Should We Trust Economists?
Econintersect: The sub-headline immediately above is the title of a short essay by Noah Smith, assistant professor of finance at Stony Brook University (New York) appearing in The Atlantic. This is something that could have been put in the list of ten articles that Econintersect posts every day in the “What We Read Today…” feature. However, the 1,500 word essay speaks the equivalent of tens of thousands of words and deserves as broad an exposure as it can be given. Hence the brief introduction and summary that follows.
Smith compares the state of modern economics to ancient and medieval medicine. He suggests that the state of knowledge about economics, especially on the largest macro scale, can be compared to what existed in medicine hundreds and thousands of years ago. He goes even further to suggest that even the existence of macroeconomic data is deficient in a way that can be compared to medicine of antiquity.
The essay points out that economists deal with models and these have a variety of shortcomings including:
- Obviously false assumptions (a few are sited which Econintersect found hilarious);
- Simplifications that are not realistic but simply are there to make the models easier to use;
- Lack of experimental controls;
- Poor understanding of the scientific method; and
- Insufficiency of good experimental data.
Smith points out that there are leading economists who understand these shortcomings, citing Ben Bernanke and Greg Mankiw as two examples, with quotes on the subject from each.
But the most vivid analogies in the essay come from the comparison to bloodletting, a widely used treatment for many illnesses for more than 2,500 years. It turns out that bloodletting may have valid application for a few specific treatments today, but the practice over many centuries of prescription for almost every malady was, in hindsight, obviously pure and simple quackery.
From Wikipedia.
Today the widespread application of austerity for resolving a broad spectrum of economic ills may be considered in a similar light in years to come. An October 2011 column in The Guardian by Larry Elliott compared the handling of the Greek Crisis to bloodletting. Econintersect contributor Roger Erickson remarked in a private exchange shared with Econintersect:
“Use of austerity to resolve problems resulting from excess private debt and lack of money is analogous to the application of leeches to treat anemia.”
But if bloodletting, whether by leeches of a mechanical means, is the treatment du jour, then the only set of prescriptions available will be selected from that menu. As Noah Smith concludes his essay:
And in the end, you’re the Royal Physician. You may not know everything, but the prince is dying, and you pick from among the “experts” you’ve got.
From The Guardian.
Read the Noah Smith article. It does not disappoint.
Sources:
- Should We Trust Economists? Noah Smith, The Atlantic, 04 June 2013)
- A Brief History of Bloodletting (Jennie Cohen, History, 30 May 2012)
- Greek crisis: the blood-letting goes on (Larry Elliott, The Guardian, 04 October 2011)
- Bloodletting (Wikipedia)
