The Lessons of Reinhart/Rogoff for the Construction of Reality

by Dirk Ehnts, Econoblog101

The recent scandal of the 90% debt to GDP ratio that supposedly would drive any economy into lower growth has highlighted the limits of knowledge and what passes for such. I think it is important to point out that if somebody tells you to jump out of the window and you do it and break your leg you are still responsible for your action. Of course, you will say, I did not know what to do. There was fundamental uncertainty because this never happened before. Also, I did not have enough information.

Arguments along that line are futile. We all live in an uncertain world. We all are biased by our personal histories to believe in certain things easier than in others. Social pressures exist, too. That is normal. It is nothing new. The fact that some people believed that they knew everything does not absolve them from being responsible. This has been known for centuries. Here is a quote from Ortega y Gasset (1932[1930], 93) which makes that exact point (my highlighting):

It is true, of course, that at any moment, and therefore actually, an infinity of things is happening in the world. Any attempt, then, to say what is happening in the world to-day must be taken as being conscious of its own irony. But for the very reason that we are unable to have directly complete knowledge of reality, there is nothing for us but arbitrarily to construct a reality, to suppose that things are happening after a certain fashion. This provides us with an outline, a concept or framework of concepts. With this, as through a “sight,” we then look at the actual reality, and it is only then that we obtain an approximate vision of it. It is in this that scientific method consists. Nay, more, in this consists all use of the intellect.

If things go their normal way, the policy makers and politicians that have collaborated to impose austerity on Europe should be voted out of office or moved into positions where they can do no harm. Also, universities should come clean about what the consider to be economics. Is it a normative science that tells people how to live (as “rational” beings) and as a result of which many people will be leading less fulfilled lives, or is it a positive science that tries to explain to students how the world works, how reality is constructed and on which ideas we base our institutions? Of course, I believe that the latter project must be the way forward.