Economics and the Tangle of Abstract Theories and Mathematical Rigor

Elinor Ostrom, the sole woman to win the Nobel Prize in Economics, passed away in the year 2012. In her path breaking work Governing the Commons: The Evolution of Institutions of Collective Action, she challenged the assumptions of the Tragedy of the Commons concept by demonstrating how local communities worldwide had been sustainably managing common pool resources, such as fisheries and pasture lands, by devising a set of collective rules. She dismissed a supposed inevitability of free riding and resource overexploitation by arguing against indispensable role of governments or private businesses in sound regulation of common resources. Her phenomenal contribution to development economics came to be recognized with the embracement of the community-based management model by donor nations and governments in developing countries.

It merits a mention that Ostrom’s work was not characterized by mathematical rigor, as is usually the case with a typical academic economist who is expected to come up with the work replete with dazzling mathematical and econometric applications. Rather than focusing on mathematical models, Ostrom evinced a great interest in understanding the rules of common resource governance, which was backed by her keen observation and fieldwork. As such, her findings and recommendations came to hold immense relevance for practical application.

The penchant for econometrics partly explains why eminent academic economists failed to anticipate the US financial crisis of 2008. Paul Krugman, a Nobel-winning economist and New York Times columnist, attributes their failure mainly to “the desire for an all-encompassing, intellectually elegant approach that also gave [them] a chance to show off their mathematical prowess.” Decline of professional integrity is another cause of concern. In January 2011, the American Economic Association created an Ad Hoc Committee on Ethical Standards for Economists. It was influenced by Charles H. Ferguson’s documentary movie ‘Inside Job’ (2010) which highlighted conflicts of interest involving academic economists who had affiliations with private financial institutions which consequently impacted objectivity of their works and opinions. In fact, disassociation of ethics from any profession or activity is bound to result in moral and social catastrophe. It is apt to quote Mahatma Gandhi who believed in an integral relationship between economics and social justice: “True economics never militates against the highest ethical standard, just as all true ethics to be worth its name must at the same time be also good economics.”

Gandhi was not an economist, nor did he employ mathematical models in support of his views. Nevertheless, his thoughts turned out to be a major imprint on the contemporary and current grassroots campaigns and environmental movements that are vociferously demanding socio-economic justice and socio-environmental sustainability. In fact, it was Gandhi who inspired E.F.  Schumacher’s Appropriate Technology concept (through his emphasis on adopting technology that benefited a common man), Arne Naess’s Deep Ecology Movement, and Vandana Shiva’s Seed Satyagraha Movement, to name a few among numerous such examples. Moreover, Gandhi’s prescient call for conservation of nature finds an echo in the current mainstream concept of sustainable development. He had cautioned: “The earth, the air, the land and the water are not an inheritance form our forefathers but on loan from our children. So we have to hand over to them at least as it was handed over to us.”

The crux of the issue is that while mathematical rigor is not at odds with the promise of research output for humanity, the heavy adherence to econometrics or quantitative models renders economics specious. This is compounded by economists’ disassociation from ground realities and their confinement to the world of abstract theories, which is the bane of economics. Would academic economists wake up?

(Written in 2012 by Romi Jain)

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