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February 13, 2013 9:25 AM   Subscribe

A Renaissance in Economics The American President Ronald Reagan once quipped, “The nine most terrifying words in the English language are, ‘I’m from the government and I’m here to help.’” I get the same shivers when someone introduces themselves as an economist.
posted by infini (39 comments total) 8 users marked this as a favorite

 
Ronald Reagan was at various times "from the government" but he was never here to help.
posted by 2bucksplus at 9:29 AM on February 13, 2013 [9 favorites]


"I'm from the private sector, and that help is going to cost you."
posted by The Card Cheat at 9:31 AM on February 13, 2013 [9 favorites]


"I'm from the private sector, and I'm here to make a profit on your problem."
posted by DU at 9:32 AM on February 13, 2013 [16 favorites]


I just want to point out in that article:
"Economics is a social science. It is not a natural one, like psychics."
A rather unfortunate error ...
posted by tocts at 9:33 AM on February 13, 2013 [9 favorites]


"I'm from Metafilter and I'm here to smear this blue shit all over your face."
posted by IvoShandor at 9:33 AM on February 13, 2013 [7 favorites]


I’m from the private sector and I’m here to help [myself]?
posted by blue_beetle at 9:33 AM on February 13, 2013 [2 favorites]


The nine most terrifying words: "I'm a PhD student and I'm here to blog."
I mean, seriously, lines like "Why does this matter? It is simple. Oxford in particular has a firm grip on the British establishment. These bright young things will soon be entering the top echelons of corporate, finance and government circles."

This is college entry exam essay quality.
posted by dances_with_sneetches at 9:37 AM on February 13, 2013 [2 favorites]


"Economics is a social science. It is not a natural one, like psychics."

A rather unfortunate error .
..

Physics is a natural science.
posted by infini at 9:40 AM on February 13, 2013 [1 favorite]


The linked article is quite short, and clearly written on a popular level, but what it has to say seems true to me. Economics is potentially a exceedingly interesting discipline. Unfortunately, at the moment, the student starting out is likely to come across two things in fairly short order that will put him or her off almost straight away - at least if he or she has half a brain. These are, on the one hand, a lot of deeply flawed (and, frankly, rather kooky and absurd) mathematical models and, on the other, a lot of assumptions about ethics and human nature that are nakedly ideological and extremely dubious.

The intelligent student would be forgiven for throwing up his or her hands at this point and walking away.

However, there is another much more vital and interesting tradition waiting to be discovered: the tradition of political economy. This is the strong tree of which modern neoclassical economics is the over-ripe and under-nourishing fruit. Whatever your political persuasion, there is a great deal more substance and thought and awareness of history in Smith, Ricardo, Marx, Veblen, Minski or Keynes (as he actually was), than in the silly farrago of improperly derived graphs and bizarre models of human behaviour that make up a modern economics textbook.

At the conclusion of the article, the author writes:

An interdisciplinary approach is required from the start. Four key points stand out. First, introduce far more historical analysis to the undergraduate curriculum. Offer historical examples through which students can better understand and anchor a given theory. Secondly, acknowledge in lectures the fierce debates that are tearing the subject apart. This won’t scare students. Rather, it will entice their interest and make economics sound like the exciting subject it actually is: a battlefield where ideas and policies fight it out.

Thirdly, offer more criticism to the mathematical models studied in class. Students aren’t idiots. By highlighting flaws, you are allowing them to think critically while learning. The fourth point relates to language. Economists need to learn how to communicate their message effectively to a wider audience – for mathematical models can only show so much. Economists must learn to talk in simple, plain English.


Oddly enough, these are all things that Marx - that great forbidden beard of economics - did on a regular basis. He wrote beautifully, he attempted to learn from history, he engaged with the debates that rocked economics in his time and he used more tools than just mathematics. I wouldn't for a moment suggest that his conclusions were all correct, but I could certainly wish that more economists approached their work as he did, as an endeavour at once literary, historical, factual and speculative.
posted by lucien_reeve at 9:42 AM on February 13, 2013 [19 favorites]


Physics is a natural science.

Read more closely. The word used was not "physics".
posted by tocts at 9:46 AM on February 13, 2013


This sounds like a shortcut to stupid to me.
posted by srboisvert at 10:01 AM on February 13, 2013


This sounds like a shortcut to stupid to me.

