Author: jdc

Life is good: economic growth, war, and $1

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The unfriendly face of economics is the bland incantation “economic growth”, which, following the “show, don’t tell” principle, means “more stuff”. Sounds a bit unpalatable, does it not?

We’re in measurement-problem-land again, unfortunately. I think a careful normative economist would define “economic growth” as either an increase in the resources (of whatever type) at people’s disposal, or some development that helped people get the things they liked (whatever they are). Unfortunately, again, we get stuck a little on what we can measure, using the amount of measurable stuff like income, goods or services to proxy what we’d really like to achieve.

On top of and related to that, there’s the diverse backlash against “materialistic” economic growth. My own belief – for what it’s worth – is that it’s a bit weird that economic growth ascended to such dominance as a policy goal. Being anti-growth is something different entirely, though; by any definition, the role of growth is radically different for the world around me than for the poor.

This recent Economist article argues forcefully that the world is headed in a historically pleasant direction. It’s too rich in detail to do justice to here, but among other things it offers a version of the most compelling defense of economic growth: some people are really, really struggling. It stretches empathy to its absolute limit to try to imagine the most crushing poverty in the world, and if that sounds like a cliché, tough.

“In China 25 years ago, over 600m people—two-thirds of the population—were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180m. In the world as a whole, a stunning 135m people escaped dire poverty between 1999 and 2004. This is more than the population of Japan or Russia—and more people, more quickly than at any other time in history.”

I remember vividly the slow, horrifying process of understanding what $1 a day means. No jargon: it means that the amount of stuff – any stuff – that a person living on $1 a day can afford is equivalent to the amount of stuff I could afford to buy if I had one US dollar in my pocket every morning, and nothing more. It’s not about exchange rates or the price of stuff or anything like that: it’s real That’s very close to being literally unthinkable.

Yes, the figures quoted in the Economist article are averages, and yes, measurement is a problem. But still:

“A World Bank study of 19 poor countries concluded that every 1% increase in national income per head translates into a 1.3 point fall in extreme poverty… The result [of economic growth] is that the number of very poor people in the world is falling fast—even though many critics continue to believe that the poor have not really benefited from growth. In 1990 those on $1 a day accounted for more than a quarter of the population of developing countries. By 2015, on current rates, the proportion of very poor people should have shrunk to 10%. Moreover, these monetary measures probably understate the real gains from things such as lower child mortality, safer water, literacy and other social achievements. A rich man appreciates his extra cash but this does not compare with what a poor family gains from seeing an infant survive childhood or learn to write.”

If you tell me you oppose “economic growth”, you’d better be damn specific. I doubt anyone opposes this. This is the variety of difficult that led Robert Lucas to famously declare that “Once you start thinking about economic growth, it is hard to think about anything else.” Here‘s a nice quotation about that quotation:

“The Nobel laureate economist Robert Lucas once said “Once you start thinking about economic growth, it is hard to think about anything else.” Non-economists, especially those associated with the environmental movement, regard this as evidence that economics is a form of brain damage, a cancer on our earth. But rural Chinese peasants surviving on less than a dollar per day do not regard economic growth, or Wal-Mart factory jobs, as a cancer.”

There are a lot of “development economists” out there these days, and it’s easy to be facetious and question the real value in what they do, but goodness, they’re dealing with issues whose importance is overwhelmingly difficult to comprehend. I hope they find success.

Not, of course, that economic growth is ever all that matters. The Economist article concludes with the argument that the incidence of war is declining, representing another huge boost to the wellbeing of people around the world. The picture presented there is slightly less rosy than on poverty, but still unusually optimistic. I like the big-big picture view of global trends; putting the modern era in the broadest historical context is a great way to make our problems seem petty and life seem good.

The war talk reminded me of the excellent book “The Bottom Billion” by development economist (the label is mine) Paul Collier, which is a kind of synthesis of much of his, and related, research into the causes of extreme poverty. From the FT review of the book:

“About 80 per cent of the population of developing countries lives in countries whose populations are becoming better off. Billions live in countries that are developing very swiftly. But almost a billion people – 70 per cent of whom live in sub-Saharan Africa – are in economically stagnant or declining countries. In all, 58 countries are in this desperate condition. Yet, as Collier remarks: “An impoverished ghetto of 1bn people will be increasingly impossible for a comfortable world to tolerate.”

