Bailout

Why economists are(n?t) the answer to all our problems

By Barbara Kiviat

Over at the Curious Capitalist, my former colleague Steve Gandel asks me to react to this NYT article about how economists manage to disagree on such fundamental questions as whether the government should spend more or less money in response to economic malaise. I've been perplexed by this sort of thing before. In this post from August, I worried about the influence of ideology, and then decided that maybe the bigger take-away is that we should spend less time listening to economists, who, after all, represent just one possible lens onto the world of human behavior, decision-making and social dynamics:

[T]he economy is as much a product of sociology and policy as it is pure-form economics. Yet we'd not expect a sociologist or a political scientist to be able to write a computer model to accurately capture system-wide decision-making. The conclusion I've come to: while economists may have an important perspective on whether it's time for stimulus or austerity, maybe we should stop looking to them as if they are people who are in the ultimate position to know.

After rereading my post, I started to wonder how economics and its famously flawed assumption of rational behavior came to dominate the discussion. If confidence is such an important part of getting the economy growing again, then why aren't we taking advice from legions of social psychologists? If multinational corporations are back to profitability but still not adding jobs, then why aren't we asking the organizational behavior experts for their models?

In search of an answer, I took a cue from Steve: I called Justin. He had all sorts of interesting things to say, like how economists after WWI thought long and hard about why they hadn't played a larger role in the war effort (ostensibly hoping to do better next time), and how in the 1960s economists moved to get everyone working from the same basic model partly because a unified voice would be more influential. That is to say, economics won out over other social sciences, at least in part, because the discipline got its act together. (Justin may fill in more of the details later, but, if not, you've always got his history-packed book to turn to.)

So what do we do now that economics doesn't, in fact, have all the answers? Well, some of us try to shoe-horn other approaches, like psychology, back into the picture. And some of us denounce academic economics altogether. But most of us just listen to the debate among economists and don't quite understand how it can be happening because these are the guys and gals who are supposed to know this stuff. We have so completely absorbed the economic world view in so many aspects of our lives?public policy is determined by cost-benefit analysis, doing good in the world has become return on social investment, efficiency has morphed from the best way to reach a goal to the goal itself?that it doesn't even occur to us that there could be a more illustrative starting point for asking a question or framing a debate.

That's one idea, anyway. The economists disagree because they don't have the tools to see the big picture. And most of us can't see that.

Full post as published by Macroprudential on October 27, 2010 (boomark / email).