Excerpts from my latest Atlantic column:
Imagine you are the Royal Physician in England some time during the 14th century. The prince is sick, and you've been summoned to help. You call in two experts for advice. The first says: "Use leeches to suck out the evil humors." The second says "No, you must bleed him to get the evil humors out." Just to make sure, you summon a third expert all the way from Austria, who says “No, the disease is God’s punishment for the prince’s sins, you should let it run its course.” After the Austrian expert is duly led off to the dungeons and beheaded, you’re still left with the question of whether to treat the prince with leeches or bleeding. They start to argue, insulting each other in nasty epistles. "Leech guy is secretly working for the French!" alleges Bleeding Guy. "Bleeding Guy just wants the prince to die because the prince wanted higher taxes on the nobles!" Leech Guy fires back.
What's the right move? Well, in an ideal world, you would go and get 999 patients who have illnesses similar to the prince's and give them all a variety of household substances, such as bread mold. Then you would take careful note of who died and use statistical analysis to figure out which household substances cured disease. Thus, you would discover penicillin and invent modern medicine.
Sadly, this is not what you do, because a) if you proposed it, you would be led off to the dungeons and beheaded right next to the Austrian guy, b) it's the 14th century and you have no concept of the scientific method, and c) you don't really have the right tools for that experiment, anyway. Instead, it's bleeding or leeches. So you take your best guess and you pray you're right.
The economic situation we find ourselves in today is a little bit like the example above...
If economists ever do succeed in developing formal models that work better, then we'll be able to go to them with questions (like "Should the Fed print more money?") and simply trust their expert advice. But until that day, all economists can really give us is intuition, suggestions, and ideas...
No matter how much we might wish they were, economists are not go-to experts who know just how the world works or how to fine tune it...But they do have a lot of interesting things to say. They might help you clarify or re-evaluate your own beliefs about how the economy functions. They can also help you spot the flaws in each other's arguments.
And in the end, you're the Royal Physician. You may not know everything, but the prince is dying, and you pick from among the "experts" you've got.You can read the whole thing here. Unfortunately, the part about the Austrian guy was edited for length. :(
Regular blog readers will recognize material from some of my past blog posts, such as:
"What can you do with a DSGE model?"
"The swamps of DSGE despair"
"A world without macroeconomists?"
"A satisfactory philosophy of ignorance"