Economic Analysis Isn’t Objective – It’s As Personal As It Gets

What happens when professionals lose touch with the people they’re supposed to serve?

hat happens when professionals lose touch with the people they’re supposed to serve?

Recently, I came across an article in the New York Times by Nathaniel P. Morris called “Beautiful Pathologies” that told a striking story. The article was about medical students and the transplant observation program, which allows students to shadow the transfer of organs from living or deceased donors.

Morris described how popular the program was and how excited the students were to be accepted into it. Some students were fascinated by watching “malignant cell growth” in cancer patients or were enthusiastic about the possibility of witnessing an organ transplant – all the while unintentionally ignoring the human suffering behind the process.

When a student got excited when notified of a possible transplant, the doctor had to remind his interns that somebody had likely just passed away. Comparing this situation to other professions, Morris asked “Do human resources trainees hear of ‘great’ instances of sexual harassment? Do law students study ‘beautiful’ murder cases?”

In most cases, the answer is likely no.

But reading these questions reminded me of my studies in economics. In many ways, both economics and medicine share a fascination with human suffering. For example in many economic theory books I’ve read phrases describing the “normal” or “natural” rate of unemployment. These books usually implied that a six percent unemployment rate was acceptable, even desirable. They never stopped once to consider that the six percent of the population might be hungry, homeless, or struggling to take care of themselves and their families.

Some of my classmates and I also talked about the mortgage crisis as a “perfect example” of a real-estate bubble, and I remember students talking to each other about how interesting it was that we were living in times when our problem sets actually had real-life parallels. The discussions on free trade and developing countries often glazed over the mention of sweat-shop workers or the businesses that were bankrupted by an inflow of cheap imports, all in the name of efficiency and prosperity. And we heard many times that the gains at the top would eventually be redistributed to the society as a whole when the economy grew.

Yet what recent history has shown is that while economies may grow, so can the level of inequality within nations and across the globe, both in developing and developed nations. This is not what our books told us to expect.

Needless to say, our professors did try to incorporate the human aspect of our studies. Much like the doctor in the Times article, they reminded us of the human cost of our “case studies” and had us watch documentaries that featured stories of people affected by economic crises and political turmoil.

I think it’s safe to say that as a field, economics strives to be impersonal, unemotional, and “scientific.” But economics is not a science. Its theories are based on an imaginary and perfectly rational world where information is free and complete and individuals are able to calculate and adjust their expectations perfectly. This world is one where companies compete to the point of having zero market share and make zero profits. Yet that is not the world we live in.

In the real world, economics is personal and economic policy is as personal as it gets – every family and every individual will be affected by the decisions of our economic leaders.

These policies determine who will go to college and which graduates will get jobs easily. They decide who receives healthcare and who will be able to retire and live the rest of their lives with dignity. The answer to those considerations should be: everyone. We all have a right to an education, a job, a healthcare, and a life of dignity. An economic system that does not provide that to every member of the population who wants it is broken and needs to be reformed.

Even in the case of the United States, one of the wealthiest nations in the world, if you have a family and work full-time on minimum wage, you will likely fall below the poverty line. A recent, statistic in 2011 showed that a fifth of America’s children are living in poverty, even though most poor families work very hard.

The situation is also grim in emerging economies. Though they have been growing at high rates in the recent past, the benefits of the growth have been concentrated at the top.

Sitting back and hoping for the market to create spill-over effects does not help. In fact, a number of recent studies have suggested that a rise in inequality will lead to more inequality in the future – the trend is self-perpetuating, unless public policy counteracts it.

The good news is that many students are frustrated with the way economics is taught, and with neoclassical policy prescriptions and the idolization of the free market. The political unrest triggered recently by Europeans’ indignation at austerity policies is a perfect example. Politicians and economists are willing to implement policies while ignoring the consideration of human suffering and cost. The popular understanding is that their prescriptions are “objective” while in fact their decisions about what gets counted as a cost entail profoundly subjective value judgments. And it seems that the public is no longer willing to accept this.

As a consequence, the developed world is starting to look for a new paradigm. Even the IMF took a step back on pushing for austerity policies. It also recently changed its view on capital controls and said that they are an important part of ensuring financial stability.

Maybe, the emergence of these trends means there is hope that economics will return to what it is – a social science. Like similar fields, such as sociology or political science, economics is not a hard science. It deals with people, and pretending that it could be “objective” or scientifically accurate avoids important considerations related to morality and ethics. Economics should serve people. But the way it is now, the relationship is rather the other way around.

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