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Book Review: What do Economists Contribute?


What Do Economists Contribute?
edited by Daniel B. Klein (New York: New York University Press, 1999); 156 pages; $14.95.

The following is the abstract of an economics article that appeared in the November 1998 issue of the International Economics Review:

“The authors investigate confidence intervals and inference for the instrumental variables model with weak instruments. Confidence intervals based on inverting the Lagrange multiplier (LM), likelihood ratio (LR), and Anderson-Robin statistics perform far better than the Wald. Performance of the LM and LR statistics is improved by a degrees-of-freedom correction in the overidentified case. The practice of pretesting by looking at the significance of the first-stage regression and making inferences based on LM and LR statistics leads to better results than pretesting and using the Wald statistic.”

This next abstract is from an article in the January 1999 issue of the Journal of Business Economics and Statistics:

“The author derives the generating mechanism of a temporally aggregated process when the disaggregated one belongs to the vector autoregressive integrated moving average class. He then studies the effects of temporal aggregation on a set of characteristics of usual interest such as exogeneity, causality, cointegration, and common features. An empirical example with Canadian interest rates illustrates the main issue.”

I have randomly selected these two abstracts. They give a fairly representative indication of the content and style of a vast majority of the type of scholarly writings in economics today.

In the mid 1980s, economist James Buchanan, founder of public choice school, made the following critical commentary on the state of modern economics:

“As it is practiced in 1983, economics is a science without ultimate purpose or meaning. It has allowed itself to become captive of the technical tools that it employs without keeping track of just what it is that the tools are to be used for. In a very real sense, the economists of the 1980s are illiterate of basic principles of their own discipline…. Their interest lies in the purely intellectual properties of the models with which they work, and seem to get their kicks from the discovery of proofs of propositions relevant only to their own fantasy lands.”

Nothing has changed in the 15 years since Buchanan made this biting criticism. If anything matters have become worse.

Daniel Klein, professor of economics at Santa Clara University in California, has edited What Do Economists Contribute? to try to get the majority of economists to rethink what their work is and should be all about. He has brought together a set of insightful essays by, among others, Friedrich Hayek, Israel Kirzner, W.H. Hutt, Ronald Coase, Frank Graham, and Gordon Tullock to show that economists should not view themselves as esoteric mathematical model-builders, but instead as analyzers of the human condition in a world of scarcity and choice, who should view as their main task an understanding of the nature and workings of the free-market process.

In his introduction to the volume, Klein insightfully explains that earlier economists believed in the importance of logical rigor and unbiased objectivity in studying the social and economic world. But adherence to this scientific standard of research was a means to an end, not an end in itself. The end was a normative one – an appreciation of the human circumstance so as to reach reasonable conclusions as to what type of political and economic order would be most conducive to human freedom and prosperity.

The classical economists of the 19th century and the Austrian and neo-classical economists of the early 20th century succeeded in showing the mutual benefits from trade, the advantages from an international division of labor, the crucial importance of private property rights for creating incentives for savings and production, and the gain from a free, competitive process for entrepreneurial creativity and efficiency in the market. They were also able to demonstrate the superiority of free-market capitalism over either socialist central planning or the interventionist state.

But for most of the 20th century, unfortunately, the mainstream of the economics profession has lost its way. Its members have become mesmerized by their own mathematical and statistical techniques, and by reducing men to a mere manipulatable quantitative dimension, they have often generated the illusion that man and society can be socially engineered in any form the model builder considers most “optimal.”

The contributors to the volume, while differing in their emphases, all share certain assumptions: that economics should be down to earth, commonsensical, and realistic, in the sense of studying markets and governments as they really exist; that a primary duty of the economist is to “dirty his hands” and analyze real-world governmental interventionist policies and show how these policies succeed in reducing both freedom and prosperity; and that the task of the economist is to tell the truth, not to work within the “politically possible” and compromise his understanding of the free market to ideological fads and the changing currents of special-interest politics.

Sad to say, many economists have greatly contributed to the rationales for and the construction of the policies designed to straightjacket the market economy under government control. They need to forsake this temptation and once more redeem themselves as champions of economic freedom.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).