In his Essay 'Economics needs a scientific revolution' (Nature 455, 1181; 2008), Jean-Philippe Bouchaud cites the Moon landings as a remarkable achievement of physics and asks, rhetorically, what economics can offer as its flagship achievement. I submit that a society prosperous enough to pay for Moon landings is one such achievement.
In both cases, this was applied science (engineering and economic policy, rather than physics or economics per se), but previous research was crucial for making those applications possible. More recent NASA disasters and financial crises are signs that the existing science is not always applied — not that the existing science is useless.
Just like physicists (Bouchaud's comparison group), economists are happy to use simple models when these will serve. But those simple models are not all that there is to either subject.
This year's Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Paul Krugman for his research on how imperfect competition affects trade and the location of economic activity. Other recent laureates have done research on behavioural economics (which Bouchaud calls a “fringe endeavour ... not taken seriously by mainstream economics”), on policy design when markets are inefficient, and on the behaviour of imperfectly informed economic agents. Contrary to Bouchaud's implication, the models of the 1950s do not mark today's research frontier in economics, any more than they do in physics.
The current economic crisis is a result of reckless behaviour by financial corporations and of the poor financial regulation that could not contain it. Let us remember, however, that the worst-case outcome is that average incomes in some countries might drop to levels last seen in the 1990s — when those same incomes were the highest ever experienced — and that unemployment might temporarily rise to 10% or 12%, which our grandparents would have considered unremarkable. The fact that we now see such a potential outcome as disastrous (as indeed we should) is a sign of the success of economics, not of its failure.
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