Brake failure on the economic freeway

Economics has been called the 'dismal science'. It's not difficult to agree with the first of these terms. However the question raised by Andrew Hamilton's response to my earlier article on the Global Financial Crisis (GFC) is whether economics deserves to be described as a science at all. As he puts the matter:

'Knowledge about economics is more like historical knowledge than like the natural sciences. Because it deals with human behaviour, it can never be more than provisional. Human beings are not predictable in their relationships. Nor are their motives for acting fully discoverable. So although the collection of data and analysis of patterns are important, ultimately they need to be brought together in a theory that is necessarily laden with judgments about human beings.'

This is where I would like to focus my attention.

It is clear that, despite all their pretensions otherwise, the human sciences — economics, sociology, political science and so on — are different from the natural science. They do deal with human behaviours and with a human world of meanings and values.

As such they are subject to two types of variability. Human beings can act intelligently and responsibly and the outcomes will vary, as each one acts according to his or her ability; however they can also act unintelligently and irresponsibly in unpredictable ways. This is the problem of sin and Andrew has written fulsomely on it in his article highlighting the contribution of greed to the GFC.

In this regard I would agree with Andrew that human sciences cannot make 'scientific' predictions in the way of the natural sciences. However, I would argue that nonetheless there is a proper goal of understanding our human world inasmuch as we act intelligently and reasonably, and of grasping the patterns of breakdown that occur when we fail to do so. This is what Lonergan is doing, for example, in his work on economics.

What distinguishes economics, and perhaps seduces many economists, from other human sciences is that it deals with an easily quantifiable object, money. Money flows in an economy and one can attempt to model that flow mathematically. One can attempt to model how fast it flows, where it flows, and why it flows. One can ask about the total amount of money and its increase and decrease.

These are questions economists have studied and continue to study. To some extent economics is an attempt to find the intelligible patterns in such flows. And to some extend the intelligibility of these flows is not dependent on the motivations of human beings or our assumptions about them.

An analogy drawn from Lonergan might help. The intelligibility of an automobile can be grasped in terms of the relationships between the motor, the fuel, the brakes, the accelerator and the steering. All these will operate regardless of the motivations of the driver, or our assumptions about the driver. If we understand the basics of the relationships we may drive well; if we don't we will probably drive badly; however even if we understand the relationship we can still decide to drive badly.

Is this a good analogy? Does an economy have such an intelligibility? Can we in fact find such an intelligibility which prescinds from human motivations and assumptions about them? This is the challenge that economists must address and attempt to answer in their economic theories. Certainly Lonergan thought he had an answer to this challenge, but it still needs critical testing.

Andrew's article focused our attention on the problem of greed. I have no doubt that greed played a major role in the GFC. Salaries and bonuses in the finance sector are just unreal. And we are right to be angry about them.

But unless we view humanity as 'totally corrupt' there remains the issue of persons of genuinely good will. What advice can they (we) be given? If in fact our economic theories amount to no more than a suggestion to 'let blood', then even people of good will do not know what the right thing to do is. Their best efforts might amount to putting their foot on the accelerator and the brake at the same time!

Such theoretical questions are not without enormous practical significance. In the last 50 years the first world has given two trillion dollars of aid to poor countries. Has this money been well spent? Has it alleviated poverty? Has it actually stimulated economic development and growth?

More staggeringly, in the past 12 months some eighteen trillion dollars has gone into rescue packages to 'save' us from the GFC. Has this money been well spent? Or has the solution been of short term benefit, but in the longer term has it simply contributed to the problem? It is a lot of money to be spending on a wing and a prayer. Especially if we are literally spitting into the wind.

At one point Andrew says, 'The essential knowledge we need — about how fallen human beings behave, and about how to control the effects of such behaviour — we already have'. This is where we disagree. The argument is not that if we have better theories everyone will behave properly. It is that without a proper economic theory even people of good will cannot work to achieve the good.

For in the end nothing is as practical as a good theory.

Neil OrmerodNeil Ormerod is Professor of Theology at Australian Catholic University. He currently is part of a research project into Lonergan's economics and its contribution to understanding the global economic crisis, funded by the Metanexus Institute. 

Topic tags: Neil Ormerod, GFC, andrew hamilton, economics, lonergan



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Why ignorance, not greed, caused the GFC

  • Neil Ormerod
  • 20 October 2009

Sixty years ago, Jesuit Bernard Lonergan developed an analysis of the boom and bust cycles of economy. He often asked, 'Where were the Christian counter-parts of Karl Marx, sitting in the British Museum voraciously reading and relentlessly studying about political economy?'



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