Seven sins of economics

from Lars Syll

There has always been some level of scepticism about the ability of economists to offer meaningful predictions and prognosis about economic and social phenomenon. That scepticism has heightened in the wake of the global financial crisis, leading to what is arguably the biggest credibility crisis the discipline has faced in the modern era.

Some of the criticisms against economists are misdirected. But the major thrust of the criticisms does have bite.

There are seven key failings, or the ‘seven sins’, as I am going to call them, that have led economists to their current predicament. These include sins of commission as well as sins of omission.

Sin 1: Alice in Wonderland assumptions

The problem with economists is not that they make assumptions. After all, any theory or model will have to rely on simplifying assumptions … But when critical assumptions are made just to circumvent well-identified complexities in the quest to build elegant theories, such theories will simply end up being elegant fantasies.

Sin 2: Abuse of modelling

What compounds the sin of wild assumptions is the sin of careless modelling, and then selling that model as if it were a true depiction of an economy or society …

Sin 3: Intellectual capture

Several post-crisis assessments of the economy and of economics have pointed to intellectual capture as a key reason the profession, as a whole failed, to sound alarm bells about problems in the global economy, and failed to highlight flaws in the modern economic architecture …  

Sin 4: The science obsession

The excessive obsession in the discipline to identify itself as science has been costly. This has led to a dangerous quest for standardization in the profession, leading many economists to mistake a model of the economy for ‘the model’ of the economy …

The science obsession has diminished the diversity of the profession, and arguably allowed complacency to take root in the run-up to the global financial crisis …

Sin 5: Perpetuating the myth of ‘the textbook’ and Econ 101

The quest for standardization has also led to an astonishing level of uniformity in the manner in which economists are trained, and in the manner in which economists train others. Central to this exercise are textbooks that help teach the lessons of ‘Econ 101’—lessons disconnected from reality as they are from the frontiers of economic research …

Sin 6: Ignoring society

What makes Econ 101 and a lot of mainstream economics particularly limiting is its neglect of the role of culture and social norms in determining economic outcomes even though classical economists such as Adam Smith and Karl Marx took care to emphasize how social norms and social interactions shape economic outcomes …

Economists typically don’t engage with other social sciences, even though insights from those disciplines have a direct bearing on the subjects of economic enquiry …

Sin 7: Ignoring history

One way in which economists could have compensated for the lack of engagement with other social sciences is by studying economic history. After all, studying economic history carefully can help us understand the social and institutional contexts in which particular economic models worked, or did not work …

But economic history has been relegated to the margins over the past several years, and many graduate students remain unacquainted with the subject still.

Pramit Bhattacharya