One of the featured articles in today’s Globe and Mail is on “Economists and their fairy tale world of prognostication.”
I don’t mind people taking pot shots at the economics profession – I do it myself. But at least try to get the shot remotely on target.
Brian Milner writes that
Even its [economics’] most revered rules, like the law of supply and demand, don’t hold up to scientific scrutiny, he says. “Like unicorns, the plot of supply and demand is a mythological beast that is often drawn, but never actually seen,” he argues in his latest book, Economyths.
Yes, supply and demand are abstractions. But, none the less, they do a pretty good job of explaining behaviour. When a good’s price goes up, the quantity demanded goes down. There are only one or two exceptions to this rule that have ever been documented. For example, one study found that a decrease in the price of rice led to a fall in Chinese farmers’ rice consumption. Why? Cheap, subsidized rice made farmers so much better off that they could afford to eat meat instead.
Or take this passage from Milner’s article:
As behavioural economists have long insisted, markets are not inherently stable, rational or particularly efficient. “If you were going to say markets are not efficient, you would have to say markets are [also] not rational and they’re not at equilibrium. So you can’t really relax one of them without getting yourself into trouble, if you’re a mainstream thinker.”
Given that one of the pioneers of behavioural economics, Daniel Kahneman, won the 2002 Nobel Memorial Prize in Economic Sciences, it is hard to argue that behavioural economics is not part of the mainstream.
I haven’t read Economyths. It doubtless makes some valid criticisms of the state of economics. I’m happy for the author that it is getting coverage in the Globe and Mail.
I just wish Brian Milner had followed basic good journalistic practice and called an economist – say one of the team here – to hear the other side of the story.