Tuesday, June 11, 2019

Is Economics the Problem, Or Is It the Economists?

by Neil H. Buchanan

My career move from economics into law began twenty years ago, and it was not a happy divorce.  Over the years since then, I have often been asked to explain why I was willing to leave economics behind (as a professional matter, not as an intellectual one, given that my writing continues to be dominated by economic policy topics such as budget deficits), and my answers have reliably elicited hostile feedback from people who think that economics is a beautiful and important thing.

Those negative responses, however, have always had a confused air about them, vacillating between a defense of the field of economics and a defense of economists themselves.  Is it the thing or the people who do that thing that matters?

Am I saying, in blunt terms, that economics sucks or that economists suck?

It could be both, actually, and too often economists truly are guilty of intellectual dishonesty.  Ultimately, however, it is the disembodied field itself that is the problem.

What is most interesting, in fact, is that it is possible for many, many good and talented people to be engaged in a field of study without having a positive impact on the core of that field.  Indeed, there might well be a clear majority of economists doing work that I find interesting and useful, yet the field itself continues to be deeply problematic.  How is that even possible?

Last week, I wrote two columns -- "The Undead Nature of Orthodox Economics," and "Everything Is Both Efficient and Inefficient as a Matter of Economics" -- in which I pointed out that the core beliefs of economics as a field are incoherent but that, rather than responding to critiques (both from within economics and from without) by moving forward intellectually, economics seems never to be willing to update its operating system.

Most importantly, as I explained in the second of those columns, the concept of economic (or Pareto) efficiency is ultimately empty, because it is always possible to specify an economic model in which any outcome can be deemed efficient (and every alternative thus inefficient).  That means that authors who call their preferred policy regime efficient are not wrong, because there is no such thing as being wrong in that regard.  The problem is that theirs is only one of an infinite number of right answers to the question -- What is economically efficient? -- and those answers are all inconsistent with each other.

Part of the reason that this is important is that non-economist scholars have absorbed the nonsense about economics being a SCIENCE, with lots of math and internal knowledge that mere mortals cannot understand.  Thus, scholars in tax law (my field) or any other area of law or social science are easily intimidated into thinking that economists deserve deference and therefore that the best way to prove one's worth is by mimicking economists.

It is bad when a person is trained at the Ph.D. level in economics without having been told about the flaws in their acquired body of knowledge.  It is bad in a different way (a way that is incommensurable with the first kind of badness) when non-economists pick and choose flawed economic concepts in trying to carry out their own analyses.  "My policy is efficient" is the most basic form of this badness, but it also comes in more specific forms, such as the confident assertion that "inefficiency increases as the square of the tax rate."

When I read or hear a non-economist using words like that, my first thought is: "Oh, he obviously just finished reading an economics textbook and lifted that phrase from it."  A Ph.D.-trained economist can make that statement without knowing what it really means but being able to do the math to "prove" it; a non-economist lacks the tools for understanding what it really means but parrots it because economists have endorsed it.

Again, one would think that the economists who have thought about this and have admitted that efficiency is an empty concept would have influenced their colleagues in a way that would update the core beliefs of the field.  Instead, nearly everyone continues to pepper their analyses with the word efficiency as if it means something, thus reinforcing the dogma.

The most defensible excuse for this is that it allows people to speak a common language, but that is a weak excuse.  I recall a math class in college (Real Analysis, I think) in which the professor pointed out that there are plenty of things that one can describe in words that are nonetheless nonsense.  His example was "the largest number smaller than 1," which seems like a thing but is not a thing.

Similarly, when economists and non-economists continue to invoke the concept of efficiency, they are all relying on a thing that is not a thing.  And having lots of people repeat it as if it is a thing does not make it a thing.

What is especially amazing about this is that the intellectual vacancy of the concept of efficiency has been known -- where "known" means that it is in the literature, not that most economists have been made aware of it -- for decades.  On the comments board for my second column last week, for example, a reader cited a piece in Stanford Law Review from 1981 -- thirty-eight years ago -- in which Duncan Kennedy laid out in exquisite detail most of the arguments that I had made in my column.

I did not view my column as breaking new ground, so I did not feel that I had failed to do a preemption check.  [Note: I did not think that the commenter was being at all critical but was instead helpfully offering a classic citation.]  Indeed, I was simply summarizing the same arguments that Kennedy himself was summarizing, which were already decades old at the time that he was translating that critique into the legal literature, which was necessary because the then-new Law-and-Economics movement had imported the intellectually vacant notion of efficiency into the legal literature.

In other words, we have a situation in which the concept of efficiency has been shown to be empty again and again, with no effective response from efficiency's defenders other than "... well, yeah ... but anyway ... as I was saying ... efficiency."  There has been no intellectual progress after all these years because there can be none, at least so long as economists and their imitators simply act as if efficiency means something.

