The Intelligent Design theory of economics

Mark Thoma at Economist's View has been wading through what non-economists think of economics, and he's finding the exercise somewhat frustrating. For someone who hasn't had formal training in the field, anti-economics is often more persuasive than the real thing. Paul Krugman ran into this particular brick wall a few years ago, and realised that the correct response to many criticisms of economics is "You just don't understand".

I used to think that the yawning gap between economists' understanding of economic issues and that of non-economists was primarily a problem of communication: we simply were not doing our job of explaining our ideas to the broader audience of non-specialists. But it sometimes seems as though explaining economics to non-economists is as difficult - and as frustrating - as explaining the theory of evolution to creationists.

Intelligent Design as applied to economics takes pretty much the same form as it does with biology: "What we observe couldn't have just happened; it's obviously the work of some Greater Power." When it comes to evolution, the Greater Power generally takes the form of an omnipotent diety. The counterpart in economics is the 'economic elite': the existence of inequality is interpreted as evidence that those who have done well did so by design.

Economists do of course try to explain that market outcomes are the result of decentralised interactions between self-interested agents - and that these interactions generally lead to socially desirable outcomes. (And even when those outcomes are not desirable, market-based solutions are generally better than those based on what a central planner could come up with.)  But once you've convinced yourself that elites are manipulating market outcomes, it's all-too-easy to persuade yourself that those who would argue otherwise must necessarily be bought-and-paid-for apologists for the omnipotent elites. And once you've persuaded yourself of that, it becomes pretty much impossible for anyone to say anything that will budge you from your position.

Comments

[Jeffrey Miller]

I don't think you or Krugman or Thoma are right about this. Since about 1859, no reasonably intelligent person who has bothered to consider the overwhelming evidence for the origin of species by evolution through natural and sexual selction has doubted that Darwin's and Wallace's ideas are essentially correct.

The same cannot be said about economics. There is a large empirical part of economics which is very valuable and informative. There are other strands however, especially those that consider large scale dynamics where economics is weaker.
Delong had the integrity to admit that in the early nineties when he and most economists were pushing for the liberalization of international capital flows, they expected capital to flow from rich to poor countries. The exact opposite happened. So economists - good economists - didn't even get the sign right. This incredible error ought to give pause, ought to instill humility in the profession - that maybe some things are still too hard for your simple models -, but I see very little sign of it.

I also think people are a little skeptical of some of the things economists claim because they don't agree with the utility function the economists are using, or how costs and benefits are being accounted for or not accounted for as the case may be. For example, I've rarely (never) seen a serious economic analysis of the cost of invasive species in free trade accounting. Invasive species and diseases and fungi impose huge and ever growing costs across the world and are largely caused by
shipments of materials (like wood, as opposed to airplane travel), but these costs are rarely considered. And of course there are may other such externalities, which good economists study, but which don't seem to enter the accounting.

In summary, I think you and Thoma and Krugman would be more persuasive if you abandon the absurd idea that people don't always agree with every claim made by economists (no matter how ill-posed - like the existence of a "natural rate of unemployment" - there is nothing this stupid in any of Darwin's books) because they are mathematically illiterate, or don't understand models, or are generally ignorant (like the creationists), and instead focus on sharing hard emprical studies and cautious analysis where your field has something to contribute.

[piglet]

You are making a fool of yourself. I posted this over at Mark Thoma: «««

"But once you've convinced yourself that elites are manipulating market outcomes"

That is a particularly dumb straw man. Seriously, Mark, with friends like that, you don't need enemies. Stephen Gordon's rant does nothing to address the critiques of main-stream economics that have been formulated, and discussed extensively in this forum, whether by economists like Foley or by observers with other scientific backgrounds, or by other interested debaters. It will only serve to strenghten the belief of many non-economists that economists are a bunch of arrogant bullies who will not listen to any criticism but will demean anybody who questions their paradigm. I'm not saying this belief is fair, only that it is what any reasonable, open-minded reader would assume aftyer reading this substanceless attack on dissent.

PS- If the author means to base his "defense" of economics on the claim that market outcomes are never manipulated, like Enron never happened and global power imbalances don't ever distort the conditions of trade to the disvafor of poorer nations, then he is obviously nuts and the equivalent of a flat-earther. If he means to say that critics of economic orthodoxy are conspiracy theorists, then he is either ignorant or a propagandist.

One more. As to the false analogy of economics and evolution theory, if you ever followed that discussion, you'll have noticed that biologists, when challenged by creationists, usually respond by explaining the evidence for evolution and refuting, by scientific reasoning, the arguments of their distractors. Wouldn't it be wonderful if economists tried followed this example?

[piglet]

"Mark Thoma at Economist's View has been wading through what non-economists think of economics"

For the record, you are referring here to the book by Duncan K. Foley “Adam’s Fallacy: A Guide to Economic Theology.” Foley is actually an economist. I guess he's the wrong kind of economist. Anyway, you should try learning to read and write before starting a blog.

[piglet]

"Economists do of course try to explain that market outcomes are the result of decentralised interactions between self-interested agents - and that these interactions generally lead to socially desirable outcomes."

Just for the edification of the public, let's point out the mistakes in this statement.
1. "Socially desirable outcomes" is not a scientific concept that can be empirically tested. It is an ethical/political concept.
2. If this is supposed to be a scientific concept, analogous to evolution theory, then a qualifier like "generally" has no place in it. Observe that modern evolutionary theory does not pretend to predict the outcome of evolutionary processes. It only states that those who survive, survive. Which is true in economy also.
3. Taken at face value, the statement is patently absurd, contradicting both common sense and empirical experience. A self-interested agent running a nuclear power plant will not implement costly safety features to protect the public from accidents, unless outside pressure (regulation, protest, consumer boycott) forces him to do so. Economists have undermined their own credibility by consistently neglecting "externalities" of this kind. Some economists have finally arrived at realizing their mistake, but they are hardly the mainstream.
4. Economists do not actually "try to explain" why market outcomes are "generally desirable", any more than creationists "try to explain" why God created the earth in six days, or catholics "try to explain" the Immaculate Conception. The Invisible Hand paradigm is a dogma underlying economic thinking, not a rigorously formulated and empirically tested scientific concept. And that's what this debate is about, or should be about.

[Barry]

http://ezraklein.typepad.com/blog/2006/11/economics_as_re.html

[Hermenauta]

Economonitor has cited this post, and my comment there was:

The main difference between the economy and nature is that we care about market (and goverment, ok) failures in the economy. Nature has done well for billions years with "market failures" (think of mass extinctions). That´s the reason why naive conservationists are naive, but somewhat reasonable economic planners are smart.