economics education

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The Price of Economics

Thank you Mariano Torras.

You said the following in a letter to the Financial Times:

“I would venture that there is a professional motive for perpetuating — through the use of elegant and abstract models — the fantasy that economics is a science.  The prestige, the stature and influence that such a myth permits is undeniable.  Yet, far more perniciously, the ostensible neutrality of “economic science” provides seemingly unshakeable ideological cover against critics who (more realistically) accentuate power, inequality, and politics.”

That about sums it up.

Economists do not study economies.  They study economics.  They study their own models and other stylized facts in ever more detail and abstraction.  They have substituted technical wizardry for contemplation.  They privilege mathematics over other kinds of analysis.  And they scrupulously avoid entanglement with history which might drag them into a conversation about just how they arrived atop Mount Economics far above the plains of reality below.

Professor Torras inspired me to dig out the following:

“More generally, how does a scholarly community determine that a proof is valid, especially when the proof is highly complex and when there are few people in the community with the technical skill to understand the proof? And what might “understanding a proof” entail?”

That’s Roy Weintraub speaking in his excellent book ”How Economics Became a Mathematical Science”.  Go read the book.  It’s highly instructive.

But it isn’t my intention to poke too much at the mathematicians we now call economists.  It isn’t for me to say whether economics has progressed as a consequence of restricting itself to the confines of applied mathematics.  The profession seems comfortable to be so restricted.  It wallows in its arcane nook and appears content to portray itself as a repository of analytical capability rather than of economic insight.  That’s all we need to know.

A broader question is worth delving into though.

How do people outside of the profession know that what economists state as knowledge is actually worth knowing?  How does anyone not within the hallowed halls and not grounded in the accepted or iconic modeling know that the knowledge professed to be possessed by economists is actually worth anything?  Anything at all?

They can’t.

They have to take it on faith.

This is an inevitable and dangerous consequence of the relentless division of labor that Adam Smith so capably foretold was the future of society.  Endless and ever finer slicing of activities in order to open up slivers to be monetized or brought within the sphere of a marketplace has produced a great deal of ignorance.  For everyone of us not an expert in something must be ignorant of it.  And there are ever more things to be ignorant of.  Our modern prosperity rests squarely on such slicing.  Nowadays we monetize just about everything.  We prosper because of our individual ignorance.

None of us has the expertise to judge whether what we are told has validity or worth.  We find ourselves at the mercy of countless so-called experts.  We live in an era of technocracy.  

Many years ago I came across an excellent book by Philip Davis and Reuben Hersh.  It is called “The Mathematical Experience”.  I think it was published in 1980.  One of its chapters deals with exactly the problem I have identified above.  Only in this case the profession in question is mathematics itself.

The chapter revolves around a fictional professor of mathematics who, we are told, is a world expert in something called non-Riemannian hypersquares.  The community of other experts in his field is very small.  They hold all the usual conferences.  They publish all the usual papers.  They confer all the usual PhDs.  They delve deeply into their specialized topic with all the zeal that we expect from our seekers of truth.  And they make comments, so we are told, like this:

“If you apply a tangential mollifier to the left quasi-martingale, you get an estimate better than the quadratic, so the convergence in the Bergstein theorem turns out to be off the same order as the degree of approximation in the Steinberg theorem”.

This, of course, is a spoof.  Or, I think it is.  How would a layman like myself know?  How would you know?  

The more important point is that within our complex society, with its arcane nooks and crannies of so-called expertise, how is the population at large to trust anyone who talks like that?  It is an evident attempt at avoiding making something intelligible to the non-cognoscenti.  

Worse, quite often the denizens of such nooks and crannies go to great lengths both to hype their apparent knowledge and to prevent invasion into their worlds by those outside.  They act like the guilds of yore.  Setting the rules.  Policing the required curriculum.  Protecting their value by placing restraints on who can or can’t be thought of as an expert.  And by using every trick in the book to be perceived as valuable, at least to those “in the know”.  Peer review is supposed to act as a quality control.  But who are the peers?  

Milton Friedman was fond of arguing that the medical profession was a restraint on trade.  The marketplace, he argued, would sort out what advice and treatments had value.  I wonder what he thought of his own trade?

One of the great ironies of economics is that it, too, acts as a guild.  It decides what economic knowledge is good and which is bad.  It selects only certain parts of its own history to create the “right” narrative.  It tells its own stories of what it wants outsiders to know.  And it defies, quite often, its own teaching by so doing.  After all, economics tells us that restraints on trade are harmful to the great fulfillment of the harmonic perfection of market efficiency.  So why are there tenured professors of economics?  Tenure is a restraint on trade.  Where are the market forces determining what economics is or is not?  Ought those professors  not step down from tenure and expose themselves to a proper market for whatever it is they are selling?  Isn’t that, then, the method we ought employ to determine the value of economics?  

The discipline of economics is no different from any other pool of expertise.  Those on the outside must judge it by its contribution to the well-being of society at large.  In this case its ability to predict economic activity.  Or its ability to foretell the beginning and end of cycles of growth.  Or its ability to describe the sources of growth and the distribution of wealth in society and to predict …  

Well, no.  I am told that’s unfair and that I don’t understand the purpose of economics.  It isn’t to predict.  It is to explicate.  It is to look backward and not forward.

So here we are with economists littered throughout the policy-making world employing their hard-won technical expertise and affecting the lives of millions upon millions of other people.  Those other people trust that the economists know what they’re doing.  Just like we trust doctors.  Or dentists.  Or psychiatrists.  Or any other profession with a code of ethics to ensure the efficacy of the knowledge society has come to rely upon.

No code of ethics?

