The Dismal Science Advances One Funeral at a Time

There's an interesting piece by Barry Ritholz in the Washington Post about economics entitled "Why Don't Bad Ideas Ever Die?" It summarizes succinctly what's wrong with Republican prescriptions for the economy from zombie theories such as shareholder value, self-interested rational actors, austerity, supply-side economics, and efficient self-regulating markets, to human failings such as greed, sloth, inability to deal with hard data, bias and the failure of incompetent people to recognize how little they really know.

The last point is extremely important: competent people are well aware of their own limitations. Scientists who work in the hard sciences like physics, medicine and chemistry, as well as the engineering disciplines, are good at knowing what they do know, knowing what they don't know, and being aware that there are things they don't know that they don't know. This concept made famous by Donald Rumsfeld's unknown unknowns speech in his push to invade Iraq.

Because economists use numbers and math, they like to pretend their discipline is some kind of hard science. It's useful for documenting the mistakes of the past, but mostly useless for predicting the results of new approaches. That makes it even less of a science than psychology, where they at least run experiments and double-blind studies.

It's not really the fault of economics (dubbed the Dismal Science by Thomas Carlyle) that it's not a real science. Running experiments in economics would be like performing open heart surgery on a runner during a marathon. Economics is therefore at best a form of numerical philosophy.

But sometimes we do run economic experiments. George W. Bush's tax cuts tested supply-side theories. Europe tested drastic austerity measures after the 2008 recession, while Barack Obama tested mild economic stimulus. We now have the results: the Bush tax cuts did nothing to improve the economy after 2001. Europe's austerity measures have resulted in further recession, while Obama's stimulus has yielded slow and steady improvement. Yet Republicans ignore the data from these experiments and continue to push for tax cuts for the wealthy and extreme austerity for the US economy.

Republicans know very little about the reality of aggregate human economic behavior. They don't know their known knowns, their known unknowns or acknowledge the existence of unknown unknowns. In other words, the young and the incompetent always think they know everything.

Now, I have no doubt that Republicans are smart enough to know that supply-side economics and austerity will trash the economy. They just don't care. They want government to shrink and are completely willing to destroy the economy to make that happen. It's for the greater good, they console themselves, while pocketing millions from the billionaires who donate to their campaigns and think tanks while muttering about moochers and the 47%.

Ritholz ends his article with a paraphrase from Max Planck, the father of quantum theory, that perfectly expresses a thought I've long held about problems such as racism, homophobia, and now Republican economic theories: "Truth never triumphs — its opponents just die out. Science advances one funeral at a time.”