Elaborate?
posted by adamdschneider at 10:09 AM on February 13, 2013


To pass exams, then, students often have to learn mathematical models that bear no relation to reality given the amount of unrealistic assumptions attached to the analysis. As a result, graduates leave the college gates with a bastardized version of economics, one that sticky-tapes bits of neoclassical, monetarist and rational expectations theory together in an incoherent fashion.

Someone should tell this joker how ideal gas laws work just to make his head explode. There's a reason spherical cows in a vacuum is hilarious to a physicist.
posted by Talez at 10:20 AM on February 13, 2013 [3 favorites]


"Economics is a social science. It is not a natural one, like psychics."

A rather unfortunate error ...


And one they should have foreseen!
posted by Pistache at 10:26 AM on February 13, 2013 [14 favorites]


But it is the mark of an immature, insecure science when its practitioners speak in a convoluted, esoteric language known to only a chosen few.

Speaking of psychics....

I think a lot of this is highly classroom-dependent. There are lots of textbooks already doing what he asks. Then they get charged with cherry-picking historical examples. There's value in aggregation and formalism, just as there is value in context and examples. Sometimes we make tradeoffs, especially when faced with a classroom of unprepared undergraduates who will only remember two or three things from the entire semester.

I'd much prefer to see economics re-integrate economic history. The true sign of a mature science is that it embraces its history rather than pretending to be without predecessors. You see this already beginning with books on Keynes and Hayek, Smith and Ricardo, but there needs to be more of that, more of a sense of the whole sweep of the history of economics being required reading for anyone who calls themselves an economist, even if they're wizard with econometrics.
posted by anotherpanacea at 10:27 AM on February 13, 2013 [3 favorites]


It's very appropriate that this article opens with a quote from Robert Heilbroner. His book, "The Worldly Philosophers", served as my introduction to the field of economics and was very helpful when it came to thinking critically on the subject. It introduces the layman to the lives and works of historic economists whether we still use their work today or not (most recent is Keynes). It is from this book, I think, that I picked up the habit of referring to Adam Smith's free-market system described in his "Wealth of Nations" as "Adam Smith's Utopia".
posted by Pseudology at 10:34 AM on February 13, 2013 [1 favorite]


No offence to the author, but the four recommendations at the end of this were all part of my undergraduate economics degree. My degree had four economic history courses which covered economic and political theory across a number of schools and time frames.

I coupled it with a political philosophy degree and graduate school which led me to being a economist focusing on behaviour and confidence working in local economic development, where I recognize that mathematical models that replace people with perfect consumers are best left to the academics.

There's a nice one page primer on econometrics here, which points out something that every econometrics professor I've ever had did - that econometric models aren't perfect and a "catchall" variable to account for all the stuff that may have an effect but you can't or don't understand - a straight up admission that modelling is an imperfect science. The challenge, of course, is people who think they've found causal evidence but who ignore what their catchall variables look like - so they decide not to look for more variables to add to their equations. Everyone wants to simplify, simplify, simplify.

Still, there are two things that plague most economists - arrogance and a lack of humility. Arrogance to interpret data in such a way that they feel they have "the" answer. A lack of humility in terms of an overwhelming desire to fit the data to a preconceived notion or school of thought. I am sure this plagues other social sciences as well, but when you're talking about people making decisions that affect the quality of life, incomes and economies of many, it's been my experience that being openly wrong and getting smarter as a result is the way to get better at this.
posted by Rodrigo Lamaitre at 10:47 AM on February 13, 2013 [2 favorites]


Physics is a natural science.

Read more closely. The word used was not "physics".


*checks other two spectacles to see which are for the laptop screen viewing distance*

meh
posted by infini at 10:49 AM on February 13, 2013 [1 favorite]


I read "physics" too.
posted by Pruitt-Igoe at 11:00 AM on February 13, 2013


This sounds like a shortcut to stupid to me.

Elaborate?


One always hears these kinds of things from people new to fields. It ignores the work and effort those who went before as if they were all stupid and blind to the truths that are obvious to the fired up incoming graduate student or armchair scientist. There are famous cases of these people being right but isn't because there is something valuable about an outsider perspective. It is because these kinds of contributions are so incredibly rare as to be notable.

A lot of researchers in the social sciences chase their own field's tail because they can't be arsed to learn what went before. Instead they come up with their own theory and give it a name and then they are off without realizing that it was done before and called something else, used and then abandoned for reasons that will soon be applied to their new theory.

