Economics, the soulful science

Diane Coyle
21 February 2007

Would you agree with the following statement? "[Economists] should take credit for the deteriorating quality of existence. For it is their philistine notions of personal and national welfare that have helped to ruin the natural world; confused technology with culture; reduced art to money, time to interest, sexual relations to pornography, friendship to advantage, and liberty to shopping, and wasted whole generations who, because they have only been taught to think in categories of money, have, in Schopenhauer's phrase, 'missed the purpose of existence'."

If so, you'd have plenty of company. This was the writer James Buchan, ranting in Prospect ("The poverty of economics", December 1995). He represents an extreme, perhaps, but such views about economics are to be found repeatedly expressed in political and literary journals. Even the Financial Times, from time to time, indulges in economist-bashing. A column by Philip Ball on its op-ed pages ("Baroque fantasies of a most peculiar science", 29 October 2006) made the same points: economists have an arid view of human nature, miss all that is rich and complex about life, and reduce everything to the profit motive.

Diane Coyle runs the economic consulting firm Enlightenment Economics. She is a member of the UK Competition Commission and a visiting professor at the University of Manchester. Among her books are Sex, Drugs and Economics: An Unconventional Introduction to Economics (Texere, 2002) and The Weightless World: Strategies for Managing the Digital Economy (MIT Press, 1998). Her most recent book is The Soulful Science: What Economists Really Do and Why It Matters (Princeton University Press, 2007)

Also by Diane Coyle in openDemocracy:

"Business is the victim" (24 February 2003)

Even sophisticated critics of the establishment, like the brilliant economists Deirdre McCloskey and Paul Ormerod make this claim. In his 1998 book, Butterfly Economics, Ormerod said we "remain fixated on the maths of 19th century engineers" and this "machine oriented maths" can't cope with social interactions. Both are amongst the group of "heterodox" economists who feel terribly beleaguered and oppressed by the mainstream.

What is truly bizarre about this persistent and frequent set of claims - economics ignores or over-simplifies reality, is based on a false conception of human nature, is only about money, thinks the world operates like a machine - is how untrue it is. Those who make the claims haven't been reading any of the economics published since about 1980. The caricature never represented reality all that accurately, but a whole generation of research has made it completely unrecognisable.

What's more, there is plenty of coverage in newspapers on journals of the areas of research which make it obvious that economics as it is is nothing like economics as it is perceived to be. To take one example (out of many): the nature of political and social institutions is at the heart of many branches of economics, including the study of economic development, industrial economics and corporate governance, growth theory and political economy. Several Nobel memorial prizes have been awarded to people whose work has emphasised institutional realities, including stars like Joseph Stiglitz (who looked at the role differences in the information people have can shape institutions such as sharecropping).

The test of reality

Two questions arise. Why do non-economists persist in such as dismissive view of the subject, which flies in the face of plentiful evidence? And why should economists like me care?

On the latter question, the answer is that the conventional criticism has set the tone for a popular view that economists are, although wrong, extremely powerful: evil Svengalis of government policy. The risk is that public opinion turns against influence of economics on public policy - at a time when the hidden renaissance in economics during the past twenty years or so has vastly increased its potential contribution to public policy.

In Britain there have been a number of important institutional reforms and innovations which ask people to trust economics - the Bank of England's monetary-policy committee, an independent Competition Commission, evidence-based assessments of public-service reform, auctions, the extension of congestion charging among them. There could be many others with the potential to improve policies based on a growing body of careful evidence, thanks to the impact of computers and new data sets during the past twenty years. The quality of outcomes will be greatly impoverished if voters distrust the technical economic decision-making behind such policies.

What about the first question - why do people hate us, still, after all these years? We certainly haven't done ourselves great favours. Economists are typically very bad at communicating, and lag behind natural scientists in grasping the need to engage with public opinion in a new way. But at the heart of it, I believe, is the reluctance of many people to accept that human behaviour can appropriately be modelled at all - that is, adequately described at a general level in a few relatively simple rules. David Hume, one of the first economists, set out the original agenda in his advocacy of a "science of human nature", and the economics of today has returned to this Enlightenment programme.

I believe (as I argue in my book The Soulful Science) that economics offers a uniquely powerful way of thinking about society, and how individuals make choices in their social context. Other approaches, those of the other social sciences, or history or literature and music, are valid too - I feel no need to dismiss them. But only economics with its choice-based models emphasises the opportunity costs and trade-offs that inevitably arise from the social and physical realities of our existence.

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