Brooks On Economics

David Brooks wrote a piece for the New York Times Op-Ed page last week suggesting that the field of economics has been too far separated from humanity and needs to be "blown up" and started over. There's a heavy undercurrent throughout the piece that economists are too blame for the current economic crisis, but stitched into the lining of the article is a fundamental misunderstanding of what economics is and how it works.

For starters, economics is not the same thing as finance--much the same way math is not the same things as accounting. They're related, but one is largely theoretical, the other is largely applied in a specific, business-oriented context. So what is economics? Well, there are two ways to think about it. On the one hand, it's the study of how people make decisions. On the other hand, it's a way to analyze a complex system and try to explain how and why things are happening--much like meteorology, it's good at explaining, less good at predicting.

But Brooks' misunderstanding runs a little deeper than just economics, he seems to misunderstand economists, notably John Maynard Keynes. Quoting biographer Robert Skidelsky, he says that Keynes lacks morality, complaining that he "was not prepared to sacrifice realism to mathematics". Well, that sounds cute, but take a look at what Keynes did--he described the problems of the great depression and prescribed the solution. He actually contested the prevailing economic thought at the time, which said that the short run was troubled, but in the long run there would be an equilibrium. Keynes famously quipped "In the long run, we're all dead," suggesting that the rules were different, and that for the good of the poor, it would be necessary to break some rules now. If that's not adding morality to the economic equation, then kindly point me towards what would be.

Brooks' main assertion seems be that right now economics is too much science, not enough art, and I think he has that exactly backwards for one profoundly obvious reason: no one listens to economists. Hilary Clinton famously refused to "put [her] lot in with the economists". Economists did not predict the collapse of the economy, but they did say we were in a housing bubble and that it would have dire consequences. They had no idea that our economic instruments were so heavily leveraged on mortgages, but how could they? No one knew except the financiers. And you can't say that the financiers didn't know any better, because they did--the idea of a mortgage-backed derivative was invented by JP Morgan Chase, and they decided not to do it. It was too risky and too hard to read.

Even now, people are freaking out about China having all of our currency and wondering what's going to happen if the Chinese sell off their dollars. But ask an economist. Better yet, ask Paul Krugman, who won the Nobel Prize for basically inventing the way we look at foreign currency markets, and you'll hear that we have nothing to worry about: if the Chinese sell off dollars, our exports will go up and that will actually help our economy, not hurt it.

Right now, economics seems to be the art of telling the political powers-that-be what they want to hear. Or they're asked to predict the future. These are problematic, because economics is a stupidly complex field such that a) almost no lay-person understands as well as they think they do, and b) forecasting is impractical in hugely complex systems. See also: meteorology.

Economists need to be regarded as doctors, not as twisted math-nerds. We need to take a little discretion into whose opinion we take seriously and how seriously we should take it. Instead of forecasting, they should be offering helpful tips to maintain a healthy economy, diagnosing problems, and prescribing solutions.

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