Is the "crisis" in economics one of the content of the discipline, or rather of its social function? I ask because of a point made by Ronald Coase:
The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate (hat tip to Paul).
It's certainly unfortunate, because the economics that can help people with the "ordinary business of life" is actually thriving.As I've said in the IC, there's a tremendous amount economics can offer to investors.We know the distribution of asset returns and therefore their risks. We know the cognitive biases that can lead to widespread poor investment performance, and we can both quantify their effects and identify some of the stock market anomalies they generate. And we know about the maths of how to diversify. All this, and more, allows us to give useful investment advice.
Of course, we can't predict the future. But perhaps we don't need to: those investors who had used the Halloween and May Day indicators in 2008 would have avoided the worst of the 2008 crash.
In this regard, economists are indeed living up to Keynes' famous ideal:
If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.
Like dentists, we can't greatly enrich people's lives, but we can offer reasonable advice on how they can avoid a few nasty problems.
Why, then, should we think economics is in crisis?
The obvious answer is that we didn't see the crash of 2008 coming.
But is it even logically possible to foresee the future? G.L.S Shackle thought not, because individuals' choices, which are what determine economic outcomes, are not forecastable - and his argument has been ignored rather than rebutted. And Gary Gorton has said that "Financial crises are not predictable", in part because they arise from cascade-type behaviour which cannot be foreseen.
Put this another way. Imagine economists had widely and credibly warned of a financial crisis in the mid-00s. People would have responded to such warnings by lending less and borrowing less (I'm ignoring agency problems here). But this would have resulted in less gearing and so no crisis. There would now be a crisis in economics as everyone wondered why the disaster we predicted never happened. The point is that forecasts can only be right if they are not believed.
Instead, I suspect there's another reason why economics is thought to be in crisis. It's because, as Coase says, (some? many?) economists lost sight of ordinary life and people, preferring to be policy advisors, theorists or - worst of all - forecasters.
In doing this, many stopped even trying to pursue Keynes' goal. What sort of reputation would dentists have if they stopped dealing with people's teeth and preferred to give the government advice on dental policy, tried to forecast the prevalence of tooth decay or called for new ways of conceptualizing mouths?
Perhaps, then, the problem with economists is that they failed to consider what function the profession can reasonably serve.