A pro-dismal bias in economics?

In a comment to his earlier assessment of the OECD’s new economic outlook, Jasper is raising an interesting, almost philosophical question that I think is worth a discussion in its own right. He claims that –

Economists should study the economy so they can finetune it to suit the needs of the people living inside this economy. They seem to be studying the economy so they can promote policies that finetune the people to suit the needs of the economy.

I would argue that Jasper’s statement correctly captures the sentiment, but not the rationalised opinion, among a growing part of the European population. The disconnect is palpable. So the question seems to be whether our governing institutions (and those trying to capture the essence of reality for them) are not able to accurately understand the people’s true preferences, whether our institutions do not allow an accurate externalisation thereof, or whether this is not simply a matter of lack of understanding.

The prominent leftist German politician, Gregor Gysi, has been arguing for some time now, that the so-called neoliberal consensus has clearly gone too far, when even people who aren’t able to make a living from their hands work are subscribing to it. In 1996, the noted American economist Paul Krugman wrote in his Slate column – “The Dismal Science” –

“Despite its centrality to political debate, economic research is a very low-budget affair. The entire annual economics budget at the National Science foundation is less than $20 million. What this means is that even a handful of wealthy cranks can support an impressive-looking array of think tanks, research institutes, foundations, and so on devoted to promoting an economic doctrine they like…The economists these institutions can attract are not exactly the best and the brightest…But who needs brilliant, or even competent, researchers when you already know all the answers?” — Paul Krugman, Slate, August 15, 1996)

I don’t know if Krugman’s assessment is the answer to Jasper’s question. The OECD is not a classic think tank. But I doubt it is immune to the orthodoxy of the day. And this is no small matter . After all, we know since Max Weber that politics is “a strong and slow boring of hard boards. And it’s always important to remember what John Maynard Keynes said about the power of myths of rationality, once they have been established as such –

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. (The General Theory of Employment, Interest and Money (1935) Ch. 24 “Concluding Notes”) or at wikiquotes)

8 thoughts on “A pro-dismal bias in economics?

  1. How would you adapt the economy to the people without getting into the grey area of cultural differences? How could you find out, what is desirable to the people? Is there a common desire at all?

  2. You mean it is not normal for the governments of countries to control 65%+ of their GDP like Fwance?

  3. Of course Jasper is wrong. Economists only care about the people. Maximize happiness, a purely utilitarian approach. Actually, economists, in contrast to “true” philosophers, are the only ones who really attempt to take the preferences of the people on board. The fine-tuning is then the result of attempting to get rid of various market imperfections…

  4. Unfortunately, the fine-tuning is usually undertaken by those with little or no understanding of the issues and principles, or who have entirely different objectives in mind. The tax codes come to mind immediately, where social justice ideology results in steeply progressive rates, widespread tax avoidance, and overall lower tax collections. Flattening of rates and simplification are denounced as subsidies to the rich, and the public is treated to the astounding truth that a percentage of a large sum is greater than the same percentage of a small sum. This is invariably submitted as evidence of unfairness.

    Politicians cultivate a willful blindness to secondary effects, then propose further reforms to ameliorate the effects of the previous reforms. It is rather like undertaking to fix a computer with a hammer, a large slot screwdriver, and a 9/16″ wrench. The more you fix it, the more there is to fix.

  5. Psychological research has shown fairly conclusively that people often do not maximize their utility (pleasure, happiness, etc) with the resources they have. See Kahnemann et al.

    The response of orthodox Economic academia has been ear plugging to the tune of “La, La, La, I can’t hear you!”

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