I have long been fascinated by the methodological debates in
economics, particularly those in macro (which have until recently exclusively
dominated debate since Keynes). This was in fact how I became interested in
economics in the first place, via perhaps the
classic debate in macroeconomics (at least in popular culture) - the Keynes vs.
Hayek/monetarist debate of the 1930s in the context of the Great Depression. Speaking
from my own experience, it seems to me that these sorts of debates appear to
capture the imagination of students new to a subject, and so there is certainly
a place for them in economic pedagogic. I found the same to be true studying political theory, where first year students are usually introduced to political
concepts through the prism of age-old grand debates between Liberalism, Socialism and
Conservatism.
At present, since the Great Recession in 2008, the flavour
of the month has very much been the methodological lambasting of economics, and macroeconomics in particular. Sprawls of articles have been written in the last 10 years
condemning the failure of macroeconomics to predict or even explain the crisis
with varying degrees of credibility (for example, economists will fail to recognise Larry Elliot's description of their discipline). This has snowballed into a wider narrative freely criticising the lack of realism present in economic modelling techniques, poking fun
at some of the assumptions made in economic models as if economists actually believe that their models accurately describe
real world, and more openly objects to the widespread use of mathematics in economics.
In particular, the writings of people such as Steve Keen and
Robert Skidelsky appear to have resonated with this
zeitgeist. Perhaps even more notably, some heavy-hitters in the
macroeconomics world joined in: most notably the eminent figures of Paul Romer and Joe Stiglitz.
To the non-economist fascinated by these debates,
these arguments appear to have had a lot of sway in the preceding decade. Perhaps
the fact that the term ‘DSGE’ is now almost common parlance in public debates
on economics and economic policy highlights this point better than anything
else. I myself in my early undergraduate years was compelled by these writings.
I remember first learning about neo-classical and the later “New Classical”
approach of subsequently household names such as Bob Lucas and Tom Sargent in
undergraduate macro and thinking to myself: do these people really think this is how markets work?
Do they really think that all
unemployment represents a voluntary choice rationally calculated on the basis
of current and expected future real interest rates?
These criticisms certainly seem to chime with an increasing disenchantment with the subject, at least how it is taught at undergraduate level (though it is worth noting that numbers of students choosing to study Economics since 2008 has ballooned). On the one hand we should be celebrating the growing public
engagement with economics. The democratization of economics movement, perhaps best
articulated in the recent book by Earle, Moran and Ward-Perkins, is welcome in raising awareness of the stakes of economic research for society and breaking down the (somewhat) high technical barrier to entry in understanding economic debates. The
embrace of economic pluralism and heterodox schools of thought (such as
Austrian, Post-Keynesian etc.) and to a lesser extent in the speeches of Andy Haldane, appear to have gone some distance to convincing the general public
that macroeconomics is changing, albeit slowly. Economic pluralism clearly has a place in the economics curriculum (though was something an undergraduate student largely has to go out of their way to find).
Yet the caricature of the
popular critique of mainstream economics has proved to be a double-edged sword. The last few years seem to
have taught us that the distance between
fostering an open debate about the methodology of economics, and a rejection
of the work of academics and experts branded as simply “elites”, who can’t
predict anything accurately, make ridiculous assumptions about the nature of
reality and therefore whose work can be ignored without consequence, is actually quite short. Regarding Brexit, we are now
in a world where the research carried out by experts from
institutions such as the IMF, ECB, IMF, OECD (and even the government’s own economists!) is treated merely as opinion, to be
balanced against those of openly ideologically-driven MPs, “researchers” from think tanks, and a relatively small group of economists
writing in an area in which they have relatively little expertise.
Part of the problem of course has been economists
themselves. No one can deny the failure of the profession to adequately warn
policymakers over the nature of the systemic risk facing the largest financial
systems in the world (though it is simply not
true to say that banks and financial markets have been ignored in
macroeconomics, rather there was a lack of understanding as to how aggregate
uncertainty could then lead to a major depression). Economists, although many
wouldn’t admit it, are like anyone subject to their own biases toward a certain
world view of ideology, which has led in the past to some extremely clever and
able economists saying or claiming some very silly things, giving colour to the
caricature of the present. The aforementioned Tom Sargent has recently stated that economists need to be honest with how little knowledge we can claim to know. This is advice the profession needs to take on going forward.
As Simon Wren-Lewis has pointed out vehemently in
the last two years, there has been a collective failure of the academic
profession to organize themselves and to set up a more coherent body which can
translate the exciting and fruitful research going on across the many strands
of economics into the public debate with credibility. This has made it much
easier for organizations such as the BBC to (falsely) balance the views of a
small minority against the views of the
overwhelming majority of economists regarding the impact of different forms Brexit
on the UK economy going forward. This has perhaps already had a devastating consequence. Some evidence even goes as far to suggest that
a major factor in the Leave vote was that most people who voted leave thought
that doing so wouldn’t make them worse off economically, yet we know that this is already true (without the UK having actually left the EU yet) due to the 18% fall in the value of the sterling against the dollar.
Economics is arguably a flawed subject in many ways, and the division of labour within the discipline means it often takes a long time for insights in one area of economics to permeate into others, meaning the pace of change is inevitably slow. But serious critics of the subject should endeavour to better understand the methodology of modern economics, and why economists make the choices and assumptions they do, rather than criticise from the outside. Both economists and their critics must change if the discipline is going to recover its credibility, and economic knowledge is going to recover its respect among the general public.
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