Economists and Common Sense
Jude Wanniski
February 25, 1997


Memo To: Alan Ehrenhalt, editor of Governing magazine
From: Jude Wanniski
Re: Mathematical economists

Your op-ed piece in Sunday's New York Times (2/23) eloquently attests to the serious problems almost all Ph.D. economists have with common sense. For 19 years now, I have had one of the most successful firms in the world in analyzing the domestic and world political economies -- and in that time I have not been able to employ a single Ph.D. economist who could add value to our product. The reason, as you have identified, is that they have been taught to plug all of us into mathematical formulae, as if we were identical hydrogen atoms. As you put it: "But even people who know very little math know something about math: It is a reasoning process based on a set of postulates, a set of assumptions. It is only as good as the assumptions it starts with. Medieval astronomers developed highly sophisticated mathematical models for tracking the path of the planets, and they got their numbers to work. The only problem was that they thought the sun revolved around the earth." We have been making precisely this argument at Polyconomics for years, but of course are dismissed by academicians, despite our peerless forecasting record, because we are not credentialed Ph.D. economists.

Where you and I part company is in your extending your criticism of economics as a mathematical science to a ridicule of "market economics." The Times editors should have caught this non sequitur, as the one has nothing to do with the other. Even those of us who believe economics remains a behavioral science recognize the free market as axiomatic to any understanding of the way the world works. It is axiomatic in the sense that it is not a good or a bad, but simply is, along with Newton's laws of motion and the laws of thermodynamics. When you say "Market economics enshrines choice and lionizes the individual," you are forgetting that the market in the first instance is the community, not the individual. Indeed, in some ways you seem to want to have it both ways, criticizing economists for treating individuals as if we are as identical as hydrogen atoms, then criticizing them for enshrining the individuality of individuals.

Where we might find common ground here is in recognizing that broadly speaking individuals are social animals. In an economic market or in a political market, individuals make their choices out of self interest, but the concept of self interest encompasses myriad calculations involving community interest. This is what enables us to be able to make at least roughly accurate forecasts in both markets, knowing individuals will give some weight to the interests of the collective whole in making their choices. In the last election, a great many Americans voted to put the Republicans in control of Congress because the GOP tilts in the direction of the individual over the community, and at the same time voted Clinton a second term to weigh against the Republicans on behalf of the community.

The same tension exists within a family, where mother, father and children each take the interests of the family into consideration when making "self interest" decisions. You will see families vote four to one to go to the movies instead of the museum, but decide on the museum when Junior says he needs to do a project for school. Democracy would not work if everyone voted for the candidate who promised the most to the individual voter. People are smart enough to know that if they vote themselves the Treasury, the system will break down. The only reason to complain about the market breaking down is if you find yourself outvoted. In the economic marketplace, the complaints generally come from those who bet on the wrong horse.

By the way, your complaint about economists being wrong about international free trade is also wrong. It is, of course, common sense to observe that jobs that once were performed here are being performed abroad. It is not incorrect to say that as this was happening, jobs were being created here. Since 1980, there have been 40 million new jobs created in the U.S. There are major disagreements among economists about the national standard of living over that period, the distribution of income, the course of real wages, etc. But you should not think that because Ph.D. economists are wrong about many things, that your common sense is always right.