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Saturday, July 1, 2000

What Do Economists Contribute?

How Might Economists Advance Human Betterment?

Professor Daniel Klein of Santa Clara University is one of the most engaging and creative economists around. In What Do Economists Contribute? he and nine other economists (most of them known to readers of Ideas on Liberty) try to explain just how economists contribute to the betterment of mankind. Although the title implies that the book is directed to students and intelligent laymen who would otherwise not know the answer, the book is aimed just as much at professional economists themselves. All three groups, especially undergraduates contemplating graduate study in economics, will be fascinated and perhaps troubled by what they read.

Klein asks: “Are economists today, in making their individual choices, led to promote ends of human betterment?” He begins by playing the devil’s advocate and gives several reasons why the contributions of economists might not lead to human betterment. Economists can be and often have been flat out wrong. Those who denigrated saving, for example, contributed to a lower standard of living today. Even when the advice of economists is good, the public will not necessarily take it. Economists who warned against wage and price controls in the 1970s could not convince the public to shun them. Sound economic principles, moreover, may be misapplied. Observe how free trade has mutated into “managed trade.”

The problem is not that economists lack clout, but that some seek to maximize their influence by stooping to promote special interests. The late F. A. Hayek, in the essay reprinted here, urges economists not to “directly aim at immediate success and public influence.” Seek “light,” he recommends, not “fruits.” In this way the economist maintains intellectual integrity and lessens the likelihood that economic insights will be misapplied.

If what economists have to contribute is so good, why don’t more people tune in? Israel Kirzner grapples with George Stigler’s claim that economic advice is not valuable. Stigler rejects the notion that societies would adopt bad policies without heeding the advice of economists and uses economic principles to support his claim. Kirzner responds: “it is just not the case that economics teaches the worthlessness of economic policy advice.” The problem with Stigler’s view, according to Kirzner, is that it fails to recognize error and its correction. People, including economists, make errors, and economists make valuable contributions when they correct them.

Clarence Philbrook responds to criticism that what some economists contribute is unrealistic thinking. He constructs the “probability approach” that he supposes would be employed by the scholar who would offer “realistic” advice. The gist of the approach is to rank proposals according to their probabilities of effecting change. His counterargument shows that this approach suffers from the impossibility of calculating the necessary probabilities and misses the main point that the quality of an idea is what matters most, not whether it is currently “realistic.”

Several authors offer their criticism of the way some economists make their contributions, namely what Klein calls “paradigmaticism”: overemphasis on “formal model-building” and “empirical work according to favored quantitative methods.” The attempt to mathematicize economics has a heavy cost that Ronald Coase points out: “Aspects of the economic system which are difficult to measure tend to be neglected.” This explains the lack of attention to property rights and entrepreneurship in economic textbooks. The late W. H. Hutt’s paper predicts that the economist who builds models “may then find himself the possessor of a logical system which no legislator or administrator could be expected to understand, let alone find of service in the case of any concrete problem.” In other words, the findings of the analytical economist do not necessarily spill over to benefit society.

Klein concludes that “paradigmaticism inhibits the cultivation of economic judgment in the professional economist.” As evidence for Klein’s point, consider the economic judgment of economists who were persuaded by statistical research in selected industries that increasing the minimum wage has no adverse effect on employment.

Since some economists certainly make no positive contribution, how do the authors recommend doing economics in a way that does advance human betterment? Gordon Tullock maintains that the economist can benefit society and achieve career success by doing research that exposes inefficient government policies and educating the voters through media and public speaking.

A deep understanding of economics necessarily gives one, to use Thomas Sowell’s phrase, a “constrained vision,” or an understanding that we cannot have everything. Contributing that piece of information in a political environment in which politicians routinely promise to do everything is sure to make one unpopular. Hayek concurred, saying that “above anything [the economist] must have the courage to be unpopular.” []

Philip Murray is a professor of economics at Webber College in Babson Park, Florida.

  • Daniel Klein is professor of economics and JIN Chair at the Mercatus Center at George Mason University, and associate fellow at the Ratio Institute (Stockholm). At GMU he leads a program in Adam Smith. He is the author of Knowledge and Coordination: A Liberal Interpretation and editor of Econ Journal Watch.

  • Dr. Phil Murray teaches Microeconomics, Macroeconomics, Money & Banking, International Trade & Finance, and Global Economic Environment at Webber International University. He earned a PhD in Economics from Iowa State University in 1992. He contributed a chapter to the recently published book Handbook of Frauds, Scams, and Swindles.