Humbling lessons for bickering economists

These are dismal times for the dismal science, or so the complaint goes. The main charge is that economics failed to predict the financial crisis and has few ideas about how to prevent a repetition.

Today, the annual Nobel prize for economics is awarded (not technically a Nobel, in fact, but let that pass), and with it a prominent plinth of credibility from which to preach to the world. Given the state of the discipline, should the Nobel be awarded at all?

Being an economist, I am going to assume the answer is yes without feeling the need to prove it. But it might be helpful to accompany the award with a judicious downgrading of the spurious certainty with which economists make their pronouncements.

Since it is compulsory to quote John Maynard Keynes at least once in any discussion like this, let's get it over with. Economists, Keynes said, should aim to be regarded on a par with dentists - humble people quietly getting a routine job done. It hasn't quite worked out like that.

In recent months, denizens of the econoblogosphere have been watching with increasing amusement, or alarm, an exchange of invective between Paul Krugman (officially known as "the Nobel prize-winning Paul Krugman") of Princeton and the New York Times, and John Cochrane of the University of Chicago. Each is a representative agent of two schools. The first, a more Keynesian approach with overarching macroeconomic analysis, tends to scepticism about the efficiency of markets and is currently calling for government spending to help the world pull out of recession. The second, whose macroeconomic conclusions are more closely rooted in microeconomics, places greater trust in markets and is sceptical of active fiscal policy.

Broadly speaking, they are respectively known as "saltwater" and "freshwater" economists after the preponderance of the first in the US's coastal academies - Harvard, Princeton, Berkeley - and the latter in universities close to the Great Lakes - Chicago, Minnesota, Carnegie-Mellon.

Prof Krugman's initial broadside accused the Chicago school of reflecting "a Dark Age of macroeconomics in which hard-won knowledge has been forgotten". Prof Cochrane's counterblast compared Prof Krugman to a scientist denying that HIV causes Aids or calling global warming a myth.

Amusingly, the front-runner for today's prize is Chicago's Eugene Fama, one of the freshest of the freshwater crowd. His work helped to popularise the "efficient-market hypothesis", which, broadly speaking, holds that asset prices in financial markets reflect all available information. That thesis has come under intense fire as a result of the financial crisis, and a Nobel for Prof Fama would no doubt stoke the controversy further and turn his exchange with Prof Krugman into a battle of the laureates.

The abundance of vitriol in economics startled me when I first came to the subject via the study of history. Historians disagree, often violently, but few would pronounce their opponents' approach indisputably wrong, or cluster into faculties with like-minded fellows.

Prof Cochrane's comparisons of Prof Krugman to a maverick scientist are significant, but misleading. Physics and biology have built up large bodies of settled knowledge that are not seriously disputed. There are, of course, still lively controversies. But no one is genuinely trying to knock down the Newtonian laws of motion.

Economics cannot hope definitively to decide large swathes of the subject, certainly not at this stage. The subject is blindingly complex, as well as relatively young, and much of the data incomplete.

Insisting that economics is a hard science seems to feed the virulence of disagreement, since opponents can be portrayed as not just mistaken but actually illegitimate. For what it's worth, I'm on the saltwater side when it comes to economic theory and to current policy recommendations. But I'm willing to accept I might conceivably be wrong.

It is not oblivion that economics needs: it is a dose of humility. And anyone that says otherwise is an idiot.