Economists have Led Us Down the Wrong Path (updated)
The Internet, magazines, radio, and television are awash with punditry of professional and amateur economists. The one worthwhile message that might be gleaned from Conor Clarke’s interview with Robert Shiller is that out of the corner of his eye, Shiller himself hints at an important truth. When it comes to economic theory, the emperor has no clothes.
Download Two decades ago, Deming foresaw the crisis.
Economic theory has a dubious history as science. Created as an apologetic to rationalize the inequitable distribution of material wealth and social power, this so called science begs its own questions by seeking to explain observations of the relative distribution of wealth and power in society as though these observations represented some external, natural laws of human behavior. But human behavior is not governed by the laws of nature. It is governed by the beliefs, theories, and methods we create. We are the ones who make the choices that relegate ourselves to the jungle or to a society organized in ways that allow everyone to win.
Human interactions, including those things economists attempt to tease out from the whole of social behavior, cannot be addressed in the same fashion as the study of planetary motions, drifting continents, and colliding atoms. The complexity of social interaction presents mathematically intractable equations that make weather prediction simple by comparison.
Economists are not the only ones who anoint themselves with the authority of science and then place the cart firmly before the horse, but in the affairs of modern society, they are among the most pernicious.
There is a glimmer of light in Shiller’s observation that economists, (along with other scientistic shamans), are confronted with perverse incentives that drive them toward a tunneled vision of specialization. Such reductionism enhances authority, gleans promotions, and mystifies lay audiences, but in terms of understanding, it is worse than useless. It is harmful.
A new theoretical approach is required to begin to reverse the disastrous tampering effects that are being produced by scientistic reduction of social systems. This new paradigm must:
1. Acknowledge that the whole of society cannot be reduced to some set of discrete parts that can be understood in isolation from one another. In other words, there is no “economy” in isolation from the whole our our social enterprise.
2. Recognize that our society is a whole cloth in which both rational calculation and irrational behavior take place in our time and our place in history—our history’s technological, political, economic, philosophical, and normative state.
3. Understand that the intractable complexity of our social system is exponentially increased by the fact that the system creates its own weather which in turn, feeds upon itself, producing its own torments, doldrums, and calms.
4. Recognize that the principle of self-creation produces a circumstance in which naturalistic forces of evolutionary transformation are overwhelmed by sudden and often violent clashes of ideas, polities, and self-interested stakeholders. Aim to channel that energy and put it to useful work.
5. Adopt a methodology of social action that aims to bring our system into a state of control and that moves forward in creating desirable outcomes by aiming to optimize the system and continually improve.
It is time that our conversation be turned to some more innovative ways of questioning. As Albert Einstein famously said, “You cannot solve a problem from the same level in which it was created.”
