Everyone’s an expert

By far the biggest problem with the public opinion on economics is that a great many of its critics are amateurs who don't inflict their opinions on most fields of science but take an exception to economics. An outsider possessing an average level of ignorance on scientific matters would probably not feel emboldened to say how stupid they find, say, chemistry based on what they know about alcohols, or complain about astrophysics’ lack of hard evidence for the existence of black holes and their existing model of spiral galaxies. However, my strawman average critic has no such inhibitions about economics because they are exposed to its instruments on a daily basis, i.e. they know what money is (good), what governments are (evil) and what a firm is (greedy). To put it in one condescending sentence: the barriers of entry into a debate about economics is much lower than any other science.

As a result, while the conversation about the usefulness of chemistry, astronomy, etc. do exist, they are more limited and are much poorer in quality than those about economics. Hence, critics of the former can be dismissed much more easily. Since more intellectually average people participate in debates on the validity of economics, their critical mass produces a bandwagon effect, a climate where it is considered witty and insightful to diss economics.

I’m not saying that views such as flat earth, anti-climate science, anti-evolution, anti-vaccination, anti-psychology are always easy to dismiss, there are plenty of safe spaces where these views are not only allowed but are thriving more than ever before in history. I’m saying that of all sciences, economics is the one of which unmerited criticism is tolerated even at the highest levels of discourse.

Let me try to graph this.

Unfortunately, none of this means that the quality of the debates is any good. Here’s a real conversation I was treated to:

PERSON: So since economics doesn’t work, why should we…?

PETER [interrupting]: This is a loaded question and I don’t agree with its premise.

PERSON: ???

PETER: [Tries to explain why such questions are logically impossible to answer]

PERSON [grudgingly]: Ok. If economics works, then why do firms and countries ever go bankrupt?

PETER: Ouch.

(And just to get it out of my system quickly: The success of the discipline is not measured by the success of its subjects. I haven’t seen anyone thanking economic researchers whenever the economy’s been booming.)

If you disagree, I'll have a few words for you at the end.

The human element

One of the most common points to make when one argues why economics should not be considered a hard science is that, unlike real sciences, physics, chemistry, and biology, economics is a social science, i.e. it is dealing with people, and the behavior of people is more complex than that of galaxies, subatomic particles, or the entire biosphere. In my opinion, the separation of social vs. real is one of the most persistent and most harmful myths that plague modern science. But I digress. The whole argument is usually along the following lines: since the usefulness of a discipline should be evaluated on how accurately its models predict the future, and since humans are impossible to predict, economics is useless. In addition to showing an overt condescension, I will proceed to dispute both premises, starting with the second.

First to show how (un)predictable we are. Take the models of Optimal Foraging Theory, the mathematical discipline of the foraging behavior of animals. If the subjects are bunnies, deer, and bees, this is biology, a hard science. However, if the same model is applied on humans, e.g. you, running errands downtown, catching a break and deciding to grab a sandwich from one of the dozens of places within walking distance, we've entered the realm of economics, a social science. The tools (and the accuracy) don't change, but the field of application, and how society views the problem, does.

A version of this argument can be reused ad infinitum, to housing decisions, distribution of rewards within a pack/group, you name it. At the end you are left with two choices: 1) humans aren’t that impossible to predict when it comes to economically relevant decisions or 2) humans and other animals are both impossible to predict, hence biology is also useless.

Ok, you can say you now don’t consider biology a real science either. Let’s take a shot at the first premise, then, real sciences have accurate predictions. I don’t know a definition of science that would not include physics. Physics is clearly useful, after all it is the one that gave us cars, planes, and nukes. Therefore, it must have amazing predictive models on something as trivial as a rocket gently descending to the ground.

If you insist that economics is not a hard science because its models aren’t prefect, then after this demonstration you must believe one of three things: 1) physics is also not a hard science, and the definition is now empty, 2) the precision of predictive models is irrelevant when it comes to decide what is a hard science, invalidating much of the criticism that economics is facing, or 3) SpaceX engineers have no idea what they’re doing, (this would not be a logical flaw but it’s a weird thing to have to argue when one is criticizing economics). Take your pick, for now I move on, if you’re not convinced, at the end I’ll have more for you.

The Guardians of the Economy

I’ve alluded earlier to the fact that economists are often held responsible for the actual economy and how ridiculous that is. We try to describe and understand it, but we don’t safeguard it, or pretend that such a thing is even possible. Economists don’t run the economy, you are. To think otherwise is equivalent to thinking that the massive loss of biodiversity in the past century was somehow the fault of biologists, and not that of, you know, humanity.