Collier argues that these countries have fallen into one, or more, of four traps from which it is virtually impossible to escape. These are the “conflict trap”, the “natural resources trap”, the trap of being “landlocked with bad neighbours” and the trap of “bad governance in a small country”.”

Among other things, Collier investigates the link between conflict and poverty. His book is, to me, a triumph of realistic but fundamentally optimistic policy debate founded on careful, broad scientific research. The world is moving in the right direction, argues the Economist, and Collier and his kind are desperately throwing the line to the most impoverished, the most vulnerable. Think of this next time you read the words “economic growth”. Whatever it is, it need not be the ultimate goal of human endeavor, but is it an evil?

Experiments

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Found at Environmental Economics: a new book called “Environmental Economics, Experimental Methods” has just surfaced, a happy example of (at very least) broadly innovative methods in economics (the experimental part) being wedded to policy questions outside the popularly perceived scope of economics. The book describes a variety of laboratory experiments whose results are relevant to environmental policy. The contents are here (pdf).

The experimental revolution must really have arrived for a book like this to exist. The whole problem of inferring causality in the complexity of the world is an acute problem that science has always tried to solve, one that the social sciences naturally have particular difficulty with. In economics, from this common difficulty came abstract theorizing, econometric inference from real data, and, latterly, randomized trials (aspiring to be cousin to the same in medicine) and laboratory experiments (aspiring to be cousin to the same in psychology).

A simple characterization of the difference between those last two might be this: the randomized trial method tries to isolate the effect of one thing on another, while the experimental school is entwined with the behavioral economists who seek to isolate the way people act. Clearly this steps on some psychological toes; our method is certainly pretty similar, with the possible exception that we’re . We usually get people to sit at consumers and make decisions about what to do while they’re interacting (usually anonymously) with other people in the experiment.

I think it’s pretty amazing that experimental economics has exploded so quickly to generate a whole (big) book applying its results to a niche like environmental economics. Whatever you make of the experimental field, it’s surely a pleasure to see an expansion in the range of scientific methods economists are employing. Logic, math, statistics; now trials and experiments.

On a completely unrelated note, I love this post, from Environmental Economics, about explaining your job as an economist.

“‘Oh really, what do you teach?’…
‘Economics.’ The glazed look…
‘Oh so you’re in the business school?'”

I bet misunderstanding about what economics is can be even more annoying for an environmental economist than it is for the rest of us…

Why don’t we understand economics education?

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Increasingly preoccupying my thoughts recently is the remarkable fact that the economics profession doesn’t really know anything about how undergraduate courses are received by the students who take them.

Unquestionably, the most common type of research into undergraduate education is the type like this, this, or this (sorry to link to protected academic articles): teaching methods. The semi-famous series by William Becker and Michael Watts derides “chalk and talk” in favor of more creative methods of lecturing. In “Teaching Economics at the Start of the 21st Century: Still Chalk-and-Talk”, those authors conclude:

“In contrast to the passive learning environment that characterizes the teaching of economics, class discussion and other forms of active learning, rather than extensive lecturing, are now the dominant forms of instruction in other fields of higher education.”

I agree in principle that it’s no fun to try to learn – really learn – any subject by sitting in a lecture, but goodness me, “active learning”? How about “devote some time to reading a variety of books and material on the subject you’re learning”? How about “sit down with colleagues or experts and talk and listen”? In my life, those have been the most effective ways of getting information and understanding into my head. Am I alone? To me, that’s active learning, and it doesn’t require fancy technology or a three ring circus, just a good library and good educators with time to devote to small groups of students. Lectures, especially to large classes, must naturally be presented without a lot of nuance.

