One of the great irritations of our age is the tendency for non-economists to tell us what's wrong with economics. We've seen two egregious examples of this recently, with a common theme. Suzanne says:
[Economics] assumes behaviour is rational. It cannot calculate for contradiction, culture, altruism, fear, greed, love or humanity at all.
And Geoff says:
It is assumed we are coldly “rational” calculators, yet we are obviously strongly motivated by love, envy, fashion and insecurity.
Now, economists have conventionally assumed rational behaviour. There's a reason for this.Such an assumption generates testable predictions, whereas if we assume people are mad then anything goes. What's remarkable is that these predictions are quite often correct; demand curves usually do slope downwards and stock markets are sufficiently efficient that very few investors out-perform them.
But this assumption is only a starting point. And testing it against the evidence has allowed economists to discover its limits. There is a humungous and fast-growing body of good research on the role of cognitive biases. Behavioural economics is mainstream - sufficiently so that one of its founders got a Nobel prize.
And of course it is the purest gibber to pretend that economics has no place for greed and fear; economists from Ken Arrow through James Tobin and Harry Markowitz to Daniel Kahneman (to name only the Nobels) have made big studies of risk aversion and its implications.
It's almost as false to say that economics cannot calculate for culture. Some of the most interesting research in recent years has been precisely about how history, culture and identity shape our behaviour. And this is mainstream stuff: George Akerlof has a Nobel prize, and Nathan Nunn and Daron Acemoglu are at top economics departments.
Of course, regular readers of this blog and of my alter ego know all this, and more. So why do I labour the point?
It's because Suzanne and Geoff (and of course the many others) fundamentally misrepresent economics in two ways.
First, they misunderstand what the mainstream of economics is. Mainstream thinking is fully aware of the limits of the "max U, markets work" view that Geoff and Suzanne are attacking. I suspect Paul Krugman is closer to most economists' thinking than, say, Casey Mulligan.
Secondly, they give the impression that economics is a fossilized body of ideology. It's not. It's a dynamic and diverse field of study. Of course, there's bad economics and bad economists, just as there's bad science and bad scientists. But these mustn't be mistaken for the entire subject.
And herein lies my real gripe with pieces like Suzanne's. They help to give non-economists the wholly false impression that economics is dull, ideological and useless. It's not.