Once again, ate a long post I wrote in response to Bill Black’s comments on Raghuram Rajan’s article . Here is my contribution to that discussion.
The most nasty admissions, and their implications for policy, from Rajan are the ones everyone continues to miss:
Part of the answer is that economics is an inexact science, with exceptions to almost every pattern of behavior that economists take for granted. ….
The point is that economic behavior is complex and can vary among individuals, over time, between goods, and across cultures. Physicists do not need to know the behavior of every molecule to predict how a gas will behave under pressure. Economists cannot be so sanguine. Under some conditions, individual behavioral aberrations cancel one another out, making crowds more predictable than individuals. But, under other conditions, individuals influence one another in such a way that the crowd becomes a herd, led by a few.
The first admission, which is really nonsense or rank sophistry, comes in two parts from Rajan’s claim, “that economics is an inexact science”. First, what exactly is an “inexact science”? Exactitude refers to the level of accuracy and precision of detail in an object or its description. Rajan here wants our sympathy that, unlike physics (the discipline against which economists always compare their subject), economics can’t assume the sort of actor identities that enable physicists to make exact predictions and descriptions of bulk material properties from their constituent atoms and molecules. Of course, as anyone who’s read Yves’s Econned or Steve Keen’s Economics Debunked will see quickly, Rajan hides the fact that economics—especially macroeconomics&mdsash;is predicated on exactly the idea that all economic actors are identical, and that large-scale economic behaviors can be explained and predicted from the group behavior of individual actors! In fact, as described by Yves and Keen, the basic ideas of post-WWII economics come from Paul Samuelson’s adaptation of the ideas of ergodicity and statistical mechanics, concepts and subjects that were created by physicists and chemists to predict bulk properties from molecular characteristics! Thus, Rajan is either lying or is completely ignorant of the most basic concepts in his field when he makes these statements.
The second part is that Rajan wants to continue to claim that economics is a science. The most fundamental character of science is its ability to produce robust statements about human sense-perceptions. In other words, any discipline claiming to be a “science” must be able to produce descriptions and predictions that are consistently verifiable by any observer. As many point out, this amounts to Popper’s famous definition that a science must make claims that can be falsified. On this point, which is critical, Rajan’s quotes above and further his statement that
[s]o, why not let evidence, rather than theory, guide policy? Unfortunately, it is hard to get clear-cut evidence of causality are admissions that economics cannot be a science: If evidence, i.e., human sense-perception experience, cannot be used to falsify the claims of economists, or even consistently verify those claims, then economics is not a science.
These subtle, but crucial, admissions lead Rajan to admit the truth: Economists rely on intellectually bullying, sophistry, and outright lies to justify their powerful positions in society:
All of this implies that economic policymakers require an enormous dose of humility, openness to various alternatives (including the possibility that they might be wrong), and a willingness to experiment. This does not mean that our economic knowledge cannot guide us, only that what works in theory – or worked in the past or elsewhere – should be prescribed with an appropriate degree of self-doubt.
But, for economists who actively engage the public, it is hard to influence hearts and minds by qualifying one’s analysis and hedging one’s prescriptions. Better to assert one’s knowledge unequivocally, especially if past academic honors certify one’s claims of expertise. This is not an entirely bad approach if it results in sharper public debate.
In other words, instead of admitting the severe limitations of economic theories and the fact that economics is not a science; and by implication that economists should take a more humble role in policy making, Rajan admits that economists simply resort to the most base forms of intellectual dishonesty. The idea that somehow lying leads to “sharper public debate” is completely disproven by his entire article and Black’s commentary, which is about the degradation of the quality of debate among economists!
As for the rest, having followed Krugman’s comments on R&R, I think Rajan’s characterization is simply wrong. Krugman’s point always was that R&R made understandable (albeit embarrassing) errors, and their failure was in not owning up to those failures. The fact that so many politicians and pundits sold austerity on R&R made that failure all the more egregious.
Rajan’s article is just another example of the intellectual and moral failure of economists and economics.