Is economics broken?

The science of economics is going through a rough patch, with its credibility and methodologies being
increasingly questioned by the general public, politicians and even economists themselves.

When Claudia Goldin won the Nobel Prize in Economics last October, many of her colleagues rejoiced.
The prestigious award endows the Harvard University academic with an aura of respectability that few
female economists enjoy. At the crossroads of economics, history and gender studies, her work shines a
light on the unrecognised value of female labour. “She has brought women to the forefront of economic
study, an area that has historically been overlooked,” says Stefania Paredes Fuentes, an economist at
Warwick University studying diversity in economics teaching, adding: “Traditional economic models
with representative agents often neglect the role of women in the economy, perpetuating a lack of
recognition and undervaluation of gender roles in the labour market.”

One reason why Goldin’s win has been welcomed with enthusiasm is that her accomplishment is so rare.
Only three women have ever won the award, all in the 21st century. Goldin is the first woman to receive
the award without sharing it with male colleagues. For some, this is an acute reflection of the gender gap
facing economics, with less than one out of four tenured professors in the US being women, compared to
43% for other disciplines. “Stereotypical perceptions of economics as a discipline dominated by 'men
from upper-middle class wearing suits and talking about money' persist, which, combined with the
scarcity of female role models, deters young women from pursuing economics from the outset,” says
Fuentes. Goldin’s recognition, she hopes, could help change that, emphasising that it is “a discipline
centred around studying our society and its people, not just money and banking.”

Rage against the models

As a science, economics has never been more widely read and discussed, occasionally even turning into a
pop culture phenomenon. Economists like Thomas Piketty, author of the much-discussed and little-read
“Capital in the 21st Century”, and Yannis Varoufakis, Greece’s former finance minister, are the high-
brow equivalents of football superstars, filling stadiums with young students hungry for alternatives to
runaway capitalism. At the same time, the discipline has never faced more uncertainty and criticism,
even from within its own ranks. In the wake of the Brexit referendum, Andy Haldane, then Chief
Economist of the Bank of England, acknowledged that the profession faces a crisis, as economists are
increasingly blamed for society’s ills, while failing to account for human irrationality. A 2019 YouGov
survey for Bristol university found that economists were among the ‘least trusted professionals’ in the
UK.

One reason for the discipline’s unpopularity is its complexity. “Economists have made a point of turning
economics into a closed profession with a lot of jargon. People think that economics is beyond their
understanding,” says Paola Subacchi who teaches international economics at Queen Mary University of
London. Despite being a social science, economics relies on advanced mathematics to describe a complex
phenomenon like the economy. A recent survey of 350 bachelor’s degrees by the International Student
Initiative for Pluralism in Economics (ISIPE), a group including over 100 universities worldwide, found
that economics degrees were highly mathematical, with non-mathematical subjects covered by just 2.5
percent of modules, while real-world applications and history were largely ignored. “The way economics
is taught in universities does not include half the tools and concepts necessary to understand economic
and social problems. The core of economics teaching is mathematics, statistics, macroeconomics and
microeconomics, and that means there is no pluralism in terms of theories, disciplines and concepts”,
says Arthur Jatteau, an economist from the University of Lille who headed the report.

Such formalisation is a product of the discipline’s history. Economics started as a branch of philosophy,
evolving into a social science in the 19th century. Even then, it was largely free of mathematics. Adam
Smith’s “The Wealth of the Nations” includes no equation. Despite its humble beginnings as a “moral
science”, the discipline soon adopted mathematical modelling in an effort to wear the impenetrable
armour of objectivity that only “hard” sciences like physics can boast of. The turn towards neoclassical
approaches in the mid-20th century, which emphasises supply and demand equilibriums, meant that
economists’ policy prescriptions could be backed up by scientific analysis. “Mathiness comes from this
pursuit of influence,” says George DeMartino, an economist who teaches at the University of Denver. “It
sends a signal to policymakers and the general public that they don’t understand what economists do
and therefore they must defer to their judgement.” Milton Friedman, the high priest of free markets,
famously argued that it did not matter if models made unrealistic assumptions, as long as they accurately
forecast the economy’s ups and downs. For many economists, this approach is necessary for the science
to maintain its academic rigour. “Mathematics in economics brings transparency in that it makes
assumptions explicit. So the models still work in most cases,” says Jon Danielsson, an economist and co-
director of the LSE’s Systemic Risk Centre.

