[Marxism] Clueless economists

Louis Proyect lnp3 at panix.com
Sat Apr 8 07:43:06 MDT 2006

Economist Class
By Moisés Naím
March/April 2006

Practitioners of the ‘dismal science’ should stop sneering at their 
academic cousins in the social sciences—and 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, Brazil’s former president, recalls that in the midst of his 
country’s 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 economists—some of whom 
had even urged him to adopt a fixed exchange-rate regime just like the one 
that Argentina’s 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 can’t grow. But we are far less sure about what 
are the other ingredients needed to create and sustain growth.”

This bewilderment doesn’t 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 today’s 
long-term interest rates—the rates for mortgages or bonds that will be paid 
years from now—should be higher and heading upward because of an expanding 
U.S. economy and exploding fiscal and trade deficits. But the financial 
markets just won’t 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 
currency’s value will inevitably tumble. Except that it didn’t tumble for 
long: The dollar’s decline was so fleeting that economics textbooks didn’t 
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 aren’t 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 today’s 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 won’t 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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