"Faith-based" economics?

In expressing his frustration with the inability of economists to give a single bottom-line, President Truman asked for a one-handed economist. President Obama sarcastically noted that these days everybody think they are economists.

As I have noted earlier, it is all because while economists pretend that their field of study is as scientific as is physics, the reality is that economics is nothing but a game of intelligent estimates. Best guesses, that come out of critical thinking and evidence. That is all.

So, it was quite fun to read the following in the Economist:

Economics (parts of it, at least) is broken, and mathematicians, sociologists, psychologists, and a bevy of other armchair -ologists are trying to fix it. At the Times, Anatole Kaletsky describes just a few of the ongoing attempts to bring knowledge from other disciplines into the dismal science. He mentions work done by students of aerodynamics and behavioural scientists, among others. But the most intriguing idea in the piece is that while it's possible our ideas are failing to accurately describe the economy, it could also be the case that the economy is failing because it's built on our inaccurate ideas:

[R]ational investors can find it very profitable to act on false premises - for example that credit will always be available without limit - if these false ideas become so widely accepted that they change the way the economy actually functions, at least for a time...

[T]he challenge that existing economic orthodoxy may find most disconcerting is Imperfect Knowledge Economics (IKE), the name of a path-breaking recent book by Roman Frydman and Michael Goldberg, two American economists. Building on ideas of Edmund Phelps, one of the few Nobel Laureate economists who rejected the consensus view on rational expectations, IKE uses similar tools to conventional economics to generate radically different results. It insists that the future is inherently unknowable and therefore that there is always a multitude of plausible models of the way the economy works.

Which model is right may well depend upon which model is the current dominant paradigm. This is quite headache-inducing. It suggests that economics may be plagued by observer effects; by investigating one aspect of a system and solidifying knowledge about it into widely held principles, we reinforce those principles, which proceed to work until they don't.

This is the inherent risk in studying a complex system constructed on the aggregated decisions of billions of creatures who base their actions on the actions of everyone else. The science contributes to feedback, which biases the science. Ideally, some brilliant individual will discover a way around this hurdle. In any case, the first lesson economists may learn in the wake of the crisis is that they actually know much less than they think they do. Or rather, they know what they know, only so long as other people continue to know it.