The Magazine

A Question for the Economists

Is the overly predicted life worth living?

Apr 13, 2009, Vol. 14, No. 29 • By HARVEY MANSFIELD
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

One group of those involved in the present financial crisis has so far escaped notice--the economists. They are masters in the science of prediction, but as a group, if not to a man, they failed to predict a crisis that has wiped out nearly half the wealth invested in the stock market and elsewhere (measured of course from the peak). The economists did no better than their unscientific rivals, the stock pickers, who are in the business of prediction.

Perhaps we need a second look not merely at the existing models by which economists predict but at the very idea of prediction as the goal of social science. Economists had been in the habit of asserting that they had come a long way since the Depression, that such an event could not happen again. Yet people are now actually speaking of another Depression as possible. Maybe we know how to avoid the Depression we had, but what about a new one with a new character we do not recognize? Isn't our present crisis new? Isn't every crisis new--since surprise is the essence of crisis? If prediction were reliable, we would be prepared for every chance, and our lives would be crisis-free and much duller.

We can approach the idea of prediction by asking the economists a question they do not usually have to answer, which is this: In the present crisis is it better for citizens to spend or save? Or more generally, how do you economists recommend that we live?

To spend seems the civic thing to do--that's what the various proposals of stimulus are for--but to save seems more prudent, since most people will likely be receiving less income in the near future, perhaps considerably less. Which is better?

Already, readers who are economists will have given their reflex response, which is to say that our goal is to predict, not advise. But we mustn't let them dodge the question in this seemingly modest way. It's not really modesty to proclaim a goal, fail spectacularly to achieve it, and then disclaim the consequences. What they did in advance of this crisis was to make available mathematical models that promised to predict the risks of certain investments but actually obscured those risks. Did not this bad prediction constitute a recommendation of such investments? Isn't this what is called "enabling"?

Let us set aside blame, and see how the economists, despite what they often say, do actually advise us, not merely on particular investments but also more generally on how to live. We know that economists are not politically neutral; they are all either liberal or conservative or in-between. Either their analysis is politically driven from the beginning or it just comes out as political in one direction or another. It doesn't matter which, because a certain analysis harmonizes with a certain politics. The same is true of morality; economists are not morally, any more than politically, neutral. The moral tendency of
economics has to do with prediction itself, and it is common to liberal and conservative economists.

The economists I know are generally, as individuals, sober and cautious, the most respectable of all professors and in their honesty and reliability representing the best in bourgeois virtue. But when they get together as economists, they give way to boyish irrational exuberance over the accomplishments and prospects of economics as a science.

What has happened in the last few months should give them pause. It should make them consider the necessity of looking at economics from the outside, at how it looks and behaves as a whole. There's no way to do this from within economics--no way to formulate an equation that will correctly predict the failure of equations to predict. The idea of prediction itself has to come into question. Prediction is designed to reduce the role of chance in our lives, eliminating unpleasant surprise and replacing it with gratitude and satisfaction. But somehow it doesn't have this effect.

The very measures we take to anticipate the future make us more dependent on others and less dependent on ourselves, because those measures consist in spreading the risks to which we are subject. Spreading the risk seems to reduce it by sharing it with others, but the sharing enlarges the network of an individual's involvement to encompass other agents, other factors beyond his ken. Without realizing it he joins a market, in which he may feel riskless but also feels weightless, no longer having influence of his own. His livelihood, his wealth, his life come to depend on the state of the "economy," even the global economy.