Harford versus Rachman apie ekonomikos "mokslą"

Sweep economists off their throne
By Gideon Rachman
www.ft.com
Published: September 6 2010 20:08 Last updated: September 6 2010 20:08

When Paul Krugman, a Nobel prize-winning economist, clashed with Niall Ferguson, a famous historian (and FT contributing editor), over how best to respond to the economic crisis, Prof Ferguson’s response was humorously humble. “A cat may look at a king,” he wrote, “and sometimes a historian can challenge an economist.”

As the proud owner of a huge grey Chartreux cat, and a history graduate, I believe that it is time to overturn this implicit intellectual hierarchy. The cats must unsheath their claws and lacerate the kings, ripping away their regal pretensions. The vanity of economists needs to be challenged. Above all, their claim to scientific rigour – buttressed by models and equations – must be treated much more sceptically.

When things were going well for the global economy, the prestige of economists rose steadily. They were the gurus of the age of globalisation. Governments, consultancies and investment banks rushed to hire economists, who were thought to possess vital skills and information. Historians, by contrast, were treated as mere entertainers and storytellers. They were archive-grubbers, lacking in scientific method – good on television, but useless with a PowerPoint and no help in government or the boardroom.

There has been some self-examination and soul-searching within the economics profession since the onset of the financial crisis. Joseph Stiglitz, another Nobel prize-winning economist, has suggested that: “If science is defined by its ability to forecast the future, the failure of much of the economics profession to see the crisis coming should be a cause of great concern.” Yet Prof Stiglitz’s conclusion is disappointingly mild: economists must simply search for new “paradigms” – and then presumably go back into the business of scientific prediction.

For somebody educated as a historian, there is an obvious alternative conclusion to draw from Prof Stiglitz’s opening observation. And that is to conclude that the entire attempt to treat economics as a “science ... defined by its ability to forecast the future” is misconceived.

The current debate reminds me of an after-dinner speech I once heard given in the mid-1980s by the late Geoffrey Elton, who was then regius professor of modern history at Cambridge. Elton argued that the function of the historian was to concentrate on the particular and the specific and to puncture the pretensions of social scientists, with their constant and futile effort to derive general, predictive laws from the study of the past. At the time – and through a fug of cigar smoke and alcohol fumes – it struck me as a curiously conservative and negative definition of the role of the historian. Our task, it seemed, was simply to stick our hand up and say: “Actually, chaps, it was a bit more complicated than that.”

But, in the current intellectual climate, it seems to me that Elton was saying something important. He was defending the empirical method and setting boundaries for what can be expected from the study of the past. With the exception of a few deluded Marxists, historians know that their work cannot be used to predict the future. History can suggest lessons and parallels and provide wisdom – but what it cannot do is provide a sociological equivalent of the laws of physics. Yet this seems to be the aspiration of many economists, who notoriously suffer from “physics envy”.

Some might respond that such a critique exaggerates the hardness of “hard” science and the softness of economics. Maybe so: but then again buildings constructed according to the laws of physics seem to stand, whereas policies and trading systems constructed according to the “laws” of economics have a nasty habit of collapsing.

Yet economists seem unlikely to abandon the belief that theirs is a discipline that makes “progress” and settles issues, in a way that resembles a hard science such as physics or chemistry. Ben Bernanke, the current head of the Federal Reserve, exemplified this belief in a famous speech in 2004 on the “Great Moderation”, in which he argued that there had been a “substantial decline in macroeconomic volatility”, largely because of improved monetary policy, based on advances in economic thinking.

The subsequent financial and economic crash may have dented the confidence of some economists in particular tenets of their discipline. But the Great Recession seems unlikely to dissuade many economists from the more fundamental belief that there are, indeed, predictive “laws” out there, just waiting to be discovered.

Rather than seeking to ape physicists, however, perhaps it is time for economists to learn a few lessons from history, or more precisely from historians.

The serious study of history goes all the way back to Herodotus in the fifth century BC. And yet today’s historians are far humbler about what they can hope to achieve than modern economists. Historians know that no big question is ever definitively settled. They know that every big and interesting topic will be revisited, revised and examined from new angles. Each generation will reinterpret the past and deliver its own verdict.

This way of looking at the world is less obviously useful to practical men, seeking to make decisions. But maybe it is time for an alternative to the brash certainties, peddled by those pseudo-scientists, otherwise known as economists.

gideon.rachman@ft.com


Models tell us more than hindsight
By Tim Harford
www.ft.com
Published: September 10 2010 22:41 Last updated: September 10 2010 22:41

According to my esteemed colleague Gideon Rachman, economists should be swept off their thrones by historians. Economists have had far too strong a stranglehold on the levers of power, he claims. They think they are scientists. They think they can foretell the future. They are wrong: “pseudo-scientists”, “peddling brash certainties”. Historians such as Gideon and Professor Niall Ferguson, hitherto relegated to backwaters such as the FT’s op-ed page, should at last be paid a bit of attention.

In pondering how to respond, I suffered an acute shortage of brash certainty. Gideon is quite right about the importance of history. When it comes to economics, however, the chief source of brash certainties appears to be Gideon, who wouldn’t know an economic model if it paraded down a catwalk at him.

