Economics: The View from 35,000 Feet

by
Peter Dorman
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This essay is another dancing, enigmatic exploration of this apparently stable dominance, one that survives public embarrassment, like the backwash against its claimed expertise after 2008, and internal fissures.  She plays with Hayek, who denounced economists for their empty pretense of knowledge, and sports with contemporary eminences such as Ricardo Caballero, who have similar objections to the intellectual simulacrum that passes for economic insight.

To cut to the chase and save you from a more detailed reading if you’re not so inclined, Fourcade goes part of the way with Hayek, but recognizes that the critique of pretense is a gun that points in all directions, since there is no position of “postense” from which to aim it.  She, like many others, sees the shared worldview and methodology of economics as the source of its strength, the reason why the discipline can prosper and expand its influence even as it hosts bitter debates among its practitioners; in fact, its capacity to cohere despite apparent fracturing is exactly its greatest asset.  She also sees the discipline’s internal discord reflecting a dialectic between altering the world as a significant participant in it and interpreting it as a reflective bystander—not so different from a priesthood if one recognizes both aspects of what it means to be priestly.  Economics does not converge on consensus because of the dynamic relationship between particular understandings of economic and political life and the ensuing events created by those understandings that themselves become objects of study.

Along the way, Fourcade demonstrates a tendency to be conventional.  Foucault is invoked in a big way, for instance, even though it is now becoming apparent he profoundly misread classical and more modern political economy—a trajectory that ended up as utterly deluded cheerleading for neoliberalism.  We also read that Keynesianism is a response to economic disorder stemming from fixed prices (getting JMK’s critique of his orthodox opponents exactly backwards) and German ordoliberal macroeconomics reflects the country’s experience with hyperinflation (rather than the hyper-austerity that ushered in Hitler).  I get the impression that Fourcade’s method is to critique the conventional wisdom of particular academic specializations by juxtaposing them with the conventional wisdom of others.

On the main point, I think Fourcade gets half the story right: economics has established itself at the pinnacle of academic prestige because its subject matter and data pertain to the core institutions and practices of the modern, capitalist world.  Experts on banks are going to have a lot more sway in this society than experts on pre-schools.  That’s not a deep observation, and Fourcade is hardly the first to have voiced it, but it deserves repeating.

The half she misses is the extraordinary practical force that derives from conjoining positive and normative analysis, something economists do better than anyone else.  Like many others—maybe Fourcade and maybe you—I was misdirected for years by the standard economic protestation that positive analysis is one thing and normative something altogether different.  Analyzing how markets work is an entirely different project from arguing how they should work, or so it was said.

I now see this disclaimer hides exactly its opposite in plain sight.  Economists use modeling and empirical techniques to explain and forecast, spottily in some topic areas and impressively well in others.  The point is, positive claims can be given quite a load of legitimacy by the sophistication of these methods, creating the kind of expectations that fostered disillusionment in the wake of the 2008 financial crisis.  You economists are so clever and have so many sources of data to work with; how come you blew it this time?  The rest of us thought we had reason to expect much better.

But the remarkable thing about the normative side of economics, the welfare interpretation of markets, is that its sole role is to enable positive analysis to yield normative conclusions.  Once you accept the welfarist framework, there is no longer any wall between the two.  Economists can conduct detailed, empirically dense studies of particular markets or policies, and their results can be applied directly to determine the “optimal” actions that ought to be taken by decision-makers.

I realized this in a single epiphany.  I was debating a particular aspect of welfarism with another economist, someone I agreed with on many issues, and after I had (I thought) demolished any defense of providing a welfare interpretation for a set of results we both accepted, he replied, “But how then do we tell the agencies what to do?”  Implied is that it is our job to do this, and there will be a hole in the universe if we don’t.  At that moment it became clear that protestations that positive analysis is over here and normative over there are just window dressing: economists take their core job to be the application of the techniques of positive investigation, predictive modeling and empirical estimation of model parameters, to adjudicating questions of policy.

If I can play that game too, I’d say that welfare economics, which claims to derive judgments of what decisions to take directly from market analysis without any substantive input from other realms of knowledge—like philosophy, psychology, sociology, public health or ecology—is the intellectual basis for Fourcade’s economic “superiority”.  And it would be optimal for society if it could be lopped off from the rest of economic theory and safely disposed of.