12 commandments for economists to improve their reputation
2011 was another year that did little to improve the reputation of economists. But that can change — if they follow these 12 tenets in 2012.
By Bibek Debroy, ET Bureau |
2011 was another year that did little to improve the reputation of economists. But that can change — if they follow these 12 tenets in 2012.
1. Don’t Predict:
Economists should formally accept they are good at predicting the past, not the future. They didn’t anticipate the East Asian crisis (1997-98), the global financial crisis (2008) or the Great Depression (1939).
At home, in 2011, economists got growth and inflation forecasts wrong. If economists are honest about their bag of tools, they can dispense with pretended exactitude.
2. Be Tolerant:
In 2009, in the aftermath of global crisis, Paul Krugman wrote a piece titled, “How Did Economists Get It So Wrong?” He said contrarian views were dismissed and discouraged by mainstream economists.
Look at India now: rare is the policymaking economist who will not swear by inclusive growth and socialism, whatever those expressions might mean. They should listen to those who talk like heretics.
3. Do Less Math:
Unlike other social sciences, economics is more rigorous. However, it isn’t physics and you can’t conduct experiments under controlled lab conditions. Equations are useful, but only up to a point. As a profession, economists’ drive the case for mathematical models too hard.
4. Remember the Costs:
The best definition of economics is still that by Lionel Robbins. “Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”
This is the principle of opportunity costs, a principle that underlies all economics, but a principle that economists invariably forget.
They should always work out the costs of not putting resources to an alternative use before recommending policy. Using public money — note the debt crises — particularly calls for this.
5. Read the Classics:
Classical economists had a far better understanding of the institutional underpinnings of economics, including political economy and the legal system and a much more sceptical attitude to math.
Alfred Marshall told his student, Arthur Cecil Pigou, that any principle that couldn’t be illustrated by real life examples wasn’t worthy of economics.
6. Revisit Assumptions:
Rationality and perfect information — every economist knows these assumptions are rarely satisfied. They also know they don’t have a handle on expectations. But they don’t act accordingly, instead pretending there’s some kind of unified field theory where we know how the economy will function.
1. Don’t Predict:
Economists should formally accept they are good at predicting the past, not the future. They didn’t anticipate the East Asian crisis (1997-98), the global financial crisis (2008) or the Great Depression (1939).
At home, in 2011, economists got growth and inflation forecasts wrong. If economists are honest about their bag of tools, they can dispense with pretended exactitude.
2. Be Tolerant:
In 2009, in the aftermath of global crisis, Paul Krugman wrote a piece titled, “How Did Economists Get It So Wrong?” He said contrarian views were dismissed and discouraged by mainstream economists.
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Look at India now: rare is the policymaking economist who will not swear by inclusive growth and socialism, whatever those expressions might mean. They should listen to those who talk like heretics.
3. Do Less Math:
Unlike other social sciences, economics is more rigorous. However, it isn’t physics and you can’t conduct experiments under controlled lab conditions. Equations are useful, but only up to a point. As a profession, economists’ drive the case for mathematical models too hard.
4. Remember the Costs:
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The best definition of economics is still that by Lionel Robbins. “Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.”
This is the principle of opportunity costs, a principle that underlies all economics, but a principle that economists invariably forget.
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They should always work out the costs of not putting resources to an alternative use before recommending policy. Using public money — note the debt crises — particularly calls for this.
5. Read the Classics:
Classical economists had a far better understanding of the institutional underpinnings of economics, including political economy and the legal system and a much more sceptical attitude to math.
Alfred Marshall told his student, Arthur Cecil Pigou, that any principle that couldn’t be illustrated by real life examples wasn’t worthy of economics.
6. Revisit Assumptions:
Rationality and perfect information — every economist knows these assumptions are rarely satisfied. They also know they don’t have a handle on expectations. But they don’t act accordingly, instead pretending there’s some kind of unified field theory where we know how the economy will function.
7. Respect Other Sciences:
Economists should read disciplines like history, political science, sociology that can offer insights into human behaviour. Such wisdom gained might reduce economists’ obsession with ‘rationality’.
8. Question Data:
Especially important for India, where data quality is suspect. They should read or reread the report of National Statistical Commission. In India, with large unorganised segments, we have no handle on what is going on. Do economists’ prognoses reflect sufficient sensitivity about this blemish?
9. Don’t Cite Precedence:
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Development is typically context, society and country-specific. So precedence from other countries rarely matters. More so since economists will always cite bad news. So the Western crisis is cited for India, forgetting different contexts.10. Don’t Forget Alfred:
For Alfred Marshall, demand and supply were two blades of scissors — markets are the core of economics. Market outcomes may be deemed unsatisfactory. But economists must first ask the cost of intervention in markets.
11. Travel Around:
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Indian economists, most of them, plan for developments sitting in Delhi and assume what they know is best. Swami Vivekananda and Mahatma Gandhi travelled around the country to get to know it. Why can’t economists?PS: Economists are urged to read The Hitchhiker’s Guide to the Galaxy, a bestselling spoof sci-fi novel. The book talks about a mythical planet called Magrathea in this fashion: “Magrathea is a myth, a fairy story, it’s what parents tell their kids about at night if they want them to grow up to be economists.” As the year begins, that joke should be a sobering thought for economists.
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