Economics sucks, it is just the study of ‘common sense’

This is a view I hear all the time, a view that (in my view and given how it is often framed) completely misses the point of economics, social science, and even common sense!

Common sense is an important thing to keep in mind, and the concept undeniably has a place when thinking about the application of economic ideas, or the reference point from where the social sciences should put effort into building understanding.

Common sense refers to judgements, knowledge, and beliefs that are shared between people. The context I’m using here is a touch weaker – but similar to the more common definition:

Common sense is a basic ability to perceiveunderstand, and judge things which is shared by (“common to”) nearly all people, and can be reasonably expected of nearly all people without any need for debate

The main difference is that this is descriptive of the way common sense is treated, not an indication of the way we should treat it ;)

‘Common sense’ and what this entails played a formative role in the formation of economics, and it remained an explicit and central part of the general philosophical underpinnings of the nature of economic arguments prior to the ‘positivist revolution’.

However, I often see views of common sense both within and outside of economics deteriorate into one of two camps:

  1. Common sense is inconsequential: namely, the purpose of the study of something like economics is to show (describe) areas where common sense fails, as this is where economists add value. Someone I know once defined this view as “common sense is for common people” – which I can only assume was a joke :P
  2. Common sense is all that matters: Our common sense evolved within our unconscious mind and across institutional structures formed from basic, and fundamental, human interactions. As a result, the purpose of the study of something like economics is to show (describe) how common sense arguments work – and how most of the time the answer to vexing social issue is common sense!

Of course, these definitions are not actually mutually exclusive – and actual economic thought about common sense includes both of them. The clearest example of this is Rubin’s work on folk economics (REPEC).

However, when it comes to thinking about what economists do (rather than just their view on what common sense entails) the requirement to sit in one of these ‘common sense camps’ becomes even weaker. The exceedingly harsh conclusions of the two views above (common sense sucks, common sense rules) don’t actually follow from the premises involved – economics describes situations where common sense beliefs are right, and when they are wrong!

And this is the kicker. Economics is a social science – it is applying the scientific method to help describe and understand social phenomenon. It is not about saying whether beliefs are right or wrong, it is about trying to create knowledge to help us form beliefs.

Now, given that the formation of beliefs is an important part of describing social phenomenon (since choices are based in part on beliefs, and social phenomenon are the result of choices), the issue of belief formation does appear in full force. However, this does not imply that we have to make an a prori choice to state that common sense is wrong or right – instead it suggests we need to think how beliefs, and expectations, are formed and (where possible) use data to help us find what appears to be the most appropriate assumption.

This is why criticising economics as only the study of common sense, or stating that it is ignorant of common sense, is a weak criticism.

However, it is also important to note that stating that policy conclusions are ignorant of ‘common sense beliefs’ can actually be a more poignant criticism – as it indicates simply that we do no agree with the set of beliefs and/or value judgements involved in the policy conclusion.

  • Daniel J. Taylor

    Spot on.

    • http://tvhe.co.nz/ Matt Nolan

      The title, the post, or the fact I mentioned data ;)

  • JC

    Actually I’d argue that common sense is that which is obvious.. in hindsight. An example I would use is the little boy who wasn’t impressed with the grand poobahs and said “But the Emperor is wearing no clothes”.

    Churchill described it as “The Americans always do the right thing.. after exhausting all the alternatives”.

    Economics is therefore the study of fairy tales, and how sometimes they come true :)

    JC

    • http://tvhe.co.nz/ Matt Nolan

      Economic models and fairy tales do have a bunch in common! They are both awesome :)