The cult of the classroom experiment, or demonstration, or performance art, or audience participation, is not, however, the real issue. By far the bigger problem is that we have no idea – repeat, no idea – what students want, expect or get from economics courses. Why do they enroll? Why don’t they enroll? Why do they drop out? Why do they major in economics? What do they think economics is about, before, during, after they take economics course? What if they never do? Who do we lose?

Why don’t we have the first idea about the answers to those questions? Have we ever asked? The mind boggles. We’re try to patch up the wreckage of the lecture system, when all the while we might be sailing to entirely the wrong place in our leaky boat. Forget the method for a moment – what are we even actually teaching?

In a separate article to the one I quoted up above, William Becker’s “Teaching Economics in the 21st Century” says:

“Media headlines scream the need to understand macroeconomics. At a minimum, courses in macroeconomics should enable students to have a greater understanding of the economic news as it appears in the Economist, Business Week, and the Wall Street Journal than those without an education in economics.”

I’ve covered this ground before. How about, at a minimum, we teach economics properly? How about, at a minimum, we kick civics into a course where it belongs and actually show students what economics can be, and what it is? Compromising the integrity of an entire field of hundreds of years of intellectual thought with political, philosophical and moral implications so that people can understand the Wall Street Journal? Who wants to understand the Wall Street Journal?! From the same article:

“Departments of economics have two powerful reasons to care about improving the quality of their teaching. First, the contest for resources within institutions of higher education implies that the number of majors and enrollments matter…. Whether students will take more courses in economics or choose to major in the field because of improved teaching is hard to say, but, at least, improved teaching is unlikely to hurt enrollments!”

Hilarious, I’m sure. I’m kidding: it’s sickening. Can we entertain the notion that perhaps higher enrollments are not compatible with improved teaching? We are supposed to be running an institute of excellence in learning and thought. Whoring for enrollment is disgusting.

Simplify, simplify

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I might just go ahead and quote myself:

“One of the principles of writing economic theory is to create a simplified abstraction of reality.”

This is from an article by Russell Jacoby in the Chronicle of Higher Education:

“The world is complicated, but how did “complication” turn from an undeniable reality to a desirable goal? Shouldn’t scholarship seek to clarify, illuminate, or — egad! — simplify, not complicate? How did the act of complicating become a virtue?”

This is quite clearly not an article about economics (phew). It goes to show how very, very different we’ve become from the other social sciences and arts. Yesterday I was talking about the development lab at MIT; would they say, “Ah, there’s a million and one things that affect the quality of education. I’m going for a drink.”? Of course not. Economics seeks to expose in the simplest possible terms the relationships around us. Indeed, the world is complicated; that’s why the MIT lab has to perform randomized trials to isolate the effects of programs. It’s why theorists create little models of the world.

Contrast this with this characterization from Jacoby:

“The refashioning of “complicate” derives from many sources…. [acaemics] will prize efforts not only to complicate but also to “problematize,” “contextualize,” “relativize,” “particularize,” and “complexify.””

In economics we want to know: what you’re saying, why you’re right, and what could make you wrong. That’s about it. One of the most valuable consequences of treating economics as a science is that we parachuted out of this borderline nonsense:

“They will denounce anything that appears “binary.” They will see “multiplicities” everywhere. They will add “s” to everything: trope, regime, truth. They will sprinkle their conversations with words like “pluralistic,” “heterogenous,” “elastic,” and “hybridities.” A call for “coherence” will arrest the discussion. Isn’t that “reductionist”?”

This explains a big part of the schism between positive economics and other social sciences; we are OK with leaving some things out if it helps. When it comes to the policy debate and the normative questions, we have to throw all the other stuff back in, but “it depends” is a conclusion acceptable in positive economic research only if you can tell me exactly how and why it depends.

Jacoby has the neat sign-off:

“The cult of complication has led — to alter a phrase of Hegel’s — to a fog in which all cows are gray.”

In economics, our judgment cows are gray, but our scientific cows are black and white.

Relevance

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Making Economics Relevant Again, from David Leonhardt in the New York Times, has been recommended to me by more than one tipster. First of all, the most astonishing thing in the article, to me, is this table that includes an account of the number of economics degrees given every year since 1949: I thought majoring in economics had been on a steady upswing for decades, but apparently a lot fewer people were studying economics in the 90s. The number is just back up to where it was in 1990.

