Philip Mirowski has a must-read article in The Hedgehog Review about ‘The Great Mortification‘: the soul-searching (such as it is) that the economics profession has undergone since 2007. Two key points in Mirowski’s article are really important–and are relevant to most, if not all, intellectual disciplines. The first is “This Is What Happens When You Banish History and Philosophy”:
…the task is to recount these events as a sequence of otherwise avoidable tragedies, the first of which must be conceded to have been the exile of history and philosophy from any place within the contemporary economic orthodoxy. After a brief flirtation in the 1960s and 1970s, the grandees of the profession took it upon themselves to express their disdain and scorn for the types of self-reflection practiced by “methodologists” and historians of economics and to go out of their way to prevent those so inclined from occupying any tenured foothold in reputable economics departments.
It was perhaps no coincidence that history and philosophy were the areas where one found the greatest concentrations of skeptics concerning the shape and substance of the postwar American economic orthodoxy.
Believe it or not, those stupid fucking natural history facts do matter:
….biologists aren’t only trying to derive general principles, they’re also trying to figure out how organism- or system-specific processes work.
To use a very macabre example, we are interested in a how a gun fires a bullet–and in a controlled environment, we can estimate very precisely how that bullet will travel. But, a biologist is also faced with the task of trying to figure out what happened on the grassy knoll in Dallas. The study of ballistics is necessary, but not sufficient. At the risk of completely tasteless overkill, does anyone view September 11th primarily (or even entirely) as a structural engineering problem? Those stupid natural history facts matter too. Understanding and predicting particular events also requires a knowledge of phenomena that can not be generalized and reduced to simple general theory.
The other key point is that, just as some ecologists and evolutionary biologists declared during the 1970s and 1980s that those disciplines suffered from ‘physics envy‘, so too economics:
As I have shown elsewhere in detail, neoclassical economics was born of a crude attempt to directly imitate physics in the 1870s, and American orthodoxy was the product of further waves of physicists cascading over into economics in the Great Depression and WWII….
Actually, it is understood among the cognoscenti that physicists have again been tumbling head over heels into economics since the 1980s, as their own field experienced severe contraction at the cessation of the Cold War. And where did most of them end up? Why, in the banks, of course, inventing all those ultra-complex models for estimating and parceling out risk. Some troubled to attain some formal degree in economics, while others felt it superfluous to their career paths. In any event, the exodus of natural scientists into economics was one of the (minor) determinants of the crisis itself–without “rocket scientists” and “quants,” it would have been a lot harder for banks and hedge funds to bamboozle all those gullible investors. So much for the bracing regimen of a background in the natural sciences.
If anything, responses to critics that tended to pontificate upon the nature of “science” were even more baffling than the original calls for deliverance through natural science in the first place. Economists were poorly placed to lecture others on the scientific method; although they trafficked in mathematical models, statistics, and even “experimentation,” their practices and standards barely resembled those found in physics or biology or astronomy. Fundamental constants or structural invariants were notable by their absence. Indeed, one would be hard pressed to find an experimental refutation of any orthodox neoclassical proposition in the last four decades, so appeals to Popper were more ceremonial than substantial. Of course, sometimes the natural sciences encountered something commensurable to a crisis in their own fields of endeavor–think of dark matter and dark energy, or the quantum breakdown of causality in the 1920s–but they didn’t respond by evasive maneuvers and suppressing its consideration, as did the economists.
The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.
In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time.
Should this reassure us that we can avoid another crisis? Alas, there is no such certainty. The only way of being certain that one will not fall down the stairs is to not get out of bed. But at least economists, having observed the history of accidents, will no longer recommend removing the handrail.
Unlike some who denigrate economics, I’m not glad it failed–it needs to get things right next time. But it needs to spend less time trying to glimpse the Economic Godhead and more time explaining concrete economic phenomena, and that will require approaches in addition to abstract mathematical models.