John Cochrane’s reflections on Russ’s recent Medium essay are excellent. I encourage you to read it all – both Russ’s fine essay and the post by Cochrane that Russ’s essay inspired. Here’s a slice from Cochrane’s post:
As you see, I think [we economists are] pretty good at identifying causal channels that most analysts ignore, even if we are not always great at quantifying their relative significance. But “not zero” is usually an eye opener in public policy.
In sum, I think economics provides an excellent set of bullshit detectors. This is my stock answer about my own professional expertise. I may not know what makes the economy grow, or how monetary policy works. But I know with great detail exactly why the ten stories in front of us are all wrong, and typically logically incoherent. That is useful knowledge.
And here’s Cochrane’s conclusion:
So let’s call it Hayekian humility. This is the hardest one for so many economists to admit, as we all like to play central planner.
Economics and economic history also teach us humility: No economist in 1900 could have figured out what farmers, horse-shoers, ice deliverers, street-sweepers, and so forth would do when those jobs disappeared. The people involved did. Knowledge of our own ignorance is useful. Contemplating the railroad in 1830, no economist could have anticipated the whole new industries and patterns of economic activity that it would bring — that cows would be shipped from Kansas to Chicago, and give rise to its fabled meat-packing industry. So, in a dynamic economy, all the horse-drivers, stagecoach manufacturers, canal boat drivers, canal diggers, and so forth put out of work by the railroad, and their children, were not, in the end, immiserized.
So, economics should be much better at being the lifeboat for simple lessons of economic history and experience. Alas our current professional training makes us pretty terrible at this.
My personally favorite way of sounding the above theme is to note that good economists are intrepid questioners. We ask questions that most people seldom think to ask. And the very asking of such questions leads any questioner to ‘see’ the unseen features of reality that economists do not literally see but know are real. We know these unseen features of reality exist because we know that scarcity and tradeoffs are real, and understand that double-entry bookkeeping is not single-entry bookkeeping.
The politician says that he’ll improve the lot of low-paid workers by imposing a minimum wage. As Cochrane says, the non-economist sees only an income transfer: employees are made richer and employers (and sometimes also consumers) are made poorer. End of non-economists’ story. The economist is skeptical and her skepticism prompts questions. Here’s an imaginary, but not fanciful, conversation.