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Thinking like an Economist?

from Peter Radford

Thinking like an economist.

What a horrible thought.  Can you imagine anything more restrictive and less imaginative?  It requires you to disengage from reality and enter a world constrained by absurd assumptions, odd definitions, and a lack of foundation.  The entire edifice of economics sits, in all its glory, suspended in mid-air and relying on what the philosopher Daniel Dennett describes as “sky hooks” to hold it up.  Beneath it is only vapor and foggy notions of the phenomena it purports to describe and explain.  Just ask an economist to describe a market in detail and you will understand how vague the enterprise is.  

Perhaps I am wrong.  It takes a lot of imagination to conceive of what passes as economics as being a study of actual economies.  You need a really vivid imagination, for instance, to think that businesses actually calculate or apply marginal productivity on payday.  Or that the dense ignorance of total factor productivity is an actual thing and not simply a definition of how little economists know about how economies grow.  Or that there is something called an equilibrium calling out and pulling us all into a perfect quiet calm stasis devoid of the roughness or hurry-burly that makes theorizing reality so stressful.  Or … well you get the picture.

How about this: did you hear the joke about the economist?


Well, you had to be there.

The obsession with concepts like efficiency and equilibrium have driven economists into a backwater of irrelevance and, dare I say it, incompetence, that “thinking like an economist” is something many of us might, rightly, try to avoid.  

And yet.

The failure of economics in the past few years and especially back in the early 2000s needs no recapitulation.  Of course I am exaggerating.  But there is something peculiarly sad about a discipline that once was regarded as the queen of the social sciences with its imperial pomp and invasion of its neighboring disciplines being reduced to a technocratic application of bits and pieces of mathematics.  Yet that’s where it is.  Lurking around in various corners of the administrative state applying its statistical techniques to potential public policy decisions.  It has become nothing more than math applied to large data sets.  Devoid of a moral compass it claims to be “neutral” and thus a valuable and impartial arbiter of policy.

Or, at least that’s the story told by Diane Coyle in her recent book “Cogs and Monsters”.  In her telling the entire macroeconomic enterprise has gone fallow.  Having failed in their grand enterprise of reining in reality and carving into simple little models, economists have given up.  They have abandoned the big picture and gone underground.  Nowadays they focus on applying their skills to data in an effort to extract patterns that might, or might not, then inform action at a more modest lower level of activity.  

Oh how the grand debates and battles of the past seem so long ago.  

Applied math is where it is at.

Actually Coyle wants us to think of this technocratic turn as an advance.  Economics, she argues, is emerging from the shambles of 2008 in this new form.  It has become the indispensable toolkit of policy makers.  It is re-emergent and will endure in this technocratic form.  

The problem with this is, as Elizabeth Popp Berman explains in her new book “Thinking like an Economist” the substitution of efficiency for equality or other moral values in the process of policy formation is anything but a neutral activity.

Berman gives us a tour through the steady invasion of policy making by the economics profession.  She exposes the insidious way in which “thinking like an economist” became an essential aspect of policy formation mainly because it allowed politicians to avoid having to make morally based decisions.  Such decisions, as we all know, are necessarily difficult and contentious.  The convenience of a supposedly neutral score keeper is thus compelling.  The policy maker can always retreat behind the suitably cut and tormented data and argue that, however unfortunate the result may be, at least it conforms to the hard reality of “facts”.  Thes facts being the consequence of math being applied to said data. 

You can hear the policy makers voice now:  how sad it is that the policy in question cannot be more socially comforting, but facts are facts.  Reality intrudes in the form of analysis.  And that analysis was carried out by “experts” who, the public can rest assured, express no bias.  It’s just the way the numbers turn out when we think like an economist.  In this fashion economists are like superannuated accountants.  Totting bump numbers.  Running the math.  Checking the decimal points.  Expressing no opinion other than the logic is impeccable.

Berman’s history of the systematic rise of the technocracy and the influence of “thinking like an economist” within it is a depressing read.  Both sides of the political aisle have, at different times, encouraged the adoption of the sort of analysis that economists are proud of.  Government agencies have been encouraged to convert to “thinking like an economist” in order to protect them against attacks on their potential value judgements.  Decision making has been sanitized of morality.  It has been sterilized.  So, instead of creating policies with a more morally based objective — such as tackling inequality — we now are reduced, by the thought processes of economics, to a much more limited target.  Everything needs to be “efficient”.

Whatever that is.

And so we arrive back in the fog.

