This is my response to “Models tell us more than hindsight“, in which Tim Harford defends economics and modeling against a critique of a historian-turned-journalist (linked here.) I’ve been saying something like this for a long time and Harford’s piece just gave me another chance to say it.
My argument is that social reality is historical (the way physics and the realities it studies are NOT historical, and the way that evolution is historical*) and that the social sciences are really parts of history and tools of history. So if a model works, use it!
The big problem is that even though economists always put in little caveats about the limits of their models, at crunch time they aren’t nearly as careful as they should be. I have a particular grudge with regard to the present recession (the longest and deepest since 1929). The dominant theory of economics (Chicago School) was working with a model (efficient markets) that essentially said that this recession could not happen. The term “The Great Moderation” was floating around, which was a claim that a recent actual historical moderation and stabilization of the economy (consistent with the efficient markets theory and other components of the dominant paradigm) actually meant that the theory was right and that there could be no bubble or slump again. But the Great Moderation ended in 2006 or so. ( I have suggested that this big recession just be named The Great Moderation Recession, but no one has bit on that.)
Furthermore, the economists who were putting out these ideas are unrepentant. They’re institutionally entrenched and are able to claim that they were never interested in the practical applications of their theories and have not been implicated in the mistakes that were made (something which was not really true), and also that their theories are unscathed, since with the insertion of a few jimmies and shims and kludges they still work pretty well.
I should add that an additional flaw in economics is that there was, within economics, no way for the rest of the profession to show that the efficient marketers were wrong, except by giving them control of the economy in order to see what would happen. Plenty of economists were suspicious, but there was no way for their suspicions to be brought effectively to bear against the orthodoxy. Economics is just too inconsistent, incomplete, and ill-formed for that to be possible.
As science has progressed from mechanics to thermodynamics, sub-atomic physics, evolutionary biology, and social science, at each stage there has had to be a redefinition of science and the renunciation of certain goals of the earlier sciences (eg. , predictivity). Economists have underestimated the degree to which this had to be done. (The whole complex of ideas around entropy, chaos, complexity, non-linearity, non-ergodicity, etc. add up to a powerful indictment of the formalisms used by mainstream economics, and people have been saying something like this since formalization became dominant in the 50s and 60s.)
It’s generally true that physicists, chemists, and biologists have been unimpressed by the accomplishments of the social sciences, and my belief is that they are right, ecxcept that many of them have the idea that if they had been the ones doing social science, they would have done it right. What I think is that the social sciences will never get the kinds of results that the “hard” sciences get, and it’s not because they’re doing it wrong but because that goal is inappropriate.
I’m also convinced that a lot of social-science scientism amounts to pulling rank and even fraud. Economists have been extremely arrogant in their claims because they’re “The smartest people in the room”, but this is bogus because they never really got the science right. (Alchemy is difficult too.) There are a lot of money and power at stake, and economists have not resisted the temptations that come with that.
In a way I’m just saying that history should be guiding theory of social science the way evolution is the guiding theory of biology.
September 14, 2010 at 12:26 am
In a way I’m just saying that history should be guiding theory of social science the way evolution is the guiding theory of biology.
I sympathize, but there is a theory of evolution to guide (the rest of) biology. How is “history” to be a guiding theory in anything like that sense?
September 14, 2010 at 2:25 am
I shouldn’t have said “theory”. Perhaps “context”. Whether or not history has been understood or theorized, it’s the context of the social sciences.
Reasons for this are two. First, at least two of the social sciences (psychology and economics) privilege ahistorical theoretical structures. This means, A, that they are likely to have problems with non-contemporary societies (non-WEIRD, as they say), and B, That they tend to miss the historical, emergent, evolving aspect of our society.
The second advantage of history is that it accepts responsibility for actualities as wholes. The various social sciences define systems on whole actualities which are acknowledged to be partial and skewed. This may be inevitable but there are grave risks and few of the social sciences avoid them; disciplinary bureaucracy and training tend to increase skewing rather than decrease it.
The advantage of history is not that it’s theoretical powerful, but that it accepts responsibility for wholes.
