Home > financial crisis, The Economics Profession > 5 acts in the history of modern economics

5 acts in the history of modern economics

from Edward Fullbrook

Kevin Gallagher has called my attention to a brilliant interesting piece in today’s New York Times on the past, present and future of modern economics.  It comes from an unlikely source, Republican commentator David Brooks.  Titled “The Return of History”, it declares that the change currently taking place in economics “is clearly one of the most consequential things happening in the world today.”  Brooks divides the history of modern economics into five acts: scientism, splintering and slowly emerging sophistication, exposure of the shortcomings of the whole field by its “causing untold human suffering”, soul-searching (today), and the blowing up of the whole field to become a subsection of history and philosophy.

Act I in this history would be set in the era of economic scientism: the period when economists based their work on a crude vision of human nature (the perfectly rational, utility-maximizing autonomous individual) and then built elaborate models based on that creature.

 

Act II would occur over the past few decades, as a few brave economists tried to move beyond this stick-figure view of humanity. Herbert Simon pointed out that people aren’t perfectly rational. Gary Becker analyzed behaviors that don’t seem to be the product of narrow self-interest, like having children and behaving altruistically. Amos Tversky and Daniel Kahneman pointed out that people seem to have common biases when they try to make objective decisions.

 

Act III, the economic crisis of 2008 and 2009. This act is a climax of sorts because it exposed the shortcomings of the whole field. Economists and financiers spent decades building ever more sophisticated models to anticipate market behavior, yet these models did not predict the financial crisis as it approached. In fact, cutting-edge financial models contributed to it by getting behavior so wrong — helping to wipe out $50 trillion in global wealth and causing untold human suffering.

 

Act IV, the period of soul-searching that we are living through now. More than a year after the event, there is no consensus on what caused the crisis. Economists are fundamentally re-evaluating their field. . . . are taking baby steps into the world of emotion, social relationships, imagination, love and virtue.

 

In Act V, I predict, they will blow up their whole field.

Economics achieved coherence as a science by amputating most of human nature. Now economists are starting with those parts of emotional life that they can count and model (the activities that make them economists). But once they’re in this terrain, they’ll surely find that the processes that make up the inner life are not amenable to the methodologies of social science. The moral and social yearnings of fully realized human beings are not reducible to universal laws and cannot be studied like physics.

Once this is accepted, economics would again become a subsection of history and moral philosophy. It will be a powerful language for analyzing certain sorts of activity. Economists will be able to describe how some people acted in some specific contexts. They will be able to draw out some suggestive lessons to keep in mind while thinking about other people and other contexts — just as historians, psychologists and novelists do.

At the end of Act V, economics will be realistic, but it will be an art, not a science.

The whole of David Brooks article is available at http://www.nytimes.com/2010/03/26/opinion/26brooks.html

 

 

  1. March 26, 2010 at 4:35 pm

    With all due respect, I do not see anything “brilliant” in this rather brief and superficial article. Brooks ia one of the slicker neocons and chameleons able to project an aura of “reasonableness” that gets himself all sorts of gigs on TV talk shows as the “rational” or “non-raw-meat-feeding” neocons. Normally, with his B.A. in History from Chicago, he might be qualified as an assistant manager at a Pizza Hut or Mickey Dees; but as one of the more effective pimps for right-wing ideology, he has an ample supply of patrons to thrust him to the etherial “heights” of right-wing “think” tanks and as a columnist for the “flagship” New York Times whose slogan should be “All the news that’s print to fit [the acceptable fables and agenda of the status quo and ruling class]”.

    • March 26, 2010 at 4:59 pm

      Some readers will have noticed that in the second sentence I noted that the article “comes from an unlikely source.” Not very graphic, but the point is there. “Brilliant” is not a brilliant choice of adjective. “Interesting” would have been better.

      Perhaps in a number of words similar to what Brooks used, you can offer us a less superficial history of modern economics.

  2. March 26, 2010 at 5:06 pm

    David Brooks has no idea of what economic theory is, where it’s going or where it came from. His five act story is incoherent, misleading and has so many gaps and holes it is insufferable. His account of Gary Becker is probably the most laughable part of his narrative. And by the way, I don’t see a lot of “soul searching” these days.

  3. Deniz Kellecioglu
    March 27, 2010 at 5:17 pm

    As someone in Sweden and who has no idea about David Brooks, I found the article indeed very interesting and thought-provoking. In so, this does not mean I agree with all the contents of the article. In particularly, neither do I recognise any significant “soul-searching” at economics departments, unfortunately. The thought-provoking part is especially important, triggering us economists to be scientifically creative and progressive.