The issue has come to the fore recently with the failure of models to predict the inflation crisis. In an
astounding admission, Belgium’s central bank governor and member of the European Central Bank
(ECB) council Pierre Wunsch acknowledged that the bank’s models were practically useless. “It was more
or less impossible in our models to produce any inflation that would not be temporary,” Wunsch said last
year, explaining that they always showed price rises under the bank’s two percent target. The issue had
broader political implications, with central banks and governments on both sides of the Atlantic taking
flak for failing to grapple with the first inflation crisis since the early 1980s. Some economists explain
these failures as part of the forecasting game. “Inflation forecasting models are notoriously unreliable, but
that does not mean other models are unreliable,” says Danielsson from LSE, adding: “It’s a complicated
problem and anybody trying to solve it would be an economist, whether by training or otherwise.” For
others, however, it’s emblematic of the profession’s shortcomings. “The problem with modelling inflation
is that we need to take into account many different components, including some that are not easily
quantified, like expectations,” says Subacchi. “We think that people are rational, but human behaviour
depends on emotions, which are not easily modelled. We can learn from history, but each inflation
episode is different from previous ones.” The emphasis on mathematics enhances the profession’s nearly
inherent elitism, argues Veronica Dolar, an economist teaching at SUNY Old Westbury. “We talk about
profit maximisation and optimisation and we push this idea to such an extreme that we think everything
can be quantified. Sometimes we lose track of the fact that not everything is about maximising GDP and
income and that those are our proxies for improving wellbeing,” she says, adding: “This kind of thinking
facilitates the self-selection of people who might be excellent academically, but misunderstand the big
picture.”

One subfield that questions rational assumptions is behavioural economics, which uses insights from
psychology to explain economic behaviour. Despite its popularity, the field is facing criticism over its
methods, notably the data collection and analysis techniques used by many prominent figures in the field.
Dan Ariely, a famous behaviour economist who has made his name by exploring the concept of honesty
and its role in economic transactions, has come under fire for using data of dubious credibility in several
studies, with other academics being unable to replicate his findings. Another behavioural economist,
Francesca Gino, has been put on leave by Harvard University for falsifying results in several papers. “In
behavioural economics there's this notion that p-hacking {the misuse of data analysis to present non-
existing patterns as statistically significant} is not as bad as outright faking or manipulating data. In my
mind, presenting what you want to see is all data fabrication or manipulation,” says Lakshmi
Balachandra, an economist who teaches entrepreneurship at Babson College. Her own concerns over the
methodologies used by another behavioural economist during her postgraduate studies had been
dismissed as irrelevant. One reason for that tacit acceptance of dodgy practices, she argues, is that
behavioural economists work with big datasets that can be easily manipulated to produce the desired
results, while the samples are often selected from specific demographic groups, such as undergraduate
students.

An immoral science
If concerns over academic integrity and research reproducibility are not uncommon among other
sciences, economics faces a much bigger ethical problem. One thing missing from its models, argues
George DeMartino, author of “The Tragic Science: How Economists Cause Harm”, is an understanding of
the harm that economic theories can cause, as most economists believe that some harm is the price to be
paid for a higher good. The gap that separates economists from those who cannot master its advanced
mathematics results in a sense of arrogance and entitlement. “There's this profound paternalism in the
profession that economists know best, and society should defer to our judgement because everybody will
be better off,” DeMartino says. “If you take this approach, you find that it's okay to deceive.”

One example is the “Shock doctrine” imposed on post-Soviet Russia by a group of Russian and foreign
economists, seeking to transform its state-directed economy into a market economy at breakneck speed.
The economic argument, he argues in the book, was a smoke screen for economists to pursue their
agenda. As an antidote to such behaviour, DeMartino believes that economics education needs to include
ethics into its scope, notably what he calls “moral geometry”: an understanding that dealing with
complex problems should incorporate harm considerations for different groups.

Masters of the universe

Another reason why economics is becoming an anathema for the general public is its sheer power.
Economists turned into powerful technocrats in the wake of the Great Depression and WWII, when
multiple waves of Keynesian interventionism filled government bureaucracies and international
organisations with economists. From an academic discipline, economics turned into what the Berkeley
sociologist Marion Fourcade has called “a technique of government”. When neoclassical economics
replaced Keynesianism as the dominant paradigm in the ’70s, a generation of pro-market economists
played a central role in market-oriented reforms such as lower taxation. This gave rise to what James
Kwak, author of “Economism: Bad Economics and the Rise of Inequality,” calls “economism”: an
ideology that posed as scientific analysis, aiming to replace post-war planning with unfettered capitalism.
As the discipline gradually shifted from demand to supply side approaches and monetarism, thinkers
like Friedman and politicians like Ronald Reagan imposed a new economic model that emphasised
deregulation, lower taxes and smaller government. “Many prominent economists actively promote the
idea that simplistic models should be the basis for policy,” Kwak says, adding: “Economics 101 is taught
everywhere in a way that encourages people to remember the simple models and forget all the caveats
that come with them.”

