What do economists actually know? What can they possibly know?
Assuming his usual role as the insider skeptic, economist Russ Roberts ponders those questions at length, concluding that far too much economic analysis is conducted and promoted with far too little humility.
“The combination of economics with statistics in a complex world promises a lot more than it delivers,” Roberts writes. “We economists should be more humble and honest about the reliability and precision of statistical analysis.”
This is especially true in an age when our models and measurements are struggling to keep pace with variables even within the more typical areas of study. Roberts begins his critique with the question of free trade and whether it actually creates more jobs than it destroy (much of this relies on the unseen or unforeseen). James Pethokoukis recently highlighted a study that highlights similar questions and gaps as it relates to economic growth.
Tying it all together, Walter Russell Mead connects the dots accordingly, reminding us that in the Age of Information, and particularly in the industrialized West, those same gaps and blind spots are likely to occur and re-occur here and there and everywhere:
Here’s the big picture we should never allow ourselves to forget: Our world and our economy are going through a phase change more profound, more sweeping and harder to assess than the Industrial Revolution, as disruptive and transformative as anything perhaps since the Neolithic Revolution when wandering bands of hunter gatherers settled down in villages to farm and began to develop written language.
Virtually all of our ways of measuring economic activity are grounded in the realities of the industrial age. So are our ways of thinking about stimulating economies, stabilizing financial systems, regulating information companies and organizing such vital functions as central banking. The gap between the ways our societies function on the one hand and the assumptions we use to think about them and the institutions we use to run them has widened dramatically in the last two decades—and the gulf continues to grow.
Modern Western societies consist of technocracies that lack the techniques they need to measure social indicators with precision, meritocracies that no longer really know what merit is, and democracies whose political institutions and ideas don’t mesh well with the lived experience of their peoples.
But although it’s easy to get carried away with the ranging debates and micro-debates over metrics and measurements of particular areas of study, we’d do well to more deeply digest the bigger questions, asking what it might imply about the limits of economics and the role of the economist therein.
Surely it needn’t mean that we simply dismiss the power of empirical analysis and give way to a knee-jerk disregard of expertise altogether. But it does require us to return to Roberts’ original question — “What do economists actually know?” — and align our perspectives accordingly.
Let us remember: The economist was not always hailed as the grand-planning poohbah of the republic. As Peter Boettke explains in his book, Living Economics: Yesterday, Today, and Tomorrow, over the past 150 years, economics has slowly drifted away from Adam Smith’s more passive perch, moving ever closer toward self-confident grand-standing and interventionism.
Whereas economists were once seen as “cautionary prophets,” Boettke writes, they are now elevated as “engineers,” ready and equipped to transform society using “economic science” as their tool. Whereas the economist once assumed the role of a student offering predictive warnings (“If you do x, y might happen”), he has now assumed the role of “practicing engineer.”
Or, as Boettke also describes it, “economist as savior”:
The economist as prophet is more likely to utter “Thou Cannot” than “Thou Shalt Not.” This sort of economics has a default, though not inviolable, respect for the workings and value of institutions that have survived the process of social evolution. This puts him or her in the position of cautioning those who would remake or ignore the lasting results of those historical processes…What unites the engineers…is their rejection of the cautionary prophet’s default respect for historically successful social institutions.
And here’s where the “bigger picture” gets even bigger, because even as the economic engineer wields his severe disruptions on and throughout the economic order, the effects of that intrusion stretch well beyond mere material misallocation and misinterpretation.
For in disregarding the prophet’s “default respect for historically successful social institutions,” the “economist as savior” also partakes in a rebellion against something more profound: the spiritual nature and creative of capacity of individuals and human relationships, deferring instead to top-down plans that treat dignified man as a predictable piece in an otherwise static game.
Indeed, a return to the economist as prophet requires not just the routine reminders about missing variables x, y, and z, and the humility it ought to inspire. It also requires a renewed regard for human possibility and the mystery of human exchange, never mind the abundance of a Creator God.
Boettke is speaking specifically of economists as academics and scientists, but the lesson applies to us all: Recognize the limits of the tools in our hands, appreciate the unknown, and more importantly, respect the power and capacity of individuals and institutions just as much, if not more, than the sciences we’ve created to study them.