Under the heading
Has economics failed us? Hardly, Larry Summers:
My friend Fareed Zakaria has celebrated his well-deserved recognition by Foreign Policy Magazine as one of the 10 most important foreign policy thinkers of the last decade by writing an essay entitled “The End of Economics,” doubting the relevance and utility of economics and economists.
This sort of thing happens from time to time, the doubting of the relevance and utility of economics and economists. Perhaps you will remember the attempt by
Maynard Keynes
to bring to an issue the deep divergences of opinion between fellow economists which have for the time being almost destroyed the practical influence of economic theory, and will, until they are resolved, continue to do so.
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And also this, from The Methodology of Positive Economics by Milton Friedman:
"The current prestige and acceptance of the views of physical scientists in their fields of specialization - and, all too often, in other fields as well - derives, not from faith alone, but from the evidence of their works, the success of their predictions, and the dramatic achievements from applying, their results. When economics seemed to provide such evidence of its worth, in Great Britain in the first half of the nineteenth century, the prestige and acceptance of "scientific economics" rivaled the current prestige of the physical sciences."
But the economy of the first half of the 19th century was good because it was part of "the greatest age of the inducement to investment" -- the peak of the capitalist phase of the Cycle of Civilization. The economy was good then because the economy was good. Economists could do no wrong; no matter what they did, the economy improved.
It's not like that any more.
From Time magazine, 1965:
"The recent successes of Keynes's theories have given a new stature and luster to the men who practice what Carlyle called "the dismal science." Economists have descended in force from their ivory towers and now sit confidently at the elbow of almost every important leader in Government and business, where they are increasingly called upon to forecast, plan and decide."
-- at Brad DeLong's.
So we have Keynes in 1936 saying that "the practical influence of economic theory" was gone, and Fareed Zakaria in 2019 saying the same. And we have Time in 1965 saying just the opposite.
The economy was good in the 1960s because the economy was good. Economists could do no wrong. If you want to know why, you have to consider what Keynes said and what FDR did.
On the same theme (the irrelevance of economics) Lars P Syll offers How to make economics a relevant science again.
Syll quotes El-Erian on modeling assumptions, and offers a list of recommendations including "Stop pretending that we have exact and rigorous answers on everything" and "Stop building ... totally unreal microfounded macromodels ..." These seem like good ideas to me, but I'm not an economist and I can't really say.
I'm an old math major. I use econ to understand economic relationships as best I can, and to look at the economy I make graphs of the data. Actual data, not model data.
I like Keynes, who tried to describe how the economy works, and Adam Smith -- ditto -- and even Milton Friedman (for the same reason). Where we are today, with economists "struggling to explain" the economy as El-Erian says, I think they should go back to trying to describe how the economy works instead of playing with models all the time.
And where we are today, with economic thought so far removed from reality that it is again "irrelevant", I'm not at all comfortable with the third item on Syll's list: "Stop pretending that there are laws in economics".
Removed from reality as economists are, they need to stop making philosophical generalizations like that, which can only get them in trouble, and go back to looking for laws in economics. Like Keynes did, and Smith. Or just go back to looking at the economy to figure it out. Instead of pretending they have it figured out. Which obviously they don't.
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