positive versus normative

Christmas redux

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It’s Christmas time again. Tim Harford’s on the case of that gift-giving economics article I talked about back in January, with typical accuracy:

“Waldfogel’s work is often misinterpreted as suggesting that gift-giving is pointless. That is not true. He explicitly excluded the sentimental value of gifts from his calculations, and, of course, the sentimental value is part of the purpose of giving presents.”

More than that, though; his positivist reading of the original article leads to some very sensible, common-sensical normative prescriptions:
“the economists Sara Solnick and David Hemenway have discovered that we prefer unsolicited presents to those we have specifically requested… All this points to the optimal gift-giving strategy: you need to minimise the deadweight loss while maximising the sentimental value. This suggests buying small gifts and striving for emotional resonance. Look for something inexpensive, and consider supplementing it with a letter, a photo, or time spent together.”

Prescriptions we can all relate to.

Positive bias and normative bias

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The opposite of analysis is bad cliché, a sloppy knee-jerk. It’s whenever an innocent-looking question in Econ 1 provokes a response that is answered with a phrase like “greedy companies”; it might even be whenever economics is confused with “business” or “finance”, because, after all, what short-circuits economic analysis faster than pinning a label of bias on economists?

Not that you couldn’t defend such a label. After all, it certainly looks like economists are biased when your first contact with them as a student of the subject is our friendly principles course. What a delicate balancing act, though. Bryan Caplan quotes Paul Krugman:

When the latest batch of freshmen shows up for Econ 1, textbook authors and instructors still try to separate students from their prejudices. In the words of the famed economist Paul Krugman, they try “to vaccinate the minds of our undergraduates against the misconceptions that are so predominant in educated discussion.”

Make no mistake, there’s a reason why it’s so difficult to play devil’s advocate to argue against the very real work of introductory economics courses. Is there a fundamental difference between positive bias and normative bias? Normative bias is opinion, and represents healthy disagreement: “I believe the minimum wage should be raised, even if it raises unemployment, because those people who do work at minimum wage are impoverished”, or “I believe the minimum wage should not be raised, even given that those who work at minimum wage are impoverished, because it might wreak havoc with the labor market”. Both acceptable, both, arguably, representative of what you might call “normative bias”.

Positive bias is more problematic. It could be accurately called “being wrong”. That’s the kind of problem that leads the designers of introductory economics courses to swing wildly to the extreme of trying to batter the bias out, looking suspiciously like indoctrination in the process. Think of how disheartening it is, though, to face a whole class who have heard about “competition” with Russia, China, India, whatever country is the current flavor of Evil, and try to teach the theory of comparative advantage. A very real challenge for economists is to explain the (deceptively simple) positive theories that form the foundation for the argument in favor of trade (personal and international), markets, government, etc etc, while walking the tightrope across the normative ravine.

The challenge, then: is a student who says “globalization hurts America” wrong? Is this a positive bias or a normative bias? More accurately: is this an opinion or a misreading of fact? What about a student who uses the sinking-feeling phrase “greedy oil companies” when asked to evaluate the effects of a gas tax? Here’s a passage from that Bryan Caplan article:

People tend, for example, to see profits as a gift to the rich. So unless you perversely pity the rich more than the poor, limiting profits seems like common sense.

Yet profits are not a handout but a quid pro quo: If you want to get rich, you have to do something people will pay for. Profits give incentives to reduce production costs, move resources from less-valued to more-valued industries, and dream up new products. This is the central lesson of The Wealth of Nations: The “invisible hand” quietly persuades selfish businessmen to serve the public good. For modern economists, these are truisms, yet teachers of economics keep quoting and requoting this passage. Why? Because Adam Smith’s thesis was counterintuitive to his contemporaries, and it remains counterintuitive today.

And again, on international trade:

How can anyone overlook trade’s remarkable benefits? Adam Smith, along with many 18th- and 19th-century economists, identifies the root error as misidentification of money and wealth: “A rich country, in the same manner as a rich man, is supposed to be a country abounding in money; and to heap up gold and silver in any country is supposed to be the best way to enrich it.” It follows that trade is zero sum, since the only way for a country to make its balance more favorable is to make another country’s balance less favorable.

Even in Smith’s day, however, his story was probably too clever by half. The root error behind 18th-century mercantilism was an unreasonable distrust of foreigners. Otherwise, why would people focus on money draining out of “the nation” but not “the region,” “the city,” “the village,” or “the family”? Anyone who consistently equated money with wealth would fear all outflows of precious metals. In practice, human beings then and now commit the balance of trade fallacy only when other countries enter the picture. No one loses sleep about the trade balance between California and Nevada, or me and iTunes. The fallacy is not treating all purchases as a cost but treating foreign purchases as a cost.

