Sunday, 25 January 2015

Being an economist

A few months back The Economist had a great text about economists and how they are, apparently, getting too big for their britches. Here's a few excerpts: 
"...Despite their collective failure to predict the financial crisis ... economists are still very influential. They write newspaper columns, advise politicians and offer expensive consulting services to business-folk far more than other academics. 
 ...economists have come to believe that they are superior. A survey in 1985 found that just 9% of graduate students in economics at Harvard strongly believed that economics was “the most scientific of the social sciences”. But as economics became ever more mathematical, its practitioners grew in self-confidence. By 2003 54% of the graduate economists studying at Harvard strongly agreed with the statement... 
...economists demonstrate their self-belief in subtler ways too. Articles in the American Economic Review cite the top 25 political-science journals one-fifth as often as the articles in the American Political Science Reviewcite the top 25 economics journals. Another study found that American economics professors were less likely than their peers in other subjects to agree with the notion that “interdisciplinary knowledge is better than knowledge obtained by a single discipline.” 
"The odd thing, the authors argue, is that we believe in economists almost as much as they believe in themselves."
The paper the article refers to is available here.

If this is the norm, and if economists are suddenly developing a high opinion of themselves (justifiable to some extent, apart from the quacks), then this could be one of their biggest problems:

HT: Marginal revolution

No more scientific-based debates in the field. This may well lead to complacency and even more dangerously - confirmation bias. It is surprising that even during the current crisis debates in top journals have been absent. This probably has a lot to do with the ascent of economic blogs. The debates have simply moved there. However academic blogs, even very good ones, are not science. They're fun and useful for getting quick information, but they're not science. 

Another reason for the lack of journal-based debates is probably due to the fact that publication in a top economic journal takes a very long time (years even). Much longer than in natural sciences (see The Royal Society for example). So a debate between two opposing ideas is being done much quicker via blogs. Taking the discussion to a journal requires building a model, and/or a lot of empirical testing (which is certainly justified). 

However, if I was to be asked what's the biggest threat to economics as a science (fragile as it is), it would be that its models become an aim in themselves. That's what math is all about, and to some extent economists still tend to get preoccupied with math or game theory as the 'ultimate knowledge'. If one masters math, the saying goes, he/she must be a worthy scientist. Mastering math is only a necessary condition to be a worthy scientist. A sufficient one is to actually apply it. Math is a tool, as is game theory. You use tools to help you get a certain conclusion, a finding. But even more importantly one needs to test this finding using a rigorous scientific method. 

This is what makes me optimistic about the future of economics as a science. I'm seeing more and more academic papers based on applying a scientific method, experiment-based, and less and less focusing on what we can call politically-biased macro (Noah Smith has a lot to say about this, check it our here, here or here).

We all, of course, study economics to understand, influence and possibly (hopefully) design economic policy to make the economy better, more efficient. Even those with "wrong" ideas have only the best intentions. However, too much focus in economics has been placed on designing the "right" macroeconomic (fiscal or monetary) policy. In my opinion, the research direction should go the other way. First we experimentally test and analyze the current policies, find out what's wrong with them and then fix them. No grand scheme, no one-size-fits-all approach. A bottom-up, micro-based approach. This is why I subscribe to institutional economics. It's all about fixing one institution at a time and eventually change the paradigm. Changing informal institutions by changing the formal institutions. And vice versa. It's all self-perpetuating anyway. 

5 comments:

  1. Vuk, which book on the New institutional economics would you suggest to read...?
    The concept is new to me, so I am quite curious.

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    Replies
    1. Zoran, there's a few books I would recommend. You can start with the classic - North's "Institutions, Institutional Change and Economic Performance". Then you can read this great paper by Olivier Williamson, also a Nobel prize winner. Other great institutionalists include Mancur Olson (his best book in this area is "Power and Prosperity"), Elinor Ostrom, and of course Ronald Coase.
      Finally, here is an excellent link on some other great books and papers on different perspectives to institutional economics.
      I hope that helps!

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    2. Oh and I forgot the best one, Acemoglu and Robinsons's both books, "Economic Origins of Dictatorship and Democracy" and of course, "Why Nations Fail"

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  2. More than enough... :)
    Thanks a lot, Vuk...

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  3. It's cool to find something of this level. I like this blog post and will totally share it with others. Keep up the remarkable work! economic personal statement

    ReplyDelete