A science is not called a discipline by coincidence: its students are actively and deliberately disciplined to think and behave in the specific ways that define a discipline. They are trained to observe reality in distinctive ways which, on the one hand, help them to focus, organize and interpret their observations, and, on the other hand, impair them to perceive phenomena that could put their specific, inescapably limited perspective into question.

According to Charles Lindblom, particularly economics in this way has become “the most distinctive, the most differentiated, perhaps the most analytically powerful, and also the most provincial of the social science disciplines” (1990: 199). It took him decades, Lindblom declares later in his career, to free himself of the “impressive theoretical inheritance of economics, especially the elegance and precision of its methods” (1988: 17). Exactly because of the attractiveness of its rational, systematic, theoretical constructs, “economics becomes perhaps the most intolerant of the social sciences and perhaps also the narrowest in that it restricts its inquiries to questions for which its formidable techniques are productive, refusing to venture into other no less important questions about economic life” (1988: 17).

Crisis? What Crisis?

The discipline of the science of economics was well illustrated by the financial crisis starting in 2008. Paul Krugman stated six years later: “Almost nobody predicted the immense economic crisis that overtook the United States and Europe in 2008. If someone claims that he did, ask how many other crises he predicted that didn’t end up happening” (2014). What explained this academic failure? Discipline and the apparently widespread monistic belief in a well ordered Kosmos seem to be pivotal in any answer. In this Kosmos every question can only have one correct answer and all the correct answers can be harmoniously organized in one consistent and coherent system. Consequently, Krugman can write, that “the central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess. Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation” (2009).

Economists with a less optimistic view on the rationality of man, society and world, were pushed to the margin during the neoliberal ascent starting in the eighties. To improve the empirical validity and relevancy of their science economists will have to learn again to live with “messiness”, Krugman advices. That is, “they will have to acknowledge the importance of irrational and often unpredictable behavior, face up to the often idiosyncratic imperfections of markets and accept that an elegant economic “theory of everything” is a long way off. In practical terms, this will translate into more cautious policy advice — and a reduced willingness to dismantle economic safeguards in the faith that markets will solve all problems” (2009).

We have a Number!

A telling illustration of the almost religious search for certainty in economics and most other social sciences, a certainty preferably expressed in clear, round numbers, was the now famous research of Kenneth Rogoff and Carmen Reinhart (2010) on the connection between public debt and economic growth. After statistically comparing the economic histories of 44 economies in the last 200 years these Harvard-scholars thought to have found a clear number that no country should surpass: when public debt goes beyond 90% of the Gross National Product, any economy will inevitably start to shrink. They compared debts with climbing high mountains: one can slowly go higher and higher without experiencing much problems, but after a particular threshold, one abruptly and entirely gets out of breath. Drastic measures then have to be taken. In economics this threshold is 90% (the rather thoughtless translation of a medical phenomenon to the social world of economics is revealing).

In a wonderful article in Die Zeit Marc Brost, Mark Schieritz and Wolfgang Uchatius showed the stunning eagerness of an army of prominent policymakers to use this number. To justify their economic policies it was explicitly brought forward in the public debate by, among others, the ministers of Finance of Germany, Great Britain and the United States, and by the presidents of the European Central Bank and the Deutsche Bundesbank. Probably also to their own amazement, the research of Rogoff and Reinhart became one of the most influential economic publications of the last decades. Brost et al. write: „The 90 per cent perhaps are the clearest, hardest argument in the debt-debate. A scientifically established number is no dogma, no ideology. A number is objective. It is like a truth.“ (1)

The number became of great importance in the economic policies of, among others, the European Union towards countries like Greece, Spain and Portugal, forcing them to drastic cuts in public expenditures. In the end, these cuts predominantly enlarged their problems, though, as also the International Monetary Fund in May 2013 finally acknowledged: the pro-cyclical measures had “unexpectedly” caused the Greek economy to shrink with 25%, making it even harder to pay off the debts.

Hard Numbers?

