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On Economics, Wise and Clever and Good and Bad

Commenting on this post, Daniel Kuehn says

I’ve always found that story from Krugman about his sci-fi inspirations surprisingly blatant! Still, I wouldn’t read as much into it as you are. Krugman is not a dunce, and I’m confident he also accepts your reasoning, that:

“incalculably complex and productive social orders emerge from billions of individual actions, where no one of these actions is meant to achieve anything more than improvement in the welfare of the individual actor”

This is not a unique or rare insight that you’re presenting – I’m sure Krugman shares it, even if he differs from you on what to do with it.

Of course the point I make in the post isn’t unique or rare — the economists listed below fully understand it — but I disagree that Krugman shares it in any meaningful way.

A believer in the existence of buttons to push is either overly impressed with his or her own intelligence or simply unaware of the true complexity of any market economy (or both).

It’s true that Krugman is no dunce.  I have absolutely no doubt that his I.Q. is significantly higher than my own — and, more relevantly and much more impressively, that it is significantly higher than that of 95 percent of all other economists.  But intelligence is not the same thing as wisdom.  In fact, I suspect that, after I.Q. reaches a certain (above-average) level, I.Q. and wisdom are negatively correlated with each other.  Cleverness becomes mistaken for insight.  The two are not at all the same.

Although I admire much of Krugman’s academic work, and especially his popular essays explaining the nonsense of talking of nations as being “competitive” or “uncompetitive,” nothing in his work reveals that he understands the economic problem to be as complex as I believe it to be.

This failure, alas, is not unique to Krugman.  Too many economists fail on this front.  Too many economists lack the wisdom to distinguish their theories from the reality that those theories are (or ought to be) meant to illuminate.  (My favorite example of this failure is economists’ tendency to presume that the closer any industry is to being “perfectly competitive,” the greater the contribution to consumer welfare contributed by that industry.)  Too many economists are insufficiently insightful or insufficiently wise to explore the deep premises that inevitably, and typically inadvertently, underlie their theories.

The deepest economic thinkers of the past 50 years, in my opinion, include Hayek, Ronald Coase, Jim Buchanan, Gordon Tullock, Armen Alchian, Harold Demsetz, Julian Simon, Vernon Smith, and Deirdre McCloskey.

I challenge you, for example, to read the Demsetz article linked to just above — at Demsetz’s name — and not come away with an appreciation for how thinking outside of the box can be mind-expanding.  Likewise, I challenge you to read the Hayek article linked to above and not come away understanding more fully that attempts to ‘plan’ any economy are childish fantasies — that the idea of there being any ‘buttons’ to ‘push’ is about as absurd a misconception as is possible in the social sciences.

None of these scholars shines especially brightly on the cleverness front.  None of them (with the possible exception of Vernon Smith) dazzles his or her readers with elaborate mathematics or econometrics.  Each scholar is as much a philosopher as an economist.  Each understands that the chief contribution of economics is to further our understanding of how billions of individuals, no one of whom possesses more than an unmeasurably small fraction of the knowledge required to cause a viable and productive economic order to emerge and grow, interact and mutually adjust to each other.

Not one of these scholars excels at supplying formulae and recipes and instructions for how and when to push buttons.  Each of these scholars understands that society is an order to be explained and understood, rather than a machine to be “designed,” pushed, pulled, planned, or pummeled into looking like something that any human being imagines it “should” look like.

In short, each of these scholars reasons and analyzes more as a great biologist reasons and analyzes — and not as a great engineer reasons and analyzes.  Any biologist who proposed a plan for engineering genes so that, say, humans would become stronger or healthier or handsomer or smarter would be laughed out of his or her profession.  Economists, unfortunately, do the equivalent all the time.  It’s obscene, really — and really unfortunate.