A Few Things Economics is Good For …

Cite this Article
Joshua D. Wright, A Few Things Economics is Good For …, Truth on the Market (January 09, 2007), https://truthonthemarket.com/2007/01/09/a-few-things-economics-is-good-for/

Professor D’Amato is at it again. And by “it,” I mean making overblown claims that economics is useless (you might recall our last exchange where I responded to his mistaken assertion that economics had not changed antitrust in “any noticeable way”). Here’s his latest from a comment over at Prawfs.

Well, what exactly is economics good for? Certainly not prediction of economic events–the stock market, tomorrow’s value of the dollar, whether recession is coming, whether we’re in a recession right now or not, whether housing sales are going up or down. But if an economist cannot predict anything relating to the market or economic phenomena, then economics is a science without predictive value. But what kind of a science could that possibly be?

Originally, I was tempted to write a long post explaining what is wrong with the view that economics is about predicting events in the sense described above (e.g. what will the S&P 500 close at tomorrow, on January 21, and on June 3rd, 2010), and also offering a list of things “related to the market or economic phenomena” that economists can predict pretty well (Here’s one that comes to mind … or how about what happens when you set the price of kidneys to zero? Or impose rent control? Or what happens to prices when the producers of two complements merge? How about understanding why suppliers granting distributors exclusive territories is likely to increase output? Anyway … )

But I decided against it. Look, these sorts of claims are nothing new. And they really aren’t particularly interesting in their own right. Some folks don’t care for economic analysis for one reason or another. Some have principled objections, some don’t. Some associate economics as a nasty little set of tools that would have us place unseemly monetary values on things as sacred as human kidneys, blood, and human life itself. I’m not very good as blog sarcasm, so just know that the last sentence was written with the appropriate tone. Some think it is a tool of some vast right-wing conspiracy. Others are angry that some economists view what they do as “hard science,” feel like economists overclaim their contribution to policy analysis (which some do, though law professors should not be the first to cast stones on this front), or believe in some permutation or combination of these and other reasons. For that matter, there are even very good economists who don’t like what is being taught in top modern graduate economics departments (mathematical techniques over “real world” economics). Whatever.

But how anyone could argue that economics does not have anything to offer policy analysis is beyond me. Even the most ardent critics of economics typically concede that has made a positive contribution to policy analysis. This particular form of anti-law and economics rhetoric, I had thought, turned passe long ago. At the very minimum, one would think it an uncontroversial proposition that economics offers useful tools for understanding the consequences of laws. Society would be much better off even if lawmakers understood simple economic concepts like: demand curves slope downward, supply curves slope upward, a price cap will likely result in a shortage, etc. Surely, we in the legal academy are interested in understanding the effects of the legal change? It is here that economics can help! Not to mention more generally on increasing our understanding of firm and human conduct relevant to policy analysis. Surely, we in the legal academy are interested in increased knowledge of these phenomenon as well. Maybe D’Amato’s disdain for economic analysis of the law is unique, but I doubt it. This sort of thing certainly does make me wonder how strong the anti-economics sentiment is at most law schools?

So if I find this sort of anti-economics rant boring, why the response? Good question. Other than making the above point concerning what economics has to offer at a very minimum to the analysis of law and legal institutions, and it should be fairly obvious to readers of this blog that I personally believe economics offers much more than just tools to evaluate the consequences of legal change, I wanted to point to an essay by Hal Varian (“What Use is Economic Theory“) that I read while in graduate school in preparation for a dinner-table debate with “hard scientist” siblings about the utility of economics. Here is a snippet from the introduction that gives the general flavor:

No one complains about poetry, music, number theory, or astronomy as being
‘‘useless,’’ but one often hears complaints about economic theory as being overly esoteric. I think that one could argue a reasonable case for economic theory on purely aesthetic grounds. Indeed, when pressed, most economic theorists admit that they do economics because it is fun. But I think purely aesthetic considerations would not provide a complete account of
economic theory. For theory has a role in economics. It is not just an intellectual pursuit for its own sake, but it plays an essential part in economic research. The essential theme of this essay that economics is a policy science and, as such, the contribution of economic theory to economics should be measured on how well economic theory contributes to the understanding and conduct of economic policy.