Friday, July 11, 2008

The Failure Of (Non-Austrian) Economics

Via Anthony Mueller's Continental Economics Blog I see the following interesting column by Simon Jenkins, where he like John McCain indicts [the majority of] economists for their failure to predict the current problems.

"When I studied economics we were told we would be masters of the universe. Ours was not a dismal but a noble science. It had harnessed the verities of maths to those of human behaviour and would go on to conquer politics. Rampant recession would go the way of hyperinflation. Like leprosy and cholera, they were epidemics that modern medicine had rid from our shores."

And then he goes one to describe to how economists have failed in this, whereupon he concludes that economics is not a science and that ultimately political considerations should determine economic policy.

I agree with some of this. Certainly neoclassical economists have failed miserably in trying to predict the economy, "despite" their allegedly "scientific" approach of expressing economic theories in the forms of Greek letters analyzed through Lagrange multipliers. And certainly, human behavior and therefore economic aggregates doesn't
really function that way and so attempts to do it will fail.

And I also agree that there is more to political decision making than economics. Economics can only describe what outcomes will follow if you follow certain policies. It doesn't say anything whether those outcomes are desirable or not.

However, I would disagree in his view that economics should be entirely dismissed from economic decision making. Because he believes, based on the failure of neoclassical economics, that economics can't describe the consequences of various policies. Yet even neoclassical economics can sometimes do that, even if they for ridiculous reasons express it in terms of Greek letters. And Austrian economists can usually describe the consequences of various policies.

In short: the current crisis does indeed expose the shortcomings of neoclassical economics. But that shouldn't be taken as a pretext to reject all economics, considering that there has been one school of economics who have predicted the current mess.


Anonymous Anonymous said...

Good Thinking!

Austrian Economics have predicted everything, one can conclude.

The only difficult thing is the "when will it happen"- question?

Have a nice summer,
Göran, Sweden

12:54 PM  

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