It’s amazing to me how much this presidential election reflects ideas and conversations that have been percolating around college campuses for the past several years. I often tell students that their movements have an uncanny way of being on the right side of history (OK, I see that I’m begging the question, sue me) and I think that this is being borne out in all caps this year.
academic stereotyping
It’s called "the ivory tower"
Here’s a thoughtful antidote to “boo economists!” by Barry Eichengreen at The National Interest. Perhaps the most forceful point is this:
What got us into this mess, in other words, were not the limits of scholarly imagination. It was not the failure or inability of economists to model conflicts of interest, incentives to take excessive risk and information problems that can give rise to bubbles, panics and crises. It was not that economists failed to recognize the role of social and psychological factors in decision making or that they lacked the tools needed to draw out the implications. In fact, these observations and others had been imaginatively elaborated by contributors to the literatures on agency theory, information economics and behavioral finance. Rather, the problem was a partial and blinkered reading of that literature. The consumers of economic theory, not surprisingly, tended to pick and choose those elements of that rich literature that best supported their self-serving actions. Equally reprehensibly, the producers of that theory, benefiting in ways both pecuniary and psychic, showed disturbingly little tendency to object. It is in this light that we must understand how it was that the vast majority of the economics profession remained so blissfully silent and indeed unaware of the risk of financial disaster.
Eichengreen notes that business schools, for example, are part of the production line of financial labor and ideas and so have no inventive to rock the boat; however, he also directs a lot of fire at academic economists for being part of the stitch-up. I accept that the author surely knows better than me the “pecuniary and psychic” benefits to academics from the use of their work, but a counter-hypothesis would be ignorance rather than malice, a sin of omission, not commission. How many in economics departments know what’s going on in industry – or even business schools? Is it enough to claim a quorum of the profession?
There’s probably analog to the hard sciences here. Newspaper science (cf. Bad Science, for example) is to natural science research as financial industry models are to economics research, or something like that. Imagine a house full of economists (reality show idea?) – every so often one wanders out to hand some obscure technical document to someone from the outside world, and something inevitably gets lost in translation.
More navel-gazing
Since there are now, I estimate, more articles on the economics profession’s predictions/responses to the recession than there are atoms in the known universe, replying to them all would presumably take a very long time. One example will probably suffice.
In the Financial Times yesterday, John Kay talks about “How economics lost sight of real world”.
The past two years have not enhanced the reputation of economists. Mostly they failed to point out fundamental weaknesses of financial markets and did not foresee the crisis, and now they disagree on appropriate policies and on the likely future course of events.
As I have (almost) argued before, this is – for better or for worse – not in the job description of the vast majority of academic economists. It is precisely like attacking a physics professor because there was a blackout last night. More importantly:
Economists, like physicists, have been searching for a theory of everything. If there were to be such an economic theory, there is really only one candidate, based on extreme rationality and market efficiency…. a few deranged practitioners of the project believe that their theory really does account for all human behaviour, and that concepts such as goodness, beauty and truth are sloppy sociological constructs.
I have addressed the “economists don’t feel feelings” argument before. And, by the way, I guess you can color me deranged. Economics is a theory of everything!
First: the assumption of “rationality” that is central to economic theory is a modeling assumption and makes no restriction on behavior whatsoever. The auxiliary assumptions of what people care about – the things that they “rationally” try to achieve with their limited resources – are restrictive. Second: “market efficiency” is neither a theory or a modeling assumption. It is either a metric (one of many) by which we can evaluate outcomes (i.e. is this “efficient”?) or a result of an economic theory, which, like all economic theories, will probably require many assumptions.
I would agree with the proposition that it is wrong to assume that markets are “efficient” (and what does that even mean?). Economists do not make such an assumption. I would agree with the proposition that it is wrong to assume that people care only about their own material wellbeing. Economists do not make such an assumption.
Academic economists did not predict this recession because that is not what academic economists are “supposed” to do with their time.
Is economics vocational?
