Karen Horn on the shortcomings of economics

Karen Horn, director of the Berlin office of the Institute of the German Economy in Cologne, calls in the monthly magazine Internationale Politik for a radical change in economic sciences in the face of the current financial crisis. "As the representative of the Austrian school, Friedrich August von Hayek, once said, social sciences deal with complex phenomena. The focus is not on objectively observable circumstances but subjective perceptions which, however, relate to the real world: opinions, expectations, convictions. The best one can achieve with such a fuzzy subject is models that explain the principles of effect and prediction models. Principles of effect describe how things happen; prediction models provide qualitative directions. That's it. Precise predictions are impossible. Modesty is required. But many economists have suppressed this truth. And this has led to the fundamental contingence that must always be observed in our social interactions if people are to be free to make their own decisions simply being ignored. ... It is time for a radical reform in economic sciences, particularly as regards appointing new chairs. We need much more organisation theory, much more social philosophy. We must think more and calculate less."

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