Aunt Deirdre says 'Economists, get out of the sandpit.' Now!

Deirdre McCloskey changed gender a few years ago. She was professor of economics at the University of Iowa at the time and known as Donald McCloskey. She argues that economics must reject the three deeply flawed methods - all conceived by men - that have dominated it since the 1940s

Economics as a field of study has a problem nowadays. The problem is that its methods are wrong, and produce wrong results.

The three methods that dominate modern, mainstream "neoclassical" economics were invented by three men of the 1940s, the Americans Lawrence Klein and Paul Samuelson, and the Dutchman Jan Tinbergen. They are:

* The Kleinian notion that "statistical significance", using the phrase in its technical sense, is the same as scientific significance.

* The Samuelsonian notion that blackboard "proofs of existence" are scientific.

* And, most important for practical affairs, and justifying the other two, Tinbergen's notion that these first and second pieces of pseudo-science - statistical significance and blackboard proofs - can be applied to the making of economic policy, in a sort of social engineering.

The three men were geniuses, honoured with the Nobel memorial prize in economic science in the 12th, the second and the very first years in which it was awarded. They were connected: in the 1940s, Klein was Samuelson's student; Tinbergen inspired Klein's approach to statistical fitting of macroeconomic models, a program, Klein relates, that Samuelson suggested. It is wonderful stuff. I was dazzled when I first came upon it in graduate school in the 1960s.

But in the hands of some of their less sophisticated disciples, such as I was for so long, the brilliant ideas of the 1940s ended as boys' games in a sandpit. The boys (women are less interested in such games) are the intellectual sons or grandsons of Klein and Tinbergen. By now the sandcastles are very tall, and many careers have been spent building them, though strictly within the sandpit. The games are a sad parody of the science of Smith, Mill and Keynes, or even of Klein, Samuelson and Tinbergen.

No economist who understands statistical theory believes that a narrow "statistical" significance is the same as quantitative, scientific significance. Likewise, no economist acquainted with other sciences believes that searching through all conceivable axioms is science. And no economist who has paid attention to the revolution in thinking about expectations - summarised in the American Question: "If you're so smart, why aren't you rich?" - believes it is possible to predict profitably, in aid of social engineering. Yet the three self-contradictory attempts to mechanise economics have come to dominate the output of the field. Half the high-science articles in economics mistake "statistical" for actual significance and the other half ring the changes on the infinitude of axioms undisciplined by fact. The low-science articles consist of using these two sandpit games to recommend steering the economy this way or that. It's a scandal.

And sad. The sadness is that the economists, mainly men, are confident that their mechanical methods are correct and produce correct results. The men stride around offering advice to governments and criticisms of each other's work as though they were doing real science. They are so happy and proud of their masculine achievements. Their business suits are impressive, their reports fluent, their numbers weighty. Lord, Lord, one would like them to be right! They are intelligent and hard working. They do not deserve to have a science lacking scientific findings. No one with an ounce of human pity would be happy that such a good group of men is so wrong.

The scene is like an aunt watching her three-year-old nephew and his friends playing in a sandpit. They are so earnest in their play, so full of confidence and life, so sure that what they are playing is reality. The aunt would have to be a monster to be happy they are wrong. She indulges them, and tells them all is well. Yes, David, you are building a great fort in the sand. My, how wonderful. Yes, Gerard my dearest, yes.

It is the essential sadness of boys' games. Unlike the games of girls, which so often have a human point, boys' games in the sandpit are pointless. The unspeakable fact about modern economics is that much of what it claims to have accomplished since 1945 is a game in a sandpit.

A surprising feature of this sad fact is that it is easy to show from within economics. What's wrong with the three methods is not hard to understand. The criticisms are not original to me. And they are not controversial among economists. Well, that last is not quite right. It is controversial to conclude, as one must, that nothing can be salvaged from the three wrong methods, that most economics since the second world war has to be done over again. Literally, most of the allegedly "scientific" findings of economics would need to be redone using another method before anyone should believe them. That's very controversial, and me saying it will drive up the blood pressure of most economists. You can see why a man would get agitated by some woman claiming that his life's work has been pointless.

