indeed to know who or what the originals were. You can get a good degree in economics or business studies without having heard of Smith, Ricardo, Malthus, Jevons, Hayek, Keynes, Schumpeter; now even Friedman is fading away, and presently famous Nobel prize winners like Lucas, Stiglitz, and Krugman will be unknown to the next generation of economists.
Contrast this with political philosophy, which is constituted by its great masters from Plato and Aristotle onwards, all of whom have equal status.
The reason all political philosophy stays relevant is that its truths are never final, they are contextual, and their usefulness shifts with the shifts in circumstances. And the same should be true of economics. The first step to reform is therefore for it to abandon its pretence to perfect knowledge and deign the humbler status now occupied by political philosophy, history, psychology, anthropology, and many other adornments of human thought.
By Robert Searle
on Thu 20 Jan 2011 - 4:52
My project on Transfinancial Economics maybe of interest. Hopefully a clearer presentation of it will be coming soon.