[Marxism] Clueless economists
lnp3 at panix.com
Sat Apr 8 07:43:06 MDT 2006
By Moisés Naím
Practitioners of the dismal science should stop sneering at their
academic cousins in the social sciencesand start learning from them.
In 1849, the Scottish essayist Thomas Carlyle labeled economics the dismal
science. Two centuries later, contemporary practitioners still study
dismal choices: Higher prices or fewer jobs? Spend or save? They have also
become a smug lot.
Economists take pride in the sophisticated statistical techniques on which
they rely to analyze phenomena such as growth, inflation, unemployment,
trade, and even the long-term effects of abortion on crime rates. Many are
convinced that their methods are more rigorous than those of all other
social sciences and dismiss research that does not rest on quantitative
methods as little more than storytelling or, worse, glorified
journalism. Anthropologists, some economists jest, believe that the plural
of anecdote is data.
A survey published in the Journal of Economic Perspectives found that 77
percent of the doctoral candidates in the leading departments in the United
States believe that economics is the most scientific of the social
sciences. It turns out, however, that this certitude does not stem from
how well they regard their own discipline but rather from their contempt
for the other social sciences. Although they were nearly unanimous about
the relative superiority of their profession, only 9 percent of the
respondents were convinced that economists agree on fundamental issues.
And they are right. Economists today are still grappling with basic
questions for which they have no answers. Much more than fodder for
academic squabbles, this uncertainty often has serious consequences. When
economists err in theory, people suffer in practice. Fernando Henrique
Cardoso, Brazils former president, recalls that in the midst of his
countrys financial crisis, he received calls from experts at the
International Monetary Fund, several Nobel laureates in economics, and
other superstars in the economics firmament. Each offered different advice,
and each sounded convinced that his or her recommendation was the only
correct one. A distinguished sociologist, Cardoso managed to employ his
considerable talents and experience to steer Brazil out of the crisis,
ignoring the recommendations of several celebrity economistssome of whom
had even urged him to adopt a fixed exchange-rate regime just like the one
that Argentinas recent crash has now discredited.
We do not really know what causes economic growth, admits François
Bourguignon, the chief economist at the World Bank. We do have a good
sense of what are the main obstacles to growth and what are the conditions
without which an economy cant grow. But we are far less sure about what
are the other ingredients needed to create and sustain growth.
This bewilderment doesnt just appear when economists confront the devilish
problems of the developing world. Plenty of what goes on in the rich world
also baffles them. I recently asked a well-regarded economist on Wall
Street what puzzled her these days. Interest rates, she said. They
should be higher. Sure enough, economic theory predicts that todays
long-term interest ratesthe rates for mortgages or bonds that will be paid
years from nowshould be higher and heading upward because of an expanding
U.S. economy and exploding fiscal and trade deficits. But the financial
markets just wont cooperate: Long-term interest rates have remained low
and are actually heading down. Before retiring in January, U.S. Federal
Reserve Chairman Alan Greenspan described these trends as a conundrum.
Robert Samuelson, a Washington Post columnist, surveyed the explanations
that economists offer to explain this anomaly and found that they are all
flawed. In his view, the experts inability to explain something so
fundamental attests to our economic ignorance.
Nor do economists have a convincing explanation for the value of the U.S.
dollar. For more than a decade, economists have maintained that the dollar
was too expensive and its devaluation was unavoidable. As predicted, the
dollar plummeted 39 percent between 2002 and 2004. An inescapable effect of
the economic equivalent of the law of gravity, explained the experts. In a
country with a huge and growing trade deficit, out-of-control government
budgets, a war expected to cost $1 trillion, and high energy prices, the
currencys value will inevitably tumble. Except that it didnt tumble for
long: The dollars decline was so fleeting that economics textbooks didnt
have time to register the change. The dollar recovered quickly, climbing 14
percent in 2005.
Surveying which economies had the best prospects for success, Harvard
professor Richard B. Freeman concluded that in predicting superior
performance, luck seems as key as economic policies.
A science that relies on luck to explain the fate of billions of people is
a dismal science indeed. True, other social sciences arent in much better
shape, but economists would still be well advised to trade in their
intellectual haughtiness for a more humble disposition. Albert O.
Hirschman, a superbly original economist, borrowed freely from other
disciplines and aptly titled one of his books Essays in Trespassing. We
need more trespassers. Fortunately, a few of todays economists are
beginning to hurdle professional fences and mine neurology, psychology,
sociology, and political science to enrich their analysis.
To be sure, most of these attempts at boundary crossing wont yield much of
value, and they render economists vulnerable to charges of consorting with
the methodologically impure. But given the dismal condition of the dismal
science, intellectual trespassing is a risk worth taking.
Moisés Naím is editor in chief of FOREIGN POLICY.
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