There's nothing dismal about this science...

March 9, 2007

Economists have much to offer society, but they have to work harder to show the public their value, says Diane Coyle.

Would you agree with the following statement? "(Economists) should take credit for the deteriorating quality of existence. For it is their philistine notions of personal and national welfare that have helped to ruin the natural world; confused technology with culture; reduced art to money, time to interest, sexual relations to pornography, friendship to advantage, and liberty to shopping, and wasted whole generations who, because they have only been taught to think in categories of money, have, in Schopenhauer's phrase, 'missed the purpose of existence'."

If so, you'd have plenty of company. This was the writer James Buchan ranting in Prospect in 1995. He represents an extreme, perhaps, but such views about economics are to be found repeatedly expressed in political and literary journals. The Financial Times , from time to time, indulges in economist-bashing. A column by Philip Ball on its op-ed pages last year made the same points: economists have an arid view of human nature, miss all that is rich and complex about life and reduce everything to the profit motive.

Even sophisticated critics of the establishment, such as the brilliant economists Deirdre McCloskey and Paul Ormerod, make this claim. In his 1998 book Butterfly Economics , Ormerod said that we "remain fixated on the maths of 19th-century engineers" and this "machine-oriented maths" cannot cope with social interactions. Both are among the group of "heterodox" economists who feel terribly beleaguered and oppressed by the mainstream.

What is truly bizarre about this persistent and frequent set of claims - that economics ignores or oversimplifies reality, is based on a false concept of human nature, is only about money and thinks the world operates like a machine - is how untrue it is. Those who make the claims haven't been reading any of the economics published since about 1980. The caricature never represented reality all that accurately, but a whole generation of research has made it completely unrecognisable.

What's more, there is plenty of coverage in newspapers and journals of the areas of research that make it obvious that economics is nothing like it is perceived to be. To take one example of many: the nature of political and social institutions is at the heart of many branches of economics, including the study of economic development, industrial economics and corporate governance, growth theory and political economy. Several Nobel memorial prizes have been awarded to people whose work has emphasised institutional realities, including stars such as Joseph Stiglitz, who looked at the role that differences in the information people have can shape institutions such as sharecropping.

Two questions arise. Why do non-economists persist in such a dismissive view of the subject that flies in the face of plentiful evidence? And why should economists like me care?

On the latter question, the answer is that the conventional criticism has set the tone for a popular view that economists, although wrong, are extremely powerful: evil Svengalis of government policy. The risk is that public opinion turns against the influence of economics on public policy - at a time when the hidden renaissance in economics during the past 20 years or so has vastly increased its potential contribution to public policy.

In the UK, there have been a number of important institutional reforms and innovations that ask people to trust economics - the Bank of England's Monetary Policy Committee, an independent Competition Commission, evidence-based assessments of public service reform, auctions, the extension of congestion charging among them. There could be many others with the potential to improve policies based on a growing body of evidence, thanks to the impact of computers and new data sets in the past 20 years.

The quality of outcomes will be greatly impoverished if voters distrust the technical economic decision-making behind such policies.

What about the first question: why do people hate us, still, after all these years? We certainly haven't done ourselves any great favours.

Economists are typically very bad at communicating and lag behind natural scientists in grasping the need to engage with public opinion in a new way.

But at the heart of it, I believe, is the reluctance of many people to accept that human behaviour can appropriately be modelled at all - that is, adequately described at a general level in a few relatively simple rules.

David Hume, one of the first economists, set out the original agenda in his advocacy of a "science of human nature", and the economics of today has returned to this Enlightenment programme.

I believe, as I argue in my book The Soulful Science , that economics offers a uniquely powerful way of thinking about society and how individuals make choices in their social context. Other approaches, those of the other social sciences, or history or literature and music, are valid too - I feel no need to dismiss them. But only economics, with its choice-based models, emphasises the opportunity costs and trade-offs that inevitably arise from the social and physical realities of our existence.

Diane Coyle is a visiting professor at Manchester University. This is an edited extract of an article published at Her book The Soulful Science: What Economists Really Do and Why it Matters is published by Princeton University Press, £17.95. The book will be reviewed in The Times Higher on March 23.

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