Populist backlash
While such ideological commitment has increased the influence of economists, it has also exposed them
to harsh critiques. The first shock came in 2008 when the financial crisis gripped the global economy.
Mainstream economics was blamed for paving the way for the credit crunch, failing to anticipate it and
prolonging the subsequent crisis through misguided austerity policies. The backlash was severe. The
global turn to populism can be partly traced to the failure of economists to grapple with harm, argues
DeMartino. Disillusionment with economists facilitated a rejection of expertise, a sentiment famously
expressed by the British politician Michael Gove in the run-up to the Brexit debate. Asked about dire
economic forecasts, Gove said: “I think the people in this country have had enough of experts, from
organisations with acronyms, saying that they know what is best and getting it consistently wrong.” In a
subsequent interview, he clarified that he was referring primarily to economists. Many other politicians
have criticised the influence of economists in policymaking; Donald Trump was notoriously distrustful of
economic experts during his Presidency. On the left side of the political spectrum, the rise of inequality
worldwide has been often blamed on economics for providing the vocabulary to defend the status quo,
an antipathy some speculate transmuted into a broader distrust of experts, as evidenced by anger against
public health officials during the pandemic. “Economics deceived the public about the emergence of
market fundamentalism, as if we were all going to prosper,” DeMartino says. “It was never honest with
the public about the fact that this experiment would be dangerous and would have winners and losers.
Those who have been harmed are now getting their revenge.”

One particular target of populism has been central bank independence, a major tenet of economism.
Politicians on both sides of the Atlantic have questioned the competence of central bank governors, with
their failure to anticipate the inflation crisis resparking the debate on whether politicians should have the
final say when it comes to monetary policy. “Delegating so much decision-making power to experts is
unique,” argues Johan Christensen from the University of Leiden, a political scientist who studies the role
of experts in policymaking. “You don’t see that in other policy areas. So what we see now is a
rebalancing, with growing demands for accountability and more political say over what central banks
do.”

The backlash has partly borne fruit, as the pendulum is swinging towards more market regulation.
International organisations such as the IMF and the World Bank have acknowledged that markets are
embedded in societies, rather than self-regulating institutions. Central bank monetary policy is
increasingly influenced by new quantitative models, known as Heterogeneous Agent New Keynesian
(HANK) models, that take into account wealth and income distribution. The prevalent sentiment among
economists is a need for change, says Veronica Dolar from SUNY: “Even mainstream economists trained
in neoclassical approaches are starting to argue that we can't keep talking about free markets in the
current environment, with low taxes and oligarchs influencing politics. There is a shift, because the world
we live in has changed.” Although the neoclassical school is still dominant, its grip is getting looser,
according to Christensen. “New insights make their way into policymaking institutions, like finance
ministries and the IMF, through graduates equipped with a more up-to-date economics education,”he
says, adding: “Over time, the perspectives of these institutions change as their staff changes, but there is a
lag in that process.”

New Paths
Defenders of economic orthodoxy point out that, like other sciences, economics evolves by learning from
its mistakes. New approaches are refreshing the field with a mix of pragmatism and humility,
questioning the need for perfect equilibriums in an imperfect world and using interdisciplinary
approaches that fill the gaps left by abstract mathematical thinking. Borrowing concepts from computer
science and cybernetics, complexity economics studies the interaction of economic networks.
Evolutionary economics explains economic transformation through the lens of continuous change, as
economic choices are shaped by the evolution of culture and institutions and technology.

Modern challenges such as the climate crisis are even pushing economists to question some of the
profession’s sacred principles. Perhaps the most controversial among them is “Degrowth”, the idea that
unravelling economic growth is the only way to hit net zero targets. Its most radical proponents advocate
for deliberate reduction of GDP, a policy that critics argue would lead to authoritarianism and extreme
poverty. “Those ideas have been around since the 1960s, but they're starting to get traction now outside
of economics because of the ecological crisis. If the degrowth movement continues to put pressure and
politicians start to adopt it then the economics profession will start to treat it seriously,” says DeMartino,
citing Occupy Wall Street as an example of a political movement that changed mainstream thinking in the
profession around inequality.

