Lester Thurow blasts contemporary economic theory; Dangerous Currents: The State of Economics, by Lester C. Thurow. New York: Random House. 247 pp. $16.95.
According to Lester Thurow, contemporary economic theories - including Keynesianism, monetarism, and supply-side economics - are woefully defective. Thurow, a professor at MIT and columnist for Newsweek (in which he generally favors more government intervention in the marketplace than does Newsweek's other economist-columnist, Milton Friedman), contends that many of today's economists fail to deal with the ''real world,'' because of a slavish devotion to their theoretical models.Skip to next paragraph
Subscribe Today to the Monitor
Yet this contention is a straw man. Sober economists have long regarded theoretical models merely as conceptual devices for explaining certain tendencies, not as blueprints for completely describing or precisely predicting actual events. Of course, some zealous economists do make excessive claims for their models, but this fault lies with the practitioners, not with the analytical tools of economics.
Professor Thurow knocks down his straw man to advance his own thesis: the need for economists to make greater use of empirical analyses - i.e., to reason on the basis of actual observations and perceptions as opposed to abstract assumptions about human behavior. Although this call for a more empirical methodology seems logical and enlightened, many economists would include it in a book about ''dangerous currents'' in economics. The pitfall of empiricism is its subjectivity masquerading as objectivity: How does one know whether he is describing the world as it is or as it seems?
It is neither bold nor original to argue, as Thurow does, that contemporary economics is intellectually bankrupt. What is needed to invigorate the stale debates among the various schools of economic thought is something akin to the Methodenstreit (the struggle between methods of analysis) of the 1880s, when Carl Menger and Gustav Schmoller grappled with the fundamental question: What mode of analysis will yield valid conclusions?
Thurow's book does perform the important function of showing that any system of economic analysis, no matter how sophisticated, is of dubious practical value if it rests on faulty foundations. However (and this is the major disappointment with ''Dangerous Currents''), he shies away from defining his own premises and outlining the specifics of an alternative system of analysis. He is evasive and equivocal when he most needs to be forthright and definite.
Examples of self-contradiction abound: He rightly describes economics as a nonexperimental, nonlaboratory science, yet he praises improved techniques for measuring economic phenomena; he endorses property rights, then proceeds to assert that ''society'' must decide how to redistribute property. He denies that the individual can be the unit of economic analysis, then fails to explain what other unit is capable of valuing, choosing, acting - in short, of making the decisions which economics attempts to explain. Sometimes he favors government intervention and sometimes he does not; however, like the supply-siders, whom he derides, he never answers the crucial question of what role the government is to play in the economy. By leaving that role undefined, Thurow is, in effect, bestowing on government carte blanche control over the economy - a position which is sure to increase his popularity in Washington.
Another problem with this book: Items that Thurow treats as ''facts'' would be regarded as mere opinions by many other economists. For example, he declares that inflation has a ''genuinely benign nature.'' Using Thurow's empirical methodology for a moment and examining the experience of millions of pensioners, insurance policyholders, wage earners, etc., demonstrates that inflation is anything but benign. He also states that ''no theoretical arguments led anyone to believe that inflation is economically harmful.'' This betrays an ignorance of the work of Nobel laureate Friedrich Hayek and the Austrian school of economics (which probably explains why the Austrians were exempted from Thurow's pointed criticism and instead ignored).
''Dangerous Currents'' is a fluent, reasonably well-organized book; nonetheless, it is too esoteric for the novice in economics. The reader desiring an introduction to elementary economics should read Henry Hazlitt's ''Economics in One Lesson.'' The more advanced reader who seeks an introduction to the various contemporary schools of economic thought would do better to read ''The Crisis in Economic Theory,'' a well-rounded compendium of essays edited by Daniel Bell and Irving Kristol.
Perhaps Professor Thurow should have presented his argument for a more empirical economics in an essay instead of a full-length book. Here his thesis lacks cogency, as it drowns in the debris from his mass demolition of contemporary economic thought.