Wednesday, February 11, 2009

Please Tell Me Why I'm Wrong

I feel like I should have firm convictions about what the government should or should not do in the midst of this financial crisis. But I don't have such convictions and here's why: I think the government should do whatever will work and that we do not really have any idea what will work. Why don't we have any idea what will work? Because economics is as "pseudo" of a pseudo-science as there is.

Figuring out how economies work is really a matter of empirical psychology (or maybe empirical group psychology, if that is a distinct thing). What we are fundamentally concerned with when we are concerned with financial matters is how people are going to behave in various circumstances and in response to various challenges. Are they going to spend or save? Are they going to work hard or be lazy? Are they going to innovate or rest on their laurels?

But how can we know any of these things? If we did--i.e., if economists were really able to tell us how people will behave--then shouldn't they have been screaming (and I mean SCREAMING) from the rooftops that all this was coming? And shouldn't there be far more unanimity on these issues than we have? I suppose we can study past situations and see how people did behave. But as any historian will tell you, even that kind of analysis is fraught with difficulty. It's much harder to figure out "what led to what" than many people think. And even if we can pin down the past, there are no guarantees that the future will be like it. Stuff happens. People and societies change.

As I see it, the fundamental problem is that human behavior is far more complex and inscrutable than economists allow. (I know. I know. Stop the presses.) That might not make for good Nobel fodder or bullet points on a public policy proposal. But if it's the sober truth, shouldn't we acknowledge it and stop pretending that we understand stuff that we don't?

(I'm leaving aside those who think that, as a moral matter, the government should not do anything in this situation, though I'm skeptical that they truly believe this as a moral matter. That is, I'm skeptical that such people would be against government intervention even if they believed that it would help. So even though they are giving this issue a moral spin, I take them really to believe government intervention simply won't work. But as I've suggested, they don't know that it won't work any more than the interventionists know that it will.)

This view has to be wrong. After all, it's just the armchair reflection of a philosopher who skipped ECON 101 a lot and is tired of all these "experts" pretending like they know anything. But if I'm wrong, I'd like to know why.

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