Posted by: erichosemann | December 9, 2009

What Economics Means To Me

When I started this blog, I made sure to write a sort of caveat about it, a warning brought on by feelings of inadequacy and illiteracy in the face of economic expertise.  I thought it pertinent to mention that I am the son of an economist, and influenced by my father’s thoughts and experiences in the field.

At the time of writing about my intentions with this blog, I wasn’t able to pin down what I learned from my father, preferring to gloss over whatever those lessons might have been with brief mention of Hayek and Leonard Read.

Listening to and thinking about Russ Roberts podcast on Planet Money, I realized that what I learned from my father about economics can be boiled down to a pretty simple sentence:

“Son, there is too damn much going on in a nation’s economy for any one individual or group to be able to comprehend it, let alone  comprehend it well enough to manage it.”

I don’t think my dad ever said it exactly this way, but he said something like it enough for me to catch on through my adolescent fog.  I have trotted out this sentence, and multitudinous derivations of it, in almost every argument about economic policy and politics I have ever had.

From this simple statement, you get:

1) Hubris is a problem.  People really do think they can understand a globe-spanning system of free exchange well enough to manage it.

2) Ignorance is a problem.  We think we understand this system, even though we can only analyze a portion of it at a time.

3) Bastiat’s broken window fallacy.  That part of the system you haven’t analyzed is the part in which a shop keeper’s broken window is supposed to buy new shoes for the glazer’s son, but instead keeps an iPod out of the hands of the shop keeper’s daughter.

4) I, pencil.  Leonard Read’s famous parable about the incredible economic confluence we know as a #2 pencil; the seemingly simple things in life require immense economic coordination.

5) Hayek: “The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.”

6) Why the Soviet Union failed.  Remember Kruschev’s “We will bury you!”  He should have said: “We will bury ourselves! Under mountains of shoes and clothes and off-color toilet seats that no one wants.”  Combining hubris and ignorance, the Soviet Central planners produced quality without quantity and quantity without quality.

Russ’s cri de coeur over the state of economics was touching.  It’s essentially an impassioned restatement of what my daddy told me so long ago.  I feel a little as though Russ is on the cusp of giving up hope.  I hope that isn’t true.

I understand why Russ is at a crossroads in his belief about the value of journal articles and empirical research.  I get that journal articles written by cloistered academics for cloistered academics are no good, and I know that empirical research can be trotted out to prove or disprove the same policy—figures lie and liars figure, goes the tired old saw.  But these aren’t reasons to give up doing economics, or to wipe the slate clean.  They are reasons to renew the fight, to reinvigorate our desire to understand and explain.

If the curious task of economics is to show people how little they know about what they think they can design, then the curious task of economics is essentially quantitative.  “How little” is one side of a ratio that presumes a sum total of knowledge out there somewhere, and the best we can do is keep working to understand just how large that total is.  We do that by continuing our empirical hunt through reality, by measuring and collating and quantifying.

Economists—good ones, at least—then take the bounty of that empirical hunt and translate it into language people can understand, so that people can make up their own minds about policy and choices.

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