Anyway, the article kicks off:

“It was only a decade ago that economics seemed to be an old and tired discipline. The field no longer had intellectual giants like John Maynard Keynes or Milton Friedman who were shaping public policy by the sheer force of their ideas. Instead, it was devolving into a technical discipline that was even less comprehensible than it was relevant.”

Possible revisionism here, but it’s certainly a tempting argument. It might reflect the sleepy state of economic policy rather than the discipline as a whole, but I take the point. We’re pointed to an old New Yorker article from 1996 which drives the point home in spectacular fashion; forgive the long quotation:

“A few weeks ago, the Nobel Prize in Economics was awarded to William Vickrey, an 82-year-old professor at Columbia, and James Mirrlees, a 60-year-old professor at Cambridge…. the newspapers had some difficulty explaining the prize-winning work, which the Nobel committee referred to as “the economic theory of incentives under asymmetric information.” ..But when reporters tracked down Vickrey, an amiable bear of a man, he refused to play along: instead of expanding on the obscure mathematical theory that gained him world attention, he insisted on talking about his practical ideas for reforming the subways, the electoral system, the budget deficit, and much else besides. A “Times” reporter tried to pin him down, but Vickrey quickly dismissed his prize-winning 1961 paper as “one of my digressions into abstract economics.” And he went on to say, “At best, it’s of minor significance in terms of human welfare.””

What a priceless story. However, it might not just be the abstract math that marginalizes economics: Leonhardt goes on to argue that some economists are disgruntled at what they see as the cause of the “recovery” he perceives in economics. I can’t really argue with this:

“the new research often consists of cute findings — which inevitably get covered in the press — about trivial subjects, like game shows, violent movies or sports gambling.”

It’s like the Christmas stuff I talked about before. It isn’t a true reflection of economics research and it makes economics look ridiculous. To try and figure out what really mattered, Leonhardt decided to survey economists to find out who they thought “was using economics to make the world a better place”. It’s a question begging to reject Vickrey’s digressions into abstract economics. Presumably, to be an economist who actually does some good for the world, your research must be good science and very, very close to a solid and appealing economic policy. And lo:

“there was still a runaway winner…. the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee.”

I won’t try to put this any better than the original article:

“They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics…. The basic idea behind the lab is to rely on randomized trials — similar to the ones used in medical research — to study antipoverty programs. This helps avoid the classic problem with the evaluation of aid programs: it’s often impossible to separate cause and effect.”

Let’s figure out what’s going on here. The research uses randomized trials to disentangle causality, the ubiquitous problem for figuring out relationships from real-world data; because the method is strong, they can rely less on normative judgment when they make the jump from the science to the policy, thus cutting ideology out. Just like the Obama team I was talking about yesterday, the gap between science and policy is vanishingly small here, but clearly it’s crucial for the success of the whole venture that the science be pure as snow. The science can’t tell you you’re right or wrong to hold the belief that children should be educated – that’s all on your head – but it can perform the true role of positive economics and help you figure out exactly how to improve the quality of education if that’s what you want.

The reason why these development economists are perceived as the most “relevant” is twofold: they have easy to understand, convincing science and they explicitly embrace the normative implications of their science. Their science is as sophisticated as it gets, but they certainly don’t need esoteric math. On that note, the last word goes to that New Yorker article:

“One way to encourage economists to become more worldly might be to abolish the Nobel Prize for economics, which since its introduction, in 1969, has helped foster a professional culture that values technical wizardry above all else. Deprived of the publicity surrounding the annual Stockholm ceremony, economists would actually have to do something useful to get noticed.”

EDIT: Actually I’m not sure that should be the last word. By the merits of, for example, the work Duflo, Banerjee and co. are doing, they would absolutely qualify for a Nobel memorial prize in economic science. The prize does seem to have become at least as much an applied math prize as a “good economic science” prize, which I guess is the problem the New Yorker article is highlighting. The problem isn’t the prize, but the criterion for winning, perhaps.

