The Games Economists Play – they lie!

May 17, 2011 08:43

Just as Catholic schools do not teach the Muslim faith, government schools do not teach free markets. Nor do they reward those who believe in the efficacy of free markets with grant funds.

From Monty Pelerin’s World

Robert Higgs, economist and economic historian, discusses the problem with most economists. The process of research is driven by the “publish or perish” nonsense that plagues so many other academic fields.

More than most, economists understand incentives. If the incentives are correct, outcomes will both advance general knowledge and one’s career. If the incentives are incorrect in the sense that they conflict, then research will be tailored to advance one’s career.  After all, what is more important, the search for truth or the ability to feed one’s family? For most, the material aspects win hands-down.

As Mr. Higgs describes the process:

… my colleagues had little interest in the search for truth, however one might understand or pursue it. To them, their research and publication amounted to a game in which the winning players receive the greatest rewards in salary, research funding, and professional acclaim. They understood that because of cloistered academic inbreeding, economists at the most prestigious universities consider the “smartest guys” to be those who employ the most advanced, complex, and incomprehensible mathematics in their “modeling” and “empirical testing.”

A good example of what drives some research is the use of a new tool from another discipline. Regardless of whether the tool has any applicability to the social sciences or not, “academic entrepreneurs” will rationalize its use to their field. Forcing the tool into new (albeit improper) applications offers uniqueness (but not correctness). It enhances publication possibilities, but not knowledge. Mr. Higgs cites as an example:

… colleagues who became excited by their discovery of a mathematical theorem that had never been applied in economic research. These economists would look around for a plausible way to use the newly discovered mathematical theorem, to give it the appearance of economic relevance. In this way, mere technique drove research and publication.

Sadly, the economics profession has deteriorated into a contest of mathematical one-upsmanship. It is a contest of numbers and models, neither of which is arguably appropriate to the study of  human behavior.

Compounding and reinforcing the improper incentives imposed by peers is the grant process. Research funding is heavily provided by government. These grants are provided almost exclusively for the “correct” type of research which always concludes that more government intervention is the solution to all problems. As Dwight D. Eisenhower warned in his farewell address:

The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present – and is gravely to be regarded.

Just as Catholic schools do not teach the Muslim faith, government schools do not teach free markets. Nor do they reward those who believe in the efficacy of free markets with grant funds.

Government’s corruption of the economics profession does not stop with the schools. The prime jobs for economists are in government itself. If you want one of these jobs (and a high paying career with some power and fame), then you must adhere to economics that fit government’s purposes. It is impossible to be a good economist and work for government without compromising your economics. A government economist must be less an economist and more a politician. Objectivity is bargained away for whatever benefits the position affords.

Some may interpret this article as too critical of economists. Economists are generally not bad people. The profession probably has the same number of bad apples as any other advanced profession. Nor are they dumb (although there are some notable exceptions). They respond to the incentives presented them. If the incentives are improper, than so will be the outcomes.

A “bad game” always produces unsatisfactory endings. Unfortunately, we are the recipients of compromised economics. Today’s economic mess is the result of decades of poor incentives, poor economics and poor political/economic policies. Years of improper economics rewarded by colleges and governments have brought us to this point.

For those interested further in this topic, read Mr. Higgs article.

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