Somewhat related is the assertion that the endemic inaccuracies of economic models are harmful because they change the expectations of economic agents. Hence, to stop causing harm, economists should just stop making models (a slight note: nobody ever tried this argument on me, but it would have given me some pause, so I decided to address it). With the premise I agree to some degree, but once again I point the finger to the other sciences that make mistakes to the same effect, but don't receive similar levels of scrutiny. It is true that if we would overestimate, say, the population of zebras in Kenya by 20%, nobody would be hurt, whereas an inaccuracy of this magnitude with a macroeconomic variable, for instance an observed inflation rate of 4.2% instead of a predicted 3.5%, would be devastating (images of Venezuela come to mind). Now suppose it’s not zebras anymore, but rhinos: that 20% may make the difference between the extinction or survival of the species and us (not) taking the appropriate measures. Or take cancer growth: that 20% may very well mean the tumor is believed to be surgically removable, only to cut up the patient and realize it is not. Finally, take meteorology, suppose that an estimate of wind speed or temperature is off by a similar margin: this may be the difference between a nice sunny day in South Florida and a deadly hurricane we didn’t adequately prepare for. Just like the inaccuracies, the accidental misleading of expectations through the inaccuracies and their dreadful consequences are not unique to economics either.

Some of economics’ predictive capabilities are limited, true, but to say it is any less accurate than any other science is a non-testable claim. I would even assert that because of the increased interest and scrutiny, predictive models of economics are more prudently put together than those of literally any other science.

Again, I must go on, but if you don't see it my way yet, I'll have more for you at the end.

The taint of politics and the dismal science

This idea of economists safeguarding the economy touches on the ugly side of the usual critique. It begins when economists are trying to weigh in on a policy. This directly reinforces the belief that scientists are the main people in charge of the well-being of the subjects of their study. I absolutely agree that policy should be based on science, but science can only preserve its integrity by operating independently of politics. This is an age-old dilemma faced by all sciences, and I’m not about to resolve it here, but we should give some credit to economics for dealing with a lot more dirt than other disciplines. What I mean by dirt is when the positive science is misconstrued to justify or refute a normative policy out of context.

To illustrate, consider the discussion on minimum wages. Microeconomics 101 tells us that any binding minimum wage increases unemployment by creating excess labor supply. As an immediate result, economics was used by the right justify the removal of labor regulations in the name of efficiency and disparaged by the left as pro-capitalist anti-egalitarian propaganda. Neither side cares about the specific context under which the original statement is true, i.e. a world where both the supply and demand side has near equal bargaining power. In real life, bargaining power is almost wholly on the demand side of the market, hence labor regulations do not increase unemployment nearly as much or, in some cases, at all.

This “debate” is, sadly, still ongoing, with no end in sight, and more of these are started on a daily basis. For a more current one I link Paul Krugman’s opinion about income taxes and the Republican Party’s attacks on Democratic Congresswoman Alexandria Ocasio-Cortez. The flip side is the Democrats’ attempts to discredit classical monetary policy in favor of their very own, very naïve Modern Monetary Policy.

The unfortunate reality is that ever since Adam Smith (the “founding father” of economics), one of the main goals of the science was to inform and influence policy. Therefore, unlike with other fields, which, at their birth, originated from pure human curiosity, the history of the dirty criticism is as old as the science itself. One of the first critiques of economics ever recorded was Thomas Carlyle’s “dismal science” essay from 1849. The name caught on, so much so that an interlocutor of mine (a different one) used it in one debate with me, much to my surprise. What they didn’t know was that the essay, entitled “Occasional Discourse on the Negro Question”, wasn’t a genuine criticism of economics, but a pro-slavery anti-abolitionist excretion. Economics was caught in the crossfire for arguing that labor markets should be governed by the laws of supply and demand, and hence labor shortage problems should be dealt with by paying higher wages to workers rather than more slavery. Carlyle responded by saying this would disrupt the natural order of things. In his intellectual bowel movement, he argued that the negro should be “compelled to work as he was fit, and to do the Maker's will who had constructed him”.

Don’t get me wrong, I don’t claim that those who criticize economics are bigoted, nor do I think that these types of critiques are the ones hurting the current popular opinion of economics the most. But I do think that this essay is a good representation of the quality of the discussion surrounding economics today in the sense that intellectuals using "common sense" arguments are trying to chip in without any intent of making a productive or even informed contribution. I move on now but at the end I’ll have a few more words on today’s Carlyles.

How to criticize economics

My rambling shouldn’t be taken as me calling for a limit on the critique of economics: genuine, well-intentioned, and well-thought out criticism is necessary to progress the science. I’m calling for less critique that’s motivated by bandwagoning and a need to appear clever. To me, a genuine critic is one who not only understands the science’s weaknesses, but also its strengths and achievements.

Economics helps us overcome the problem of inflation and we now have independent central banks to safeguard the value of money. It helped us understand trade on a global scale and gave us the motivation and tools to diminish trade barriers. It helped us understand the value of competition and gave us the all-important anti-monopoly and cartel laws. It gave us the tools to understand government policy, our only defense against capitalism run amok. If you permit the self-aggrandizing, it gave us game theory, a language capable of unifying psychology, economics, biology, and sociology, thereby creating a bridge between the real and the social.