  4. Peter Radford
    March 29, 2010 at 4:07 am

    Anything that moves the discussion of the state of economics into the public sphere is to be welcomed. In this context Brooks performs a service. Far too few people know the sad contribution certain kinds of economics made to the crisis: they may blame the banks, but they don’t realize the deeper problem represented by the economic theories informing the bank risk models, the regulatory response, and the government policies that brought the crisis on.

    The weakness in his conclusion is that he fails to recognize the effort being to surface the diversity within economics and the fact that the field has suffered through periods of crisis before. That diversity will ensure its survival as a separate field of study, although much of what Brooks would recognize as textbook economics may well fade away. And the renewed argument about what economics is will inevitably reveal new paths for it to take.

    For the record, my own ‘five acts’ would speak to a series of alternating periods of coherence and de-coherence, built around an early phase of discovery and identifying what economics is; a phase of diverse theory; a phase of scientism; a phase of reduced diversity and inevitable collapse; and a final phase of renewal built upon a new diversity.

  5. larry martin
    March 30, 2010 at 12:00 am

    I agree, Brooks’ article is not at all brilliant and could have been cribbed from hundreds of critical diatribes levied at the profession on sundry blogs – which is to say his opinion is only notable in coming from someone with his bio. Score one on that count. Its important to distinguish microeconomics from the macro. Macro, which was Brooks’ target should never have been separated from the earlier moniker “political economics.” Micro – which is closer to a true science, has a much better track record as it is dedicated to understanding economic behavior among competing businesses – not shoehorning political ideology into mathematical equations.

  6. March 31, 2010 at 1:04 am

    Really, his conclusion could be right out of the Austrian handbook. The Austrians hold that any sort of mathematical / statistical social sciences approach to economics is doomed to failure, and thus only the Austrian method of logical reasoning from postulates pulled out of their bungholes as “truths” is correct for thinking about economics.

    Of course, as my Philosophy 208 (Logic) professor pointed out some thirty-odd years ago, if you start reasoning from false postulates, you end up with meaningless conclusions. If I start reasoning with, “All politicians are orange; John Boehner is orange, thus John Boehner is a politician”, I might think it’s correct. But then I come up with “All politicians are orange, Barack Obama is brown, thus Barack Obama is not a politician”. A false premise (“All politicians are orange”) led to a false conclusion. Yet that is where the Austrians take us — into the realm of false premises that they “prove” are true much as I “proved” that all politicians are orange by looking at the examples of John Boehner and Charlie Crist.

    The reality is that economic models validated by statistics do have use — as models, that imperfectly capture aspects of an economic system and have validity only insofar as they agree with the data they supposedly model. Insofar as these models can predict what happens in certain situations — such as what happens when we hit the zero bounds and enter liquidity trap territory — and insofar as these models agree with what we’ve actually observed in prior incidents where economies have hit the zero bounds and entered liquidity trap territory — they are useful. Throwing the baby out with the bathwater just because some of the models proposed by the Chicago school have no correspondence to any reality lacking pink unicorns and cotton candy trees is ridiculous, but it doesn’t surprise me that Bobo Brooks does it. After all, hacks hate facts, especially facts that happen to agree with models that predict them. Facts are inconvenient, and make it hard for them to lie to the American people about the results of policy decisions made by government and their effect upon the economy. And what fun is that?

  7. April 6, 2010 at 5:24 pm

    The problem, one of them, with “philosophical positivism” and the notion that prediction is the sole test of the validity of theory and the hypotheses they support, is that one can find, with appropriate sources, data bases and methodologies, and lack of specificity in time horizons, all sorts of possible “confirmations” of predictions that lay in the eye of the beholder and ideologically-jaundiced searcher for confirmation of his own theories. Friedman’s notion that the validity of axioms or postulates, and the deductive validity (conclusions follow properly from asumptions) in the embodied syllogisms of theory and hypothesis, axioms that may well appear “counter-intuitive”, are also “confirmed” (with no need for adduction-based empirical support) by the accuracy of the predictions of theory ignores the real-world influences that cause “backwards deduction” or choosing the ideologically-preferred conclusions or predictions then looking for preferred “premises” that lead “deductively” to those preferred and contrived conclusions.

  8. Simon
    April 12, 2010 at 1:21 pm

    It strikes me how Act V resembles my personal favorite comparison on the subject.

    I use to say economics need an equivalent of Goedel (who described the limitations to logic in logic’s own terms) and one of Heisenberg (who described the limits of observation in physics). (Of course, any field should have something to properly limit itself.)

    So I guess I should reconsider whether I’m conservative now.

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