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What use is economics?

Posted on October 06, 2017 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

‘Economics’ is often viewed as a ‘positive science’ that examines choices in a world of constrained resources.  One only has so much time or money or capital (including human).  There are so many choices and needs.  The ‘science’ of economics, it is claimed, involves optimising outcomes or well-being by making the most efficient use and allocation of resources.  The notion of ‘equity’ or what we might call social justice is given a nod. In fact, it becomes a rarified section or chapter of a book or conference.  When pressed on the human reality of market forces, the revered Economist declares ‘that is a distributional or micro matter and you should talk to a micro-economist or specialist in distributional economics and dynamics’.

Increasingly, ‘economics’ has become a term which encompasses a vast range of specialisms, each with its own language and preoccupations. What use is ‘economics’ to public policy and organisational practice? Clearly, it must be of some use as Governments, banks, trade unions, business organisations, political parties and non-governmental organisations employ ‘economists’. Economists frequently occupy a special and privileged role as sages versed in much knowledge and skill in analysing and interpreting the behaviour of individuals, firms and other institutional actors. More than that, economists are not typically shy about offering views and advice on what should be done about many matters ranging from public spending to transport regulation to behavioural incentives in the workplace. The claimed centrality of ‘Evidence’ as a support for public policy marks out economics as a discipline known for its self-proclaimed rigour, objectivity and detachment. 

The claim is made that economists are neutral – especially those working in academia or what might be viewed as pure research foundations or think tanks. This claim is based on the idea that economics is, indeed, a science and involves observation and measurement and, in some cases experimentation and predictability on the basis of observed and repeated experiments. 

Now, evidence in whatever form (including but not exclusively empirical evidence associated with analysis of statistics) is vital to good research.  Public policy needs to be informed by the evidence in relation to how a particular arrangement or policy approach has worked in the past or in various settings.  For this reason, economists employed in the public service, for example, provide an important service in regards to the analysis of data right up to and including the assessment of various policy options.  However, we need to guard against two possible fallacies:

  1. That what is known as the discipline of economics is a full, comprehensive, universal and primary body of knowledge to guide public policy (there are, it must be pointed out, many ways and methods of approaching the complexity of markets and institutions including those offered in such disparate fields as social psychology, neuroscience, ethics, philosophy and law).
  2. That the exercise of economic research can be separated from the specific biases, culture, economic interests and historical context in which it is carried out.

On this latter point, it must be recognised that the very research questions we chose to ask, the sources consulted and employed and the audience for which it is written reflect our priorities, our assumptions, our interests. In saying this, it is not implied that any economist worthy of the name must not take great care in the use of data and in the methods of analysis used. Honesty must be the hallmark of all research. Unusual or discomforting facts (for whatever reason) must be fully acknowledged and pointed out.  To declare what we do not know is just as important as to declare or claim what we do (or what we think we do).  Economists do not have all the answers and we are not the equivalent of technicians in a laboratory mixing chemicals or observing the motions of the galaxies.  We are, rather, creatures of a particular era and fashion of thinking embedded in complex societies and personal histories and hopefully seeking to do an honest job of searching for truth and justice in the world around us. And, in that last sentence lies a very explicit values statement!

The great political economist of the 19th century who got many things wrong and whose followers and disciples got even more things wrong famously wrote in his Theses on Feuerbach:

The philosophers have only interpreted the world in various ways; the point, however, is to change it.

I entirely share the view of Ha-Joon Chang when he wrote in that marvellously well-written book which many of us should read –  Economics: The user’s guide (Chang, 2014:451):

Economics is a political argument. It is not - and can never be - a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgments. Therefore, when faced with an economic argument, you must ask the age-old question ‘Cui bono?’ (Who benefits?), first made famous by the Roman statesman and orator Marcus Tullius Cicero.

 

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