Practitioners of the 'dismal science' should stop sneering at their academic cousins in the social sciences -- and start learning from them.
In 1849, the Scottish essayist Thomas Carlyle labeled economics the "dismal science." Two centuries later, contemporary practitioners still study dismal choices: Higher prices or fewer jobs? Spend or save? They have also become a smug lot.
Economists take pride in the sophisticated statistical techniques on which they rely to analyze phenomena such as growth, inflation, unemployment, trade, and even the long-term effects of abortion on crime rates. Many are convinced that their methods are more rigorous than those of all other social sciences and dismiss research that does not rest on quantitative methods as little more than "storytelling" or, worse, "glorified journalism." Anthropologists, some economists jest, believe that the plural of anecdote is "data."
A survey published in the Journal of Economic Perspectives found that 77 percent of the doctoral candidates in the leading departments in the United States believe that "economics is the most scientific of the social sciences." It turns out, however, that this certitude does not stem from how well they regard their own discipline but rather from their contempt for the other social sciences. Although they were nearly unanimous about the relative superiority of their profession, only 9 percent of the respondents were convinced that economists agree on fundamental issues.
And they are right. Economists today are still grappling with basic questions for which they have no answers. Much more than fodder for academic squabbles, this uncertainty often has serious consequences. When economists err in theory, people suffer in practice. Fernando Henrique Cardoso, Brazil’s former president, recalls that in the midst of his country’s financial crisis, he received calls from experts at the International Monetary Fund, several Nobel laureates in economics, and other superstars in the economics firmament. Each offered different advice, and each sounded convinced that his or her recommendation was the only correct one. A distinguished sociologist, Cardoso managed to employ his considerable talents and experience to steer Brazil out of the crisis, ignoring the recommendations of several celebrity economists — some of whom had even urged him to adopt a fixed exchange-rate regime just like the one that Argentina’s recent crash has now discredited.
"We do not really know what causes economic growth," admits François Bourguignon, the chief economist at the World Bank. "We do have a good sense of what are the main obstacles to growth and what are the conditions without which an economy can’t grow. But we are far less sure about what are the other ingredients needed to create and sustain growth."
This bewilderment doesn’t just appear when economists confront the devilish problems of the developing world. Plenty of what goes on in the rich world also baffles them. I recently asked a well-regarded economist on Wall Street what puzzled her these days. "Interest rates," she said. "They should be higher." Sure enough, economic theory predicts that today’s long-term interest rates — the rates for mortgages or bonds that will be paid years from now — should be higher and heading upward because of an expanding U.S. economy and exploding fiscal and trade deficits. But the financial markets just won’t cooperate: Long-term interest rates have remained low and are actually heading down. Before retiring in January, U.S. Federal Reserve Chairman Alan Greenspan described these trends as "a conundrum." Robert Samuelson, a Washington Post columnist, surveyed the explanations that economists offer to explain this anomaly and found that they are all flawed. In his view, the experts’ inability to explain something so fundamental "attests to our economic ignorance."
Nor do economists have a convincing explanation for the value of the U.S. dollar. For more than a decade, economists have maintained that the dollar was too expensive and its devaluation was unavoidable. As predicted, the dollar plummeted 39 percent between 2002 and 2004. An inescapable effect of the economic equivalent of the law of gravity, explained the experts. In a country with a huge and growing trade deficit, out-of-control government budgets, a war expected to cost $1 trillion, and high energy prices, the currency’s value will inevitably tumble. Except that it didn’t tumble for long: The dollar’s decline was so fleeting that economics textbooks didn’t have time to register the change. The dollar recovered quickly, climbing 14 percent in 2005.
Surveying which economies had the best prospects for success, Harvard professor Richard B. Freeman concluded that in predicting superior performance, "luck seems as key as economic policies."
A science that relies on luck to explain the fate of billions of people is a dismal science indeed. True, other social sciences aren’t in much better shape, but economists would still be well advised to trade in their intellectual haughtiness for a more humble disposition. Albert O. Hirschman, a superbly original economist, borrowed freely from other disciplines and aptly titled one of his books Essays in Trespassing. We need more trespassers. Fortunately, a few of today’s economists are beginning to hurdle professional fences and mine neurology, psychology, sociology, and political science to enrich their analysis.
To be sure, most of these attempts at boundary crossing won’t yield much of value, and they render economists vulnerable to charges of consorting with the methodologically impure. But given the dismal condition of the dismal science, intellectual trespassing is a risk worth taking.