On Monday, Thomas Sargent of NYU and Christopher Sims of Princeton were jointly awarded the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for 2011 for their contributions to understanding causal relationships in macroeconomics.
Unfortunately, the Nobel Committee’s selection will do nothing to quell the meta-debate raging among prominent economists about the role of economics in society. Economists, fueled by the financial crisis, are debating furiously about the value of their models, forecasts, and causal links. Since the crisis began, scathing attacks have been launched by reporters, Nobel laureates, new researchers, and even the queen of England.
New working papers directly take on the debate, attempting to parse out the nature of the real relationship between economics and reality, something Sims was doing as long ago as 1977. The debate hasn’t moved much since then. The debate is still about how much we should trust our supposed economic knowledge.
The reality is that economics will always have limited value because it can’t tell us what we should want. German and Austrian economists have long referred to economics as wertfrei—value free. It can’t tell us what things are important for our well-being, nourishment, and flourishing. To get answers to those questions, we have to look to other fields—religion, sociology, philosophy, business, and so on. To the extent that we disagree on ends, the means will always be in question.
Economics’ dirty little secret is that many of the assumptions that go in to our models require us to make value judgments, too; economics can’t be value free. We dress up the language and pretend we’re being objective, but the reality is that what we choose to plug into sophisticated computer programs to make sense of reality is rooted in our own personal biases and predispositions.
This is why economics can tell us about the likely impacts of deficits, the scenarios available for investment, the way that firms make decisions under different profiles of the future, and a host of other topics, but it can never tell us what tomorrow can or should look like. No matter how intricate our models are, their reliability lies with all of us who make decisions—moral agents acting on moral propositions, with economic analysis to help warrant our claims.