I have a new article for The Week, which mostly goes over ground that will be familiar to long-time blog readers. When most of the public thinks of "economics", they think of "macroeconomics". But actually that's only a small part of what economists do; most of econ is small-bore stuff that is a lot more grounded in empirics and a lot more directly useful to industry and policymakers. Here are some excerpts from the article:
[E]conomists have fallen out of favor with the public since 2008. First they failed to predict the crisis, or even to acknowledge that such crises were possible. Then they failed to agree on a solution to the recession, leaving us floundering. No wonder there has been a steady flow of anti-economics articles...
The people you are mad at are only a small fraction of the economics profession. When people in the media say "economists," what they usually mean is "macroeconomists."...The problem is that it's hard to get any usable results from macroeconomics...
Meanwhile, there are many other branches of economics, doing many vital things. These other fields — sometimes dismissively referred to as "microeconomics" — actually employ many more economists than macro. Many of these quiet, unglamorous researchers turn out a steady stream of useful insights and new technologies. While their headline-grabbing macro cousins duke it out in the press, the silent majority of "microeconomists" is plugging away at improving various pieces of the economy...
All of these subsets of economics — from Game Theory to agricultural economics — have received an enormous boost from the digital revolution. The flood of new data and the development of new statistical and computational techniques have vastly increased economists' ability to understand the world. The days when economists sat around spinning theories are on the way out — the percent of top-rank econ papers that are mainly theoretical has declined from about two thirds in the 1980s to less than one third in 2011...
Of course, all of these fields have their own problems and issues; all sciences do. But they generally tend to have much more and higher-quality data than macroeconomics, and so it's a lot easier for them to make real, measurable progress.
So if you really feel you must get out your rake or pitchfork and storm the gates of the economists who fiddled while our economy burned, go ahead. Just make sure that the people's whose heads you are calling for are not in that vast silent majority who are working diligently on the small but solvable problems of "microeconomics."
Read the whole thing here!
Noah,
ReplyDeleteI'm curious what you mean by the claim "Economists have fallen out of favor with the public since 2008."? Certainly, among a certain set of political pundits, macroeconomics has gotten a bad rap, and economists working in finance have seen some sustained criticism (e.g. "Inside Job"). But do we have any evidence that people in general ("the public") have had a big shift in public opinion about economists? Is there any data which could support the argument one way or the other? I've done a bit of tooling around with the 2006 General Social Survey questions on how "scientific" most people think economics is (and similar questions for sociology, physics, etc.). The data don't show much of anything, I think because most people don't really have a strong opinion either way. My sense is that the 2008 crisis didn't do much to change that, but unfortunately the questions have not been re-asked so I can't do a direct comparison.
I guess what my comment boils down to is, has economics' reputation suffered with "the public", or with some narrower (but perhaps more influential) group like "policymakers", "journalists", etc.?
Maybe economists are held in the same negative light as trial lawyers and traders as opposed to scientists and sociologists.
DeleteMore likely fellow economists.
ReplyDelete"Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.
We have seen economists generally, in pursuit of some intellectual ideal or as paid hacks, advocate policies which have seriously damaged the working class in America. The economics profession as a group deserves every bit of contempt that is heaped on it, and much more. It sallied forth from its ivy towers, meddled in policy, and then when it all went for shit retreated back behind their safe walls claiming to just be academics.
ReplyDeleteThe macro, big picture, guys were, of course, the worst. From Alan Greenspan, who should just apologize and then keep silent; through the guys who advocated repeal of Glass Steagall; the guys who argue that if we just re-arrange policy to take from the poor, the sick and the elderly and give to the rich everyone will be happy; the guys who cooked their research to argue for expansionary austerity; and on to the guys who wrote Romney's policy platform. Not one of them will accept responsibility for their failures.
The half-dozen or so of the biggest , most prestigious economics journals would be a good place to look for evidence of the field's legitimacy. What do we see ? A monopoly of thought , based on the neoclassical paradigm , with active exclusion of heterodox economists. Failure to disclose gross conflicts of interest. Etc , etc.
ReplyDeleteC'mon , Noah. The field is a swamp.
This is particularly true in so-called "microeconomics", which is usually totally disconnected from empirical reality.
