In a standard move, economists assume that, because policy makers are forced to make monetary policy decisions, there must be an academic field that informs those decisions. Therefore, economics must do its best, even when the data conclusively proves that "best" means "in a manner that leads to meaningless and preventable human suffering". And example is Simon Wren-Lewis here:
As governments are the monopoly providers of cash, and provide a backstop to the financial system, they are involved in the ‘market’ whether they like it or not. Complete non-intervention is not an option: instead the next best thing (from a laissez-faire point of view) is some kind of ‘neutral’ default policy rule, like keeping the stock of money constant.
The underlying assumption is that Central Bsnkers must use "economics" to make decisions. But what if there were other ways to make decisions? If there is an option, then there is an opportunity cost.
As it turns out, not only is there more than one way to make a decision, it turns out that economics is a field particularly ill-suited to economic style rational decision making!!
This is an excerpt from an interview with psychologist Gerd Gigerenzer on how Instinct Can Beat Analytical Thinking:
If you’re in the world where you can calculate the risk, then statistical thinking is enough, and logic. If you go in a casino and play roulette, you can calculate how you will lose in the long run. But most of our problems are about uncertainty. So, for instance, in the course of the financial crisis, it was said that banks play in the casino. If only that would be true — then they could calculate the risks. But they play in the real world of uncertainty, where we do not know all the alternatives or the consequences, and the risks are very hard to estimate because everything is dynamic, there are domino effects, surprises happen, all kinds of things happen.
> Risk modeling in the banks grew out of probability theory.
Right, and that’s the reason why these models fail. > We need statistical thinking for a world where we can calculate the risk, but in a world of uncertainty, we need more.> We need rules of thumb called heuristics, and good intuitions. That distinction is not made in most of economics and most of the other cognitive sciences, and people believe that they can model or reduce all uncertainty to risk.
Thus, the opportunity cost of economics is likely very, very high.
