When you listen to an economist, chances are you hear a lot of statistics.
Federal Reserve Chairman Jerome Powell speech at the National Association for Business Economics October 6 is a good example. In just the first two minutes, he conjured up a dizzying array of economic indicators: growth, unemployment rate, personal consumption expenditure inflation, labor force participation, productivity gains, real wage gains, and more.
But if you watch the speech, you might notice that he rarely quotes actual numbers. That’s because Powell, and economists in general, tend to be more interested in the direction the numbers are going than the numbers themselves. Is the unemployment rate high or low? Is the Dow up or down? Is GDP growth up or down?
In other words, Powell is telling you a story. And although economists have always wanted that their field is associated with the so-called hard sciences – an act of conjuring exemplified by the Memorial Nobel Prize in Economics “I’ve come to see it as having much more in common with literature, especially novels, than with physics or chemistry.
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Like a literary scholar researching economics and its history, I have found that being aware of the similarities between economists and novelists helps us better evaluate the claims they make. Both tell stories. Understanding this allows us to judge the credibility of what they say for ourselves.
fact and fiction
The idea that economics shares a lot with fiction may seem counter-intuitive. This feeling is not accidental.
Since beginning of the economy in the late 1800s, economists sought to combine their discipline with the opposite of fiction: the natural sciences. Unlike economics, which deals with human relationships, the hard sciences study the phenomena of the natural world. As such, an assertion by a natural scientist reflects a different kind of truth than that of an economist. For example, the law of gravity describes an immutable physical fact; the law of supply and demand describes a relationship between people.
What we now call mainstream economics began with the concept of marginal utility, which postulates that individuals make purchases considering the happiness they will derive from each additional unit of a good or service. What attracted many economists to this concept was that it offered a way to make economics more mathematical.
The concept of marginal utility has allowed economists to turn sensations in quantities. Happiness was imagined as a bunch of many small units of pleasure, which some economists actually thought could be physically measured. Francis Y. Edgeworth same designed as a “psychophysical machine” to do precisely that in his beautifully titled book”Psychic Mathematics.”
That is to say that in the 19th century, the resemblance of economics to the natural sciences deceived even some of its own practitioners.
Economic theory, what drives economists to look at numbers the way they do, is a business that fundamentally rests on our understanding of fiction.
Literary researcher Catherine Gallagher argued that this understanding, at least in the Anglo-Saxon world, was shaped by a relatively new genre in the 18th century: the novel.
Readers previously viewed fiction as clearly marked fantasy stories – think flying carpets and talking animals – and perceived stories that seemed plausible enough that they could happen as lies. The novels have changed this perception. We can now read a realistic novel and immediately know that the story didn’t actually happen and put that knowledge on hold to follow.
Models of economic theory require this same suspension of disbelief. We know there’s no world with perfect competition, as a famous economic theory asserts, we are therefore being asked to set aside the criteria we would ordinarily apply to understanding something so objectively real as to follow the story that the theory – and the economist – tells about the economy.
In other words, without the novel first teaching us how to deal with worlds that aren’t technically true but still believable, theoretical models might not exist the way they do today.
The history of opportunity cost
This confidence in our attitude towards fiction is not exclusive to the models used in economics. The same could be said, for example, of the idea of a perfect void in physics. We know there is no perfectly empty space, but we can imagine it.
According to economic textbooks, individuals make choices by considering how much happiness they derive from different options. Let’s say I have an hour that I could use to buy groceries, catch up with a friend, or take a nap. I weigh my options and find that grocery shopping isn’t that important right now, seeing my friend would be nice, but the siesta really promises the greatest amount of happiness.
Therefore, I choose to take a nap, but the price I pay for my nap is the happiness I would have gotten from my second-best option, spending time with my friend. Note that this second choice option did not and will not happen, and the person in this story knows this because they are imagining their options.
In other words, fiction looms large in the history of opportunity cost and, by extension, in economics at large. Every decision we make, economists say, comes with a fiction.
Prestigious Nobel Prize
Economists today are aware that their discipline is a social science rather than the study of the physical laws of nature. Yet they are unlikely to object to the prestige that accompanies a persistent perception of economics as a hard science.
I believe that the Memorial Nobel Prize in Economics, announced on October 12, is an example of this prestigious production. While the other Nobel Research Prizes are awarded to physicists, chemists and medical scientists, economists must have the same claim to be scientists, to the right?
Recognizing instead that economics shares much with literature – another Nobel category – helps us because it softens the perception of the discipline as a hard science that tells us facts of nature. Understanding economists’ comments and predictions in this way also gives us all more power to decide whether a given story seems credible or not.
Carolin Benack is a PhD candidate at Duke University Durham. NC This was first published by The Conversation – “Economists are more like storytellers than scientists – don’t be fooled by the Nobel Prize for ‘Economics’”