In Defence of Economics?

money.jpgI guess I am what you would call a young economist in spe. In fact I am not much of an economist if you look at my academic degrees but that will change after my i have finished my Master's studies. But what are economics (yes I know the dismal science but there is more to it I think) and why should we learn it let alone spend time on economic research? These are big questions and the reason I ask them is because I have with great interest been following a debate in the blogsphere about economics as a science and whether economists are stuck in an ivory tower of outdated theory and mathematical mazes.

The impetus for the discussion is a recent commentary in the Financial Times by science writer Phillip Ball in which Mr. Ball levies a devestating critique of economics as a profession and its practioners. For the sake of argument Ball clearly does not mince his words ...

It is easy to mock economic theory. Any fool can see that the world of neoclassical economics, which dominates the academic field today, is a gross caricature in which every trader or company acts in the same self-interested way – rational, cool, omniscient. The theory has not foreseen a single stock market crash and has evidently failed to make the world any fairer or more pleasant.


That is disturbing because these things matter. Neoclassical idiocies persuaded many economists that market forces would create a robust post-Soviet economy in Russia (corrupt gangster economies do not exist in neoclassical theory). Neoclassical ideas favouring unfettered market forces may determine whether Britain adopts the euro, how we run our schools, hospitals and welfare system. If mainstream economic theory is fundamentally flawed, we are no better than doctors diagnosing with astrology.

This clearly provocative comment has prompted due action from some of the heavyweights in the Econsphere. Consequently, both Mark Thoma and Dave Altig takes up the comment on their blogs and tries to square and differentiate some of the tenets of Mr. Ball.  

What is most interesting to me is that the discussion (in the commentary sections of Mark's post) inevitably has converged on a head-to-head between economics and natural sciences such as for example physics. In a way this is natural since Mr. Ball is implicitly arguing on the basis of this scientific superiority prompted by the fact that physicists pretty much agree on the gravitional laws of Newton and how they govern the world we live in. I still find this debate interesting mainly because I think that comparing physics and economics is a bit like comparing peaches and well French hot dogs.

Ball mainly takes on what he calls the neo-classical economic paradigm which he insists is flawed and ultimately not worth much since it is unable to do what economists claim it able to do and as such economists are walking around in limbo in their attempt to say anything meaningless about the things that matter.

Is he right?

This my main gripe here ... not one single serious economist would argue that everything in the real world can be broken down to the models of econ 101 and this is where I believe that Ball's arguments slowly begins to crack and where he makes his fundamental mistake, because in fact we do need to start somewhere.

The usual defence is that you have to start somewhere. But mainstream economists no longer consider their core theory to be a “start”. The tenets are so firmly embedded that economists who think it is time to move beyond them are cold-shouldered. It is a rigid dogma .

Some part of this in without a doubt true but economics as a (social) science and reseach tradition surely is embedded with the dynamism to confront dogmas where they may emerge although it might take some time. I am not saying that we should not be better at this but Ball's narrative is simply not a fair account. Another fundamental flaw made by Ball is to consider all this a zero-sum game as a function of the perceived idea of a malfunctioning core. It is not, and as Dave Altig rightly points to economists have learned quite a lot during the 20th century; the example of the lessons taking from the Depression is merely one out of many.   

In the end economics as a science is far more dynamic than Ball makes it out to be and this my friends is exactly why we should not compare peaches and French hot dogs. Physics are vested in a number of fundamental laws which are subject to no change in the essence of the question; I mean the proverbial apple will fall from the tree today, tomorrow and the day after tomorrow; the day it lingers in the air I will show you dogmas. To search for the same causality and predictability in economics is much more difficult since we are dealing with individual and collective behavior of human beings yet this is exactly what we are doing in Econ 101 because it serves as a foundation for further investigation and because we need a foundation from which to embark.

I am certain that economics some time along the way will need to revise the basic principles which are present today in the textbooks. As in any dynamic field of science we sometimes need the kid to point out that the emperor is not wearing any clothes. However, when Ball suggests that economics are stuck in some rigid and un-dynamic flawed paradigm just because economists are not able to predict the cause of things with the same certainty as physists I think he is barking up the wrong tree. We indeed do need to revise our thoughts on a lot of things in economics; I would be the first to admit that but Ball's regressive outline of the economics tradition is simply not adequate.