Home > The Economics Profession > Amartya Sen on the disappointing state of modern economics

Amartya Sen on the disappointing state of modern economics

from Lars Syll

Interviewed by Olaf Storbeck and Dorit Hess, Nobel laureate Amartya Sen makes some interesting remarks on the state of modern economics:

Question: Professor Sen, do you have the impression that economists and economic policy makers are learning the right lessons from the most severe economic and financial crisis since the Great Depression?  

Answer: I don’t think that at all. I’m quite disappointed by the nature of economic thinking as well as social thinking that connects economics with politics.

You make a lot of references to old economic thinkers like Smith, Keynes and so on. However, if you look at the current economic research that is published in the journals and taught at universities, the history of economic thought does not play a big role anymore…

Yes, absolutely. The history of economic thought has been woefully neglected by the profession in the last decades. This has been one of the major mistakes of the profession. One of the earliest reminders that we are going in the wrong direction has come from Kenneth Arrow about 30 years ago when he said: These days, I get surprised when I find the students don’t seem to know any economics that was written 25 or 30 years ago.

Is there any hope that this trend can be reversed?

Yes, I’m quite optimistic in this regard. I get the impression that this seems to be getting corrected right now. I’m particularly delighted that the corrective has come to a great extent from student interest. I’m very struck by the fact that at the university where I teach – Harvard – the demand for more history of economic thought has mostly come from students. As a result there is a lot more attempt by the department of economics as well as history and government to look for the history of political economy. Last year, along with my wife Emma Rothschild, I offered a course on Adam Smith’s philosophy and political economy. It drew a lot of interest and we got some of the finest students at Harvard.

Do you think the focus on mathematics in current economics is the flip side of the neglect of the history of economic thought?

I don’t think that there is any conflict between mathematical reasoning and being interested in the history of thought. Many of our early thinkers were quite mathematical. The connection between mathematics and economics is very strong, and there is no reason to be ashamed of it. What is to be avoided is to be concentrated only on mathematical economics. We must not neglect the insights that come from parts of the subject where mathematics is not sensible to use and different kinds of reasoning are useful. I don’t think the conflict is between mathematics and other kinds of methods. The conflict is between taking an integrated, broad, comprehensive view as opposed to a narrow view whether it is mathematical or anti-mathematical.

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  1. BC
    March 4, 2013 at 9:59 pm

    “Disappointing state of modern economics”? Is that not like being disappointed that there are no such things as the Tooth Fairy, Santa Claus, and the Easter Bunny? Heaven and Hell? Paradise? Something for nothing?

    One would have thought by now that one or more of the brightest economists would have created a robust multivariate model that demonstrated conclusively that economics is not only irrelevant but harmful, and that the primary policy recommendation would be to close the academy and send economists, banksters, and Wall Streeters to the gulags or to art school; at least something more productive and less destructive.

  2. March 4, 2013 at 10:13 pm

    We ought to remember that Adam Smith was a political economist and a professor of moral philosophy. He grappled with the issue of wealth and income distribution, even if in the end he could not bring himself to condemn the rentier system that was evolving under socio-political arrangements and institutions that protected entrenched landed privilege. Smith was not prepared to go as far as Turgot (or even Thomas Paine) in calling for the landed to turn rents over to government so that taxes on labor and owners of capital goods could be reduced. Too few economists today have studied the operation of property markets and the capitalization of imputed land rents into speculation-driven land prices. Fueled by cheap and minimally-underwritten credit, property prices repeatedly climb to a point where the demands on businesses to pay more for land or to lease building space forces relocation decisions and/or reductions in the number of employees. A domino effect travels throughout an economy (sometimes regionally, but in the most recent downturn, nationally and even internationally). When land prices for residential properties are pulled by speculation to heights few can afford, the residential market crashes as well. There is no mystery to this to investors and speculators; only economists blinded by their theoretical training that asserts price clears the markets for land as it does for labor and capital are puzzled when markets crash. The lower the effective rate of taxation on the annual rental value of land, the greater will the supply curve for land lean to the left (i.e., experience a reduction in the supply brought to market even as prices are rising).

  3. Cristi C
    March 5, 2013 at 2:03 pm

    Great to see the confirmation from Professor Sen about the mainstream economic view. But I do not share his optimism. I might not have seen the Harvard students he mention but I saw the way the financial lobby bribes the heads of think tanks or economic advisory boards. There is no way a student can beat the system. Ultimately, a student will embrace the financial interest for a career, ending in a decision making seat, where Goldman Sachs and alikes will impose the ruthless capitalism they can and do today.