How hard was the number? Replication hardly ever takes place in science. Just by way of exercise a student, Thomas Herndon, was asked by his professor to redo the math of Rogoff and Reinhart. Whatever he tried, he could not find the 90%. Together with two of his professors he delved into the original research and found important “coding errors, selective exclusion of available data, and unconventional weighting of summary statistics”. After redoing the math they concluded that “average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.” They also showed “how the relationship between public debt and GDP growth varies significantly by time period and country” (Herndon, Ash and Pollin 2013: 1). Sometimes a public debt larger than 90 % or another number is a problem, sometimes it is not. It depends on the particular circumstances. (2)

Brost, Schieritz and Uchatius concluded in Die Zeit: “It was as if the 90 per cent satisfied a deep longing. A longing for a world without factional disputes, without right of left, a world where there are only correct or wrong answers, where politicians become medical doctors that just apply the best possible therapies, unaffected by any worldview.” (3)

It seems evident that in any empirical research on the workings of economic, social or political science the ontological assumptions of the scholars involved should be addressed. What kind of knowledge do they expect to create? Is it like the knowledge we acquired about the natural world? Or is it a different kind of knowledge? How different? What kind of advice can we give policy makers on the basis of this knowledge? What kind of assumptions and expectations do policymakers themselves have about the knowledge academic scholars provide? It is striking that this issue is hardly ever attended, as if the scholars and policymakers involved were impertinently asked about their political or religious leanings. Just posing the question seems to undermine the purity and objectivity of their scientific and policy making travails. Nevertheless, should we not ask the question?

Literature

Brost, Marc, Mark Schieritz and Wolfgang Uchatius. 2013. Verrechnet! Die Zeit. 27 juni 2013.

Herndon, Thomas, Michael Ash and Robert Pollin. 2013. Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff. Political economy Research Institute, University of Massachusetts Amherst. Workingpaper Series, Number 322, April 15, 2013

Holtferich, Carl-Ludwig; Feld, Lars. P.; Heun, Werner et al. 2015. Staatsschulden: Ursachen, Wirkungen und Grenzen. Berlin.

Krugman, Paul. 2009. „How did economists get it so wrong?” New York Times Magazine. September 6, 2009.

Krugman Paul. 2014. Why Weren’t Alarm Bells Ringing? The New York Review Of Books, 23 October 2014.

Lindblom, Charles E. 1988. Democracy and Market System. Oslo: Norwegian University Press

Lindblom, Charles E. 1990. Inquiry and Change: the Troubled Attempt to Understand and Shape Society. New Haven and London: Yale University Press.

Rogoff, Kenneth S. and Carmen M. Reinhart. 2010. Growth in a Time of Debt. American Economic Review, American Economic Association, vol. 100, No.2, pp. 573-78.

Notes

(1) “Die 90 Prozent sind das vielleicht klarste, das härteste Argument in der Schuldendebatte. Eine wissenschaftlich ermittelte Zahl ist kein Glaubenssatz, keine Ideologie. Eine Zahl ist objektiv. Sie ist wie eine Wahrheit.” (translation HB)

(2) A recent study of 11 German economists came to the same conclusion. The authors state that the opinions on debts are not just controversial, but “beruhen häufig auf Dogmen, wirtschaftlichen Interessen und falschen Analogien (Holtferich, Carl-Ludwig; Feld, Lars. P.; Heun, Werner et al. 2015: 2). And in reaction to Rogoff and Reinhart they write: “Entgegen einer verbreiteten Auffassung lassen sich aus wirtschaftshistorischer Perspektive keine klaren Schwellenwerte für ‚kritische‘ Niveaus der Staatsverschuldung definieren” (2015: 43). More important than the sheer volume of debt, is the content of the spending: does the state borrow to invest in education or infrastructure, or does it borrow to enable consumption?

(3) „Es war als ob die 90 Prozent eine Sehnsucht stillten. Die Sehnsucht nach einer Welt, in der es keinen Richtungsstreit, kein rechts oder links mehr gibt, sondern nur noch richtig und falsch, in der Politiker zu Ärzten werden, die, weltanschaulich neutral, ihre Therapien allein danach aussuchen, was hilft.“ (translation HB)

© Hans Blokland
Social Science Works. Potsdam. June 2015.