Turning economics research into policy

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Hat tip to the inimitable GoodLiberal for pointing me in the direction of an excellent article I would certainly have missed otherwise. It’s by Noam Scheiber and it’s about Barack Obama’s advisers; in particular some of the economic policy advice he’s been getting. You can find it here, but get it while it’s hot because it might move behind the subscriber’s wall at the New Republic. To be clear, the economic policy parts are most interesting to me, but there’s more to it than that.

It’s interesting both how Scheiber characterizes the type of economic theory that’s apparently fueling some Obama policy, and how the path from one to the other winds. There are so many fun lines I might just go ahead and start quoting. On the distinction between academics and nonacademics:

“In economics, it’s the academics who are first-rate engineers and the nonacademics who are either dreamers or technicians.”

Very well put, though I fear a little harsh on dreamers. Research and teaching in academia are indeed geared towards the sterile positivism; the engineering analogy is well drawn. I do wish we had a bit more dreaming in the dreamy spires of academia though.

The article starts out by describing “behavioral economics”, that field that’s trying to figure out how people act and how to build it into economics.

“Behaviorists like Thaler believed that the perfectly rational, utterly selfinterested maximizers of economists’ imaginations had little in common with actual human beings, who frequently err when making simple calculations, who have trouble with self-control, who often act out of altruism or spite. But what’s really interesting is how Thaler and his fellow behaviorists responded to this fairly critical insight. Though rational self-interest was the central tenet of neoclassical (i.e., modern) economics, they didn’t take a wrecking ball to the field and replace it with some equally sweeping theory of human behavior.”

Behavioral economics is possibly the least revolutionary revolution ever to hit an academic discipline, because, as Scheiber is alluding to, the behavioral school is absolutely not changing or abandoning the methodology of economics. As I’ve noted before, the “perfectly rational” economic man can happily do whatever the behavioralists want him to do to be more “realistic”; it’s therefore not necessary to come up with a whole new way of modeling people.

Instead the behavioral school is writing down models of “perfectly rational, utterly selfinterested maximizers” who act in accordance with the behavioral evidence. That is, writing rationalization of the “irrationality” we observe. Contrast this with the traditional criticism of economic man, which is to throw up ones hands and loudly reject the whole idea of trying to predict what people will do. I prefer the behavioral way.

Anyway, what’s coming from having this type of economist on the Obama team?

“For example, one key behavioral finding is that people often fail to set aside money for retirement even when their employers offer generous 401(k) plans. If, on the other hand, you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama’s savings plan exploits this so-called “status quo” bias.”

Does it take an economist to suggest this? Of course it does not; the article argues, however, that the “engineers” in academia are the ones who can tell you if the opt-out policy will increase saving or not. That’s a nice example of the value of positivist economic science: it gives you the evidence that switching from opt-in to opt-out might increase retirement saving, which is handed off to the policymaker, who says “I want to increase retirement saving”, and proposes opt-out. Presto. Did any part of the economic science at the bottom of the pyramid require esoteric math or have an ideological bias? Doubtful.

Here’s an even better one:

“Obama wonks tend to be inductive–working piecemeal from a series of real-world observations. One typical [economic adviser Austan] Goolsbee brainchild is something called an automatic tax return. The idea is that, if you had no tax deductions or freelance income the previous year, the IRS would send you a tax return that was already filled out. As long as you accepted the government’s accounting, you could just sign it and mail it back. Goolsbee estimates this small innovation could save hundreds of millions of man-hours spent filling out tax forms, and billions of dollars in tax-preparation fees.”

How simple, how wonderfully useful that would be. How fickle am I that I would vote purely on the basis of an easier tax return?

“The Clintonites were moderates, but they were also ideological…. The Obamanauts are decidedly non-ideological. They occasionally reach out to progressive think tanks like the Economic Policy Institute, but they also come from a world– academic economics–whose inhabitants generally lean right.”