Being that we have not the faintest idea why people choose to take economics courses, this will be a difficult question to answer: is economics vocational? What exactly would an economics education prepare you for?
My stereotypical economics major wants to be an investment banker or something of the sort (again, pure prejudice, since no evidence exists). I argued a while ago that maybe – maybe – the sub-discipline of finance could possibly be considered vocational for those types. Economics courses will be of no practical help, although I suppose the civics that passes for Econ 101 might help with terminology. My advice: go to a school that will let you major in business.
So: what would an economics education prepare you for? To be more explicit: “if I major in economics, what will I be able to do, or be better at, that I couldn’t otherwise have done, or done so well?” Some suggestions, and justifications.
Statistician or data analyst. Econometrics is usually a requirement for all economics majors. Since the computing revolution, economists have lovingly embraced statistical analysis as a way to coax the relationships in the real world out of data. Theoretical and practical data preparation and analysis will be practiced in econometrics courses, and any course falling under the foul name of “applied economics”.
Policy wonk. Economics can inform argument and debate about policy. This is especially true of economics courses that straddle positivist analysis and normative debate, such as public economics. The purely esoteric economics courses might not be the ideal ones to make this point.
Philosopher. Economics contains a lot of points of philosophical debate. “Welfare economics”, which tries to discuss and provide metrics for normative goal-setting, is a particularly rich field for flights of fancy. The realness of economics does not take it out of the philosophical world; it’s elusiveness holds it in.
Applied mathematician. I’m very doubtful about this one, but here it is anyway. Economics can’t teach you math. Plus, economists are like the chimps jumping up and down to reach the fruit when we could just ask the giraffe – it feels like any mathematical or technical problem we have would be immeasurably simpler for a mathematician or computer scientist to solve than it is for the economist. Nevertheless, it may well be the case that studying economics could make a person better at applying mathematical methods to the tangible.
Academic economist. Our courses are taught with the same positivist motivation demanded in the research conducted by academic economists. The “applied” courses accomplish this for the type of researcher who does data work, and the theoretical courses accomplish it for the type of researcher who does, well, theory work. I’m worried by the lack of diversity in the models and applications we present – it doesn’t reflect the range and power of economics – but nevertheless, the method we present is, for better or worse, the same as the method we use.
Historian / person-of-the-world. No idea what I should be calling this, but an economics education should (should) include some history of thought and history of economic policy. One of my favorite college courses was one where we took one simple, flexible model of a country’s economy – really simple, just pictures and words – and used it to debate the economic history of the 20th century. Whatever that type of knowledge-for-its-own-sake is called or is useful for, I’m throwing it in this list.
I’ve kind of exhausted my ideas. Now, at least here in American colleges – or maybe just this American college, though I suspect not – “academic economist” gets far, far, far, far too much play. Far more than anything else on my list or anything else that could be on the list. I would be utterly astonished if the non-existent evidence on why people take economics courses showed that they all wanted to do write academic articles in economics. Astonished and miserable. Yet, here we are, in a situation where economics courses are most commonly run without philosophy, history, politics, debate.
Academics do economic science in a vacuum without these things. It has to be that way, because we want to isolate facts as well as we can isolate them. That doesn’t mean that we should be teaching economics that way. It could be so rich. Yes, the science can be interesting, but so can the history of the world, the intellectual foundations of the discipline, the policy debate built on the evidence. I’d hate to think we’re robbing our students of these things.
Perhaps the answer, then, is that economics is not fundamentally vocational. Aside from my pet issue of economics-abused-as-civics, we have a problem with economics teaching if it is trying to pretend to prepare people for something specific. It can surely help a person develop skills, but at least as important, and probably more interesting for the average student, is teaching economics as an intellectual pursuit for its own sake. We know what would make our courses more interesting (not the same thing as pandering, I hasten to add), more intellectually exciting, yet we pull back. Is it because we believe we’re training all our students to be academics?
Simplify, simplify
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.
Jim Campbell 