Ha‑Joon Chang's "five things they don’t tell you about economics"🍋

95% of economics may be common sense, but the other 5% is not. That 5% matters

I recently came across “five things they don’t tell you about economics”, attributed to Ha‑Joon Chang. The five things were:

1. 95% of economics is common sense

2. Economics is not a science

3. Economics is politics

4. Never trust an economist

5. Economics is too important to be left to experts

These are bald statements! If true, we economists should give up now, and find a more useful and respectable profession.

Chang is himself an economist, and a widely read author. I thought he must be misquoted, or was at least drawing on something deeper. A quick Google search revealed an expanded version, seemingly written to generate sales of Chang’s 2014 book Economics: the User’s Guide.¹ I’ve reproduced the expanded version in this post. And included my own thoughts, since such statements shouldn’t go unchallenged.

95% of economics is common sense: You don’t need a degree to understand it

We’ve got this profession wrong; a lot of professional economists think what they do is too difficult for ordinary people. You’d be surprised how often these people are stupid enough to say things, at least in private, like ‘you wouldn’t understand what I do even if I explained it to you’. If you cannot explain it to other people, you have the problem.

People express strong opinions on all sorts of things despite not having the appropriate expertise: climate change, gay marriage, the Iraq War, nuclear power stations. But when it comes to economic issues, many people are not even interested, not to speak of not having a strong opinion about them. When was the last time you had a debate on the future of the Euro, inequality in China or the American manufacturing industry, despite the fact that these issues can have a huge impact on your life, wherever you live?

Economics is common sense. For example, if the government forces the price of petrol down by half, then consumers are better off. Right? It’s only common sense, after all!

The value of an economics training is learning to look beyond such “common sense” and ask: “and then what?” What if that petrol price ceiling means that suppliers can no longer afford to sell petrol? Will consumers truly be better off with a half-price product that they cannot buy?

Chang may well be right that 95% of economics is common sense.² But the other 5% is most definitely not. Economics training helps us to understand the non-obvious parts, and to make the necessary distinctions. The 5% can really matter. Chang fails to acknowledge this, demeaning the value of economics training.

Economics is not a science: Despite what the experts want you to believe, there is more than one way of ‘doing’ economics

People have been led to believe that, like physics or chemistry, economics is a ‘science’, in which there is only one correct answer to everything; thus non-experts should simply accept the ‘professional consensus’ and stop thinking about it.

Contrary to what most economists would have you believe, there isn’t just one kind of economics – Neoclassical economics. In fact there are no less than nine different kinds, or schools, as they are often known. And none of these schools can claim superiority over others and still less monopoly over truth.

I accept that being suddenly asked to taste nine different flavours of ice cream when you had thought that there was only one plain vanilla can be quite overwhelming. In order to help, I attach here a simple table that will help you overcome your initial fear.

Yes, economics has multiple schools, with different histories. But so do other sciences. Physics, for example, is not the unified school Chang declares it to be. Despite a century of valiant attempts, physicists have failed to reconcile general relativity with quantum mechanics (see, e.g., the problem of time).

Unlike the physical world, facts about economies evolve rapidly with social, technological, and geopolitical change. One of the values of studying economics, rather than just using “common sense”, is that you learn to spot common underlying structures or forces (e.g. supply and demand, prices, incentives, information asymmetries) operating in novel conditions, and can apply well-trialed principles, which you don’t need to invent from scratch.

Multiple schools of thought within a discipline is a side-effect of inquiry and advancement. “One correct answer to everything” implies stasis, which, to my mind is the polar opposite of a science.

That said, I’m really not sure what point Chang was trying to make. He mischaracterises both economics and science. He takes a cheap shot at “experts”, without quite saying who they are. This is a pretty standard — but shallow — populist tactic, exploited by many on both the left and right of politics.

Chalky Inlet, Fiordland. Dave Heatley

Economics is politics: Economic arguments are often justification for what politicians want to do anyway

Economics is a political argument. It is not – and can never be – a science.

Behind every economic policy and corporate action that affect our lives – the minimum wage, outsourcing, social security, food safety, pensions and whatnot – lies some economic theory that either has inspired those actions or, more frequently, is providing justification of what those in power want to do anyway.

Only when we know that there are different economic theories will we be able to tell those in power that they are wrong to tell us that ‘there is no alternative’ (TINA), as Margaret Thatcher once infamously put it in defence of her controversial policies.

It’s true that economic arguments are often justification for what politicians want to do anyway. But this equally applies to non-economic arguments, those drawing on ethics, history, morality, medical science, nationalism, etc. Nor are TINA arguments limited to economic issues. They were common, for example, during the Covid pandemic, used by politicians to justify controversial policies (including by politicians who might regard Thatcher as a mortal enemy).

Chang’s point tells us something about politicians, but nothing unique or insightful about economics.

Knowing that “there are different economic theories” is a pretty thin precondition to “tell those in power that they are wrong”. Not every theory has equal weight within the discipline, nor should it. On many subjects there is close to a consensus on theory. Having dissidents is healthy for the discipline, but their mere existence is insufficient to demonstrate a theory is wrong.

Further, many questions in economics can only be fully answered with empirical data. A much more useful question than “are there different economic theories?” is “what data do you have, and is that data consistent with the theory”?

Never trust an economist: It is one thing not to foresee the financial crisis; it’s another not to have changed anything since

Most economists were caught completely by surprise by the 2008 global financial crisis. Not only that, they have not been able to come up with decent solutions to the ongoing aftermaths of that crisis.

Given all this, economics seems to suffer from a serious case of megalomania.

The financial crisis has been a brutal reminder that we cannot leave our economy to professional economists and other ‘technocrats’. We should all get involved in its management – as active economic citizens.

