12 January 2009

In Defense of Economics

Yves Smith at Naked Capitalism has an interesting essay on her site Why So Little Self-recrimination Among Economists? which we would urge you to read if you are interested at all in this topic, as it is sincerely well thought and written, for which we her readers are always grateful.

It is difficult to assess the quality of an unfamiliar game if one does not know the rules, and even more if one does not understand the objectives. What is the 'goal' of the economics game which we all have been observing with greater than usual interest these past few years?

For the past twenty five years at least modern economics has not been seeking objective truth and the advancement of learning as much as the rationalization of policy positions in pursuit of power, awards, grants, and influence. This is not to say that there was a utopia before this, but rather that the less admirable aspects of the profession were in the minority, and not so widely accepted and tolerated and respected.

Our society on the whole does not value the truth as it had done before, but worships money and power and cleverness. That is both the long and short of it. We obtain the politicians and economists and news commentators that we encourage according to the character of the age.

Economics is a social science, with somewhat murky experimental methods, more like redacted statistical vignettes, and difficult to measure theories with grading periods too widely interspersed to be meaningful. This introduces a strong element of peer pressure and factionalism, of quack theories and nostrums hiding in the safe harbors of ambiguity and plausible error.

Granted, the academics are protected by tenure, but tenure is a weak consolation to the ambitious. It can be at worst a kind of exile, a quiet humiliation. And professors are weak in their resources as compared to the think tanks who have no qualms about pursuing their desired objectives. There is a power to the lie that can overwhelm those who stumble about in pursuit of the truth, or at least a better approximation of it.

Economics is not a purely objective science, because its theories are not readily verifiable through controlled experimentation, even allowing for the work of some of the behaviourists.

In this economics is not alone among the sciences, not at all, especially to those in the leading edge of some disciplines like theoretical physics, where experimentation is difficult, and grading periods are also interspersed widely. We often hear of courageous minds who hold out through years of isolated persistence to be eventually vindicated by new discoveries from experimentation and observation.

But is economics so much the problem? We would suggest that its condition, its character, merely makes it vulnerable, a thing to be encouraged and protected, but not to be relied upon as a bulwark against adverse societal influences.

If anything, economics is guilty of pretension, of having more influence and authority than its knowledge would allow. Was there anything so artfully disingenuous as the Congressional testimony of Alan Greenspan regarding critical policy decisions? Or more craven than the way in which many of the Congressmen sought to gain cover for their action under his prevarication?

How can there be self-recrimination where there is no outrage in general? Where is the objective analysis of what went wrong, and proposals to change things to correct this?

Most academics are notorious followers, trodding the well worn and well marked paths, no matter where they might lead. It is only the exceptional, both in mind and spirit, that dare to blaze new trails. Tenure is no armor for the ego, and there are no politics more vicious and petty than those of academia, excepting perhaps the fashion industry.

We ought not to blame economics, beyond its pretensions to administer advice from some position of authority because of superior knowledge. That has been shown to be hollow, false, a totemism. The pseudo-religious aspects of the extreme elements of some economic schools of thought is apparent, almost hysterically funny, when viewed from a distance.

We ought not to single out economists for not being virtuous because there were too few virtuous people on the whole both then and now, if one defines 'virtuous' as one who tells the truth, come what may, as the facts and their analysis leads them even in their lack of certainty.

This is not to say there is no blame to be attached, no criminality to be assessed, that 'society is to blame.' The problem is that there is so much of it that we can spend years striking at the branches, the scapegoats, without approaching the root.

The remedy is the law, and to affect this we must take back the rule of law from those who have corrupted it.

The Federal Reserve raised an enormous debt bubble to lift the economy out of the slump of 2002, and for this trouble we were rewarded with a housing and stock market bubble, and remarkable imbalances that are just now being unwound. This is what happens when one liberally applies monetary and Keynesian stimulus without reform. And we are doing it again.

Things will change for the study of economics, and probably for the better. There are more extreme examples of professions which were co-opted by the political world, like psychology in the Soviet Union and medicine in the Third Reich, sciences subjected to what some might call deep capture.

How can a society which defines its first principle, the ultimate good, as greed be anything but what it is? Cruel, self-absorbed, shallow, unjust, delusional and imbalanced. Nothing made this more apparent than the spectacle of the outgoing President's press conference today. And, we might add, the actions of his predecessor in that office.

Fear is the tool of a tyranny, and greed is a horse to be harnessed, not the measure of policy or an administrator of justice to run maximized, or even unchecked.

Why the lack of self-recrimination among the economists? Because they are no different than anyone else who failed to exercise their stewardship and basic human obligation to protect the innocent and to stand for justice, and uphold the standards of their profession. In this they are no different than politicians and lawyers and accountants and the mainstream media, although we foolishly expected more.

Economics will recover eventually from this lapse, as the majority of economists look back in quiet horror at the carnage that was inflicted on the world, accommodated by their silence. There were many who spoke out. There were even some who took the time and trouble to go to places where economists frequently discuss things, and caution that their silence would discredit the profession.

What is the next step? Forward, off the beaten path.