As a contrarian by nature, I have to wonder if it makes sense for our government to spend trillions of dollars to “stimulate” the economy. In short, do the ex-Goldman Sachs execs and their banker buddies who run the Federal Reserve System and the U. S. Treasury Department really know what they are doing? Another way of stating this is to ask “Is Economics a true science?”
We have seen in recent years (actually centuries) the coming and going of different abstract economic theories and the failed nature of most “modeling” attempts. And the profession’s efforts during the last 100 years to “fine-tune” the economy have certainly failed–the cyclical booms and busts have increased in both intensity and frequency. During the past 40 years, while top economists debated the money supply, inflation, fiscal and monetary policy, a series of monstrous financial debacles recurred over and over again. The savings lost by Americans during the recent mortgage melt-down was a monumental failure on the part of the nation’s economists.
Admittedly, the melt-down was primarily caused by a misguided political policy to grant loans to borrowers who were not credit worthy on properties with inflated values. But why did economists support those policies? Many worked for financial organizations that profited from the large volume of dubious transactions so were influenced by a bias of self-interest. But many did not benefit directly from the bubble. They just went along with the crowd–the politically correct path. If this analysis is correct, economics is either a fraud or its experts are intellectually dishonest.
Thomas Sowell has pointed out that there are the “hard” physical sciences like math, physics, and chemistry; and there are the soft sciences like political science, sociology, and anthropology. Sowell’s distinction indicates that when you are dealing with inanimate objects, like atoms, numbers, and planetary motion, there are certain “laws” that govern activity. But, when dealing with human beings, there is little certainty about anything. So where do we place “economics?” The basis of all economics is what the individual citizens are from time to time doing, so it has to be a “soft” science! Nothing is more erratic than human activity!
If we admit to this inadequacy, we can see that postulating universal axioms for economic activity is, if not futile, at least subject to wide ranges of predictability. Compared to astronomy, an economic model would be akin to knowing that the earth revolves around the sun somewhere between one and ten times a year, depending on a variety of unknown forces that vary every few months!
Nevertheless, the noted Nobel Prize winning economist Paul Krugman believes that he can manipulate economic activity based on his knowledge of human behavior. In his Introduction to the Folio Society’s recent publication of Isaac Asimov’s “The Foundation Trilogy,” Krugman recalls how as a young man the series inspired him to study economics: “I grew up wanting to be Hari Seldon, using my understanding of the mathematics of human behavior to save civilization.” A true ivory-tower academic, Krugman thus reveals his intellectual arrogance, a preference for abstract theory over scientifically observable results, and an almost Messianic wish to save the world! Please God, keep us safe from such noble intentions!
Krugman may actually have sufficient hubris to believe that he has “The Power” to control the economy, and to understand the “mathematics of human behavior.” But does any sane person believe him? Isn’t he just a useful tool for the bankers that run the Treasury Department and the Federal Reserve? They are the major financiers of Wall Street. They are playing for keeps and always seem to come out a few billion dollars ahead of everyone else. Aren’t they just using all the economic mumbo-jumbo of the Krugman’s to line their own pockets? Are all the economists in tacit league with the bankers just to keep their jobs? Do the politicians usually support Keynesian policies merely to justify their position and increase their regulatory power? If you answered “yes” for all go to the head of the class!
If there is a mathematical formula to human behavior it is best evidenced by the recurring efforts of leaders to administer economic controls, jiggle monetary policy, and apply fiscal/tax incentives to manage their nation’s economies. This mathematically predictable hubris on the part of leadership elites has proven to be, unfortunately, a reason to disbelieve all such claims! Robert L. Schuettinger and Eamon F. Butler’s book, “Forty Centuries of Wage and Price Controls,” documents how such efforts have consistently failed since Hammurabi attempted it about 4,000 years ago! Of course, such predictable behavior, repeating policies that have always failed, and hoping for better results, is a form of insanity. Fortunately, such predictably bad behavior is limited primarily to abstract-thinking intellectuals who are more fascinated with elegant theory than actual results.
It is this elevation of theory over practice that renders economics a “soft” science. In engineering, a machine must function efficiently to be used, regardless of the beauty of its design. To the extent that economic theories have been tested in practice they have never proven useful. No attempt was ever made to measure their effectiveness, nor can such measurement be accurately made. Without accurate measurement no pursuit can be called scientific. The economic health of a society is the sum total of its inhabitants’ activity and, humans being as unpredictable as they are, most governmental efforts to direct their energy serve more as a suppressant than a stimulus. In fact, economics, although a soft science, has proven to give us mostly hard financial landings.