There is valid criticism of the use of models that are only loosely related to reality but there are also valid reasons for why those models are useful. Much like the way psychology uses undergraduates as research subjects for understanding human behaviour. You can't just dismiss the research on the basis of the unrepresentative sample unless you can say why - which means you have to understand the phenomena you are researching, statistics, population sampling and all the other arguments for and against such sampling.

An informed radical posture is one thing. An ignorant radical posture is usually more ignorant than radical.
posted by srboisvert at 11:09 AM on February 13, 2013 [2 favorites]


Still, there are two things that plague most economists - arrogance and a lack of humility.

Most economists are people :)
posted by elpapacito at 11:16 AM on February 13, 2013


Talez : Someone should tell this joker how ideal gas laws work just to make his head explode. There's a reason spherical cows in a vacuum is hilarious to a physicist.

This.

Students of any major eventually (should) learn that most of the idealized equations they learn and toy situations they analyze exist solely to give them the core skills they need to start learning the "real" material.

Many years ago, I had a Physics professor who, on day 1 on the class, informed us all that everything he would teach us that semester amounted to a pack of convenient lies. Lies that, for the most part, describe reality to within our ability to measure it under normal circumstances; but lies none-the-less.

I suspect the same holds true for any subject.
posted by pla at 11:27 AM on February 13, 2013 [3 favorites]


Students of any major eventually (should) learn that most of the idealized equations they learn and toy situations they analyze exist solely to give them the core skills they need to start learning the "real" material.

The problem comes when certain influential schools *COUGH*chicago*COUGH* start teaching that those idealized equations and concepts ARE reality. Or, should be, so let's make it happen.
posted by Thorzdad at 11:35 AM on February 13, 2013 [7 favorites]


a lot of assumptions about ethics and human nature that are nakedly ideological and extremely dubious

I expect there are far fewer of these than you think there are; lots of things that people object to about economic models (or rational-choice models more broadly) aren't really there in the generic sense, even though they're likely present, at least arguably, in most applied models.
posted by ROU_Xenophobe at 11:44 AM on February 13, 2013 [1 favorite]


Many years ago, I had a Physics professor who, on day 1 on the class, informed us all that everything he would teach us that semester amounted to a pack of convenient lies. Lies that, for the most part, describe reality to within our ability to measure it under normal circumstances; but lies none-the-less.

A physicist can argue about perceptions and measurement accuracy, but she is not likely to say that gravity is a lie.

So long as we use paper money and have central banks and entitlement programs that promise future benefits we have gravity. You cannot create these things and then say well gee no one can understand economics. Some form of applied economics, no matter how approximate, has to be used so it is well and proper it is studied in some standard form.
posted by three blind mice at 12:01 PM on February 13, 2013


There are some of us who have to consider macroeconomics as an occupational hazard, a hazard that may cost people their livelihoods.

We would greatly appreciate it if you economists would get your shit together.
posted by digitalprimate at 12:11 PM on February 13, 2013 [1 favorite]


A really great concrete example of the problem of formalism is the minimum wage. Card and Krueger's empirical work using natural experiments is constantly criticized because it just doesn't make sense that we would see demand increase for something when its cost goes up. If you watched the econ twitter-verse last night, economists were mostly all cracking wise that clearly Obama doesn't care about unemployment because he's about to create a bunch more of it, and then Justin Wolfers notes:

"Australia's minimum wage is $A15.96 = $US16.50. Unemployment rate is 5.4%."

Maybe he's cherry-picking, maybe he's on to something. But the model says demand curves slope down, that makes sense in a lot of different situations, and it's a real headscratcher why it would be different for wages.

I tend to think that models don't so much help us understand the world as they help show us where we don't understand the world. We should be on the lookout for those things that don't fit the model, not to correct the world, but to advance our own understanding. So: maybe we're still wary of raising the minimum wage to $16.50/hour. But we've got to be wondering: why is Australia's unemployment so low?
posted by anotherpanacea at 12:22 PM on February 13, 2013 [6 favorites]


start teaching that those idealized equations and concepts ARE reality

We are talking about undergrads though here, no? In which case the comparison to ideal gas laws is apt. You separate the models convenient to teaching basics from the actual tools for real work once you've made it to grad school, no?
posted by spicynuts at 12:37 PM on February 13, 2013


"Australia's minimum wage is $A15.96 = $US16.50. Unemployment rate is 5.4%."

