Monday, June 25, 2012

The true function of economists

Mark Thoma posted a comment of Brad DeLong on a statement by John Emerson. This piece of conversation attracts some deserved attention on the web (see also the Rabett Run blog) and calls for some additional considerations.

Here is John Emerson's statement:
My understanding is that economics has all the right answers sitting there on shelf, mixed in with all the wrong answers. Every once in awhile someone like Minsky or Veblen or Kalecki or Pigou is moved forward on the shelf to patch the failed consensus.
For the last 30-40 years I've been fighting a losing battle with well-regarded Chicago School and neoliberal economists and watching the society I live in being degraded in front of my eyes. During that time the economics profession was doing harm. As long as thing were going well by their standards, there was nothing I could say; I was a laughable crank, fanatic, and slave of archaic ideology. Only now when they've caused a disaster have I become marginally respectable. I don't think that the profession can self-correct fast enough to make it useful in the world it lives in. Maybe by 2050 the profession will have remediated itself enough to become capable of understanding the world of 2012, but that's not soon enough. There needs to be a serious pruning and thinning, but that's not institutionally possible using normal methods. The tumbril and guillotine method is precluded too. A parallel discipline needs to be developed.
Authorized commentator

And here is  Brad DeLong 's comment:
I used to--six years ago--be certain that people like Emerson were wrong. It seemed to me that economics had a powerful technocratic core and a powerful set of analytic tools that helped to make sense of the world.
But the treatment that the world has gotten from the Lucases, Cochranes, Famas, Kocherlakotas, and many others, not to mention the Prescotts--none of whom seems to have made any effort to mark their prejudices to reality--has shaken my confidence to the core. They seemed to me and seem to me to have simply not done their homework, and not be trying to do their homework.

Such a comment from someone with as much authority as Brad DeLong says a lot about the appalling state of economics in 2012. The crisis that hits the profession is no less severe than the one that hits western economies, but unlike this one, it might prove salutary.

  • The first outcome of that crisis is the unmasking of the fallacies of neo-classical economics and the dubious competence of its proponents. Those economists won't disappear from faculties or conservative think-tanks at once, and they might even be right on occasion, but as a school of thought, they lost much of their credibility. The domination they had exerted on the discipline for the past 40 years is over. It is not only that they've been proved wrong by the facts, and that their theories appear to be useless in crisis times (i.e. when they would be crucially needed), it is their integrity and political motivations that start being questioned.
  • The second outcome of that crisis is that the other economists, those with a more impartial approach towards economic mechanisms, start to understand they've been fooled about the nature of economics and the true function of economists. They realize that undergraduate economics is of a much higher significance than Nobel-winning research, that a basic knowledge of economic history is more useful than the mastery of fancy models. More importantly, those economists seem to have rediscovered the true function of their profession, which is not only of understanding the economic mechanisms,  but also of informing the public (policy makers, journalists, voters) about those mechanisms and the actions that can be undertaken for fighting a crisis and its consequences. And, following the lead of Paul Krugman, that's just what they've started doing: speak plain English, run blogs, give interviews and write articles in generalist newspapers.

Smith and Keynes made a difference in economic history not because of the sophistication of their theories, but because they engaged in the public debate. In recent decades, economics got lost in non-sense and in ideologically driven theories. But that was less a problem of economics than of economists, who had forgotten about the use of economics and their own role. Prominent economists retracted in the ivory towers of their campuses and focused on fancy research that added very little to the fundamentals of economics. They focused on meaningless details and forgot about the fundamentals, surrendering in the process to the School of Chicago and its early 19th century conception of the economy (neoclassical economics is little more than an elaboration over Say's law).
Admittedly, the public does not always want to be informed, especially when crises are a distant memory. Blogs and online newspapers are recent innovations that economists could not use in the 20th century. But still, economists badly mistook their role and neglected their responsibilities towards society, and that's the lesson this crisis is teaching them. Never let a good crisis go to waste.

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