Delete"...most of econ is small-bore stuff that is a lot more grounded in empirics and a lot more directly useful to industry and policymakers."
ReplyDelete1. There is no difference between "macro" and the rest of economics these days.
2. To say "macro" is somehow less grounded in empirics than other kinds of economics or less useful is just wrong.
Stephen, empirics applied to general equilibrium is harder and often faces quite possibly insurmountable identification problems. Microeconomists have an easier life, because they get to focus on partial equilibrium problems at the level of households or firms, or a single industry. So the empirics in macro are just as sophisticated or more than in micro, but the problem is much harder. Sims' 1980 "Macroeconomics and Reality" is a good read on this I think, then ask yourself if modern DSGE models have truly dealt with the issues mentioned by Sims or if VAR's have (Sims was optimistic they would, but in the end you every identifying assumption in an SVAR could be reasonably criticised by someone with that inclination) or if more specialised theoretical models like those you like have. People have big expectations of macroeconomists to be able to give them a point forecast that will be very close to what ends up actually happening (and they don't necessarily want to hear about all the uncertainty out there- they already know this but they hope the macroeconomist can make the world much more certain like a priest). And they want macroeconomists to be able to predict and cure recessions, the 2nd expectation being partly the fault of all the Keynesian theory that offered easy government cures to recession. So they get very disappointed when we don't deliver in those directions, they start asking if we aren't just like those anthropologists and sociologists that many of them probably already perceive as pretty useless. So we're stuck in a tough spot between people's expectations about what we can deliver and the difficulty of understanding the economy as a complicated general equilibrium system.
DeleteThere is no difference between "macro" and the rest of economics these days.
DeleteThen why is there a macro field, a macro sequence, and a macro area in nearly any econ department?
There is a trade field, a trade sequence, and a trade area in nearly any econ dept. Does that make trade different from the rest of economics?
Delete"Then why is there a macro field, a macro sequence, and a macro area in nearly any econ department?"
DeleteObviously some people set it up that way. When? Long before I knew what economics was, certainly. I'm think probably this is the structure we got post-WWII. So, the field has changed a lot since, long after whatever reasons for structuring the curriculum like that have gone away.
You seem determined to demonstrate that macro is a goofy field. It's actually quite normal, in venues where people are doing and discussing serious research. The goofiness shows up in other venues.
"To say "macro" is somehow less grounded in empirics than other kinds of economics or less useful is just wrong."
DeleteSays an inflationnista.
Barry, unfortunately your reliance on ad-hominem attacks is inversely proportional to your understanding of economics.
DeleteAnonymous, you have only one Barry, so you have only one data point. ;-)
DeleteAnonymous1:13 PM
Delete"Barry, unfortunately your reliance on ad-hominem attacks is inversely proportional to your understanding of economics. "
No, it's pointing out that Stephen Williamson is not in a position to know that.
Stephen, there's a sense in which you're right: microeconomics is just as full of unempirical crap as macroeconomics -- more so, probably. See Dan Nile's comment below.
DeleteThere are some real fields of economics which are doing real work, but they're all marginalized within the economics profession.
Micro is complete ideological garbage, macro is somewhat better but not much, and because professional standards are completely broken, micro and macro constitute the first year courses!
You want to make economics a real science? Start by reading _Theory of Moral Sentiments_ and _Theory of the Leisure Class_, then move on to the experimental game theory results, and then start talking about pollution, and finally spend a nice long time on advertising and marketing.
Supply and demand is a theory which works OK for coal mining, but doesn't work for most markets. This alone should have you worried about the state of economics, because *most* economists act as if this is the basis of everything they do. The economists who don't use supply-and-demand are the ones doing serious work!
I ma stimulate dis economy with Muh demand
ReplyDeleteMacro works best in a developmental political arena. Just look at China and its copycats in Africa.
ReplyDeleteThrowing colleagues under the bus, Noah? :p
ReplyDeleteHey, I do what I gotta do to save my own ass! ;-)
Deletebraaadd delong does not approve
ReplyDeleteYou misspelled Broad DeLarge.
DeleteSocial sciences like sociology and political science use empirics too. But you don't usually see political scientists making strained comparisons to physics the way economists do.
