Harvey Mansfield's piece in our new issue is well worth your time. Professor Mansfield explores the role that the "science" of economics -- and social science more generally -- may have played in the financial crisis. Warning: This piece includes political philosophy! Here's Mansfield:
The economists I know are generally, as individuals, sober and cautious, the most respectable of all professors and in their honesty and reliability representing the best in bourgeois virtue. But when they get together as economists, they give way to boyish irrational exuberance over the accomplishments and prospects of economics as a science. What has happened in the last few months should give them pause. It should make them consider the necessity of looking at economics from the outside, at how it looks and behaves as a whole. There's no way to do this from within economics--no way to formulate an equation that will correctly predict the failure of equations to predict. The idea of prediction itself has to come into question. Prediction is designed to reduce the role of chance in our lives, eliminating unpleasant surprise and replacing it with gratitude and satisfaction. But somehow it doesn't have this effect.
Economic models, many of which view human beings as walking, talking self-interest calculators, are flawed. Humans have a lot of trouble figuring out what is in their interests, and even more trouble acting on those interests. And most economists' models of self-interest are incomplete, because economics has little to say about morality. More Mansfield:
Virtue is a habit, not a calculation. It reflects the fact that human beings live in an overall way of life, in diverse ways of life; it is not possible for us, or most of us, to live perfectly flexibly, always ready to calculate anew in fresh circumstances what it is in our interest to do. Thus the ideal of calculated self-interest posited by economics is not a human possibility. We will get in the habit of being spenders or savers and will not be able to turn on a dime, changing our behavior when our interest changes. Indeed our selves are not independent of our ways of life, and it is not possible to calculate your self-interest without knowing your way of life.
Tyler Cowen and his commentors discuss Professor Mansfield's article here. Be sure to read (and re-read) it. And take notes.