Saturday, March 4, 2017

What do Economists Know?

How much do economists really understand? Russ Roberts:
A journalist once asked me how many jobs NAFTA had created or destroyed. I told him I had no reliable idea. Certainly jobs had been lost when factories closed and moved to Mexico but other jobs had been gained because Americans now had more resources and increased their demand for products that would not be easy to identify. Why not? Because thousands and thousands of jobs are created every month and it is very difficult, perhaps impossible to know which ones are related to NAFTA allowing Americans to buy less expensive goods from Mexico. I also told him that I believed that trade neither destroyed nor created jobs on net. It’s main impact was to change the kinds of jobs and what they paid.

The journalist got annoyed. “You’re a professional economist. You’re ducking my question.” I disgreed. I am answering your question, I told him. You just don’t like the answer.
Most economics claims are really not verifiable or replicable. Most economic claims rely on statistical techniques that try to simulate a laboratory experiment that holds all relevant factors constant. That is the hope. My claim is that in general, holding all relevant factors cannot be done in a way that is reliable or verifiable. And that is why so many empirical issues such as the minimum wage, immigration, fiscal policy, monetary policy and so on, have smart people on both sides of the issue each with their own sophisticated analysis to bolster their claim.


G. Verloren said...


The world is a complex place with no easy or simple answers, but seemingly the only people interested in viewing and understanding it in that way are the specialists like scientists and economists who spend their whole lives trying to wrap their heads arounds things that are, frankly, probably beyond human comprehension.

And then laypeople come along and ask for simple, tidy answers to seemingly simple, tidy questions, and when the experts tell them "It's really, REALLY complex, both the answer and actually your very question itself, and even we experts don't fully know what's going on and are just making the best guesses possible with the limited data available", and the laypeople are supremely disappointed.

The only way to avoid this disappointment is to adopt a scientific mindset - not necessarily that you become a scientist, or that you study this or that field of science, but rather that you learn to always doubt and to always question, and that you learn to live with and accept uncertainty.

And of course, that's a really hard thing for many people to do. Uncertainty scares us on a biological, instinctual level. We don't like not knowing things - or at least, we don't like thinking that we don't know things. Or even worse, that some things are actually even unknowable. The unknown scares us, and with good evolutionary reason - a species that doesn't instinctually know to approach the unknown with caution is likely to go extinct.

And so it gives many of us the heebie jeebies to think "Maybe there is no purpose to life, maybe life is fundamentally absurd." That's not a very comforting sort of thing to ponder. People would much rather think "My life absolutely has purpose; the universe absolutely has a plan; there absolutely is a powerful, loving, caring, paternal deity somewhere out there looking down on us, and he has a plan for us, and even the bad things that happen in life all have meaning and are worthwhile because of it, and it's all going to work out in the end. I'm sure of it!"

But living with uncertainty is entirely possible, and not even that difficult. Moreover, it is a truer way to understand the world, and far more honest to both ourselves and each other.

G. Verloren said...


Why are we here? We don't know. Is there a god? We don't know. Are we alone in the universe? We don't know.

Is it possible to truly accurately predict the economy? Economists don't know. Is it possible to cure all diseases and attain perfect health? Doctors don't know. Is it possible to create a utopia? Sociologists don't know.

But we'll never find the actual answers to these and other questions if we don't teach ourselves to question, and to doubt, and to be curious, and to wonder. We can't really understand the universe unless we constantly re-examine how we understand it, and why we understand it that way.

History is chock full of "facts" and explanations about the universe that many people believed absolutely to be utter truth, but that turned out to be completely wrong. Look at the theory of Phlogiston; look at Phrenology; look at Humoralism; look at all but the most recent history of Chiropractic; look at dozens or even hundreds of historical systems of organizing and understanding the universe which seemed to offer simple, tidy answers to simple, tidy questions, but that failed to hold up against greater scrutiny.

It is absolutely vital, today more than ever before, that we be devoted to the pursuit of truth - and that in searching for truth, we be willing to admit to being ignorant, or to having been wrong.

We live in an age when the world is built upon the products of science, and the future of all life on this planet depends on our ability to properly and prudently control the systems and technologies we have created. And we can never accomplish that by being afraid to question or to doubt; by being unwilling to admit to being wrong, or to not knowing something; by being fearful of the unknown, rather than accepting it and working to both understand it and embrace it.

We must all of us learn to be more doubtful and skeptical - but at the same time more curious and earnestly willing to change our minds. We need to not rest upon our laurels; to not become complacent with what we think we know; to not fall into the traps of irrationality and fallacy, arrogance and overconfidence, fear of the difficult and unknown, reliance upon the comfortable and familiar.

There is one constant in this universe - change. The only thing we can know is that we know nothing. And the longer we delude ourselves into thinking the universe is simple, that there is always an easy answer, that disaster won't befall us if we bury our heads in the sand because there's some greater power watching over and protecting us, the longer we will live on the brink of catastrophe.