Related: the various social science pretend that they’re talking about different things, but that’s impossible even to conceptualize. They often consist of competing analyses and explanations of the same things. It would not be hard to devise a real-world event which would be described entirely differently by an economist, a sociologist, a psychologist, and a political scientist.
The advantage of history (as I want history to be) is that it does not have methodological dogmas mandating that areas of actuality to be ignored. So the atheoretical nature of history is a consequence of its comprehensiveness.
Another way to say it is that history is the final check of the social sciences. Many of them seem to have abstracted themselves so far from actuality that there never is or can be such a check.
As for a theory of history, it seems to me that “Variation and selective retention of social-political-economic-technological-psychological-military forms” isn’t that bad a framework.
September 14, 2010 at 1:11 pm
To put it differently: I think that a biologist would work quite differently, and gain some valuable insights, simply by knowing that biology is developmental and evolutionary rather than static, and this would be true even if the evolutionary theory were very rudimentary.
September 14, 2010 at 10:52 pm
Why not more regularly and seriously comment, since you are brilliant and creative?
September 14, 2010 at 10:55 pm
I would dearly enjoy this as a real working political-economics blog. DeLong is generally not worth bothering to read. Thoma and Krugman and Baker are about all there is.
September 15, 2010 at 12:27 pm
I am not an economist. I’m an outside critic of economics. I don’t regularly comment because I’ve more or less given up.
Quitting commentary is like quitting smoking — hard to do. I relapse repeatedly.
America is a failed state. It’s a rich, powerful failed state, and its fall will not be quick though I do expect occasional disasters along the way. If the US pulls through it will be a neoliberal neocon US.
At this point I blame the Founders. The peculiar mix of federalism, institutional “checks and balances”, civil liberties, and property rights we have has ended up meaning that big money is completely unrestrained.
BP and the finance malefactors have the same Constitutional protections I theoretically have, and if one of us loses them, it will be me. They will never be called to account. Congressional “checks and balances” produce a multitude of veto points, which individual Congressmen use to extort graft and bribes.
September 15, 2010 at 12:36 pm
This expresses part of what I’m saying. This has happened already in economics (disastrously, as I understand) and I’ve seen trial runs in linguistics that were also a mess.
To me, the idea that the world economy and interstate system will someday be explained by a version of biology strikes me as ludicrous. Biological psychology may sometime be able to explain the actions of individual actors, but that won’t explain the global system. This shouldn’t shock anyone, since the same is true of climatology, which has had to learn to renounce some of its original goals.
And my point is that I doubt that there ever will be an explanation of the global political and economic system as good as the scientific explanations of carefully-chosen simpler systems. All kinds of scientific tools can be used by historians — genetics, metallurgy, climatology, soil chemistry, demographics, agronomy, and the list goes on. But what you’ll have will still be history, and it won’t be a science.
September 16, 2010 at 2:33 pm
Social sciences are subject to cultural chauvinism in a way that physics isn’t, but the real problem with economics is that it’s corrupt.
In Rachman’s original critique, he offers sentiments like this:
But Bernanke, in saying this, is clearly correct, even in retrospect. Policymakers really did avert a Depression this time around, and they did it by following the advice of economists.
The solution for bad economists is the same as the solution for all bad science: better science.
September 17, 2010 at 2:19 am
?
The Great Moderation existed? You really have to explain. To me “The Great Moderation” is the joke name for “The Great Recession” or “The Slightly Less Great Depression.”
The Great Moderation sounds like Feynman’s O-ring Russian roulette: economists had a run of good luck they didn’t understand, became overconfident, and brought on the worst rec- or depression (deepest AND longest) since 1929. This is a triumph because it wasn’t as bad as that 1929? Please.
The immediate solution for bad economists making arrogant and unjustified claims, who give policy advice which, when followed, leads to disaster is: don’t trust economists so much in the future.
If there’s better economics out there, wonderful, follow it. But beyond the problem with the Chicago school economists themselves, there’s this: even though many economists were sure that the Chicago school was wrong, economics is so incomplete, inconsistent, and ill-formed that they were not able to make their case within the profession. They had to stand by and watch while the bad guys collapsed the economy.
