Roger E. Backhouse

 

On his book The Puzzle of Modern Economics: Science or Ideology

Cover Interview of October 27, 2010

The wide angle

The Puzzle of Modern Economics starts by looking at the financial crisis of 2008, when the Queen of England opened a new building at the London School of Economics and said to her hosts, “This crisis is terrible. Why didn’t anyone see it coming?”  (These may not be the Queen’s exact words, but they seem to be reported differently in different newspapers anyway.)

Of course, the right answer is that quite a few economists did see the crisis coming, but no one wanted to listen to them.  But the Queen’s question is a good lead into the different ways people look at economics.

That is not where the project had begun. My original proposal, in 2002, was to bring together work I had done on the history of the economics profession since the Second World War.  Writing the book, however, I found that I needed to take a different approach from the one used in my articles in academic journals.

My editor at Cambridge University Press suggested I move the discussion of “successes and failures of economics” from the end of the book to the beginning.  This quickly expanded to become almost half the book.  I then realized I needed to write new chapters on the attempt to make economics scientific.

Much material on the economics profession that had originally been central to the project had to be cut.  But discussions of the Second World War, McCarthyism, and the rise of free market think tanks could remain.  The result is a book that changed considerably since the original outline.

So how do the case studies fit with the history? The problem raised by the case studies is how economics came to be dominated by theories that are in some ways incredibly powerful—but which are at the same time very narrow, serving as blinkers.

I approach this from three perspectives.

The first is to see how economics was shaped by the attempt to make it a science. This was tied up with a particular conception of what economics is—the science that deals with the allocation of scarce resources—which helped to shape economists’ ideas about what was, and was not, legitimate economics.

The second is to consider the role of ideology in shaping the subject, and here I turn to some factors that affected the social sciences in general.  This is a dimension of economics where one has to be very cautious, and to avoid conspiracy theories.  But it seems reasonable to suggest that the new sources of funding in the period since the Second World War may have had some influence on the drive towards mathematically rigorous theorizing.

Finally, I look at dissent in economics, returning to the problem with which I started: how economists can view their subject in such different ways.

How can there be so much scope for disagreement? Take the assumption of rationality.  There are some economists who have an ideological commitment to the assumption that people are rational, just as there are others who are equally convinced that they are not.  But the reason the assumption is widely used is that, though most economists do not believe people are rational all the time, they have found that theories that assume rationality can be very powerful, explaining a lot of what happens in the world.

One would hope that these theories would be tested rigorously against evidence, and that we would find out who was right.  Economists do try to do this, but often the evidence is not powerful enough to adjudicate between competing theories.  This leaves room for ideology to intrude, or for preconceptions about what constitutes a persuasive argument.