After accepting, or at least, acknowledging the strengths, a critic who really works on improving the science can turn to the weaknesses, and oh boy, there are weaknesses. Here’s my personal list.

1) Many assumptions are made which are hard to verify, or even non-falsifiable.

2) Some assumptions that were tested in one context are applied in another where they haven’t been.

3) Almost all economic experiments use 20 to 25-year-old highly educated subjects and small payouts.

4) Tractability comes first, if a simple (linear) model doesn’t work out, the hypothesis is often abandoned.

5) Experiments are hard to reproduce.

6) Behavioral models tend to have a low external validity.

7) The science tends to branch off and factionalize. We now have, among others, an Austrian School of Economics, Feminist Economics, Marxian Economics, and Post-Keynesian Economics.

Note that none of the above are unknown to economists. Unfortunately, none of the above is what I hear when I meet a critic, and hence this blog post.

I hope you enjoyed this post and from now on you'll be more prudent when criticizing my favorite science and won't do it for the sake of showing off. If not, the next few lines are for you.

CYRANO: Voilà ce qu'à peu près, mon cher, vous m'auriez dit, Si vous aviez un peu de lettres et d'esprit :

Mais d'esprit, ô le plus lamentable des êtres, Vous n'en eûtes jamais un atome, et de lettres,

Vous n'avez que les trois qui forment le mot : sot ! Eussiez-vous eu, d'ailleurs, l'invention qu'il faut,

Pour pouvoir là, devant ces nobles galeries, Me servir toutes ces folles plaisanteries,

Que vous n'en eussiez pas articulé le quart, De la moitié du commencement d'une, car,

Je me les sers moi-même, avec assez de verve, Mais je ne permets pas qu'un autre me les serve.

CYRANO: Such, my dear sir, is what you might have said, Had you of wit or letters the least jot:

But, O most lamentable man!—of wit, You never had an atom, and of letters,

You have three letters only!—they spell Ass! And—had you had the necessary wit,

To serve me all the pleasantries I quote, Before this noble audience. . .e'en so,

You would not have been let to utter one—, Nay, not the half or quarter of such jest!

I take them from myself all in good part, But not from any other man that breathes!

April 27, 2019.

Footnotes:

• When most people say the word economics, they tend to think of stuff like GDP growth, inflation, taxes, trade, interest rates, unemployment, etc. Most of this belongs to macroeconomics, which is only one subdiscipline out of dozens. There are many economic researchers who never research any of these (yours truly included).

• Carlyle was quite clear on what he meant by “dismal science”: a “dreary, desolate and, indeed, quite abject and distressing one”, as opposed to the “gay sciences” of poetry and music (language has changed a lot since the 1840s). Some economists proudly embrace the title but with a different meaning, they tend to refer to a science which doesn’t shy away from upsetting, uncomfortable, or disturbing issues. You can read the whole thing here (don't, it's really not good). If it doesn't look like an essay to you, it's because it was structured as a fictional conversation.

• If you’re wondering to whom I address my last tirade: just read my third reference. It’s a random (and quite good) article on climate change, but the author takes the effort to write “economists, eat your heart out” as an aside when talking about some random model. Or just read some of the comments under my fifth reference, an article on how economics graduate students are more depression-prone than prison inmates. Even a professor from my own lab subscribes to the social vs. real illusion in his own blog post (with which, apart from this one bit, I fully agree).

• Yes, I know my Dunning-Kruger figure is terrible. I'd improve it but I'm lazy to.

Links:

• https://www.nytimes.com/2019/01/05/opinion/alexandria-ocasio-cortez-tax-policy-dance.html?smid=fb-nytopinion&smtyp=cur&fbclid=IwAR2pDmaWCCNgBoWLCq_Rfxl61_W2JRDrj9tQFtpmiPcYwGJ1tloLh5NpOTs

• https://babel.hathitrust.org/cgi/pt?id=inu.30000080778727;view=1up;seq=690

• https://blog.usejournal.com/why-im-a-climate-change-denier-5d9ecae0cb7?fbclid=IwAR37Ei6hV34stS5zx6GvMgP73K9aRXWBftFlU71vGZ-zcO_A3UWg9tPoe7I

• https://www.placegrenet.fr/2015/05/02/le-blog-economie-de-jean-francois-ponsot/56273

• https://marginalrevolution.com/marginalrevolution/2019/04/sentences-to-ponder-109.html?fbclid=IwAR0sLrcVoDRaY6rquABhVUznECt8TWsWwhI4TAs7_k-OkZsDNew7SEg9JZU

• https://www.youtube.com/watch?v=bvim4rsNHkQ

Comments should be addressed to peter.bayer7@gmail.com.