I know as little about history as Gideon knows about economics, but no doubt he is right to suggest that an important role of the historian is to emphasise the knotty particularity of time and place, and the difficulty of producing sweeping scientific laws that accurately describe a complex social world. Economists, sociologists, psychologists and anthropologists should appreciate this just as keenly. The best do. Many do not and, sadly, they are over-represented in the media. Perhaps this is the reason Gideon misunderstands the task and the methods of economics.

He argues that while economic edifices are always collapsing, “buildings constructed according to the laws of physics seem to stand”. This is an odd statement. Buildings constructed according to the laws of physics have a habit of falling down. Henry Petroski, engineer and author of Success through Failure, observes that structural engineers tend to learn by constructing ever more ambitious structures. When one of them falls down or wobbles, engineers figure out what was wrong with their models. Sometimes the results are tragic: when the innovative Malpasset dam cracked thanks to inadequate geological modelling, nearly 400 people died. Sometimes they are delicious: the award-winning Kemper Arena collapsed, with no loss of life, just 24 hours after hosting the American Institute of Architects Convention. From his riverside eyrie, I think Gideon can just see the famous wobbly bridge across the Thames. Is this really a damning indictment of the laws of physics?

But, of course, our grasp of the laws of physics is not to blame. The trouble is the difficulty of modelling them in a world with snowdrifts, clay seams and error-prone contractors. In short, buildings, like economic institutions, stand up not because of our grasp of the laws governing them, but because they have survived a process of trial and error in a complex world.

Economic institutions are more complicated and unique than any building. No wonder that progress is so difficult. But Gideon is too quick to dismiss “models and equations”. I agree that macroeconomic models have proved fairly useless. I also agree that economists, like historians, sociologists, political scientists and newspaper columnists, make terrible forecasters. But few academic economists bother to try, and forecasting models represent a small slice of the mathematics deployed by economists.

What, for instance, of the famous contention by the economist Steven Levitt and his co-author, John Donohue, that legalised abortion in the US reduced the crime rate about 18 years later? This is a hypothesis about history, but one that no historian is well-qualified to judge. Instead, the hypothesis has been tested statistically with some ingenuity; the statistical models themselves have been contested, pulled apart, found wanting in some respects, double-checked using alternative data and tested against the experience in other countries. The debate continues. Is this process “science”? I am not sure. But it certainly isn’t idle banter.

No doubt economists can learn from historians, but the search for economic regularities should not be abandoned. It is not limited to traditional economic approaches. We know much more about economics thanks to the work of Robert Axtell (computer scientist), Cesar Hidalgo (physicist), Duncan Watts (sociologist), Esther Duflo (an economist who runs the kind of controlled experiments which, according to Gideon, don’t happen in economics) and Daniel Kahneman (psychologist). All of them use those pesky “models and equations”. Are mainstream economists receptive enough to such invaders? The best ones are. The majority are not, but that is a fact about academia, not economics.

At least Kahneman has been rewarded for his efforts with a Nobel memorial prize. (Or as Gideon would put it, a “fake Nobel”. The Nobel Memorial Prize in Economics was established in 1968, long after the dynamite magnate’s death, unlike the rigorously scientific Nobel Peace Prize awarded to Henry Kissinger, or the rigorously scientific Nobel Prize for Literature denied Leo Tolstoy.)

My own supervisor, Paul Klemperer, is presumably the kind of economist Gideon despises: a game theorist who tries to understand the world through mathematical models. How quaint and arrogant. But my clearest recollection of Paul’s teaching is a series of classroom demonstrations calculated to undermine predictions of game theory and to open his students’ minds to the likelihood that the models lacked something important.

Paul used those models to help design an auction that raised £22.5bn for the British government, and then helped the Bank of England design an auction that would help them to inject liquidity into banking. Paul can’t forecast the future, but the auctions have – like many buildings – stood up well so far.

Historians deal in hindsight. It is a wonderful thing. But it is not the only thing. I wonder whether Gideon, intoxicated with a heady brew of Niall Ferguson and Herodotus, has forgotten that.

Gideon Rachman responds:

In his spirited and learned defence of his beloved economists, Tim Harford makes a mistake that is a characteristic of the profession that we both really belong to – journalism. That mistake is to rest too much of his argument on a couple of anecdotes. The story about the collapse of the Kemper Arena is indeed delightful. The implication Tim seems to draw is that the laws of physics and engineering are no more reliable than the “laws” of economics. They are all just hypotheses, which are gradually improved by trial-and-error in the real world. But it is my perhaps lazy impression, that the hard sciences have established a body of settled, scientifically-testable knowledge that economics simply cannot lay claim to. Is Tim really saying that ain’t so?

Tim also admits that macroeconomic models have proved “useless” at forecasting but suggests that this is a minor matter, since few academic economists “even bother to try”. But the starting point for my piece was Joseph Stiglitz’s suggestion that “the failure of much of the economics profession to see the crisis coming should be a cause of great concern.” And Professor Stiglitz is a winner of the Bank of Sweden prize for economics – sometimes referred to as the Nobel prize.