But we've got to be wondering: why is Australia's unemployment so low?


This is a perfect example of how simplifying economies to cause/effect without testing is problematic. That's not on you, that's on Wolfers.

This is also not my expertise. I'll say that up front.

Australia's economy is largely resource-based and they're more and more linked to emerging Asian markets with an expanding need for pure resources. I don't study it, but I would take a venture that, like Alberta in Canada, resource economies where physical labour reign supreme have a lot more use for skilled and unskilled labour interchangeably. Skilled labour can work in a mine, for example, but in order to be a software developer you need a specific skill-set.

In the U.S., you have a lot of manufacturing and knowledge-based industries which have been stalled throughout the recession - and there aren't as many labour-hungry industries out there that require the skill-sets available. Outside of finding more resources to extract, that's just the way it is. There just aren't that many low-skill jobs out there that you can do regardless of your background.

I think somewhere like Alberta or Australia, where a very small percentage of the workforce actually works at the minimum, the effect will be minimal of a minimum wage increase. If you live in a service-based, high minimum-wage level place, those changes have big effects on the local labour market. Again, I don't study this, but reducing things to "minimum wage drives employment" either positively or negatively is not really helping anyone - the answer is, it probably depends on the structure of the area where you're proposing it.
posted by Rodrigo Lamaitre at 12:51 PM on February 13, 2013 [3 favorites]


But we've got to be wondering: why is Australia's unemployment so low?

My take on why this might be (since it also seems to hold in cases other than just the Australia v. US example) is a bit different. More grassroots spending power = economic opportunity and decision-making spread more broadly. In the big picture, that works out to more demand for labor because the economy as a whole starts growing, from the bottom up, and a broader base of people have opportunities to innovate and create value, even if only in very small ways. The more the money gets spread around, the broader the base of people making economic decisions, the more "efficient" the markets.

It only seems paradoxical if you're looking at these kinds of demand questions from a particular, narrow POV (in this case, the supply-side POV).

On the other hand, it's always foolish to generalize too hastily. Maybe non-quantifiable, non-deterministic factors like prevailing cultural sensibilities also play a bigger role than economists might hope would be the case.
posted by saulgoodman at 12:58 PM on February 13, 2013


A physicist can argue about perceptions and measurement accuracy, but she is not likely to say that gravity is a lie.

"Lie" is perhaps a little strong, but even Newton acknowledged that he was providing only a partial answer:
That gravity should be innate, inherent, and essential to matter, so that one body may act upon another at a distance, through a vacuum, without the mediation of anything else, by and through which their action and force may be conveyed from one to another, is to me so great an absurdity, that I believe no man who has in philosophical matters a competent faculty of thinking can ever fall into it. Gravity must be caused by an agent acting constantly according to certain laws; but whether this agent be material or immaterial, I have left to the consideration of my readers.--Newton to Bentley
Science always presents a limited, relative picture of reality. It is a question of orientation, not of truth.
posted by No Robots at 1:21 PM on February 13, 2013 [1 favorite]


Maybe non-quantifiable, non-deterministic factors like prevailing cultural sensibilities also play a bigger role than economists might hope would be the case.

I think more think they do than you think.

Things like business confidence, innovation and productivity are hot topics in economics these days - and a lot of my colleagues discuss the role of culture regularly. It's tough to measure (not just from a "is it important" perspective, but "is it getting better or worse") and even tougher to affect, which is why you don't get a lot of economic agencies focusing on it.

I live in a place where, outside of historically being underdogs, people who take risks get lambasted either for succeeding (rich getting richer, even if they weren't rich to begin with) or if they fail (what a stupid idea/venture.) This definitely has an effect on people's willingness to take risks here (and often the risk takers move elsewhere before they do) but it's really tough to gauge how much that effects things and how to combat it.
posted by Rodrigo Lamaitre at 1:31 PM on February 13, 2013


You're probably right Rodrigo Lamaitre; I'm sure the awareness that non-quantifiable factors play a big role is there and probably more prevalent than might seem obvious from the bits that bubble up to those of us in the general public. But it doesn't seem like we're all the way there to understanding or acknowledging just how important a role the less-quantitative factors play. And my own suspicion is that the less quantifiable stuff is so primary it will consistently tend to undermine the predictive power of any purely quantitative models over time, as the question of what drives economic value can't really be cleanly separated from more fundamental philosophical/ethical questions about what humans should and shouldn't value, culturally.
posted by saulgoodman at 1:52 PM on February 13, 2013


