Should a sound economic theory be abandoned because it's implemented poorly?
September 1, 2011
Mark D. White
This Non Sequitur comic appeared in this morning's newspaper (and online):
Ha ha, we get it, economists are stubborn theorists who are holed up in their ivory towers with no sense of the real world, situational context, or empirical circumstances.
I almost tweeted this comic, as I do with two or three strips each morning I find worth tweeting (low bar there, I admit). But I thought twice and in the end decided not to, because I didn't want to endorse its caricature of economists. As with all caricature, it takes a kernel of truth and blows it out of proportion--very clever when done right, but it reflects poorly on the caricaturist when it's done wrong, as in this case.
In economics--especially macroeconomics--theories can rarely be disproven or discredited based on evidence, because the space between general theories and specific evidence is far too great and rife with complicating factors. If a general theory is implemented at a particular time, in particular circumstances, in a particular way, and in a particular political context, and it doesn't work, how do you know whether to blame the theory or any one of the myriad details that interfered with its operation? At the most, you can argue that the theory was not implemented properly because the particularities of the sitation were not accounted for properly. But you cannot conclude that the theory is incorrect until it fails in many situations, at many times, etc.
Of course, we can easily assume that the cartoon addresses the current economic malaise and/or attempts to remedy it (though the metaphor with getting people over a crevice grossly misrepresents the enormous complexity of the macroeconomy and the difficulty with applying any theories to it). People on each side of the economic argument over the role of the state can claim that their theory wasn't adequately tested: free-market economists can deny responsibility for the crisis because the housing and financial markets were hardly free from government interference, and Keynesians can deny responsibility for the continued downturn by saying that the stimulus just wasn't big enough.
In the end, theories in economics--especially macroeconomics--must be judged by their internal logic, given the tremendous (perhaps insurmountable) difficulty with relying on empirical evidence to judge them. Given the million things that could go wrong when implementing the best theory in an imperfect world--or the million things that could make even the worst theory look effective--evidence just doesn't cut it. What evidence can do, however, is help economists and policymakers to finetune the implementation of their theories.
In the end, poor results from implementing a logically sound theory do not discredit it--they just demand better implementation.
If economic theories should be "judged by their internal logic", what is the value of these theories? Why do we need macroeconomic theories at all if the "evidence doesn't cut it"? And how do you prevent that the macroeconomic theories become nothing more than the economist's ideological preference articulated in an elaborate mathematical model? For if the evidence doesn't count, it becomes impossible to decide between the Keynesian approach and the free-market approach. If economy is all pragmatics, we can abandon macroeconomics, and replace it with a more pragmatic approach. (And I think this is not a bad idea at all, but I am only a humble philosopher of history.)
Posted by: JeroenSkreurs | September 1, 2011 at 07:37 AM
Thanks, Jeroen--theories are still useful insofar as they allow us to conceptualize how the economy works and what we should do with regard to it. In that sense, sure, theories are ideologies, but how can they not be--every economic theory starts with some basic axioms (even a pragmatic one), which inform the ultimate disagreement between the theories themselves.
In my mind, the debate over free markets versus statism (or Keynesianism) is primarily one of basic principles (both economic and ethical), and I think very fruitful discussion over their merits can be conducted at that level. (And the value of pragmatic considerations must be assessed the same way.)
Posted by: Mark D. White | September 1, 2011 at 07:43 AM
Thank you for the (very quick) reply Mark, though I am sill not quite convinced of the usefulness of such theories besides heuristic devices. (Perhaps a bit like Kant's Principle of Purposiveness.)
Posted by: JeroenSkreurs | September 1, 2011 at 10:33 AM
We need a model to help conceptualize a problem and its possible solutions. At the same time, good old pragmatism is sometimes more effective than a bad model. That is, sometimes something turns out to work (by accident), even though it wasn't planned or intended. So keeping an open mind is critical--but unfortunately, many people do become professionally wedded to their pet theories. Hence the phrase, "Funeral by funeral, the discipline progresses...."
Posted by: Jonathan | September 2, 2011 at 09:10 PM