Oh really? Aside from the repetition of this common error about economists’ politics, this implies that the positivist approach to academic economics is bleeding into economic policymaking, drastically shrinking the gap between the science and the normative judgment informed by the science. The crucial distinction remains – for example, I could argue that it’s wrong to make people opt-out of a retirement scheme rather than opt-in, a violation of their right to be left alone, and I couldn’t be wrong, despite what the science said would happen – but the information on which the policy is based is very close to the policy itself.

The Cold War revisited; elections and policy

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Here’s a third-hand recommendation, with a hat tip to Economist’s View: an interesting Paul Krugman article on why capitalism “won” the Cold War. The thesis is this:

“Communism failed because of an inability to provide a sustaining reason for existance; only under crisis could it work…. [it] failed as an economic system because people stopped believing in it, not the other way around.”

The hybrid system of regulated capitalism alongside a centrally planned public sector dominates the modern world. As far as I can tell, a purely capitalist economy is equally difficult to find in history as a purely communist society; perhaps the hybrid reflects some natural impossibility of living at either extreme. The argument that some resources are best allocated, or some goals best achieved, by one mechanism and some by the other is a strong argument – though of course not one immune to counterpoint.

There isn’t a lot of big economic policy debate these days. The dominance of the hybrid system naturally pushes policy debate into a very small subset of all the possible economic policies. That’s not necessarily a criticism; you could, for example, blame either status quo lethargy or status quo satisfaction for containing the debate.

That makes the Krugman article a bedfellow of a recent mini-debate about whether elections matter for economic policy. Economist’s View also covered that one here; it seems to have kicked off with a Tyler Cowen article in the New York Times with the perfectly descriptive title “It’s an Election, Not a Revolution”.

Cowen says:

“This election is certainly important. But based on the historical record, it isn’t likely to result in a major swing in economic policy. Fundamentally, democracy is not a finely tuned mechanism that can be used to direct economic policy as a lever might lift a pulley. The connection between what voters want, or think they want, and what ultimately happens in the economy, is far less direct…. Shifts in economic policy are usually quite moderate.”

The Economist’s View cites a counterpoint from Kevin Grier:

“I see real differences. I don’t see McCain lifting the cap on FICA earnings. I don’t see McCain going for publicly created “green jobs”. I do see both of them “fixing” the AMT. I don’t see McCain as so anti-trade as Obama.”

I’m sorry, but I think I just went in to an apathy coma. Not to be too obnoxious, but if that’s the best we can come up with, I’m taking Cowen’s side all day long: the big questions are not asked. It could be a product of the political system, of apathy, of satisfaction, of something else entirely. Reflexive defense against attacks on the significance of democracy have grounds far larger than just economic policy, but it’s difficult to deny that, for better or worse, we won’t see any seismic shifts any time soon.

Economists’ political preference

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While we’re sitting in the old ivory tower, some economists are out there in the real world. They’re very different from the academics, in their work and their demographics. The Wall Street Journal runs periodic surveys of private-sector economic forecasters; here’s a bit from January:

“On the political front, most of the respondents expect a Democrat to be elected president this year, although they personally prefer a Republican.”

Contrast this with the academic economists; here’s the summary from a 2003 survey of members of the American Economic Association, one of the big “trade groups” of academic economists:

“The responses show that most economists are supporters of safety regulations, gun control, redistribution, public schooling, and anti-discrimination laws. They are evenly mixed on personal choice issues, military action, and the minimum wage. Most economists oppose tighter immigration controls, government ownership of enterprise and tariffs. In voting, the Democratic:Republican ratio is 2.5:1.“

The academics seem like “social liberals”, but I’d bet both the academics and the private-sector economists are “fiscal conservatives” (with apologies for possibly bastardizing the political terminology). Perhaps it relates to the liberal-friendly character of academia, the subject of the study I cited here. Here’s another result from the survey of the forecasters:

“Some 56% of the economists disapproved of President Bush’s stewardship of the economy, while 44% approved. That is especially startling considering 59% of the economists said the stock market performs better under Republican presidents, compared with 28% who said it favored Democrats.”