    • March 28, 2013 at 6:34 pm

      Dear CC & ED, Thanks for your ruthlessly honest appraisals. Yet, let’s not underestimate the value & power of Dr. Sen’s compassionate wisdom & diplomacy. Planck’s quip on the real nature of scientific revolutions will surely hold true for the Queen of pseudo-sciences and, though it may prove rather bloody for die-hard plotonomists, we want the pain & strain on truly noble young RWEconomists of the not-too-distant future to be as light as possible. Rite [sic]? Afterall, if Sen’s works and words are totally suppressed, then The Solution will be postponed for much longer than it has already.

      • March 28, 2013 at 9:30 pm

        Yes, but the problem in economics is that so often, Planck’s quip applied in reverse. Economics regressing by funerals, until there are too few who understand. Too few to prevent the young from repeating the most ancient mistakes. Enticed, corrupted and selected by those who benefit, they dress up ancient confusion and supersition with superficial modernity, and convince themselves it is new and true.

  4. March 7, 2013 at 8:12 pm

    Sen observed “The history of economic thought has been woefully neglected by the profession in the last decades,” and he referred to this as “…one of the major mistakes of the profession.” Here I immediately thought that “mistake” might not be an appropriate term—where an overarching socio-political “correctness” could be at play.

    In any case, there is a relevant data point regarding the teaching of economic history in our universities. About a year ago my paper for presentation at the WEAI conference in San Francisco was sent to a discussant for his review. This paper showed how Hermann Gossen’s human-activity based theory of economics could be unified with Walrasian/neoclassical commodity-based theory after the 135 year separation (papers.ssrn.com/sol3/papers.cfm?abstract_id=1798772). The reviewer soon wrote back advising that he’d never heard of Gossen, and, furthermore, he went door-to-door around his economics department (he was the chair) and none of his economics professors had heard of Gossen either. This is despite the fact that Walras and Jevons—who many consider the originators of neoclassical economics (in the marginal revolution of the 1870s)—gave high praise to Hermann Gossen and his contributions.

    There are scholarly institutions in the US and Europe that honor Gossen, but the apparently near-absolute erasure in our American universities of the history of this man and his work would be remarkable.

    • March 8, 2013 at 12:07 pm

      The passage below from Walras’s “Preface to the Fourth Edition” (1926) of his “Elements of Pure Economics” reveals not only Walras’s delusions of grandeur but also the importance he attributed to Gossen.

      “It took from a hundred to a hundred and fifty or two hundred years for the astronomy of Kepler to become the astronomy of Newton and Laplace . . . On the other hand, less than a century has elapsed between the publication of Adam Smith’s work and the contributions of Cournot, Gossen, Jevons, and myself”. [p. 48]

  5. Jeff Z
    March 8, 2013 at 4:17 am

    @ Thomas,

    One of my fields was history of economic thought, and my education was apparently lacking as well. The name stuck a cord of familiarity though, so I went back to my history of thought books. I find a discussion of ‘Gossen’s Second Law’ in Mark Blaug’s Economic Theory Retrospect, 4th edition, on pages 324 and 325.

    That says to me that the scholarship is lacking on the part of the reviewer. While we are all pressed for time, it would seem that if a paper like this comes across a referee’s desk and his or her colleagues can’t point them in the right direction, then a trip to the library or a quick tour of Wikipedia is in order.

    Blaug points out that his 1854 work, “Entwicklung der Gesetze des menschlichen Verkehrs’ formulated the law of diminishing marginal utility and applied it to individual consumption. According to Blaug, after initial poor sales, he recalled the book and had the unsold copies destroyed, so that Jevons and Walras could only find a few copies.

    From here I GUESS that they either translated it themselves or had it translated for them. According to Wikipedia’s entry on Gossen, (http://en.wikipedia.org/wiki/Hermann_Heinrich_Gossen) the book was translated in to English in 1983, as The Laws of Human Relations and the Rules of Human Action Derived Therefrom (1983) MIT Press ISBN ISBN 0-262-07090-1. The book is in the collections primarily of large university libraries here in the U.S. My small liberal arts college does not have a copy, but I could get it through inter-library loan. In any case, a little extra legwork rewarded me with some additional insight that I lacked before.

  6. March 8, 2013 at 4:00 pm

    Jeff wrote: “That says to me that the scholarship is lacking on the part of the reviewer. While we are all pressed for time, it would seem that if a paper like this comes across a referee’s desk and his or her colleagues can’t point them in the right direction, then a trip to the library or a quick tour of Wikipedia is in order.”

    >I should have noted in the original post that the reviewer made a full-recovery and performed a good discussion of the paper at the conference. After the session was over we continued to talk about the paper for a few minutes.

    • Jeff Z
      March 11, 2013 at 12:55 am

      Thomas,

      Thank you for that clarification. I am glad that the referee performed well, and As I said, I learned something myself.

