Most Economists. (Self-Portrait.)

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The Trouble With Economics

Clive Crook is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was chief Washington commentator for the Financial Times, a correspondent and editor for the Economist and a senior editor at the Atlantic. He previously served as an official in the British finance ministry and the Government Economic Service.
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Dani Rodrik's new book, "Economics Rules," asks what's wrong with the discipline and how to put it right. It's full of good insights, and has some sage advice for producers and consumers of economic knowledge. If you're at all interested in economics you'll want to read it. But I think it mischaracterizes one important aspect of the problem.

Rodrik is highly qualified for the task he takes on -- an economist who commands the highest respect among his peers, yet at the same time something of an outsider, in the sense that he's a member of no particular school or movement. He's leery of canned answers.

Rather than a single, specific model, economics encompasses a collection of models. The discipline advances by expanding its library of models and by improving the mapping between these models and the real world. The diversity of models in economics is the necessary counterpart to the flexibility of the social world. Different social settings require different models. Economists are unlikely ever to uncover universal, general-purpose models.

This conception of the discipline calls for a certain intellectual humility, and a willingness to be surprised now and then. Rodrik is one of the most open-minded economists I can think of. Even to a fault. He says that the answer to most economic policy questions is, "It depends," and he's right. But that's not much help to policy makers (or voters) seeking guidance now -- rather than five years from now, when sufficient research on the particular case in question, conducted to scientifically adequate standards, is in.

In the real world of policy, rules of thumb are often a practical necessity. In a graduation speech in 2007, New York University economics professor Thomas Sargent proposed 12 such rules or, as he called them, "valuable lessons that our beautiful subject teaches." Many things that are desirable are not feasible; individuals and communities face trade-offs; other people have more information about their abilities, their efforts and their preferences than you do; everyone responds to incentives; and so on.

Last year Alex Tabarrok, a professor at George Mason University, drew attention to Sargent's talk, and a lively discussion ensued. (Bloomberg View's Noah Smith joined in.) Rodrik reprises this debate in his book, and takes sides with Sargent's opponents.

Sargent’s critics were right. Beyond trite generalities such as "incentives matter" or "beware unintended consequences," there are few immutable truths in economics. All the valuable lessons that the "beautiful profession" teaches are contextual.

Context is everything, no doubt, but "incentives matter" is not a trite generality. Non-economists, I think it's fair to say, are apt to forget that incentives matter, that societies face trade-offs, and so forth. And Sargent wasn't anointing these ideas as immutable truths. Something can be a valuable lesson without being an immutable truth. ("Look both ways before you cross the road.")

Rodrik uses Sargent's 12 lessons to illustrate his point that economists get too attached to (what they think of as) the one true model. A particular model does underlie Sargent's lessons: that of well-functioning markets and rational actors. As Rodrik says, that's just one theory. Even so, it's a useful one, and the lessons about incentives and unintended consequences are usually correct, even if they aren't always and invariably true. For most purposes, that's a lot better than nothing.

Anyway, the problem with economics is not that its practitioners are too much in thrall to their preferred model, whatever it may be. Nor is it that they disagree about which model works best: In any scientific discipline, scholars may disagree on purely scientific grounds about which theory to rely on. That's fine. The problem with economics is that economists too often let values, rather than economics, guide their choice of model, and then pretend (or perhaps believe) they haven't done so.

Rodrik is on to this. The book ends with Ten Commandments for economists, and another ten for non-economists. (Perhaps this isn't the most felicitous device for a book that calls for less dogma and more skepticism. Never mind.) The economists' tenth commandment expresses the point very well: "Substituting your values for the public's is an abuse of your expertise." Especially, I would add, if you deny that's what you're doing.

Rodrik sees the point, therefore, but the book makes too little of it. That tenth commandment seems to appear out of nowhere.

Economic-policy choices necessarily implicate both subjective values and objective reasoning. There's no avoiding it. Yet economists who address the wider public on these questions are mostly terrible, just terrible, at keeping the values and the science separate.

If you're an advocate of greater economic equality on moral grounds, you'll be inclined to choose and promote models -- for supposedly scientific reasons -- which imply, for instance, that a higher minimum wage won't reduce employment. If you attach a lower priority to greater equality, you'll likely favor models that suggest the opposite.

Economics in the seminar room is less susceptible to this syndrome than economics on the op-ed page -- but economics on the op-ed page is how most people experience economics and its practitioners. In that space, the promiscuous, half-conscious mixing of subjective and objective gravely undermines the credibility of economics as a science. Since economics as a science has so much to offer, that's quite a loss. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Clive Crook at ccrook5@bloomberg.net

To contact the editor responsible for this story:
Christopher Flavelle at cflavelle@bloomberg.net