In Time Magazine of January 30, Robert Johnson, executive director of the Institute for New Economic Thinking, called economics “a discipline in disrepute”. The financial crisis, he argues, was partially the result of “false visions of financial-market behaviour” pushed by economic models “constructed with building blocks that assume [unrealistic] stable and anchored expectations”. In short, the recession has broken the ship “from its stable mooring and unexpectedly slammed it into the rocks”.
Johnson proposes two remedies. Firstly, economists should be more humble about what they actually know. This is a fair point and probably true of most science. Secondly, Johnson criticizes the over-reliance on high-powered mathematical models. He argues, instead, for the reintroduction of context. “More research on economic history and evidence-based studies are needed to understand the economy and overcome the mechanistic bare-bones models”. Also, political economy: “We must acknowledge the intimate, inseparable relationship between politics and economics”.
Economics teaching now involves large quantities of math and statistics. This is by no means a bad thing. Math allows for the derivation of complex theories. Statistics allows tests of these theories that are replicable and falisfiable in the Popperian spirit. But the criticism is not in the use of math and stats, but in its absolute use. Graduate students are often graded only on their ability to name the constraints of the OLS model, rather than their ability to explain the economic causes of the Industrial Revolution or, closer to home, Apartheid or the first democratic elections in 1994. (In fact, students of economics often have little need for knowing about anything that happened before 1960, when national accounts data become available on a global scale.) Economists look disparagingly at political science, or sociology, or ethics for their lack of rigorous statistical techniques, but understand little about the political processes that shape economic outcomes. As Johnson notes: “We are living in an era of money politics and large powerful interests that influence the laws and regulations and their enforcement”. Why has the South African Journal of Economics not published a paper on Malema’s call for economic freedom?
We need to train students in math, statistics and context. We need, as Deirdre McCloskey eloquently argues at the end of her most recent book (Bourgeois Dignity), ‘a more idea-oriented economics… For such a humanistic science of economics … the methods of the human sciences would become as scientifically relevant as the methods of mathematics and statistics now properly are. Such a widened economic science would scrutinize literary texts and simulate on computers, analyse stories and model maxima, clarify with philosophy and measure with statistics, inquire into the meaning of the sacred and lay out the accounting of the profane. The practitioners of the humanities and the social sciences would stop sneering at each other, and would start reading each other’s books and sitting in each other’s courses.” In short, we need to navigate the high seas armed with advanced digital satellite equipment and, when an electric thunderstorm erupts, the working knowledge of past experience and alternative methods to stay clear of the rocky cove and steer the ship back to safety.