My own bias is to worry that we mistakenly strangle normative bias out of the economics classroom by too-much, too-soon overzealousness. Yet how else will we be able to impart the simple, counterintuitive lessons that will help us to fight positive bias?

Samuelson’s "Economics"

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Isn’t this just a marvelous observation:

What sex is to the biology classroom, stocks and investment riskiness is to the sophomore economics lecture hall. That chapter on personal finance, put there to keep hard-boiled MIT electrical engineers awake, helped make introductory economics the largest elective course at hundreds of colleges.

That’s from Paul Samuelson’s article (pdf) discussing the 50th anniversary of the publication of his economics textbook. What a perfect quotation it is: students enroll in economics courses to learn about the stock market, despite it being, really, secondary to the discipline, and by indulging them we made economics courses wildly, unimaginably popular. Even Samuelson saw it!

Then again, Samuelson seemed to see a lot of things more clearly than most. Justin Wolfers at the Freakonomics blog discusses the textbook, and says this:

And while modern textbooks typically begin with a list of the dozen or so key lessons of economics, Samuelson begins with a single claim: “The first lesson in economics is: things are often not what they seem.”

This is the enduring brilliance of Samuelson’s book. He would never have had the audacity to write down a list of “principles” in some misguided attempt to simplify or to circumvent argument or to hook a bored student; he discussed, sensibly, correctly, reasonably, lucidly. Even after he delivers his “first lesson” in the first chapter of the book, Samuelson gives a few examples then says:

…each of the above seeming paradoxes will be resolved. Once explained, each is so obvious that you will wonder how anyone could ever have failed to notice it. This again is typical of economics.

That’s how it feels to study economics. Things might not at first be what they seem, but soon they are revealed to be exactly what they seem, and my goodness how did it ever seem otherwise.

That first chapter is rightly championed by Wolfers. It shows precisely why it’s such a tragedy that Samuelson’s textbook doesn’t still dominate, why it’s a tragedy that we now have textbooks that put the cart before the horse and show questionable “principles” up-front rather than discussing what’s about to happen, then developing them patiently. Can this be beaten:

It is the first task of modern economic science to describe, to analyze, to explain, to correlate these fluctuations of national income. Both boom and slump, price inflation and deflation, are our concern. This is a difficult and complicated task. Because of the complexity of human and social behavior, we cannot hope to attain the precision of a few of the physical sciences. We cannot perform the controlled experiments of the chemist or biologist. Like the astronomer we must be content largely to “observe.” But economic events and statistical data observed are unfortunately not so well behaved and orderly as the paths of the heavenly planets. Fortunately, however, our answers need not be accurate to several decimal places; on the contrary, if only the right general direction of cause and effect can be determined, we shall have made a tremendous step forward.

There you have a perfect, simple explanation of the problem of measurement. Here’s more, this time on positivism and its limits:

At every point of our analysis we shall be seeking to shed light on these policy problems. But to succeed in this, the student of economics must first cultivate an objective and detached ability to see things as they are, regardless of his likes or dislikes… there is only one valid reality in a given economic situation, however hard it may be to recognize and isolate it. There is not one theory of economics for Republicans and one for Democrats; not one for workers and one for employers…

This does not mean that economists always agree in the policy field… Ethical questions each citizen must decide for himself, and an expert is entitled to only one vote along with everyone else.

Reading that collection of reminisces (same pdf as earlier) on the 50th anniversary of the book, I’m humbled again by how groundbreaking Samuelson’s textbook must have been. We must fight, fight and fight over again to make sure that the foundations of his book – the true principles of economics – live on and on.

Ideology, politics, economics

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Simply excellent paragraph from Free Exchange:

I have trouble with any ideological reading of the economics, because the two (ideology and economics) so rarely fit well together. I don’t want to elect a free-market supporter or an interventionist. I want to elect someone who will carefully consider the issues and determine that here the government ought to assign pollution property rights, while here the government should reduce licensure, and so on. I want, in short, someone with enough intellectual heft to know the difference between good policy and good politics.

This promotes the idea a kind of cipher-wonk as a political leader, which is an interesting idea – do we want ideology-free politicians? – but I think extrapolating the point to economics in general is worthwhile. Ideology and economics really don’t get on, and perhaps a lot of the misuse and misunderstanding of “economics” in political stumping and election coverage is indeed due to that tension, that ideology infests politics more than it can get into economics.

