From a post on Facebook:
More than ever I am convinced that the professional study of economics peaked in the classical liberal era with John Stuart Mill and rapidly became a mostly destructive force in society thereafter. What was once an area of inquiry dedicated to counteracting intuitive-yet-bad ideas has overwhelmingly devolved into a pseudo-scientific industry of naval-gazing in support for some of the worst fallacies these classical thinkers devoted their lives to refuting, such as utterly absurd claims like “consumption increases output”.
My current theory for why this has occurred is that the classical thinkers were a diverse group with many of them devoting their lives to actual value creation for other people through commerce and most of them multi-disciplinary polymaths. They had an integrated view of the world that was rich and realistic. All of that has been sandblasted into oblivion. This seems to be the result of the mathematization and hyper faux-specialization of the “economics profession”, combined with the fact that most employment opportunities for economists are in academia (where the real world is irrelevant) or government directly (same problem, worse incentives).
If you want to glimpse economics from the inside, read Miles Kimball on three goals for Ph.D courses.
My instinct is that the profession is not as bad as Papola portrays it, although I have sympathy with where he is coming from.
1. I see strong gains in economic history, understanding the causes and consequences of economic growth, finance theory, mechanism design, game theory, and other areas. Yes, there is over-hyping, but I believe that the progress is genuine.
2. In academic economics, the emphasis is on “tools,” meaning mathematical techniques. This crowds out thinking either about deep philosophical issues or the real world. I wish that philosophical rigor were emphasized as much as mathematical rigor. In terms of the real world, what troubles me most about economists’ mindset is the failure to appreciate the importance of conflict within organizations and radical ignorance/uncertainty.
3. Macro is a disaster area. I have said before that it ought to be relegated to a “history of thought” course, rather than given equal billing with micro. But hardly anything else in economics is as bad as macro.
4. For a long time, applied econometrics was a disaster area. What Angrist calls the “credibility revolution” has helped, I think, although again there is over-hyping.
5. I have said before that I think that the economics profession is far too heavily influenced by a few “top” departments. I do not know how much worse things are in economics than in other disciplines. But in economics, the control that MIT, Chicago, and Harvard exert is so strong that they can pull several generations of economists in the wrong direction. Tyler Cowen cites relevant data and remarks,
It has been evident for a while that the former “top six” is in some ways collapsing into a “top two,” namely Harvard and MIT.
It is a self-perpetuating, in-bred, smug, narrow guild. I do not know what to do about it.
“It is a self-perpetuating, in-bred, smug, narrow guild. I do not know what to do about it.”
What did Southwest Airlines do to the old, in-bred, smug fossils we call “major airlines” in the last couple decades?
It seems to me that a new organization (or an existing one remaking itself) that offers a better product at a better price, ignoring the ‘rules’ of the incumbents, could make them obsolete.
Isn’t that how economics is supposed to work?
“It is a self-perpetuating, in-bred, smug, narrow guild. I do not know what to do about it.” Maybe nothing. You know Cowen and Kimball were classmates at Harvard right? Their cohort kind of blows my mind in terms of thoughtful, wide-ranging economists. If I see a problem it’s that many economists suffer from a lack of creativity about how to make their professional contribution. Find your niche and be productive…just like any other worker. Of course, being a perpetual critic is a valid role to play too. However, I get very tired of us beating up on sub-fields or methodological approaches other than our own and our inability to recognize real world constraints vary across institutions. Economists have an amazing ability to forget some of their own most powerful concepts…like comparative advantage.
Here’s the best path to ridding ourselves of bad economics education:
First, legalize gambling (this may not be imminent, but the idea is gaining some momentum). Since all PhD macroeconomists from Harvard and MIT are overconfident, they will be double dog dared into publicly betting their beliefs on pundit exchanges. Then they will create useless DGSE and/or IS/LM models, place wagers, and go bankrupt within months. Those who consistently win bets will gain good reputations, and the universities will seek winners to replace the losers.
The only reason Macro might be considered a disaster right now is the fact that incentives at local levels have completely gridlocked markets, preventing any real innovation gains in building, construction and healthcare in the process. Over time as economic systems are set up and utilized, the propensity of those in power to maximize wealth potential tends to self destruct in the aggregate sense and when that process continues too long, markets are mostly intended for the upper classes. The counter-intuitive mechanism of nominal targeting points out the fallacies of adjusting measurement to bank lending potentials “of the moment” instead of what actual spending capacity individuals actually have at regular intervals of time. Such clarity could give business a chance to offer the consumer goods people actually need, instead of having to constantly compete with only offerings to the rich.
Becky,
When you say “The counter-intuitive mechanism of nominal targeting points out the fallacies of adjusting measurement to bank lending potentials “of the moment” instead of what actual spending capacity individuals actually have at regular intervals of time. ”
Could you provide more clarity on what you mean by that?
