Lynne Kiesling
In Davos on Friday, the FT’s Martin Wolf chaired a panel discussion of economists including Peter Diamond, Joe Stiglitz, Robert Shiller, and Brian Arthur. His summary of the discussion is very well worth reading, because he highlights 10 important ideas that arose in the conversation. I’m going to summarize them here, which is no substitute for reading his description:
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First, orthodox economics had, in the years leading up to the crisis, become more a cult than a science, particularly with the assumption that what exists in competitive markets has to be the best possible outcome, since, if it were not, it could not exist.
- Second, let a thousand flowers of thought bloom.
- Third, the sociology of the profession – the need to define and defend a core discipline that can be taught to students and so determines what it means to be an economist – militates against such heterodoxy.
- Fourth, human beings are not rational calculating machines.
- Fifth, time matters in economic processes, which are, in general, not reversible and not characterised by any sort of equilibrium.
- Sixth, the world is not computable.
- Seventh, being a study of complex human behaviour, in which the world is created by human understand [sic] and motivations, economics is hard.
- Eighth, in theory it is right and proper to abstract in order to focus on a specific phenomenon. In addressing policy, this is irresponsible.
- Ninth, even though economists get much wrong, they still have much to offer to non-economists who tend to assume that economic problems are far more simple than they actually are.
- Tenth, there is a great danger that in rejected the most simplistic pro-market mantras, economists and policymakers will embrace even more dangerous and naïve statism.
This list is full of insights and healthy ideas to rediscover in economics, such as multi-disciplinary discourse and research, a dose of humility in applying theory that uses simplifying assumptions to real-world policy situations, and a meaningful recognition of the complexity of humans and the social systems we create and that emerge from our interactions. I say “rediscover” because several of the points above had been part of economics (even including Keynes, who cautioned people on #6) over the past two and a half centuries, but have been lost as our field has evolved toward more formalism, to the exclusion of other methods of analysis.
I think this soul searching is healthy, and that it’s valuable to have such an accomplished set of economists from a variety of sub-field backgrounds discussing them. How many economists, especially theorists at top research universities who “whisper in the ears of emperors”, will agree with these points, internalize them, and use these ideas to evolve their research in directions more consistent with them?
I must say I find this rather depressing, sort of going a tenth of the way back to the insights of Burke, Adam Smith, Hayek and von Mises.
How would these panel members react to a challenge of the Basel Accords, FDIC, political currency monopolies, severe limits to immigration, etc.? In an orthodoxy of dogmatic rational markets, support of these institutions must have to be whispered in musty hallways….
Number 4 should read, “Fourth, human beings are not rational calculating machines; this goes for regulators and politicians as well.”
And, of course, voters.