Published by the Economics Student Society of Australia (Melbourne), 26 February 2012
Traditional rankings of the least trustworthy professions always deliver the same result. Politicians, taxi drivers and journalists come out on top. However, in the wake of the financial crisis economists can no longer be far behind. At least jokes about hapless economists are not in short supply these days – which to economists is a clear indication that there must be a demand for such ridicule.
My favourite economics joke is about the two Iron Laws of economics. The first law: For every economist there exists an equal and opposite economist. The second: They are both wrong.
Of course not all economists are wrong (at least not all of the time), and there may even be the occasional agreement between economists. But the joke nevertheless points to a few problems with economics today.
Economics is still the only discipline in which two researchers can share a Nobel Prize for disagreeing with each other. It is also a discipline in which an enormous amount of time is spent dealing with intra-disciplinary conflicts instead of interacting with other social sciences or engaging with the wider community. To round off the public’s distrust of economists, the forecasting record of professional economists makes most weathermen look good.
It is fair to say that economics has an image problem. To the public, economics looks like a discipline at war with itself and at least a tad removed from the real world it claims to be dealing with. Such characterisation may be a caricature but it contains more than just a grain of truth.
If economics wants to change the way it is perceived by the public, but also by its peers in other faculties, it needs more than just a clever image campaign. Economics needs to change the way it conducts itself.
I remember with horror some of my economics classes at university. We spent the first two years learning some highly sanitised models of a perfect economy only to spend the following years finding out why these models do not adequately capture the real world.
A particularly bizarre experience was a course in economic growth theory. A whole semester was dedicated to more or less complex systems of equations in which growth mainly resulted from different combinations of capital, labour and technology. Towards the end of the course, I was wondering why the Soviet Union had failed. Surely, they must have had mathematicians who could have calculated the best way of growing the Soviet economy? After all, it only took a few narrow variables.
But that was precisely the problem with the model. If you really want to understand why Soviet planning did not create a socialist paradise, neoclassical growth theory will not help you. Instead, you may need an understanding of the institutional settings required for growth. For that, it is helpful to have an understanding of history and law, among others. It would also be beneficial to be familiar with Hayek’s theory of dispersed knowledge and the ‘use of knowledge in society’ – something that, if at all, is taught only in passing at most economics departments.
Being familiar with a broader background than just technical growth theory would certainly help understand the historic failings of Soviet planning. It would also be beneficial to devise policies to help countries grow today.
It is no surprise that it was Hayek who developed a theory of dispersed knowledge because Hayek himself would have only been too aware of the scope and limitations of what we know and what we cannot know. Hayek was a Nobel Prize winning economist, but he actually started off as a lawyer, and he later devoted himself to psychology and political philosophy. And even within economics, Hayek was unusual because he worked across subdisciplines from monetary theory and macroeconomics to institutional economics, and of course, the economics of knowledge.
It was also Hayek who once remarked that you can only be a good economist if you are not only an economist. He may have been referring to himself, but I can also relate to this insight. After my rather frustrating experience with studying economics, I went on to study for a PhD in law. It was a law and economics thesis, however, and the law part consisted of both legal history as well as a comparison of German and Australian law.
I don’t want to claim that this experience has made me a good economist, but I feel the interdisciplinary and international work helped me gain perspectives that pure economics could have never delivered.
If there is one thing I would recommend to young economists, it is to try to do something similar. Go work in another field related to economics and see what you can learn from interdisciplinary exchange. Try to round off your experience by working in different countries, ideally also in a different language. Broaden your horizon, and aim to be more than just an economist.
As an added benefit, such interdisciplinary work will also force you to avoid typical economics jargon when communicating with colleagues from other faculties. Let’s face it, most economists are poor at explaining even the simplest economic ideas to the public because they are used to talking mainly to their colleagues in economics departments.
Being more than just an economist will make you a better economist, with a superior understanding of the real world in which we live. And that’s what the tainted economics discipline really needs.