Catalan on an Internal Review of Economics

Jonathan writes:

"I think it’s time to ignore the role of the state [the role that politics has in the views economists hold], if it has any, and instead focus on introspection. It would be worthwhile to have some kind of organization activity, where the foundations of different theories are revisited, and where the science recovers some of its backbone (which, to me, is the coordination process). Without this type of internal review, it seems to me that economics will continue to grow in multiple directions, without any common basis, and the science will proceed down this road of disorganization and inaccuracy.

The differences in theory are real, not politically driven. Whatever arguments there are on the policy level, they stem from these differences in theory. It’s worthless to assess the political environment, and ignore the theory — if you’re looking to “fix” the profession, pointing fingers is not the way to do it."

The review itself doesn't seem entirely necessary to me because I think I diagnose the problem differently. The problem with economics is not that we have multiple theories, it's that we've convinced ourselves that these theories are mutually exclusive. In the Austrian school, changes in the interest rate change the capital structure, which changes how resources are used. In Keynesianism, changes in the interest rate drive a wedge between the cost of capital and the returns on capital, which changes how resources are used. RBC theory posits real shocks that influence resource use. Minsky suggests that behavioral instability in financial markets introduces cyclical behavior. None of these ideas are mutually exclusive. What makes them mutually exclusive - what makes them appear "disorganized" to Jonathan - is that we've convinced ourselves that you can only agree with one of them. This is what bugs Russ Roberts so much too - he thinks disagreement is a sign that we are not scientific. Instead, I think it's a sign that we are just contentious people who disagree when we don't have to.

What economics does need to do is become more like biology. We are dealing with a very complex system where lots of forces are acting simultaneously. Our disagreements are not like those of Lamrack and Darwin, where we disagree on the fundamental processes involved. Austrians may talk about it slightly differently than the rest of us, but we all agree on subjectivism, marginalism, price coordination, and market efficiency. That's what makes economics what it is, just like evolution by natural selection makes evolutionary biology what it is. We are well past the fundamental disagreements. Our disagreements are more of the punctuated equilibrium vs. gradualism sort. We share a common foundation, but there are major disagreements in the way that that foundation is understood to unfold. We have a complex subject, just as evolutionary biologists do. It would be nice to resolve these sorts of disagreements conclusively. One day we presumably will and one position will be banished. But for the time being, the disagreement persists. Most of our disagreements are even more minor than that. For example, while our theories of interest rate determination represent a big disagreement (albeit with a common core of what we agree on), either a loanable funds, liquidity preference, or hybrid theory of the interest rate can accommodate Austrian theorizing about the capital structure. Austrians may find it hard to convince people that it is important, but that's OK. Nobody is obligated to consider something important just because another economist thinks it is. People have to be convinced!