Prominent economist Joseph Stiglitz (Lucas Jackson / Reuters)
In the wake of the financial crisis and the Great Recession it caused, economists and their profession have taken a beating. At first, the main complaint was that economists didn’t see the crash coming. Now the main beef with economists is that they haven’t been able to come up with a solution to pull the economy out of the current non-recovery recovery. Some have even tried to pin the blame for the financial crisis on economists. Inside Job, the Oscar-winning documentary on the financial crisis, takes a number of economists to task for their close ties to Wall Street. Filmmaker Charles Ferguson asks whether the consulting fees that economists regularly collect from financial firms, which often go undisclosed, led to studies that concluded the moves banks were making and the products they were creating in the late 2000s were less risky then the products appeared. That of course turned out not the be the case.
In this week’s Curious Capitalist column in our paper product, TIME magazine, Rana Foroohar takes on the issue of whether economics is a failed science. To answer that question, Foroohar takes a look at a new book by Sylvia Nasar called Grand Pursuits: The Story of Economic Genius, which profiles a number of great economists and their contributions to society.
Still, as Nasar points out, economists—and she is one—must be doing something right, because “the lives of nine-tenths of humanity have changed more in the century in which modern economics was born than in the 20 centuries before.” While more than a billion people still live in poverty, it’s safe to say that a majority of humanity now enjoys levels of prosperity and choice—in food, living conditions and employment—undreamed of by the typical laborer in 19th century England, when Charles Dickens called for new and more generous economic thinking in A Christmas Carol.
Unfortunately, the book’s economic time line trails off in the 1980s, so it perhaps leaves the reader with the idea that whatever good work that is to be done in economics has been done. Foroohar concludes that’s not the case. Foroohar says there are a number of economists, including Joseph Stiglitz, Daniel Kahneman and others, who are making meaningful contributions to their profession right now. The problem she says is that these days we lack an economic force like the Keynes in the 1920 or Friedman in the 1970s that can create a dominant economic theory we all can believe in and follow. But that, of course, might not be a failure of economics but instead our fractured intellectual times in general.
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The problem, at least for me, with economics is that there are somethings that the profession and science does really well, and other things not so well. I think most people unfairly lump those two things together, and see only failure. What economists do do well is to study markets and understand what has worked or not worked in the past. But we have spent most of our time recently, because we are anxious about the future, focused on the part of economics that generally doesn’t work very well. In fact, this isn’t really economics. It’s really forecasting. Like anyone trying to predict the future, these people are usually wrong, in good times and in bad. That being said, there were a number of economists – Robert Shiller, Raghuram Rajan, Nouriel Roubini – who saw the financial crisis coming. Of course, none of them were able to say exactly when the problem they pointed out would lead to a financial crisis, but again crystal balls are not economists, or really anyone’s, best skill.
To read the rest of Foroohar’s take on why we still need economists, click here.