ReplyDeleteThe problem with microeconomists is they can only think in terms of imaginary supply and demand curves, as though there is only one degree of freedom, price. Congestion in the ladies restroom after the game? No problem, just hold an auction and whoever pays the most had the highest demand.
In the real world success is associated with sales execution and customer value creation, which economists have virtually no understanding of. Paul Krugman claimed on his blog that Apple's success is due to the government giving it monopolistic license to its own brand. He doesn't understand why anyone would pay more for an iPhone than an equivalent generic commodity phone, because the rational buyer would buy the cheapest phone possible...
You really don't know anything about macroeconomics, do you? Try reading something beyond an Econ 101 textbook and then tell me that macroeconomists have ignored externalities, intangible capital, sales, and retailing.
DeletePeople here are amazingly ill-informed about the subjects they choose to criticize, and that includes you Noah. Instead of bloviating pointlessly about subjects you know essentially nothing about, why don't you try writing a paper once in a while?
Reading comprehension. I clearly said "micro" in the original post. I'm really talking about "market designers" like William Vickrey and Al Roth, who taught that all problems can be solved by "getting the prices right".
DeleteI work with economists every day who don't believe that any marketing works except price discounting, despite years of marketing science that disproves this.
Dan is correct. Micro is rotten, rotten, rotten. Micro is the most useless "field" in economics. If you want to understand microeconomics, hire someone from marketing or advertising, fire a microeconomist.
DeleteNoah, there are a few large holes in your argument:
ReplyDelete1) If the micro people were the larger group within economics, then why did they allow macro to develop in a way which you previously regarded as intellectually vacuous?
2) If the micro people were the larger group within economics, and macro has failed, where is the purge? If nothing else, no RBC people should be getting tenure.
3) Not all macro has failed in the past crisis; some has done quite well, making falsifiable predictions backed up by sound theory.
1) If the micro people were the larger group within economics, then why did they allow macro to develop in a way which you previously regarded as intellectually vacuous?
DeleteGood question, and I don't know the answer. Worth looking into. Every micro theorist I've ever talked to about the subject has scoffed at macro theory.
If the micro people were the larger group within economics, and macro has failed, where is the purge? If nothing else, no RBC people should be getting tenure.
Generally, the fields of econ stick to their own area. If the macro people want to tenure an RBC guy, the micro people aren't going to speak up and contradict it. The sociology is self-perpetuating.
"Generally, the fields of econ stick to their own area."
DeleteExcept that they define the legitimate fields (if not, please let me know; I've almost go my degree in Barrynomics done).
Noah: micro is just as full of "orthodox" but false material as macro, or more so. That's one of the problems.
DeleteThe fields which have some empirical standards include environmental economics, welfare economics, institutional economics, modern monetary theory, etc. And of course "experimental economics". What do these have in common? First, they all reject the classical version of supply-and-demand. Second, they're all marginalized, still.
Steve: Then maybe we should be campaigning for the abolishment of macro as a separate field, sequence, and area?
ReplyDeleteThat's worth discussing, actually. Why should it be part of the PhD core, for example? In the current, context, though, we have a particular set of issues we are interested in. For some things we find competitive equilibrium useful, and the theorists have pretty much abandoned that. So GE gets taught in the macro sequence.
DeleteI noticed that. Why do you think that is?
DeleteAnd do you think "macro" should be taken out of the core? What would we replace it with?
Game Theory is a subset of economics ? Since when ?
ReplyDeleteWell, von Neumann was a mathematician, but Morgenstern was an economist. Nash is of course a mathematician, but it's not like the mathematicians embraced what he did. Economists picked up Nash equilibrium and ran with it, and gave Nash a Nobel prize. You find applications of game theory outside of economics (e.g. biology), but most of the work was done by economists.
DeleteSince forever, hoss.
DeleteBiologists are responsible for many theoretical advancements in game theory that economists assume were done by other economists...
DeleteRyan ,
DeleteYour argument would carry more weight here if you would end your statements with " , hoss. "
A strong swagger and puffed-out chest conveys a similar projection of authority ( often undeserved , of course ) , but , unfortunately , you can't see those in a blog post.
Your argument would carry more weight here if you would end your statements with " , hoss.
