The Economist as Entrepreneur

Beatrice Cherrier comments on Esther Duflo’s AEA lecture, “The economist as plumber.”

She wanted economists to reconceive economic agents, policy-makers and bureaucrats as bounded “humans” embedded in wider power structures and cultures, and to realize that thinking goods ideas is not enough to improve the latter’s welfare. “Incentive architecture” is thus needed, and economics expertise is especially relevant because it deals with behavioral, incentive and market equilibrium issues. The recent success of (some) “nudge” has given some salience to benefits of crafting incentives carefully, for instance by fixing regulations to prevent firms from exploiting loopholes. Plumbing was also beneficial for economics as science, she continued, as it helped generate counterfactuals by randomizing on entire markets. Plumbing also shines the spotlight on issues theorists had previously ignored, like how important the default scenario is. Economics as plumbing requires a more pragmatic and experimental mindset, she concluded, as it requires them to make decision without having a full knowledge of the system to be tinkered (“tinkering” was one of the keywords of the speech).

I recommend the whole post. Pointer from Mark Thoma.

When I think of trial-and-error tinkering to try to solve a problem, I think of an entrepreneur.

In fact, we might be better off thinking of policy-oriented economists as state-backed entrepreneurs. That is, while ordinary entrepreneurs have to convince investors to back their ideas and convince customers to pay for their offerings, state-backed entrepreneurs have to convince politicians to back their ideas.

I am not very enthusiastic about state-backed entrepreneurship. I believe that the market does a more rigorous job of experimentation, evaluation, and evolution.

I am glad to see alternatives to the image of the economist as a white-coated scientist. However, I do not think it should be replaced by an image of droopy-pantsed plumber. I am afraid that a more accurate image is of an entrepreneur who is trying to short-cut the market by pitching business ideas to a political audience. And we should be cognizant that politics is an inferior arena for trying out entrepreneurial schemes.

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6 Responses to The Economist as Entrepreneur

  1. Slocum says:

    How much does ‘economist as policy entrepreneur’ differ from ‘economist as management consultant to the state’ — brought in to provide ‘independent’, ‘scientific’ backing for policies politicians already want to pursue (see minimum wage increases on the left, the ‘laffer curve’ on the right). Perhaps the difference is whether the economist is creating the policies on spec (entrepreneur) or under implied contract (management consultant).

  2. Lord says:

    Reeks too much of government in opposition to markets rather than creators and benefactors of them. The common good must be provided for and government is too important to be left to private interests who indeed will use it for their own ends. This the libertarian fail. They believe social choice an insurmountable obstacle to be avoided rather then an inevitable one that must be continually addressed.

    • Andrew' says:

      We brought it up!

      Just because libertarian(economist)s told you about it in the first place and remind you from time to time does not mean they are over-emphasizing it.

  3. Andrew' says:

    Rather than choosing a profession to model, I might suggest selecting models based on how many people are required to go along with the idea.

    Toyota had to make millions of cars essentially identical, so they helped develop statistical process control. The mechanic fixing your personal Toyota is free to use bubblegum and duct tape if you are pleased with the result.

  4. Tom G says:

    Funny, my problem with economist as a “plumber” is precisely because the plumber already knows how the system is supposed to work, so is primarily looking for leaks and breaks and blockages, with a fairly limited but fairly well known set of solutions.

    I don’t think any economic problem, certainly not most “nudge” type incentives, are at close to that level of knowledge about how the mostly-static system is supposed to work.

    My problem with economist as “entrepreneur” (besides the awkwardness of the word) is that this is far too vague and ambiguous. I’d prefer to choose one: opening up a new restaurant, or a new car-repair, or a new school, or a new hospital.

    My own first thought was “new restaurant”, with its own set of limited “known unknowns”, as well as the many choice available to the new owner.

    On “state-backed” entrepreneurs, I think it would be a great program for the gov’t to offer generous low-cost matching loans to current gov’t workers for them to leave gov’t and start some for-profit company which attempts to solve some social problem (health care? education? care for poorly cared for children?)

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