Often Dismal, Rarely Science

Historian and social critic Thomas Carlyle described economics as "The Dismal Science" in an 1849 article about slavery. While his opinions on that topic are no longer accepted, the name he applied to the study of the economy has stuck and is regularly quoted by various writers, including this one.

College students are often turned off by introductory economics classes because, instead of first sharing a bit about the subject's practical applications, professors usually start by introducing them to the work of famous economists. A good friend told me that her professor at Indiana State took a different approach. He spent the first class period proving why a country's having a national debt was good for its citizens and not an issue of concern. In the second session, he proved why having national debt was bad for a country and its economy; something to be avoided. Needless to say, he caught at least one student's attention and her interest in what followed was great enough that the lesson is still remembered today.

I mention this because economics is back in the headlines, as the dreaded sequestration has just gone into effect. I've written a couple of recent articles taking swipes at politicians about their inability to reach consensus on a balanced budget and I'm not going to do so again today. However, I would like to point out that each side of the debate has fully qualified economists lined up to defend its position and I think it would be prudent to consider any comments they make in light of my friend's experience in Econ 101.

Greece's overwhelming debt burden has brought the country's economy nearly to its knees as the government reduces spending in hopes of avoiding default and possible ejection from the European Union. Of course, the concept that cutting spending leads to a balanced budget is popular among certain economists (and political parties) so has vigorous support. However, cutting spending by reducing employment also reduces personal spending and could easily lead to a need for increased government spending in the form of social safety nets. Of course, this position is also stoutly defended by economists and politicians on the other side of the debate.

The Greek government was continuously advised by qualified economists as it worked its way into the debt it now owes, so how did things go so wrong? Perhaps a partial explanation can be found in this comment from Nobel laureate (in economics) Ronald Coase in the December 2012 issue of Harvard Business Review: "The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate".

Could it be that economists are, to any significant extent, isolated from everyday business life? Perhaps it's simply that economics has gotten so complicated that it's not possible to accurately predict the result of any specific action. At an Israeli day care center, parents were often late picking up their children, requiring the center to remain open. Economists predicted that instituting a fine for tardiness would be the best way to extinguish the behavior but, according to an article in the January 1, 2000 edition of the Journal of Legal Studies, late pickups actually increased after the fine was put into effect. Apparently parents felt they had been given the option of paying extra for a less rigid schedule and chose the flexibility more often instead of less.

Should we expect American economists to provide more accurate forecasts? Here's a headline from the March 3, 2013 issue of the New York Times: As Automatic Budget Cuts Go Into Effect, Poor May Be Hit Particularly Hard. Note the use of the word may. The article lists programs which will be reduced alongside those which are to be spared but, in fact, no one can predict exactly what impact the cuts will have.

Just because it hasn't led to outright disaster (so far), doesn't mean that sequestration is the best approach to a balanced budget. In fact, it was originally intended to be so distasteful that political parties would have to work out a compromise in order to avoid it. Clearly that didn't happen, as our employees in the House, Senate and White House continue with business as usual - including making campaign speeches and taking vacations - instead of coming up with an agreement acceptable to all parties. Regardless of what either side feels it has to gain from continued impasse, I'd like to point out that the economists they employ to buttress their positions all stand to gain from protracted debate.

I did not study economics in college, having come to the subject later in life. To date I've read a couple of dozen texts and other, more popular, books on the subject. I think of myself as something of a practical economist since, while obviously lacking the requisite credentials, I do employ economic research on behalf of my clients. As I try to reach my own conclusions about economic issues, I sometimes hear dueling economists on the radio or quoted in the paper. Perhaps you may find such debates as confusing as I do, so let me close by offering a bit of perspective from contemporary French journalist Jean-Paul Kauffman: "The economy depends about as much as on economists as the weather depends on forecasters".