Economists Are Rediscovering Humility —and Humanity
Field should be seen as an art, not a science
By Rob Quinn, Newser Staff
Posted Mar 26, 2010 5:00 AM CDT
The models economist built not only failed to predict the financial crisis, they actually made it worse, Brooks writes.   (AP Photo/Shizuo Kambayashi)

(Newser) – The failure of economists to spot the financial crisis in advance is causing soul-searching that will redefine the whole field, writes David Brooks. The cutting-edge models economists built over decades ignored the complexities of human nature and economists are now rediscovering the humility of an earlier time and trying to learn from psychologists and sociologist, Brooks writes in the New York Times.

Economists are now "taking baby steps into the world of emotion, social relationships, imagination, love and virtue," Brooks writes. In the years to come, he writes, the field will return to being a "subsection of history and moral philosophy" that keeps other contexts in mind when attempting to make predictions. Economics will reemerge as an art, not a science, he predicts.

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Mar 26, 2010 10:22 PM CDT
The failure of economists to spot the economic crisis beforehand? Even Greenspan said the housing bubble was irrational exuberance, but that was the Fed. Krugman had some cautious words. Steiglitz was looking at cycles. But the economists weren't really looking at the disasterous derivatives market and the Fed was looking as far away from it as possible, saying it wasn't their place to regulate it. It was pervasive but not illegal corruption. Very few people saw where it would take them. The financial guys thought that they could sell bundles of nothing forever and if it failed, they were insured. The Banks and mortgage lenders lent to everyone because then they sold their debt to Wall St. to be bundled, sold and bet against with insurance. The Insurers just kept insuring far past their ability to pay up, as insurance companies do, because rarely is there such a "perfect storm" as to take an insurance company out....NONE OF IT WAS ILLEGAL thanks to the process of deregulation that Ronald Reagan began and that continued right up to when the Republicans and Wall St. are fighting as hard as they can to stay unregulated so that they can get "too big to fail" again.
Mar 26, 2010 5:56 PM CDT
Brook's article is pretty darn fluffy. Economics never STOPPED being "a subsection of history and moral philosophy". If you want to identify the economic thinkers who foresaw the recent melt-down, look at the ones who are now wealthy, and the ones who predicted it well and still get ignored.
Mar 26, 2010 5:31 PM CDT
Economics is being criticized for failing to do something that it never set out to do and explicitly disavowed the possibility of doing for ages. Very few competent economists would ever claim that their models could exactly predict when and whether or not we were going to have a recession, and to ask them to do so is an unrealistic standard to hold economics to. Economic models should at best be considered aids for practical policy analysis, e.g. if I raise taxes, what should I expect to happen to consumption patterns and by how much. There is no practical way to answer the "how much" part of this question without the use of quantitative modeling. It should also be noted that finance ? economics, and the people who constructed the financial models were much more aware of the limitations of these models than the people who USED the models, so that there was a disconnect between the intellectual heavyweights behind the models and the relatively uncritical way in which the models were applied. There is, I think, a legitimate criticism to be made of the people (economist or otherwise) who interpreted the "efficient market hypothesis" as a blanket excuse to deregulate without looking at the role regulations play in the system, and the people who interpreted their models as gospel facts about how the economy works that are somehow immune to challenge. But the fact is that the anger against economics in the aftermath of this crisis and the methodological complaints about it strike me as exaggerated.