  7. Paolo Leon
    March 10, 2013 at 3:07 pm

    Now Keynes comes back, but not Malthus, or Marx. Ignoring the history of economic thought comes out of conceitedness of those that are convinced to possess the truth resulting from some econometrics. I never forget Lucas’ derogatory remarks on Keynes who, in his mind,used to switch variables from one side to the other of an expression, building truisms, while his rational expectations are simply a form of perfect foresight – on of god’s attributes.

  8. March 10, 2013 at 4:50 pm

    The problem is that the answers probably already exist as to how future economics could be. It is a huge paradigm shift, and can offer a more scientific understanding of the subject. Ofcourse, it can never be totally scientific.as the factor of uncertainty has to be factored in so to say! The paradigm in question is the evolving subject of Transfinancial Economics which can be found on the p2pfoundation site.

    .

  9. March 11, 2013 at 6:36 am

    Edward Fullbrook wrote:

    The passage below from Walras’s “Preface to the Fourth Edition” (1926) of his “Elements of Pure Economics” reveals not only Walras’s delusions of grandeur but also the importance he attributed to Gossen.

    “It took from a hundred to a hundred and fifty or two hundred years for the astronomy of Kepler to become the astronomy of Newton and Laplace . . . On the other hand, less than a century has elapsed between the publication of Adam Smith’s work and the contributions of Cournot, Gossen, Jevons, and myself”. [p. 48]

    >We all recognize a justified aversion to neoclassical mathematical economics in this forum—where, for myself, I charge Walras and Jevons for taking a wrong turn in the 1870s, and now “university” economics is off in the wilderness doing no good for anyone (excepting, of course, professional economists in their employments).

    But Fullbrook in his response seems to reject in total the work of Walras, along with the work of Cournot, Gossen, and Jevons. Is there however nothing Walras contributed to an eventually satisfactory theory—and nothing that follow-on scholars contributed (e.g., Edgeworth, Clark, Ramsey, Rosenstein-Rodan, Lange, Strotz, Shackle, Leontief, Becker, Georgescu-Roegen, and Steedman)—that is of any value? In this regard, Walras (along with Gossen, Jevons, and Menger, without knowledge of each other’s work) proposed that individual’s optimize each candidate (market-place) plan-of-action (seriously considered) on a joint objective/subjective basis…which is something we of course all do.

    Here it could be said that economic function and behavior—and economic-psychology in particular—transcend (scientific) investigation, and that ‘economics as applied psychology’, in the same sense as ‘meteorology as applied physics’, is a hopeless endeavor. Should anyone believe this it might be helpful to directly posit that economic-psychology (and psychosomatic feelings attending expectational planning) are either irrelevant or beyond our reach in analytic thinking, thereby bringing this perspective more to the front.

  10. March 12, 2013 at 11:13 pm

    Regarding my comment above, I think an apology is in order. Here it is inappropriate to dismiss all contributions of economists in the many sub-disciplines, which was implied. Even in the case of utility theory (with its misdirection beginning in the 1870s), and economic theory more generally built thereon over the 140 years to present, much good work has been accomplished, some of which I’ve noted in this forum. But it is also true that an uncorrected error at the foundation of any mathematical discipline can adversely affect the modeling and (policy) developments derived on this foundation. It was in this sense that an assessment was drawn.

  11. Hepion
    March 14, 2013 at 3:29 pm

    Isn’t it remarkable that practitioners of economics continue to believe that their profession is “neutral”, “objective”, “value-free”, “non-political”?

    Says something about us humans as species. Call it myth of neutrality.

  12. Jeff Z.
    March 15, 2013 at 4:24 am

    I AM a completely neutral, objective, value free practitioner of economic science. I resent that remark. As soon as I finish this OP-ED for the Wall Street Journal advocating tax cuts for the rich as the key to universal prosperity and shilling for my capitalist overlords, I’m coming over there to kick your butt!

    • charlie
      March 15, 2013 at 4:01 pm

      i guessed you were :))

  13. March 28, 2013 at 6:48 pm

    Tom, “…it is also true that an uncorrected error at the foundation of any mathematical discipline can adversely affect the modeling and (policy) developments derived…” from a faulty foundation. As a designer and planner of buildings, environments, and logic systems, that quote seems a huge understatement — intentional or not? And, it inspires another question: Is it not equally or even more true of philosophical, ethical, political and commercial “disciplines” that determine/affect the quality of all human lives on Earth? If true, and clearly it is at least equally true, then it seems clearly evident that the most dismal views expressed above are probably the most accurate, however unfortunate — at least where conventional “economics” are concerned. Or did I miss summink?

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