The Dismal Science

by Aran Patrick Murphy

The state of economics today can be summed in a recent (1-22-93) WSJ article, titled "How to Profit From Economists' Forecasts." How does the journal suggest we profit from economists' forecasts? By fishing around for a consensus, it says, and doing just the opposite of what the economists advise.

Although the article does commend economists for good inflation figure forecasts, they are generally deemed incompetent on forecasting other key indicators. "If you spend more than 14 minutes a year on economics, you've wasted 12," says Peter Lynch from Fidelity Investments (ibid.) These are not isolated views of antipathy. Banks across the country have been laying off and shutting down their Econ departments, and Econ graduates are having a more and more difficult time finding work outside academia or government that utilizes their degrees.

A personal anecdote further illustrates this. For a time I lived in Madison Park, a few doors down from Gerberding and other big shots, as a live-in gardner and handy-man. One of my neighbors was the Griffin who started Griffin Business Schools, an institution of questionable integrity - yet even he scoffed at my chosen major. "So you're going to be an economist?" asked M. Griffin, with no attempt to hide his sneer. "Who hires economists anymore? I think all of AT&T might, maybe, keep one around still..." and so on. Economists, or aspiring economists, it would seem, carry the stigma of quackery in the twentieth century, and not without good reason. I see it as no exaggeration to compare hiring an economist with hiring a soothsayer. Both soothsayer and economist are right at least part of the time, both give blessings or bitter counsel to projects that are likely to be carried out or canceled regardless of the advice given, and both have their sacred and mysterious rites, dogmas, and mumbo-jumbo that few laymen can understand. This is the modern economist.

Even within the profession, there are many who recognize that "Economics

that is concerned with 'economizing'[as so much of this profession is] is going to be highly technical, highly mathematical, and highly irrelevant." (P. Heyne lecture note)

"Throw in a graph or two, and add some garbage about 'goodness of fit' or 'high t-value', and your analyses will make it through the economists. They don't know what you're talking about anyway..." or "Economists? Ha! You'll find nothing more un-economical than a Ph.D. in economics. He spends ten years of his life, working and slaving, to produce a thesis that nobody reads and no one would pay ten cents for!" (I'll keep these anonymous, but they are from one of the best - most practical and applicable - teachers I've had here at the UW). I'm sure I could find more quotes or hiring figures to support the contention that not much productive or economical is radiating from modern economics departments.

Despite all the abuse that I've seen heaped on economics and economists, I had always found the study interesting and even personally useful. "The Economic Way of Thinking" is highly fruitful and satisfying, and has helped me to land the rewarding job I'm presently engaged in. However, dissatisfaction with economics as an academic field has peaked in the past year and a half of college, perhaps not accidentally after returning from my year and a half sabbatical in the working world.

A class, 'The Economic Development of Japan,' astounded me with the arrogance that economics in application has acquired. That the professor was a notably intelligent man and had an astounding degree of sophistication and breadth of knowledge at his command inspired confidence in me that he knew what he was talking about (and that the tortuous hours spent studying to keep up were worthwhile), but there seemed something crucial missing in his whole approach (which was neo-classical). Complex series of equations, sometimes filling entire panels of chalkboards, would account how for example, a rate x of capital investment in Japan in 1958 would show an increase y in Japanese GNP in the following years, and so on, which seemed sensible enough but amazingly complicated to demonstrate, even when dealing with historical data. While riding to work through downtown Seattle's ridiculously expensive bus tunnel, I couldn't help but wonder if "capital investment" projects of similar nature, were being included into his GNP growth models. There were problems with the "aggregate" approach. Thinking of the Bus Tunnel, how much growth in Seattle's 'GNP' is going to occur as a result of this mammoth capital expenditure? In what years could you account for the growth, and where was the cut-off point?

These seemed like sticky problems, and there were ten more for every degree of sophistication he introduced into his models while intending to account for them. What was almost funny was that these models were used, not to demonstrate relationships, but to produce actual numbers. Although this is a safer thing to do while dealing with historical data, it did not seem worth the time. I dropped the class.

Being "worth the time" is a subjective judgment, but a relevant one to would-be economists. For most students it is safe to say that education is a means to some vocational end. Perhaps part of the problem is that the department, or at least the advisors, do not seem to agree with this last statement. Last spring, wanting to get my last 400 level course out of the way in an independent study, I spoke with a stats prof about doing a project at my work, involving a good degree of sophisticated data anal, which my boss was interested in having me do as well. The prof liked the idea, so I had both boss and prof write letters that I could take to advising for getting an independent study credit put together. I was rejected, and my arguments in favor of letting me do it were squashed by the statement "We're not a vocational school. You are here to get an education." I was shocked by the advisor's candor, but it was appreciated (I wonder if the taxpayers would appreciate it). My education is clearly not intended for application at the work site, in the view of this advisor, and thus it seems no wonder corporations are not interested in hiring economists qua economists. For the field of economics, the seeds of self-destruction were made quite apparent.

With this full context in mind, you can understand my interest in Kirzner. Although his paper is more of a critique of equilibrium theory than an exposition of Austrian theory, I agreed with what he had to say. As compared to the fairy tale that Hahn lays out, I see redemption, salvation, and an increase in marketability for the field of economics in Kirzner's line: "The truth, as seen by Austrians, is that economic welfare - consisting as it does of nothing but the subjective sense of well-being of separate individuals - displays an interpersonal incommensurability which simply defies aggregation. Moreover, market prices at any given time are sure to be disequilibrium prices, and thus wholly inappropriate for purposes of aggregation..."

I would go more into this, but I don't want to jump the gun on the final paper.