September 17, 2010 at 1:52 pm
Economics:
-is skewed by cultural biases. The “Econ 101″ critique of economics is valid, and it largely describes the cultural biases of economics.
-has utterly failed to take into account advances in the world of finance – largely because of Econ 101 thinking. (“If these genius financiers are doing something in the context of liquid markets, it can’ be bad.”)
-is corrupt. Economists can be bought, and Econ 101 thinking serves a lot of wealthy interests.
Sure, the Great Moderation was hubris, much like The End of History. The difference is that when the shit hits the fan, Krugman has a useful contribution to make, where Fukuyama really didn’t.
So yes, I see a genuine important distinction between the current recession/depression and the Great Depression and the economic cycles that preceded it. And there would be more of a difference if policy were informed by economists who aren’t corrupt and who aren’t governed by their institutional biases.
September 17, 2010 at 3:02 pm
” Economics: -is skewed by cultural biases”
Uhm, not strong enough.
Economics only has meaning in a certain subset of a certain cultural group at a certain time. That is, the discipline depends on a bunch of concepts and symbols (e.g. money, labor, property, individuality, liberty) that may have different meanings (or no meaning at all) in different cultures at different times. If you don’t start with the notion that individuals have the liberty to acquire property through labor (and these are not universal truths) then economics (as currently constituted) is meaningless.
September 19, 2010 at 1:15 am
Nothing to add to the discussion — just very glad to see a new post from you. I understand you’re trying to taper off, but — more, please!
September 22, 2010 at 3:50 pm
The Great Moderation was a real thing, though obviously it didn’t mean what the self-satisfied, like Bernanke, thought it did. Economic indicators became less volatile from about 1985 to 2007.
Lemuel Pitkin once suggested in the comments section at Crooked Timber that once the Reagan administration successfully vanquished labor and thus limited upward pressure on wages, the Fed was able to run looser monetary policy than previously, which moderated the swings in economic output. I’m not sure I believe this story, but at first glance it fits the facts.
September 22, 2010 at 5:52 pm
The Great Moderation was an empirical run of good luck which got pumped into a reassuring law. That’s the problem with ahistorical theoretical social science. As soon as they verified the phenomenon they built a theory under it, or a fairy tale anyway, and then they used it as an ideological weapon. For all I know (IANAE) their overconfident belief in the law led directly to its falsification.
I really thinks this taints the whole profession, because even though not every economist accepted the corrupt, tendentious winger fantasies, the body of economic science gave the skeptics no weapons against the fantasists. As I keep saying, economics is too ill-formed, incomplete, and inconsistent to be regarded as a science, and the theoretical sophistication economists brag about is a major cause of the problem. Alchemy had great theory too.
In theory, at some point there will be a correction and we’ll get a healthier and more modest economic discourse. But for that to happen we will need to have an open society, and the Chicago School operatives are part of a multi-faceted political movement working toward a less open, more authoritarian, much more stratified society. (See “The Road from Mont Pelerin”: neoliberalism is freemarket authoritarianism).
So the economics of 2075 will probably be more realistic, but within that political framework, since the political work of economic fantasy will have been completed.
I believe every word of what I just said, even though almost no one else will, not even my friends.
September 23, 2010 at 12:20 pm
Right. But the Great Moderation was a real event. The US, and in many ways the world, economy functioned quite differently from 1985 on than it did from 1950-1985. From 1950 to 1985, you had high median wage growth, big recessions and recoveries, and eventually high inflation. From 1985 on, you had very low median wage growth, two spectacular asset bubbles, and (until 2007) shallow recessions with slow recoveries. The correct economics of 2075 will have to account for the difference.
September 26, 2010 at 10:14 pm
They weren’t selling the Great Moderation as an observed event, though, but as evidence that they’d finally figured out the economy. All told, based on recent events, it was evidence that they hadn’t.
I’m just lobbying to include the 2007-2015 Great Recession as part of the Great Moderation.
October 6, 2010 at 12:21 pm
Crooked Timber linked this. Thought it was on-topic here, and a good discussion of the role of corruption in modern economics.
March 23, 2011 at 12:23 pm
[...] Economics is a tool of history [...]