Should Economists be sued for malpractice?

It is relatively easy for economists to debate efficiency issues e.g. when we discuss privatisation.

But when we are discussing a host of particular economic issues – such as the distribution effects of labour market deregulation, or the role of health care, or the role of investment in education, or why a government stimulus is needed (when interest rates are up against the zero bound) one problem keeps coming up. Has economics now become so mathematized and divorced from moral philosophy that it is no longer concerned with trade-offs between equality and efficiency? (Something Greg Mankiw recently reminded of this).

Does it now mean that, within the Paretian framework, there is no reason why a person B does not need to care about the effect of government public policy on the welfare of another person B so long as person B can theoretically be made materially better off?

This leaves us with an economics literature that few people can truly understand, either in its content or its relevance the important moral and economic arguments that confront us today?

Read the comments by Maxine Udall.

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vanaalst.robert
vanaalst.robert(@vanaalst-robert)
11 years ago

I doubt most people really understand most issues really well (e.g., Global warming, traffic congestion, schooling issues, the physics of the plane they just took … etc.) — it’s impossible, there’s just too much to know. I’m not sure why economics is special in this case. I’m also not sure why the mathematics is a problem. I would have thought it would be a goal of most areas to form nice mathematical abstractions, which are generally far better than the untestable verbal blah-blah-blah that you often get instead.

Fred Argy
Fred Argy
11 years ago

Efficiency has three shortcomings.

First, however well-devised the mathematics may be, there are alternative ways of mathematically interpreting the results. Take for example, the issue of the stimulus debate and the paper by Alesina and Ardagna. It says that it does not work and Keynesianism fails. Paul Krugman suggests that it only fails because it does not make any distinction between situations which are up against the zero bound (interest rates have no effect)and all other situations. One that does make the distinction, such as Almunia et al, looks pretty Keynesian. See Krugman Alesina on stimulus, February 6, 2010, NY Times.

Secondly, even a highly efficient outcome may well be immoral. This is clear when you deregulate wages (and ignore the consequences) or forget the employment consequences of the stimulus or the social effects of health care and education.

Forgetting about the merits of the mathematics and the issue of immorality, the third shortcoming of the “efficiency only” approach is that (at least in Australia) it is politically untenable. If the public policy is viewed as having unfair distribution effects, the electorate (in Australia at least) wants something done about it, either through compensation or by selecting alternative means of reconciling efficiency and equity.

Peter Patton
Peter Patton
11 years ago

The problem here is that economists are not really professionals. They are not like accountants, cardiolgists, solicitors, quantity surveyors, or engineers, who can only practice as such if accepted into the relevant professional body. Part of that admission involves specific training conducted by the profession, including the peculiar ethics of the profession, and are only able to advertise themselves once the professional body passes them. Thus, when the public employs one of these professionals they can be confident of a certain level of quality in the work, and due care to the client, under the threat of shoddy work or unethical practices resulting in the professional being “struck off”.

OTOH, just about anybody can call herself an economist. There is no central professional body that sets exams that all must pass before being admitted, there is absolutely nothing approaching ethics requirements, or a book outlining standards. Finally, there is no body of professional economists, with the power to “strike off” malefactors.

Poor old economists live in a no-man’s land of being neither scientist nor professional. The destruction of their reputation as providers of anything worthwhile is pretty obvious once you join the suburban BBQ circuit.

Peter Patton
Peter Patton
11 years ago

conrad

I only have MBA-type economics, but took most electives in the actual economics department. I am also a great supporter of the mathematics. Why? Because it gives economic thinking a logical rigor that is not possible with the more discursive-reliant social sciences. But as with most mathematical and formal logic proofs, the devil is so in the assumptions.

But formal economic theories that rely on Real Analysis style proofs, are invariably tested against data in dozens of journals, the results – whether verifying or rejecting – feed back into the mathematical model assumptions, and so on.

Without the mathematics, we would just have pages of words, and as we know arguments that rely just on words are mere plankton to the sharks of discourse theory and deconstruction, whose only purpose is to expose imagined hidden codes of power and race/gender/class oppression. Thus, a purely discursive economics wouldn’t really help the RBA decide whether to increase/decrease interest rates, whether or not we should pay $35,000 for a 10 year old Datsun, or whether the government should feel OK about ordering $6 trillion in fresh currency to be printed over night and distributed among public servants as a chrissie bonus. ;)

Fred Argy
Fred Argy
11 years ago

Peter, I don’t mind mathematics – provided it always gives you a reliable solution. Regrettably, it does not. It all depends on what assumptions you include and whether they are realistic or not. All big issues.

I agree with many of your other comments on so-called economists.

Peter Patton
Peter Patton
11 years ago

Fred

I used to think like you especially as an MBA student, who had had experience in M&A deals that relied on DCF valuations. Have you ever seen grown men almost come to blows over whether a hyperbolic discount rate should be used or an exponetial one!? :)

One justification I find persuasive about economic theory built with ‘reality’ only as a secondary influence, is that once it is finished, we can say “OK, if we were to get to an optimal combination of inputs to maximize the wealth of us, this is what we would need”. Then turn to the real world and say, “well, he we are, what is the difference? Is the difference so much, we seriously believe we could do better? OK, if so, do the improvements suggested by the purely theoretical model, seem sensible given the reality we live in. If not, is there a theory of second best we could try, etc.”

What I find infuriating is people who think their 2nd year Micro is like learning that mass, not weight, determines how long it will take for a block of cement to hit the ground from a 20 story building.

Given the huge percentage of educated people in the western world, who DO study 2nd year Macro, they really do think it is incontrovertible science. Even in corporate situations, meetings are full of smartarses who will sneer ‘ heh, clearly that dude hasn’t heard of the multiplier effect’ and so on.

I also think not only is it simply wrong to say, “ah but wait till you get to Ph.D coursework, then it all becomes so much more nuanced’. Bull, the exams are pure calculus proofs.

There is something seriously, seriously wrong with the teaching of undergrad macro. I have a pretty good macro textbook at the moment, that has gone way, way out of its way to pepper the book with recent and modern examples. Still, when the course – every course in the world basically – hits the “ISLM” model in Week 4 or whatever, you feel like saying, ‘come on, why is that junk still included’?

Most people who study economics are not going to be devoting their lives to winning the Nobel Prize, The ISLM curve is not going to make them a smarter business development manager, M@A analyst, or Bunnings franchise owner.