“the obsession with technique has dominated the scientific need to understand the world. And formalism, which is what modeling is, is very very different than science.”
Originally found via Zerohedge.
Zerohedge post: “Economists. What (Or Who) Are They Good For?”, posted by Tyler Durden on May 22, 2012
Vimeo video on Vimeo’s site: “Ökonomie neu denken – Jenseits der Finanzkrise (V)” [No, I have no idea what that translates as.], posted by Stifterverband, March 7 2012
Article about this interview on INET: “What are economists for, anyway?”, posted by The Institute for New Economic Thinking, May 21 2012
This is an incredible interview. It’s short, but covers so very many interesting things. Over-reliance on modeling, current state of thinking about economics among economics graduates, history of economic thought, Johnson’s ideas for how education for economics needs to change . . .
No, I can’t embed Vimeo videos in this blog (just looked into it, it’s about $60/year, I enjoy writing these blogs but not that much). Please watch the video here.
But . . . suppose you can’t, or don’t want to, or whatever. I liked the interview so much I sat down and wrote a transcript. This is my own transcript, no guarantees on accuracy, and I wasn’t familiar with all the names he mentioned, they’re probably misspelled.
And yes, I want to find out more about humanism and the enlightenment now too.
What I heard (time stamps are time stamps in the video):
00:14 I think the economics profession was making tremendous money – tremendous money – in consulting for the financial sector. And many of the theories were not what you might call investigation and illumination of how financial markets worked. They were portraits painted, like a marketing document, for how finance needed to be unshackled so the powerful could make even more money. And I think they did a great disservice to mankind, and we’re cleaning up after that right now.
00:47 And I don’t believe it’s all corruption. I don’t believe that it’s just that people took the money, got paid, and created a false vision. But I think the people who have the vision, in a sincere belief, that conformed to what, say, the investment bankers and hedge fund managers wanted, were the people who got elevated in society, made a lot of money, became prominent. So they were used as marketing vehicles, and they were not adequately skeptical as scientists of, of what their vision, what the flaws in their vision might be.
1:28 The world is always uncertain. No one can see in the crystal ball of the future. So when people become anxious, they want the expert to tell them what’s going to happen. And they feel good when their anxiety is relieved ‘cause they think they understand the future.
But if the expert, instead of telling the truth, is tell snake oil – a false story – when that is unmasked the expert becomes the scapegoat. And the expert, meaning the economists’ profession, is now a scapegoat rather than someone who is what you might call “held in high regard”.
2:07 And I think it’s a big problem. One of the problems – what Ken Rogof spoke earlier today, about what he called “externalities” – he was talking about the environment and the spillovers.
And the spillovers, when expertise is bad, like in the movie Inside Job that won the Academy Award, the Oscar, is that people were serving power, they weren’t serving the people.
2:35 Economists are very much accused of having what you might call “only see the economy through the eyes of the model,” as opposed to “seeing the economy and building the model as a map of what reality is.”
And I think that’s been a valid criticism in recent years, where the obsession with technique has dominated the scientific need to understand the world. And formalism, which is what modeling is, is very very different than science.
03:11 I’ve often said that economists are the victim of the 30 Years’ War, because the 30 Years War was a dreadful dreadful horrible time in Europe. And after the 30 Years War, all the humanists like Michel de Montaign or Shakespeare or Francis Bacon were thrown out and Renes Descartes took over and the Enlightenment took over, looking for universal laws, looking for mathematics, and making high theory much more important than real observation of the world – texture, to context, and what have you.
So economists now worship at the altar of abstract theory, which was the product of the fear and the anxiety that followed the 30 Years War 350 years ago. And it’s time to reexamine our methods very very fundamentally.
04:08 David Collander, who is a famous economist in America, Middlebury College, researches the economics profession and he takes polls of graduate students. And 85% say that they need to know a lot about the mathematics. Only 13% say they need to know anything about the economy in order to become an economist.
So I think we are in a period where we’ve gone very very far in the direction of basically getting a Ph.D. in modeling technique, not a Ph.D. in economics.
04:39 When it comes to advising the governments, I’m always reminded that Joseph Schumpeter said, when asked “what is economics about?” he said “Three things: politics, politics, and politics.”
And so, at the core, economics is about politics and about power, and the question for the economists is “Whose power are you going to serve as an expert?” Are you going to serve the public good of society, are you going to serve private consulting patrons, are you going to serve institutions of power, or are you going to serve the people more generally.
And those questions face every individual wherever they are in life, but a public expert in particular.
05:25 There are several modifications to economics teaching that need to take place.
The first is, rather than teaching Economics 101, Introductory Economics, as an indoctrination in method, they should teach it as a course in the philosophy of science where the subject is economics and its assumptions and the tradeoffs and the flaws, as well as the strengths, are explored skeptically on behalf of the student. So, that would help create a humility about economics and what it can do or can’t do.
The second dimension is the pendulum between what I would call induction – looking at the world – and deduction – looking inside the math and models – has swung very far in favor of deduction. So, understanding the context of institutions, understanding economic history which is real episodes, and particularly understanding the history of economic thought where the subject is economic thinking, embedded in the real context of the problems of the day, the vested interests of the day, the various challenges, the state of technology, would help people to develop a more humble and realistic sense of what economic thinking – is all about. What it pretends.