The very concept of positivist economics is precisely what the Free Exchange quotation is invoking when arguing that we should be electing someone who can do a proper analysis – an objective analysis – instead of someone whose prejudices and ideology biases them consistently in one direction or the other, regardless of the evidence.

Laudable? Probably. The sticking point, again, is that pesky word ought, as in “I want to elect someone who will carefully consider the issues and determine that here the government ought to assign pollution property rights, while here the government should reduce licensure, and so on.” Then we’re back to square one: we can elect our wonk, who does an objective analysis before enacting any policy, but at some point we need to figure out which option to take, and all the objective analysis in the world can’t prescribe; again, there’s no such thing as technocratic economics. Surely that makes it impossible to avoid ideology in politics? Surely, also, that’s why sterilizing economics can’t also sterilize economic policy. We can do that economic analysis, but we always have to answer the normative question of what we want if we are to make use of it.

Economics = devil’s advocacy

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There’s some low-key furore over in Chicago over the naming of a new research institute after Milton Friedman: here‘s a little background from the New York Times. The real joy in the story comes from the “protest letter” sent to the powers-that-be by a ton of Chicago faculty, and John Cochrane’s double-barreled destruction of said letter.

Highlights:

As usual, academics need to waste two paragraphs before getting to the point, which starts in the first bullet.

If academic writing stopped wasting ink, I’d eat all my hats. The point of the protest seems to be that the signatories don’t want to be associated with the evils of “the neoliberal global order”, “monetization”, “globalized capital”, etc etc, which are apparently inexorably linked to poor ol’ Friedman, and Chicago. Leaving aside the issue of whether naming a research institute after Friedman would invite some kind of new or extra, real or perceived bias to the actual work of that institute, Cochrane makes a stab at devil’s advocacy:

The content of course is worse. There isn’t even an idea here, a concrete proposition about the human condition that one can disagree with, buttress or question with facts. It just slings a bunch of jargon, most of which has a real meaning opposite to the literal. “Global South,” “neoliberal global order,” “the service of globalized capital,” “substitution of monetization for democratization.”

It’s a familiar problem for all economists. Everything we’re perceived to believe in and stand for – whether or not we do – is simply evil, enemy of the environment, the people, democracy(?), happiness, community, the poor. I mean, I’m super sympathetic to the perception that economics has an agenda; as I’ve argued with tedious regularity, the pollution of the beautifully hopeful positivist method by normative judgment – the very sin positivism tried to prevent – is the great tragedy of the teaching of economics, but, by god, when we have to argue against this kind of jargon with no intellectual content, is it any wonder we end up sounding like the frontline warriors of ‘capitalism’?

Classifying economics: humanity or science?

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How should the discipline of economics be classified within academia – does it belong to the arts, sciences, social sciences, humanities? A wonderful article called ‘The Burden of the Humanities‘ by Wilfred McClay in the Wilson Quarterly got me thinking about that this morning.

Even if we go by something so simple as what degrees are offered in departments of economics there doesn’t seem to be much consensus. While the Bachelor of Arts remains perhaps the most common undergraduate degree in economics, the Bachelor of Science isn’t unheard of; indeed, the London School of Economics, one of the most recognizable schools for the subject, awards the BSc. At Oxford University, the undergraduate degree is the BA, but at postgraduate level the MSc – is this a good reflection of the journey up the hill of science, math and statistics that we economists make on the course of our study? If so, why do so many North American universities – NYU, Yale, Brown, Toronto, etc etc – award the MA as a postgraduate degree (albeit in the US usually as a consolation prize for those abandoning the PhD)? What about something like Economics and Finance? Is that more BSc-ish than just economics?

Do we belong to the humanities or to science? This question is obviously closely tied to the ethos of economics teaching, especially the positivist teaching method and the quantification of the discipline. If your economics education focuses on the political, moral, philosophical, historical, intellectual parts of economics, it sounds more like the humanities. If it focuses on the mathematical, statistical, empirical, experimental, computational parts, it sounds more like science, or at the very least, ‘social’ science. Maybe since there’s no ‘standard’ blend of these two categories in an economics degree it’s right that we don’t know which degree is more appropriate; all I know is that the scientific categories are much, much more prevalent in the content of US undergraduate economics education than the humanities categories.