The Republican preference of the private-sector economists does seem to be grounded in their beliefs about the effect of the political climate on the financial sector. Academic economists, by and large, don’t care a lot about what’s happening in the financial sector (or, indeed, about anything that might be identified as “economics” by a layperson). The first-guess potted conclusion is probably that the non-academics care about the financial ship – which is indeed their livelihood – enough that they want a Republican to steward it, while the academics care more about politics that isn’t economic policy, where they prefer Democrats.

Does positivism indocrinate?

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Somewhere in the history of the practice of economics we went positivist. Research and teaching of the subject both became technical and methodological, preoccupied with the “if this, then what?” questions of economic science, and rejected policy debate as unscientific. A semi-famous quotation from Keynes:

“The Theory of Economics … is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps the possessor to draw correct conclusions.”

Weirdly, this sterilization has in fact had the paradoxical effect of reducing the scope of economics that’s presented to students and researched by economists. Ronald Coase puts it like this:

“Mainstream economics, as one sees it in the journals and the textbooks and in the courses taught in economics departments has become more and more abstract over time, and although it purports otherwise, it is in fact little concerned with what happens in the real world…. economists since Adam Smith have devoted themselves to formalizing his doctrine of the invisible hand, the coordination of the economic system by the pricing system.”

I’m not arguing for anarchy in the profession. It just seems strange that we sterilized the science, freed it from value judgments and the real-world status quo, then presented it using nothing but the status quo to illustrate our tools. We worked so hard to show that our method gives you all the levers and buttons you could ever want, then obsessed over one or two of them.

Did the positivist revolution lead to a sterilization of normative economics as well as positive economics? Keynes’ “correct conclusions” are positivist conclusions; there cannot be “correct conclusions” to the actual, real-world questions that the science of economics is supposed to inform.

There’s a crucial difference between carving normative judgment from economic science and ignoring normative judgment altogether. It’s particularly difficult to illustrate in classes the difference between the two sides of our coin when we never hold normative debate. Does that make the positivist content of our classes seem like ideological indoctrination?

If we either presented a full diversity of positive models when we taught our methods, or engaged in actual normative policy debate to illustrate the application of our methods to real, difficult problems, we can preserve the positivist revolution and show the next generation of economists that Keynes was right. Economics can be a method for everyone, not a doctrine of the status quo. Economics can be scientific, but teaching economics like a natural science would certainly not be my first choice.

Visiting the real world

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Economists don’t spend a great deal of time in the real world. We’re especially bad at having arguments, which is strange, considering that we have an infinitely flexible method and a bunch of unanswerable normative questions.

Unfortunately we’re all adrift on the ocean of economic science. The work that researchers do generates the kind of tedious methodological debates that help seminar audiences catch up on their sleep, but it doesn’t generate actual ideological debate: perhaps that’s the biggest possible endorsement of positivism in economics, but we didn’t need to lose it.

I always liked the Oxford Review of Economic Policy; it’s one of the few examples of a true economic policy journal, which means that while it’s still a bit dry, it’s non-technical and, more to the point, actually talks about real stuff. For example, this issue from last year is a survey of what’s going on with pensions – not exactly riveting, but if you’re into that kind of thing, an invaluable look at how economic science can inform ideological debate on pension reform. This one does much the same for growth and development in India.

The saddest misconception about positivism in economics is that we must sweep out all normative debate in order to be “scientific”. Yes, we have to avoid ideological prejudice when we research what’s actually going on, but doesn’t it seem like we’re building a fancy machine and never turning it on? Our “scientific” results don’t change the fact that our economic models don’t provide any “answers” to the great normative questions of what we should be doing.

It all must be especially boring for the poor undergraduates who are the cannon fodder of scientific economics. They get the distilled versions of some of our scientific methods and modeling – without, mind, necessarily finding out about their flexibility – but don’t get any practice in using economic analysis to engage in real policy debate. Perhaps it’s another casualty of the loss of the essay in economics; perhaps that comes from our huge enrollments, victims of our own success.

Just because positive economic modeling is supposed to separate itself from ideology, it doesn’t mean that economists should. Perhaps if we argued a bit more, we’d bring some life back to our discipline.