No problem.  Economics teaches us that the market for ideas will weed out the quacks.  How convenient.  So economists don’t need a code of ethics.  See how useful it is to think like an economist?

How do we put a price on economics?  Or anything come to think about it.

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Geography as an Example

Let me be very quick:

Geography is not taught [if it is taught at all] as if there are no rivers, mountains, plains, valleys, coasts, seas, or oceans. Cities, towns, villages and the networks that connect them exist in even the most elementary geography lesson. Geographers don’t begin their lessons by ignoring reality. They dive right in and use the real world as the backdrop for teaching the processes and forces that result in what we actually see.

So why does economics not start this way?

Why does economics begin with the unreal and then make a sequence of adjustments to get closer to reality? Perhaps it’s because geographers cannot hide reality from their students: its all around us everyday. But economists are dealing with something more abstract, so they can get away with beginning with fantasy.

We can argue back and forth over how close economics ever gets to reality, but few would argue that economics 101 is far too simple a view and is far too riddled with unworldly assumptions to be of much value as a description of real economies.

The problem is that economics 101 is all that a very large number of people ever get to read or be taught. They are mostly oblivious to the adjustments that tend to be taught much later on and only to those who are determined to become economists.

So the simple world of uncluttered supply, demand, and competition, and the wonderland of prices is all most people understand. That’s like learning geography as if the world were flat and without a single blemish on its surface. Pristine utopias may or may not be useful teaching gambits. They are useless as descriptions of reality. That’s obvious. Except to the economists who doggedly deny that their teaching process is responsible for the remarkable ignorance most people have of the realities of actual economies.

Any economist who teaches the subject in this backwards fashion is contributing to the public’s ignorance. Worse: they are contributing to the dominance of the ideology embedded within the purity that does not and cannot exist in the reality.

That’s an ethical problem for economists to grapple with. Until they get it right we all ought to poke as much as we can at them.

Perhaps economics is just too important to leave to economists.

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Economic Ignorance?

Ha-Joon Chang nails it.

But I wish he hadn’t.

You see, I agree with his analysis of the inverse nature of status within the economics profession. As a useful general rule the more notable you are within the profession the less you know about the economy. This is a result of the perverse nature of what economists actually do: they are amongst the very few disciplines — perhaps they are unique — who invent the artifacts that they then seek to explain and study. This relieves them, as you can imagine, from having to engage with the mucky real world.

You might wonder how this came about. It is quite a puzzle isn’t it? All those extremely clever people resolutely avoiding contact with the very substance that their chosen topic of study presents them from outside; averting their eyes from the glare of reality; turning inward as they search for clarity and that song sought after simplicity that so beguiles them.

It’s actually quite dispiriting for anyone who dares imagine that economics has relevance to humanity and its ability to chart a course towards a generally more prosperous world.

So how did this disconnect happen? How is it that the very best are the most ignorant?

Two causes come to mind: math and math. No, I am joking. Only one cause is math. The other is ideology.

Economies are devilishly complicated things. They are full of obstreperous and notoriously difficult subject matter. Notably people. And people, as we all know, do the darnedest things. They, for instance, change their minds and sometimes even contradict themselves — with a straight face too. This makes plotting and explaining their activity very hard. In fact it often makes it impossible. So, if you want to locate general ‘laws’ that govern all that bizarre behavior, you have to ignore it. Or you simply get people out the equation altogether and substitute ‘agents’ in their place. The great advantage that these ‘agents’ have over ‘people’ is that the former are artificial and can thus be trained to act according to rules that can be modeled mathematically.

So, if you want economics to become more mathematically rigorous you are forced to exit reality and enter the realm of the artificial. At least that’s what happened in economics beginning around the 1860’s. Don’t forget that everyone back then was seduced by the thought that everything could be explained through the lens of math. So why not economics?

Besides, the period right before the 1860’s — from 1848 onwards — was one of social turmoil and push back against the rise of industrialization and who was working that angle most effectively? Marx was. Now, Marx may have had his history all wrong, but his critique of capitalism was pretty much on the mark. By this time economics was already deeply concerned with explaining the efficacy of free markets as opposed to the dead hand of government, so the Marxist critique has to be dealt with — at least within the confines of economics. What better way than pretending that the ‘laws’ of economics were natural forces and were not human-made? If those ‘laws’ were, indeed, natural, then mucking around with them à la Marx was a silly delusion.

And once you have launched yourself into the search for natural ‘laws’, what better way to explain them than with math? It makes it extra hard to understand and so acts as a barrier to entry into the domain of higher understanding.

The rest, as they say is history. Once on that trajectory into the world of imagination, and away from reality, each step had, logically, to reinforce the last. It had, in other words, to travel deeper into the imagination. For to do otherwise would be to retreat. The journey was arduous. Along the way alls sorts of sensible ideas had to be jettisoned. The search for imagined purity can claim all sorts of victims, not least the sensibility of its most ardent students. Conversely, in order to rise up within the ranks of economics, students had to demonstrate a dedication and a willingness to believe in magic. The higher reaches of the profession became almost occult. So only those most willing to leave behind the real world, to adhere to the most fantastical beliefs, to tell the least real stories, and to dabble most diligently in the magic itself could become the masters of the profession.

Thus we arrive at the world that Ha-Joon Chang is describing.

My only disagreement is that I would, on reflection, reverse everything. I would borrow from Dante. To enter the highest echelons of economics, is to descend into the deepest error. Thus to any student pondering whether to study economics I say — to paraphrase somewhat — “beware all ye who enter here”.

Which do you want? To lose your mind? Or to study actual economies?

If the latter, think twice about studying what is called economics: because that’s the former.