Published Friday, Aug. 28, 2015
For as long as humans have walked the Earth and possessed self-awareness, we’ve been contending with ambiguity and uncertainty. Entire fields of academic study – philosophy, religion, psychology, medicine – have had to come to terms with the mystery of certain topics. When confronted with various questions beyond what our finite minds can see or grasp, we’ve had to eventually be comfortable saying: “We just don’t know.”
So why it is so difficult for economists to do the same thing?
The professional economist – of which I am one – is taught that there are correct answers to pressing questions. And while economists are notorious for disagreeing on all manner of topics, individually we tend to hold on to our own “correct” answers with astounding conviction. This is especially true of both left-wing and right-wing economists. And the further down either wing you go, the more irrationally do economists cling to their own dogmatic beliefs.
But as a study of how humans organize themselves – workers and employers, lenders and borrowers, buyers and sellers – why should economics be any less ambiguous than any other study of social behaviour?
This sense of ambiguity was brought sharply into focus last Friday in Edmonton. I had the privilege of moderating a speaker and panel discussion, which was provocatively titled What Comes After Oil? The session, organized by a few groups at the University of Alberta, featured a high-profile speaker from New York University who spoke against carbon-producing corporations. The panel of four spanned a range of experts from urban planning to environmental conservation.
But if anyone in the audience was looking for a clear answer to the question posed in the title of the event, they would have been disappointed. Rather than providing clarity and direction in a world that might demand fewer hydrocarbons from Canada in the future, the event raised a lot more questions than answers. We can make guesses and suggestions and even forceful threats of what might occur, but in the case of Canada’s petroleum industry, we just can’t be sure what will happen next – or what might come next to replace it.
Economists have never been comfortable with ambiguity and mystery. We’ve whipped ourselves into believing that our field of study is a science, complete with data and mathematical models and coefficients. But the reality is that the economy is something so much more complicated than what our models can contain. Statistical analysis of past events may offer clues as to what might happen in the future, but that’s all they can really offer: clues.
And because economists are unhappy with ambiguity, we speak as if we really do know the answers. What will lower interest rates do to the Canadian economy? Where will oil prices go next? Why has China’s stock market suddenly shown such wild volatility? Unanswerable questions, but that doesn’t stop us from speaking authoritatively as if we actually have the right answer.
Accepting ambiguity and mystery is hard for economists, but I’m not sure why. Are we afraid it will make us appear silly or irrelevant? Are we worried that TV news reporters might stop asking for interviews? The pressure we’re under to provide answers and explanations for all of these unknowable events is enormous. But because we have spoken with such strong convictions, it’s a pressure of our own making.
The fall of 2015 could prove to be a challenging one for economists uncomfortable with ambiguity. If the stock market volatility in August is a precursor to something even more violent and upsetting in September, we’d better brace ourselves for the inevitable deluge of media questions. We can offer brave guesses, and we can hope these guesses bring some comfort to anxious citizens and investors.
But when asked what the future holds for oil prices, for China, or for equity markets, we have to eventually be honest and say: We just don’t know. Once we take the plunge and admit this, we might be surprised at the new insights we can achieve.
Todd Hirsch is the Calgary-based chief economist of ATB Financial and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.