McClay’s essay talks about the defining characteristics of humanities, borrowing first from the National Endowment for the Humanities definition which allows the humanities to include, among other things:

“those aspects of social sciences which have humanistic content and employ humanistic methods…”

This would seem to allow economics into the party, since it is closely concerned with human behavior, especially microeconomics which is obsessed with how people make choices and decisions. Or is it? Historically, macroeconomics has often relied on a characterization of a country as a big machine, to ask how, for example, exchange rates interact with interest rates, or whatever. There has to be a human element buried somewhere, unlike in the natural sciences, but it’s not the focus. McClay addresses just this point:

“But this can be stated more directly. The distinctive task of the humanities, unlike the natural sciences and social sciences, is to grasp human things in human terms, without converting or reducing them to something else: not to physical laws, mechanical systems, biological drives, psychological disorders, social structures, and so on. The humanities attempt to understand the human condition from the inside, as it were, treating the human person as subject as well as object, agent as well as acted-upon.”

You could plausibly argue that the history of economic thought has been a reduction of the human to something else; this is valuable because it allows us to abstract from the uncertain world of how people behave into a place where we might be able to draw plausible, tangible conclusions, but just as it’s taken the discipline into a place of backlash where ‘behavioral economics’ wants to recover a keen interest in the way humans operate, it might have carried away much claim we had to be part of the humanities. Of course this also implies that a bunch of the psychological-type economics that’s so very popular at the moment might arguably be ‘humanities’, but that probably overstates the case, since psychology itself isn’t usually considered as such.

McClay argues further about the tendency towards science and away from the humanities:

“For many Americans… [the humanities go] against the grain. After all, we like to think of ourselves as a practical people. We don’t spend our lives chasing fluffy abstractions. We don’t dwell on the past. We ask ­hard headed questions such as Where does that get you? How can you solve this problem? What’s the payoff? If you’re so smart, we demand, why aren’t you rich?”

There’s a strong similarity between this line of argument and the tendency towards science within economics itself, and perhaps all the same questions apply there. If I imagine arguing that we should have more normative content in economics courses, I immediately imagine being challenged, ‘where does that get you?’, ‘what’s the payoff?’. Plus, as a nice bonus, ‘why aren’t you rich?’ could, in another context, be a very pithy summation of the boneheadedness of economists towards the normative metrics of happiness or success.

The weird paradox, however, is that, to this eye, the practical value of the majority of economics research is very difficult to find; I know science for its own sake is still science, pushing the bounds of knowledge etc etc, and I know the charge can be leveled at any subject, but still, for better or worse, ‘what’s the payoff?’ is a question we could rightfully ask in response to any claim of economics to be a science.

And what do we lose when we drop the humanistic from economics? McClay says:

“For you can’t really appreciate the statuary of our ­country—­our political and social and economic ­institutions—­or know the value of American liberty and prosperity, or intelligently assess America’s virtues and vices against the standard of human history and human possibility, unless you pay the price of learning the ­stories.”

This is certainly true of the abandonment of economic history and the history of economic thought as fields of study in so many departments of economics. If we can argue for economics as science or as humanity, why have we dropped all humanistic study of it? Won’t we lose the ‘stories’, the lessons of the past, the normative context, the ability to critically evaluate the scientific results that we might be able to squeak out of our modeling and empirical analysis?

Finally, McClay ends discussing the role of the humanities in contributing to the attainment of ‘happiness’ or satisfaction in life.

“…the lure of a pleasure-swaddled posthumanity may be the particular form of that temptation to which the Western liberal democracies of the 21st century are especially prone.

One of those things left behind may, ironically, be happiness itself, since the very possibility of human happiness is inseparable from the struggles and sufferings and displacements experienced by our restless, complex, and incomplete human natures. Our tradition teaches that very lesson in a hundred texts and a thousand ways, for those who have been shown how to see and hear it.”

In the context of the study of economics, can’t we make a similar argument? It’s not just that economics may have contributed heavily to the ‘happiness as goal’ business, or to the wedding of income, GDP and money to ‘wellbeing’; By abandoning the humanistic in the teaching of our subject, don’t we neglect to show the next generation how to see and hear the humanistic as it relates to the organization of our economies, our world? Economics is not a technocracy. We need to understand its humanistic foundations if we are to wield its tools and arguments as experts.

‘Good’ versus ‘bad’ economics

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A peculiar distinction is often made between ‘good’ and ‘bad’ economics when analyzing economic policy. The current hot potato of a gas tax holiday in the US is a case in point – though it might be a trivial issue in the scheme of things, it did provide this absolutely outstanding moment from Hillary Clinton:

“Well I’ll tell you what, I’m not going to put my lot in with economists,” Clinton said, a response in line with some of the populist notes she’s been hitting in recent stump speeches on the gas tax.

There are a couple of things going on here. First, it just shows that declaring opposition to economists is just as popular a political strategy as declaring opposition to ‘business’ or ‘the elite’ or ‘greedy oil companies’. This is almost certainly because ‘economics’ is perceived as being one and the same with these things, an ax wielded by the establishment to crush little people under the wheels of capitalism. Again, true economic analysis is valueless, and is subjective only once we evaluate the outcomes or the processes that would lead to or from one thing or another.