But if you sit down with an economist in his study and talk quietly about the three mistaken methods he'll eventually agree to each one, if you speak softly and reasonably. (He'll agree, I should say, unless he realises what the consequence is going to be and wants to save his job; but I can't imagine anyone being so craven and unscientific.) I do not want to infuriate my colleagues in economics, mainly because I want them to listen, really listen, for their own good, to what Aunt Deirdre is saying. But I want to be clear to everyone, including non-economists. So I'll say it again. No economist can answer the three criticisms. That is not because I am especially clever or the criticisms are especially subtle. The economists already know them, and know they are correct. They only have to look candidly at what they are doing and it dissolves into a sandpit game.

There's a woman's point here. What grates on women is male pomposity. I was talking in Holland with some other women economists and we were trying to think how we could bring economics back to the world. Someone came up with the idea of womanly sarcasm. It always terrifies the men, this laughter of women. If you could get a critical mass of woman in a seminar - three times the current number, say - we could in a few minutes shame the men into a less pompous attitude towards their intellectual games. The man presenting the latest misuse of statistical significance or the latest set of axioms or the latest "policy implication" from a blackboard would get the embarrassing praise an aunt showers on her three-year-old nephew: "Oh, Paul, what a wonderful sandcastle you have. It's so much better than anyone else's." I am not going to use such womanly sarcasm on economics. But, Lord, it would be easy.

The sadness is deepened by a lost opportunity for actual science. Economics really is the queen of the social sciences. It is an amazing and wonderful set of intellectual tools, the study of prudence. Any economist can give hundreds of examples of its fruitfulness. I myself once wrote a book called The Applied Theory of Price which does so, and I and other economic historians have shown how prudence works as a way of telling history. You can see how wonderful economics is by the worshipful way that other scientists who study politics or sociology or law approach it. Economics had a great influence in these other fields during the very period that it went into the sandpit. Law schools now hire economists; departments of politics, especially in the United States, have transformed themselves into imitations of economics departments; sociologists are properly impressed by rational choice models; philosophers use them to solve age-old questions of justice. John Rawls, Robert Bates, Richard Posner, Robert Putnam, Robert Nozick, Jon Elster are not fools. Economics is impressive. It really is.

In other words, I'm not trying to tear down the field. I do not want anyone to conclude, "Well, thank God I don't need to learn any economics, if it's such a great mess." A student of society who took that view would be making a mistake. Prudence is too important a motive for human behaviour for the science of prudence to be simply ignored, as most intellectuals have ignored it since the late 19th century. And capitalism is too successful an economic system to leave its analysis in the hands of non-economists. I love economics and admire its intellectual traditions. I do not want merely to end the conversation.

On the contrary, I am trying, like a concerned aunt, to correct a nephew with great potential who has fallen recently into bad habits. She indulges his fantasies in the sandpit at age 3, but at age 13 or 30 he's got to get over them if he's going to have a worthwhile life. If she loves him for his own sake she wants passionately for him to grow up. If I thought that economics was a silly subject, or that markets and capitalism were evil, or that economists were stupid, even as an aunt I might not bother. So I don't want you non-economists to be happy that this strange and arrogant field called economics is not perfect. "Not perfect" is an understatement if the three methods are as wrong as I say. Most of the allegedly scientific "output" of economics, most of what appears in the scientific journals these days, is not just trivial - after all, most normal science is trivial, or else science would advance by Newtonian or Einsteinian leaps every day. It is wrong. The findings, assurances, recommendations: wrong.

That's surprising: a scientific field can be shown to be wrong from arguments everyone in the field would agree to. And yet the solution is obvious. An economics that got out of the sandpit would look seriously at magnitude, would theorise sparingly, and would recommend policies cautiously. It would resemble geology or history or other real sciences. Or an economics with three times more women than it has now.

Deirdre McCloskey teaches economics and history at the University of Iowa and at Erasmus University of Rotterdam. Her latest book is The Vices of Economists; The Virtues of the Bourgeoisie, Amsterdam University Press, 1997.