Olivier Blanchard has recently been quoted as saying that
"Before the crisis, we had converged on a beautiful construction" to explain how markets could protect themselves from harm, said Olivier Blanchard, an economics counselor at the International Monetary Fund. "But beauty is not synonymous with truth."
This isn’t that far from what Krugman said some years ago. “Mistaking beauty for truth” was the first section of his widely discussed 2009 essay “How did economists get it so wrong?” where he also wrote that
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. […] as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. […] the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
Is it just me or does this sound crazy? If this is true, isn’t it a damning judgment on the entire “scientific process” of economics? How can presumably sensible and unquestionably intelligent researchers searching for a reasonable way to examine the world converge on a beautiful construction that completely misleads them? Instead of leading economists stepping forth to profoundly state that “beauty is not truth,” couldn’t they instead put their weight behind something that would help avoid this happening again in the future? If physicists over time converged on (beautiful, elegant, rigorously formal) theories that made laboratories blow up and spew poisonous gas over entire cities, wouldn’t it make sense to question the kinds of evidence and arguments used to justify empirical claims in physics?
As “Zombie Economics” author John Quiggin has stated,
The prevailing emphasis on logical rigor has given economics an internal consistency that is missing in other social sciences. But there is little value in being consistently wrong. Economics must move on from the infinitely rational, farsighted and asocial beings whose decisions have been the central topic of analysis in recent decades.
Finally, with the collapse of yet another economic ‘New Era’ it is time for the economics profession to display some humility. More than two centuries after Adam Smith, economists have to admit the force of Socrates’ observation that ‘The wisest man is he who knows that he knows nothing’. While knowledge in the sense of absolute certainty may be unattainable, economists can still contribute to a better understanding of the strengths and weaknesses of markets, firms and other forms of economic organisation, and the possibilities for policy action to yield improved economic and social outcomes.