Since economics doesn’t engage with reality and, instead, wraps itself within a warm fuzzy blanket of assumptions designed to fend off the difficult calculations needed to wrestle with all that chaos out there, it has produced a set of techniques entirely inappropriate for real world policy decision making.  And its obsession with efficiency is a salient example of this problem.  In order to maintain the tractability of its calculus economics has uniquely defined efficiency.  It has closed up the system it analyzes.  It adopts absurd assumptions and then explains its absurdity as being irrelevant to the efficacy of the calculus. The process matters more than the result.  Or the input.  As long as the logic is impeccable any amount of embarrassing absurdity can be tolerated.  

This is now the world of technocracy.  All these experts poring over giant data sets.   It is hardly value-free to argue that efficiency dominates all other criteria.  It is the argument that an economist might make.  

And knowing, as you all do, how economists make their decisions, you all ought to be worried.

Berman certainly is. 

  1. May 19, 2022 at 4:06 pm

    “It is hardly value-free to argue that efficiency dominates all other criteria.” Exactly. I learned in business school that effectiveness is at least as important as efficiency. What does one accomplish by producing a product efficiently that doesn’t satisfy the demands of a market? Losses, efficient losses.

    Generalize this idea to macroeconomic contexts and we realize the economy we have today: concentrated markets (oligopolies), suboptimal health care systems (higher mortality rates and greater costs, abysmal failures to address the common good, government corruption (including regulator capture and the current tax regime). Effectiveness is intentional; it requires choices about what we want. Such choices require us to decide which goals are most important, which goals are less important and which goals are unimportant. That is to say, our values determine what we do. To pretend otherwise is a form of deception or a fantasy. Without values and the accompanying emotions, we simply couldn’t act at all (this should be obvious and believed ubiquitously). This fact is given. Economists have ignored this fact to their and our peril.

    Of course, the alternatives to Friedmanesque positive economics is unclear, especially the prospects for mathematization of it. But, a good start would be to include the notion of effectiveness in economists’ thinking and its elevation to first priority in analysis.

  2. May 19, 2022 at 6:25 pm

    I can readily see how this picture applies to mainstream theory, and to economics of the more theoretical kind – and this spills into a lot of policy debates. I’m not disputing that.

    But how does this analysis apply to, say, the evidence that some economists have produced on the minimum wage? That contrary to textbook theory, and to the intuitions of many people, a minimum wage set at an almost-decent level (as at present in the UK) does not have the severely damaging impact on employment that was once taken as a certain fact.

    The issue I am highlighting is that many critiques of economics and economists paint a picture that is monolithic, and that this does not apply to all the work that economists do – even ones who work in the mainstream. It is clearly relevant that when unwelcome findings crop up, as in the minimum wage example, there is often a reaction – David Card has said that he moved on to study different topics in order (I paraphrase) not to lose all his professional friends. And we know that economics teaching *is* monolithic. But a lot is going on in academic economics in mainstream departments that is, to put it politely, not well described by this article.

    • bruceolsen
      May 19, 2022 at 7:16 pm

      “But a lot is going on in academic economics in mainstream departments that is, to put it politely, not well described by this article.”

      Claiming that there is “a lot” of non-orthodox activity going on in mainstream departments is, to put it politely, malarkey.

      If anything there’s a bifurcation, where some departments are narrowly-constrained and some are much less so.

      But the power in the profession at large is still held tightly by the group Radford describes, and that’s the important point.

    • Meta Capitalism
      May 24, 2022 at 11:49 pm

      I read and listen to a lot of books written by economists outside of the list RWER publishes. Some I learned about from others here on RWER, but most I found by dogged reading and following good author’s references. I don’t know if the authors are mainstream or not. That classification is above my pay grade.

      Is Rod Hill and Tony Myatt’s The Economics Anti-Textbook: A Critical Thinkers Guide to Micro-Economics mainstream or heterodox? I really don’t know. I do know it calls out the unrealistic assumptions and offers, refreshingly, the anti textbook version of questions that often never get asked by those who have an abundance of empty useless ideas (i.e., rhetoric of economism) but now useful ideals that raise important, even critical, questions thereby pointing in the direction economics needs to go to make practicing economists useful again.

      I could list many, but that would be spamming this site, so I will list just a couple I have recently either listened to, or read, or both, and will do so again because they were so good. One such book is Eric Lonergan and Mark Blyth’s Angrynomics. Another is Martin Sandbu’s The Economics of Belonging: A Radical Plan to Win Back the Left Behind and Achieve Prosperity for All.

      Again, I don’t know how to classify them as authors or where they fit on the economic autism spectrum. But many raise similar issues and make similar arguments to the books on the right hand side of this comment.

  3. Garrett Connelly
    May 19, 2022 at 11:29 pm


    I often wonder how a real economist thinks. What would a gently declining population using less and less in a conscious effort to stave off human extinction and simultaneously support earthly evolution be like?

    Everything needs to be efficient, thanks, I keep forgetting efficiency is leading to extinction,

    Garrett Connelly


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