Speaking as an Australian who is not an economist, but reads the news: the papers have been talking about "the resources boom" for years, and warning that when it ends we'll lose jobs in that area, plus jobs in the businesses that support it, plus jobs that support those industries. So yeah, the popular sentiment is that unemployment is low because we currently have a lot of people employed in the resources industry.
posted by Joe in Australia at 2:39 PM on February 13, 2013


"Psychics" indeed. Didn't Galbraith say "the only function of economic forecasting is to make astrology look respectable"?
posted by uosuaq at 2:53 PM on February 13, 2013 [1 favorite]


I agree that Australia is probably going to differ from areas without strong commodities booms, and indeed the relatively low population density plus that boom makes weird things happen. But the interesting thing is that you're using model thinking to discount data, that is, to look for solutions to inconsistencies in the data. And that's why models are so useful.

If you live in a service-based, high minimum-wage level place, those changes have big effects on the local labour market.

But then the Card and Krueger data, which is derived from service jobs (specifically fast food) starts to look like it has falsified this prediction. These aren't skilled laborers.

The more the money gets spread around, the broader the base of people making economic decisions, the more "efficient" the markets.

(This is basically my take, as well, largely bolstered by reading Steve Waldman's blog interfluidity regularly. It's also why I favor basic income guarantee over a minimum wage.)
posted by anotherpanacea at 3:00 PM on February 13, 2013


We would greatly appreciate it if you economists would get your shit together.

There is no single Tribe of Economists who speak with one voice. Economists are people, individuals with different ideologies. Depending upon your political bias, you may have faith in the party of the rich (Chicago/Vienna) who say that our rich elites know better, and that austerity (for the poor) is the bitter pill that we need in order to survive. Or, you could go with the party of the poor (Keynes/Krugman) who want to spread the joy/deficit/tax all around us. (Like some here, I lean to the latter).
posted by ovvl at 4:56 PM on February 13, 2013


It only seems paradoxical if you're looking at these kinds of demand questions from a particular, narrow POV (in this case, the supply-side POV).

Well, yes, very obviously. There are always going to be factors that affect an economy depending on how that economy is structured - a minimum wage in an undeveloped economy will have a very different effect from being implemented in a developed one, and a thousand other factors which makes comparing different economies, or even the same economy at a different historical time, extremely dubious.

In the case of minimum wage, raising it in a complex highly developed economy might spur innovation - like labor-saving innovation, simultaneously lowering costs and freeing labor resources. Doing it in a undeveloped economy might not spur innovation for the simple reason that there is no infrastructure for that - poor quality education, access to capital, R&D capabilities and so on. But even in a developed economy, it depends on competitive pressures - perhaps it makes sense to outsource labor if the competition has too much of an advantage, we've done that repeatedly with low-margin highly labor intensive industries (say, textiles).

This really can be seen as a kind of mathematical problem. If you have enough interconnected factors, you can quickly get to the class of mathematically insoluble problems. Basing predictions on the effect of some policy then becomes more of a random process.

The richest vein in economics is trying to identify problems which can be modelled and ones which inherently cannot, and therefore identify which policies will have predictable results and which are just a throw of the dice. One might be tempted to think that only very gross or extreme cases are have that degree of clarity (say, if a virus suddenly wipes out the population of the U.S., well, duh, it's going to affect the economy in a pretty darn predictable way) - but, looking at the history of mathematics, it is simultaneously exciting and humbling to see just how problems that seemed very difficult yield themselves to novel approaches. In economics, I see Keynes General Theory as such a case of an extremely inspiring analysis, that can be used to make far-reaching models that have surprising durability across different economies in different time periods - findings which are complex and non-obvious, and yet have enormous utility in policy-making (not that politicians pay attention, sadly).

Now, does the minimum wage yield itself to such modeling or is it inherently unpredictable as a base for policy predictions - let's start with that, before re-hashing the liberal vs conservatives arguments we've heard around it for decades now with little that's new.
posted by VikingSword at 5:12 PM on February 13, 2013


Sorry Economists, The Crisis Is A Huge Problem For Your Discipline
posted by the man of twists and turns at 5:55 AM on February 14, 2013 [1 favorite]


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