#BTColumn – That messy economics

Disclaimer: The views and opinions expressed by this author are their own and do not represent the official position of the Barbados Today.

by Adrian Sobers

“The most secure laws of economics are tendencies at best.” – Robert Skidelsky

Good societies have, among other things, two competencies in common: plumbing and philosophy. Plumbing and philosophical problems are the most common (and very often not the most obvious or interesting) but both have the potential to disrupt everything else in life. We invite disaster if our pipes and philosophy cannot hold water. Economics’ epistemology problem is not an abstract issue. It has concrete consequences for ordinary folks trying to provide for their families.

To be clear, what follows is nothing “against” economists, rather it is against a glaring (daresay, cancerous) flaw in what counts as knowledge in the dismal discipline. Our first clue comes from Paul Samuelson’s observation that economics’ ability to make quantitative predictions crowns it queen of the social sciences. Samuelson’s observation is part of a bigger problem in the social sciences (and the intellectual life in general), where there is a tendency to succumb to the silly notion that one cannot think, speak or write authoritatively unless one is “backed by science”.

But I begin in earnest with the conclusion from Robert Skidelsky’s What’s Wrong with Economics?: “Whatever the outcome of our current distempers, it does not seem that today’s pretentious economics will be of much help. […] It will continue to provide indispensable tools for thinking about the human condition, but as a co-equal, not as a monarch.” One of the reasons economics is seen as a “real science” with a predictive power on par with, say, physics, is that it is the only social science with a Nobel prize.

This association with the natural sciences at the Nobel Laureate level perpetuates the problem. A problem that Nassim Taleb addresses in “Incerto”. In “The Black Swan”, Mr Taleb writes, “Every year a paper, or a book appears, bemoaning the fate of economics and complaining about its attempts to ape physics. The latest I’ve seen is about how economists should shoot for the role of lowly philosophers rather than that of high priests. Yet, in one ear and out the other.”

No one listens, as per usual, and the problem persists. In “Fooled by Randomness”, he writes, “It was confidently believed that the scientific successes of the industrial revolution could be carried through into the social sciences […]. Economics was the most likely candidate for such use of science; you can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as
a controlled experiment.”

This has concrete consequences because governments pay the greatest homage to economics in crafting policy. Mr Skidelsky attributes this to the impressive uniform of economics (what Taleb alluded to in “Fooled by Randomness”): “It is replete with models, equations, regressions, statistics: the claims to authority we associate with science, and whose absence condemns studies like sociology and politics to the status of inferior, in other words palpably non-authoritative, musings.

He provides another clue in the purpose of his book, namely, “to discover why the most influential discipline for making public policy is so often cut off from reality.” The pretentious use of mathematics, symbols, and “laws” are, at best, useful heuristics. As Skidelsky puts it, economists are “loathe to admit that the material they study and try to understand does not behave with the law-like regularity of natural phenomena.” But it gets worse, or rather, clearer.

Mr Taleb explains in Antifragile, “Convincing—and confident—disciplines, say, physics, tend to use little statistical backup, while political science and economics, […] are full of elaborate statistics and statistical ‘evidence’”. He continues, “And you do not need reams of paper full of data to destroy the megatons of papers using statistics in economics: the simple argument that Black Swans and tail events run the socioeconomic world—and these events cannot be predicted—is sufficient to invalidate their statistics.”

Propositions (or, “laws”) in the social sciences do not satisfy the universality criterion. Mind you, this is nothing to be ashamed of (unless one submits to scientism). Only under unique circumstances (and very briefly), can their propositions be confirmed/falsified. As the authors of “Radical Uncertainty” put it, “Physicists rely on stationarity – physical laws remain unchanged for century after century. Economic and social phenomena are not similarly stationary.”

Skidelsky suggests that economists “spend less time working out the consequences of rational behaviour under conditions of certainty, and more trying to understand what is reasonable to do in conditions of uncertainty.” Conditions of uncertainty like, oh I don’t know, say: plagues, pandemics, and the 2008 economic crisis. He’s right, and this nonsense has to stop. When a philosophical problem in the discipline that the government relies on heavily doesn’t hold water, it is the taxpayers that are left to clean up the mess. And the greatest mess comes with the use of economic models; it is to that we turn to next.