Why Economics is Different
I just wanted to highlight two recent pieces from the always-excellent Alphaville that shows the fundamental problem with the social sciences in general, and economics in particular. The first is hilarious – it is a collection of newspaper clippings from the 1930s that reproduce exactly the sort of economic grousings about hyperinflation that the right wing is tossing around today. The second is awful – it concerns the fact that bipartisan Congressional opinion has coalesced around ending the temporary payroll tax cuts, against the considered advice of basically all economists of every stripe.
It goes to show the futility of advancement in economics. While most people are willing to leave science to the scientists, everyone has a powerful sense of folk economics that guides their political beliefs and actions – this is no less true of Congressmen and businessmen than it is of ordinary citizens. In a democratic system, therefore, that folk economics tends to be what is actually acted on rather than the state of the art in the social sciences. Authoritarianism is no solution either – while benevolent tyrants might rely on eggheads to guide their economies, the tyrants’ own folk economics dictates which eggheads they are willing to choose. Regardless of what economists view as optimal, the economic choices made by polities reflect the social consensus around folk economics (or the individual opinions of one or a few tyrants).
This suggests that if you want to improve the quality of economic decision-making, studying economics in academia is a terrible idea. What you really want to do is to go into propaganda, especially those that target elite opinion leaders – Hayek’s totally ridiculous ideas about the road to totalitarianism have been much more important than his much more important ideas about price signaling.