2/04/2020

Raj Chetty and the New Scientism: Big Data, Economic Engineering, and the Failure of Economic Education

"Hayek cautioned would-be central planners that “the number of separate variables which in any particular social phenomenon will determine the result of a given change will as a rule be far too large for any human mind to master and manipulate them effectively” (CRS 73). Might Big Data and AI overcome the limitations of the human mind, so that central planning is now possible? No—but why? First, as explained above, acting humans are not predictable atoms. Second, there is more to spontaneous order than merely aggregation of information. Prices provide information and coordination, but they also provide incentives; the market mechanism rests on property prices to promote socially useful behavior (ITF 12).

Chetty’s approach holds much promise—if it follows two conditions: first, that Big Data be combined with sound economic theory; and second, that social scientists act very carefully before they use Big Data to act as economic engineers. They would indeed do well to remember Hayek’s warning that it “the curious task of economics is to demonstrate to men how little they know about the systems they purport to design” (TFC, 76). This is also exemplified in a rich literature on expert failure and the tyranny of experts."