Economies are chaotic systems with complex feedback loops. Economic events emerge from myriad interactions between people that are impossible to fully monitor. For those things that can be monitored, an enormous amount of information is lost in aggregation. And some economic events, the 2007-08 global financial crisis (GFC) among them, had no clear historical precedents.

Forecasting is a hard problem. Professional weather forecasters don’t always get it right, and they have an easier job than economists. To take just one reason, the weather is indifferent to weather forecasts, but economies can and do respond to economists’ forecasts.

To use another analogy, virologists and epidemiologists failed to predict the timing of, and the specific virus that caused, the Covid-19 pandemic. Should we conclude that they “suffer from a serious case of megalomania”, and thus should never be trusted?

Chang is holding the economics profession to an impossible standard. And by advocating that everyone should all get involved as “active economic citizens”, he holds non-economists to an even higher standard. How is the citizenry to manage the economy, armed only with common sense and the knowledge that there are multiple economic theories?

Yes, there are charlatans in economics who proffer forecasts based on woolly theory and inconclusive data. And, even worse to my mind, repeat offenders who double down after their predictions fail to eventuate.

But like it or not, we live in a world with a division of labour. We trust experts — every time we fly in a plane, for example. Sometimes experts get it wrong. Even so, I’d rather trust someone who has studied aeronautics to design a plane than someone who has not. We can’t all be “active aeronautical citizens”, and I’m not sure society would be better off if we were.

While forecasting the state of the economy is a very public activity, it is the preserve of just a small proportion of professional economists. It is logically weak to argue that one forecasting failure is a conclusive judgement of the ability of economic forecasters. It is even weaker to extend that judgement to the whole profession.

Chang, writing in 2014, claims that nothing changed since the GFC. That’s a bold claim. I’d say economists have a very different understanding of collateralised debt obligations and financial derivatives more generally, and how to price the risk of owning them. We also have an improved understanding of systemic risk in the banking and wider finance sectors, and the ways in which banking regulation failed to manage that risk. And there is a general appreciation that Keynesian stimulus was under-done by many countries in the GFC’s aftermath. (That appreciation, perversely, may have encouraged governments to over-do fiscal stimulus in response to the Covid recession.)

We have to reclaim economics for the people: It’s too important to be left to the experts alone

You should be willing to challenge professional economists (and, yes, that includes me). They do not have a monopoly over the truth, even when it comes to economic matters.

Like many other things in life – learning to ride a bicycle, learning a new language, or learning to use your new tablet computer – being an active economic citizen gets easier over time, once you overcome the initial difficulties and keep practicing it.

Unless you are willing and able to challenge the professionals, challenge the experts, what’s the point of having a democracy?

There is no excuse for complacency. If you organize and demand reforms then a lot of amazing things happen, but it won’t come easy – we have to fight for it.

I’m not sure what it means to “reclaim economics for the people”. Personally, I find economics hugely interesting and am always eager to learn more. (Yes, I know I’m a weird outlier.) I’m happy to leave avocado cultivation, vaccine design, and cheesecake recipe writing to the experts. If others want to leave economics to economists, who am I to say that they’re wrong? We can’t all be interested in, or good at, everything.

A world with experts does place an obligation on economists to do our job properly and ethically — to be well informed; to be careful with data; to seek out evidence that contradicts as well as supports our priors; to communicate clearly; to revise our conclusions should the data change; and to hold others in the profession, Chang included, to high standards.

Constructive criticism? Or a facile repetition of populist tropes?

My initial reaction was that Chang’s five points were cheap shots. Cheap shots are not totally without merit, should they capture someone’s interest, drawing them in and teaching them something worthwhile.

Chang may be correct that 95% of economics is common sense, but the other 5% is not. But that 5% matters — a lot. And it’s not simple to learn. Whether Chang likes it or not, modern societies need experts, including experts in economics.

The public’s trust in economists appears to be low.³ How to increase that trust is an important question for the profession. While I don’t have a comprehensive answer, I’m sure that treating the public as intelligent, interested parties, while not overwhelming them with econospeak, can only help. By contrast, playing to the public’s preconceptions risks doing more harm than good.

The economics discipline is not unified, it is far from perfect, and contains its fair share of charlatans. It should not be immune from criticism — indeed criticism is an essential ingredient of reflection and improvement. Yet there is constructive criticism and the facile repetition of populist tropes. Chang’s “five points” veer towards the latter.

By Dave Heatley

Breaksea Sound from Resolution Island, Fiordland National Park. Dave Heatley

1. Ha‑Joon Chang (2014). Economics: the User’s Guide. Pelican Books. ISBN 978-0718197032

2. For an interesting take on the questions of what is common sense, and how common it actually is, see Mark E. Whiting & Duncan J. Watts (2024). A framework for quantifying individual and collective common sense, PNAS 121 (4) e2309535121.

Their high level conclusions include:

“We show that common sense varies considerably across types of claims but aligns most closely with plainly worded, factual claims about physical reality; [however it] does not vary much across different types of people.”

… “we find that collective common sense is rare: At most, a small fraction of people agree on more than a small fraction of claims.”

3. See also: Chris Giles (2019). Economists among ‘least trusted professionals’ in the UK. ($) Financial Times, 4 November; Peter Siminski (2023). 6 reasons Australians don’t trust economists, UTS Business School; and Colin Bowyer (2020). Abhijit Banerjee: Good Economics for Hard Times, Stanford University King Center on Global Development, 9 January. From the latter:

“In a representative sample of ten thousand people, news weathermen had the trust of 50 percent of the population, while economists hovered around 25 percent, on par with politicians.”