Normally there is incentive for inflation targeting to follow nominal targeting fairly closely. However in the most recent recession, the two diverged and nominal targeting fell short, which has had further repercussions. Even though people have a reduced capacity to spend in the aggregate, the fact that banks have not been willing to lend makes it appear as though overall spending capacity is less than it seems, a process which continues to feed on itself and skew monetary flows.
Becky,
I understand, thank you. It sounds like you are making a Sumnerian observation, no?
Jonathan,
I approach nominal targeting from a different perspective, so at least the connection is understandable!
This seems more arrogant than most if not all economists. Is his premise that if he cannot understand something, it must be senseless? Should we reject Einstein because Newton is more understandable and all we need? If he cannot understand how consumption can increase output, I suggest he read Quesnay whose Tableau Economique is in many ways the progenitor of systematic thought. That said, macro is a mess. Not because we don’t know what happens, we have made progress there, but because we don’t understand why it happens. Even Says came to understand the demand for liquidity could create a general glut, but the why, wherefore, and what can be done remains elusive.
Macro economists would understand a lot more about why some things happen if they had to spend time working for a company that sells to other companies. It teaches you a lot about why businesses do what they do. Once you understand that, the aggregates make a whole lot more sense.
While reading this post, I couldn’t help thinking of the postmodernists in the ’80s. They felt they had uncovered things that allowed them to harangue every other discipline and profession. However, over the 90s, it seemed like academia and society started getting tired of the whole enterprise, especially as they took into account postmodern concerns and as postmodernists became increasingly obtuse in their contributions. For example, I was recently surprised by how many scientists expressed disdain for Judith Butler at Jerry Coyne’s blog since Butler’s heyday is surely far past. I wonder if economics has recently peaked in terms of its ability harangue all other disciplines and professions. The desire to overturn conventional wisdom has led to some pretty ridiculous assertions from economists. Other disciplines are now incorporating their methods. Should we predict that they’ll become increasingly ungrateful for the economics lectures?
Presumably, Harvard is a “top two” school. Harvard is also presumably “a hedge fund with a university.”
Does Harvard eat its own dog food? If not, why? Is Micheal Lewis available…?
Also, hasn’t philosophy basically failed? Why would we want economics to be more like a failed discipline?
Philosophy has not failed. It has merely had the honesty to see its limitations, as in pure logic (cf. Goedel) and in morals (cf. Nietzsche). That many philosophers have diverted themselves into useless avenues does not indict the discipline itself.
In regard to other disciplines, my wife is currently getting a phD. in psychology. She has told me that if anyone used the kind of assumptions about variables that get put in macro econ models they would get laughed at. I am specifically speaking in regard to models like the one the CBO? did for the stimulus, the one Russ Roberts critiques quite frequently. Also, she is at a school that was/is 11th in terms of research publications and the schools the professors come from is actually quite diverse. Not nearly the homogeneity of a top six, or two. That isn’t to say hierarchy doesn’t exist, or status, especially with regard to conferences, and also with getting things published, but it doesn’t seem nearly as bad as econ. Although I am viewing both from the outside, and she isn’t going to pursue an academic career when done, so maybe this anecdote isn’t worth much so much.
Eh, as Corey notes, such stasis is ripe for disruption. When all the universities are bankrupted by online learning in the next decade or two, what happens to this guild? It will be smashed to pieces, that’s what, along with the rest of academia, and good riddance.
Online teaching won’t destroy Harvard and mit those are research schools. The professors will rejoice at the chance to further disengage. No, it’s the second tier schools and below that will be impacted.
Technically, they’ll be the last to fall, only because their multi-billion dollar endowments can keep them alive longer than anyone else. But they will only survive as shells, as any sharp students or faculty will have long since left, as anybody worthwhile will have better opportunities elsewhere. That will leave only the dim legacy kids attending and a majority of the faculty, as most of the profs are not worth much. Whether they can transition into becoming pure research institutes, who knows, I suspect not, but they won’t have students attending for long, so they will certainly be bankrupt as educational institutions.
I completely don’t understand this:
“utterly absurd claims like “consumption increases output”.”
If you buy two massages a week instead of one, does that result in higher output?
Steve – what might you have bought with the money otherwise? if you’d saved it (i.e. lent it to another) what might they have bought or invested in?
(Having said that – I think Papola is wrong, as there might be massive price disequilibria due to, e.g., a monetary shock, and therefore there might be unemployed resources and Say’s law is inverted. But this doesn’t apply to most of the time.)
So, he’s not wrong most of the time?
Indeed – presuming NGDP growth is going ahead steadily, buying extra massages will not lead to extra output; it is a diversion from the other consumption or investment that would have been going ahead.