Mousa Ghaninejad on “Engineering Thinking in Economics and Its Maladies”

Engineering in the natural sciences has been one of the most important factors in increasing human welfare over many centuries, especially in the last two centuries following the Industrial Revolution. This undeniable fact has naturally and rightfully elevated the prestige and standing of engineering in public opinion; yet at the same time, it has fueled the misguided notion or illusion that in any field, problems can be overcome through engineering methods. In other words, it is as if the answer to the enigmas of all domains lies in engineering thinking.

Engineers are more aware than anyone of the limitations of their power and know that not “everything” can be done with engineering; indeed, it is through a precise understanding of these limitations that they can succeed in achieving their goals. Therefore, the illusion mentioned does not stem from the minds of engineers, but rather is rooted in a kind of engineering thinking that is mostly favored by laypeople unfamiliar with scientific discussions, and, for certain reasons, is also intensely favored by politicians and holders of political power. This fondness, of course, is not innocent or naive, but has strong reasons related to preserving and increasing power. There is no room here to address all the social aspects of this issue, and only the maladies related to engineering thinking in certain economic domains will be pointed out.

By the nature of its subject matter, engineering is fundamentally and primarily applicable in the realm of the physical world and the natural sciences, and it cannot be easily generalized to the field of social and economic relations, where we deal with the voluntary actions of individuals and the spontaneous orders arising from them. Human action is rooted in their diverse beliefs and tastes, and while it is true that these beliefs and tastes are subject to change, the factors influencing these changes cannot be precisely identified and engineered in the manner of the natural sciences. The reason for this is clear; the atoms in the social sciences are human individuals who, unlike atoms and molecules in physics, possess will and freedom of action and may behave differently under similar conditions. This is why we encounter typically different kinds of orders and regularities in the social sciences, which makes engineering within them exceedingly difficult, and perhaps it is even better to say practically impossible. But as mentioned earlier, politicians and power-holders have a great interest in engineering social and economic relations in a “desirable” way, and this can bring about considerable harm. Politicians like to support domestic production and increase employment and economic growth in the country by engineering foreign trade and controlling imports. They wish to engineer social justice through the pricing of goods and services. Preserving or increasing the power of the national currency by setting and engineering the exchange rate is one of the constant temptations of economic policymakers. The same applies to engineering the interest rate and aligning it with the inflation rate, which is being vigorously pursued in our country these days. Historical experience shows that all such “engineering” has failed not only in our country but everywhere in the world, yet due to its popularity among the general public and politicians’ fondness for using it as a pretext, it has never been abandoned. In other words, the illusion of economic engineering persists, and unfortunately, some economists, wittingly or unwittingly, also play a role in fueling this illusion. By foregrounding the issue of market failure and proposing engineering measures to resolve it, this group insinuates the misconception that the subject of economics is not understanding the laws governing the market system, but rather understanding the problems known as market failure and the engineering methods for fixing this failure. The result of this thinking in our country has been disastrous so far. The repressive economic institutions in our society, from the Consumer and Producer Protection Organization to the Ta’zirat Organization, the Competition Council, and the Anti-Smuggling Headquarters, are all products of this flawed economic thinking. The invention of interest-free banking was rooted in this engineering thinking, as if by ignoring economic laws, a desirable banking system could be designed and implemented. Attempting the impossible is, of course, possible; but it naturally does not yield the expected result and can be very costly. It must be accepted once and for all that economic policies yield the desired and expected outcome when they take economic laws into account and operate within the framework of their constraints. The mechanisms of the economic system cannot be engineered in the manner of the natural sciences.

Source: Donya-e-Eqtesad Newspaper - Issue 3854