Another theory that is gaining ground for political reasons is Modern Monetary Theory (MMT).
Ridiculed by critics as “Magic Money Tree” theory for its controversial tenet that the only constraint
governments face when printing money is inflation, rather than deficits, the theory came into the
spotlight during the pandemic when governments forked out billions to corporations and the public. A
survey by the University of Chicago’s Booth School of Business found that the vast majority of
economists disagreed with its basic assertions. This matters little for politicians such as the Democrat
firebrand Alexandra Ocasio-Cortez who have expressed interest in its policy implications, even if rising
inflation and interest rates have diminished its appeal. “It’s becoming popular because the people who
are talking about it are using terms that people can understand,” Dolar from SUNY says. “There is no big
macroeconomic model behind it, so it’s more like a philosophical approach.”

Technological change is also affecting the profession. The big data revolution is facilitating a shift toward
more empirical approaches. One example is experimental economics, which relies on empirical research
and statistical analysis of controlled experiments and evidence-based randomised control trials to
estimate policy impacts. Its most prominent proponents, Abhijit V. Banerjee and Esther Duflo, who won
the 2019 Nobel Prize in Economics, use field experiments to study the causes of economic relationships in
the developing world. Critics have raised questions over the scalability of these methods and the
credibility of collected data. However, the rise of experimental approaches marks a broader shift,
DeMartino says: “Among younger economists there is a move toward empiricism. Rather than coming
up with policy and thinking that you can deduce policy implications from a blackboard using supply and
demand models, there's a turn from a ‘theory first’ approach to data.”

A precarious future
As a child of the Enlightenment era, economics is characterised by an inherent belief in constant progress,
including its own ability to perpetually enhance our understanding of the material world. Such optimism
may no longer be topical in an increasingly irrational world where technological progress reigns
supreme. The rise of generative AI, threatening to wipe out whole professions that earn their bread and
butter through their analytical prowess, poses new challenges. Economists often come on top of the list of
professionals expected to be affected by automation. Ironically, the profession’s reliance on advanced
mathematics, the tool that gave it the pole position among social sciences, makes it also vulnerable to
technological innovation. Tasks such as forecasting and modelling can be easily performed by bots, given
the large literature that can be used to train AI tools such as ChatGPT. “Fewer economists will be able to
generate much more output by using AI,” DeMartino forecasts.

For the time being, the profession still dominates policymaking, even expanding into areas where
economists had little sway, such as climate policy. One example is the way the UN sustainable
development goals are being put into practice, largely shaped by economists according to Christensen.
However, many think that a challenge of that scale requires more emphasis on urgent action, rather than
bean counting.“Until economics recognises its limits in terms of predicting the future, we economists
shouldn't have too much influence in these areas,” says DeMartino, adding: “Economics has aspired to be
the physics of the social world for over 100 years. That pretension has to be dropped.”
{Boxout}

Is economics a sexist science?

The question of whether economics faces a gender problem is increasingly haunting the profession in
an era where concerns over discrimination against minorities are becoming more salient. A 2020 study
claimed that inherent biases in the way the discipline is taught make economics students more sexist
than their peers as they progress with their studies. Economics textbooks have been criticised for being
biassed against women, while more than three out of four papers are written by male economists.
Gender disparity starts early and progresses from A-levels to university, according to Stefania Fuentes
from the University of Warwick, who headed a 2023 report on who studies economics in the UK. “The
lack of female representation can be attributed to the unwelcoming environment women and
minorities often encounter in economics,” she says, adding: “This includes documented instances of
sexism within economics departments, where women are more likely to experience harassment and
face a hostile environment during conferences and presentations. They are also held to higher
standards in their academic work: they need to write better academic papers, and are subject to higher
standards in general.”

The problem is not the number of women studying economics, according to Paola Subacchi, but the
lack of visible female economists like the Nobel laureate Goldin. “We need to have more women
everywhere in economics, not just women studying women in gender-oriented economics,” she says.
For her part, Balachandra believes that the profession is in for some soul-searching. “We have a very
white male-dominated network effect. If you're part of this hierarchy, or part of these patriarchal
legacies, then your research is automatically considered better,” she says, adding “In economics, if
you're not from if you are not from a branded institution such as Harvard, MIT or Stanford, your
research isn't considered as good.” Currently, only 26 of the 190 IMF member countries have female
finance ministers, while just 17 have a woman at the helm of their central bank. For Fuentes, such
absence of diversity has broader impacts. “Diversity among economists is instrumental in
policymaking,” she says. “Without diversity, there is a higher risk of groupthink, which hampers
thorough analyses of alternatives and consideration of consequences, ultimately hindering the quality
of policy outcomes.”