DeleteTrue story.
Ryan's right. Most of theoretical game theory was developed by mathematicians, with more being developed by biologists (in the evolutionary context). Economists have done very little of interest.
DeleteExperimental economic games have given us some really interesting results in psychology, such as finding out that for each group of people there is an amount of money which is "too small to worry about" and one which is "so big I'll break my usual ethics", and that in between "fairness" is people's top priority, and that "fairness" is culturally determined and varies between culture -- so full credit to economists for that.
But nobody's used these results to design a larger microeconomic or macroeconomic theory. So, um, problem, guys. These experimental results overturn most microeconomic theories, but nobody's created new microeconomic theories based on them. If they had, they would have realized that amounts of money which are "so large that I'll ignore my ethics" need to be completely outlawed.
You can give Eddie Van Halen a Nobel in economics but that wouldn't make "Rock Star" a subset of economics as much as Noah would like it. There's scads of work in algorithmic game theory & the like done outside economics or at least outside econ departments, & yes, some of it finds application in economics. In fact, another of Noah's examples Shapely-Roth is a straight up matching problem (Wasn't Shapely pretty explicit in considering himself a mathematician ?). Is that also a "subset of economics", hoss ?
ReplyDeleteYou can give Eddie Van Halen a Nobel in economics
DeleteAND I HAVE BEEN SAYING FOR YEARS that we need to do this. Oh well, there's always 2015.
I'm not convinced by Noah's argument: Just imagining a plumber making the same kind of argument makes it obvious why it doesn't help:
ReplyDeletehttp://econskeptic.com/2014/01/if-economists-where-plumbers/
"And the emerging field of "big data" often makes use of statistical methods developed by economists."
ReplyDeleteOh really?
I think not. Most of the advances in data mining and "big data" have come from computer scientists and statisticians. I cannot think of a single way in which economists have bettered our understanding of statistics for big data.
Hi Noah. I like to think that there are lots of good economics applying microeconomics to make the world a better place. The area of microeconomics I am most familiar with is anti-trust, and I have to say that there is a lot of ideology in this area of microeconomics and doubtful if data has much relevance to the preconceptions of practitioners in this field. The "freshwater" vs "saltwater" divide in macro is mirrored by a divide between the "Chicago school" and the "Harvard school" with the Chicago school being very much dominant. This field doesn't readily lend itself to empirical analysis. After all, how do u determine whether a proposed merger is anti-competitive or not? This is a once off event and u need to have a counter factual in mind, which need not be status quo.
ReplyDeleteAlso, in Australia at one stage "microeconomic reform" was the buzz word with the Productivity Commission holding inquiries into all kinds of matters recommending reforms to improve productivity.
John Quiggin has a compelling critique of the Productivity Commission's conception of what a productivity improvement means. See http://www.theguardian.com/commentisfree/2013/oct/03/productivity-zombie-economy
My conclusion is that micro economists (and all economists) need a good grounding in welfare economics. Economists seem to pay undue attention to a very narrow idea of productivity and efficiency with little idea about how these contribute to well-being of people. The productivity reforms recommended by economists assume that individuals are all equally wealthy or, more correctly, have equal capability t make choices about the lives they wish to lead (per Amartya Sen). If this foundational assumption is wrong, the recommended reforms will not necessarily improve well being.
Kien
I've seen a whole lot of utter garbage passed off as microeconomics in recent years.
ReplyDeleteWelfare economics does a pretty good job, though, I have to agree with Kien on that.
Game theory is *useful* in economics. It was of course developed by mathematicians and biologists; as of my last review of the literature, I don't think economists developed anything significant in it, *theoretically* speaking.
It makes a better basis for microeconomic theory than the standard classical assumptions, that's about all I can say for it.
*Experimental* game theory is an area where economists actually have done some real work, and it's rather interesting. Sadly nobody's managed to turn these real discoveries about human psychology into a microeconomic theory yet.
Noah, you should note that a lot of the responses here have basically savaged you for saying good things about microeconomics, which is mostly a rotten pile of unempirical crap. I'm suspicious that you simply have never bothered to look at the state of micro overall. It's *very* unempirical.
ReplyDelete(You may have lucked out and met some of the experimental economists. They are atypical.)