My college experience was different from many people’s. Because of the excellence of my high school, good genes, the fine preparation provided by my parents, and high test scores, I entered the well regarded university I attended with loads of advanced placement. I “pro’ed out” (as we used to say) of nearly all of the introductory requirements and, essentially, entered college as a junior.
That enabled me to use college as a method of learning something about things I didn’t know much about. I took a full course load every quarter, sometimes an additional class, and audited a course (either officially or unofficially) nearly every quarter. I took linguistics and languages. I took lots of math classes.
And I took economics courses. I took nearly enough economics classes to major in it. Why I didn’t major in economics is a story for another time.
At that point econometrics didn’t have the ascendancy in the field that it does now. If it had, with all the math I had under my belt it would have attracted me even more.
Among the insights I received as a consequence were two. First, economics is a descriptive science, like paleontology, rather than a predictive one like physics. And, second, the approaches that economists use are fine tools for doing that.
As an aside as best as I can tell economics, then and now, has been taught wrong. It should be taught as a literary-critical discipline. From the very start students should read the works of Adam Smith, David Ricardo, Karl Marx, John Maynard Keynes, and so on, with plenty of supportive reading and criticism to give the study context and flavor and so that the student could understand how subsequent scholarship has corrected or amended the insights of the greats. That would attract fewer mathematicians or would-be mathematicians to economics and IMO that would be a good thing.
Instead, it’s studied like physics without a lab (which should tell you something).
As the current global economic downturn unfolds, I see that more people are coming to the realization of the limits of economics:
In the early 1980’s, the Wall Street Journal asked liberal economist John Kenneth Galbraith and conservative economist Milton Friedman to predict the macroeconomic trends over the next two years. Both agreed that inflation would rise above 10%, and both accused the other of obtaining his prediction by reading chicken entrails. Both were wrong about inflation, but both were right about the chicken entrails.
Hat tip: Belmont Club
While we have a new appreciation of the limits of economics, let’s not take our conclusions too far. The tools of economics are the very best that human cleverness has to offer for understanding what has happened. They’re not particularly good for illuminating the way ahead. Let’s not overestimate economics but let’s not underestimate it, either.
Update
More in a similar vein from the Economist’s Free Exchange blog:
To me, the thing which has stood out through this roundtable, from Olivier Blanchard’s initial piece to the contributions of academics, correspondents, and readers, is the extent to which we’re able to discuss the issues involved at an extremely broad and vague level. We don’t sound like expert diagnosticians debating which of several potential infections could be causing a patient’s trouble. We sound like witch doctors who can’t agree on just where in the body the lifeforce can be found. We’re not comparing engineering schematics. We’re pondering the shape of the earth. Is the issue animal spirits? Do we need a placebo? Are debt concerns most important, or should stimulus be as large as politically possible?
Obviously, economics has considerable explanatory power. And obviously, when economists sit down to talk about an issue, they have an argot and a set of understood assumptions on which to rely. And yet, so many of the crucial debates concerning diagnosis of the crisis, financial treatment, regulatory reform, and economic stimulus have resulted in disputes over rather significant points.
That’s definitely the case with the vast majority of macro-economic ideas, although good luck with getting any Economics Schools to admit that they’re realistically glorified historians.
I wonder, though, if you could save Economics as a “Science” by implementing a really strict “falsifiability” critera.
My college economics experience was largely micro and maybe no macro IIRC. It was probably subservient to an excellent business school program, where they hatched today’s leaders in finance and corporate governance. They weren’t concerned about how the economy as a whole functioned.
There’s a joke in there somewhere.
Economic ‘laws’ only work, after they’re discovered, as long as there is no ‘higher than average rate of return’ possible for investors to get by using those ‘laws’.
If the ‘law’, which describes mass human behavior, is such that one can get above average profits from the ‘law’, then some people will do so. Other people will learn of the success of the first, and copy it. So many other people will copy this different higher-profit behavior, that the ‘law’ breaks down.
Carrots & sticks always work on the margins to change some behavior. But economic laws can’t easily make anybody rich.
Knowing the dot.com bubble was going to burst was good … but to profit
after the Dec. 1996 ‘irrational exurberance’ requires shorting the market, for 3 more years.
Economics too easily degenerates into cherry picking partial theories to support your desired policy goals.