All of which brings me back to the question of whether it is economics or economists who deserve our disdain.  Frequently, the hostile responses that I receive take this form: "But Professor X is doing interesting work, and he doesn't rely on efficiency at all."  And there are, indeed, plenty of important contributions to knowledge being published by economists.  Although I might disagree with them in various ways, I could easily name twenty big-name economists who have written things recently that I would commend to a reader's attention.

Yet there is no progress.  In psychology, Freudian insights dominated the field for a long time, but they are now roundly rejected.  Literary scholars entertained but have now rejected the claim that Shakespeare's works were ghost-written by (among other candidates) Christopher Marlowe.  Those now-fringe theories still occasionally see the light of day, because the public at large can be gullible, but scholars have moved forward.  In economics, efficiency (as well as rational choice theory, logical positivism, and all the rest) remain at the foundation of the field.

When I disparage economics, then, I do not say that every economist is a dishonest hack or that it is impossible to do very good work even within the confines of an economics department.  There are plenty of other internal norms that cause the general run of economic literature to be tedious and unhelpful, but as I asserted above, it is possible for smart people to be writing smart things that do not rely on efficiency even while they fail to displace discredited core beliefs in their field.

To the extent that economists (as people) are to blame, therefore, it is mostly a long series of sins of omission.  "I'm going to ignore that huge hole in our field, because talking about it makes everyone uncomfortable (or even angry), so I'll just write about this other thing entirely and not bother updating the core."  This does not mean that they are guilty of sins of commission.

The bottom line, then, is that the answer to "Economics is built on an intellectually vacant core" cannot be "But look at all of the good economists out there doing interesting things."  Both things can be true, and they are.

4 comments:

  1. Definitely agree. It seems like quite a lot of resources have been expended to delay the sort of reckoning that seems unavoidable for the profession to be able to move forward.

    Also: I hope it didn't appear that I was being at all critical in bringing up Kennedy's article (per your note about preemption checks); your column just reminded me of it and made me nostalgic (I included the citation because I'm never really sure which older articles I liked from law school are still well known and which have faded from view).

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  2. Much appreciated, DRE. And no, I did not feel at all criticized. It was a helpful reminder of a classic article. Thanks!

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  3. Economics always struck me as a mathematical theory masquerading as a scientific theory.

    The distinction is subtle, but important. Mathematical theory is "based on a fixed set of assumptions, what are all of the rational consequences of that set of assumptions?" Any consequence of those assumptions, no matter how nonsensical, is absolutely true from a mathematical sense. Assumptions are never wrong, as they are merely theoretical concepts.

    Scientific theory is about making predictions about what will happen in the real world. It comes down to devising actual experiments that have expected and unexpected outcomes that can be measured. Thought experiments are okay in developing expectations, but are no substitute for real world experience. If real world experiments don't match the theory, even if the theory is internally consistent, then the theory is wrong, not the real world. This could mean that the assumptions made were inherently wrong.

    For an example:
    If I convince a trustworthy friend to agree to give me $1 on the first day and double it every day for a month, on the 31st day he will give me over a million dollars.
    Correct mathematically. Internally consistent based on assumption that friend is trustworthy and agreed. Done.

    Scientifically, that's a bad prediction because that friend will catch on pretty quickly and stop giving the money before it gets to the end. Social science may be able to predict statistically approximately how long it will likely take for the friend to catch on, and how the friend will likely react to being tricked into this.

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  4. “In psychology, Freudian insights dominated the field for a long time, but they are now roundly rejected.” And so much the worse for what has replaced it: “empirical,” “scientific,” and “experimental” (in short, ‘academic’) psychology, which is meager and uninteresting in its results, in addition to being astonishingly unrealistic in its fundamental presuppositions and assumptions and thus, for that and other reasons, irrelevant to the human being qua person(s) or self(selves). I have discussed this in a number of posts at both Ratio Juris and Religious Left Law, including my latest, which speaks to the topic of the relation between moral philosophy (or ethics) and moral psychology, about which academic psychology is unavailing. The foremost popular—e.g., Frederick Crews—and philosophical critiques of Freud’s works and insights—e.g., Adolf Grünbaum—have been well and I think definitively answered by a number of authors, some but not all of whom are psychoanalysts (a few are historians of science), others are both philosophers and psychoanalysts, yet others are independent intellectuals or with training in in the arts and humanities.

    As for the continuing relevance of Freudian psychology or philosophy of mind, psychoanalytic theory and therapy, please see my bibliography for same on my Academia page. For a philosophical defense of psychoanalytic philosophy, see the works in the first section of that compilation as well as my recent post from several days agon on “philosophy and psychoanalysis.”

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