The other point, related, is the implicit invocation of a consensus among ‘economists’. It’s related because it is unambiguously true that the majority of economists evaluate things in a particular way – the subjective part is a collective subjectivity rather than a diversity of opinion. Why is that? Are economists molded into a particular normative stance that evaluates policies or outcomes in a particular way? A significant amount of work has been done on the question of which way the causality runs between studying economics and policy opinions: do economists dislike the gas tax holiday because they’ve studied economics or because people who dislike these kind of policies study economics?

The truth is that it’s very easy to identify what ‘good’ and ‘bad’ economics are, because that label can be attached only to the logical, scientific chain of argument – the positive side – that draws the map from cause to effect. Of course we can argue about the validity of the links in the chain, test our assumptions, look to evidence, but the fact remains that ‘bad’ economics is that which fails to acknowledge the true effects of an action.

By contrast, the normative side cannot be labeled ‘good’ or ‘bad’, because it is only opinion. To argue against a normative stance is to argue against an opinion. This is why it is so dangerous for the ‘Principles of Economics’ to include value-loaded statements; this is why it is so dangerous to have a normative consensus among people who call themselves ‘economists’. When that happens, we risk confusing the normative opinions of these people with a scientific conclusion; it is not.

If a politician was to ignore or lie about the tangible consequences of a policy, that is bad, in the sense of being misleading or untrue. However, if a politician acknowledges the best guess of the consequences, whether they argue for or against the policy is neither bad nor good. Economists would do well to remember that they are part of the second group, not the first. It is fine to point out misinformation, but to argue that ‘economics tells us what to do here’ is to assume that their opinion is good, which is a great sin of arrogance.

When one responds to the gas tax stuff with a line like (from Paul Krugman)

Why doesn’t cutting the gas tax this summer make sense? It’s Econ 101 tax incidence theory…

I’m sure they are really pointing out the tangible consequences of the policy, but the line between the positive and the normative is fuzzed, the value-free analysis becomes loaded with subjectivity. The two must be separated.

Searching for a schism

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Word reaches my desk this afternoon of an interesting-looking new book on the horizon, called “The Foundations of Positive and Normative Economics“, an essay collection edited by Andrew Caplin (of the monkey brains) and Andrew Schotter. Details are a bit sketchy, but the idea is just fine with me. I have a high tolerance for this kind of thing, and hopefully it lives up to my expectations.

On that note, I hope for something a bit different to the endorsement quotes on the book’s rather empty webpage:

“Are you puzzled by the implications of behavioral economics? Are we in the throes of a paradigm shift? Is neoclassical economics refuted? Economic methodology has never been more disputed. If you want to be part of the debate, this book is the place to start.”–Ken Binmore, University College London

I still don’t see this distinction between ‘behavioral economics’ and ‘neoclassical economics’, to be honest (see here, for example). Why is a different model of people an abandonment of neoclassical economics? ‘People maximize stuff’ is my minimalist description of neoclassical economics, and the behavioral set is just trying to figure out what the stuff is. Again (again, again), since it’s not possible to test rationality, the ‘maximize’ bit just has to float out there unattached.

I don’t really get this one either:

“Should economics take account of neuro-physiological data? Can subjective states of mind play a useful role in economic analysis? These and other provocative questions are examined and debated in this fascinating volume of essays from some of the deepest thinkers in contemporary economics.”–Eric Maskin, Nobel Laureate in Economics, Institute for Advanced Study

Maybe I’m behind the curve on this one, but I’m not sure what that really means. It gives the impression that this book might be predominantly concerned with the implications of psychological and neurological research, but to me all that is really something different from the epistemological question of what positive and normative economics are doing for us, where they came from and where they’re going. The state-of-the-art in economic theory or modeling is one thing, but I hope the book tackles the big questions rather than obsessing about the value of behavioral evidence.

I disagree fundamentally that “economic methodology has never been more disputed”, hence the futility of chipping away at the tiny and ultimately boring debates at the root of modern research. The assumptions, the beliefs can surely differ, but I think the approach is set on some fundamental level. Superficial differences in approach do not go down very far: yes, a ‘behavioral economist’ might be searching for realism by figuring out how people act, and an ’empirical economist’ is running regressions on cleverly constructed data, a ‘theorist’ is off in the land of abstraction and algebra, but all are operating on the same field of positive economic science. The real question is how we got to be that way, not why some economists do one thing and some another. That’s the question of the foundations of positive and normative economics.

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.