Economists aren’t ‘superior’ just because

Henry’s comments seem about right to me…and I am a member of the tribe economist.

Perhaps Noah’s views are in some degree shaped by https://crookedtimber.org/2012/12/27/noah-smith-had-me-going-for-a-minute-there/ ?

The QJE isn’t published at the U of Chicago. I believe that’s the JPE.

“a social construct built on self-perpetuating power relations.”

You only have to look at who runs the American Economic Association to see this is true. The President, two Vice Presidents and six Executive Committee members are, and have always, drawn from maybe 5 universities, 8 at most (the top Ivies, Chicago, Stanford and MIT). They in turn nominate their colleagues when their time is up, and the choice is between voting for X from Harvard or Y from Yale.

The idea that someone from, say, the University of Michigan or NYU could get one of these positions is unthinkable. The idea that someone from, say, North Carolina State could get one of these positions is like thinking about what lies beyond the edge of the universe.

The AEA is as close to a perfect self-perpetuating oligarchy as it possible to find.

“economics is the discipline that studies the economy”

But that is just not true, at least of academic economics. You don’t need to know anything about the economy to be a highly successful economist, in the sense of the getting papers published in the best journals. And knowing a lot about the economy not only is no guarantee of career success, it invites condescension from economists who wear the ignorance about the economy as a badge of honor and sneer openly that economists who study the economy are just journalists.

Some thoughtful economists have begun to notice that their graduate students not only know nothing about the economy, they have no desire to learn anything about it, probably because they have no incentive to do so. Certainly, no graduate student needs to know about the economy to pass their preliminary or general exams, write a thesis and get hired as an assistant professor. But these thoughtful economists are a small minority.

“… It’s probably because…drumroll…economics is the discipline that studies the economy. “

Economics is not the discipline: it is a set of disciplines which share a name, some jargon and common ideas: not unlike, say, evolutionary biology and “intelligent” design creationism. Except that in economics there is more than one form of creationism: Marxism and Austrianism come to mind. Creationist economics studies the world(s) some people believe ought to exist. Austrianists even define “inflation” in their own unique way, but then try to coerce everyone else’s reality to match their theology.

The economics of the real world has evolved since Keynes, just as biology has changed since Darwin and cosmology since Kepler. But the key thing about non-creationist economics is that evidence matters and will lead to the model being modified accordingly. After Tycho Brahe died, in 1601, Johannes Kepler tried to develop a new cosmological theory based on circular orbits around an off-centre sun. After years of work, he rejected his beloved theory because it was incorrect about Mars’ position by 8 minutes of arc: 2/15 of a degree. Kepler wrote: “Because these 8′ could not be ignored, they alone have led to a total reformation of astronomy.”* He then spent several more years developing his theory of elliptical orbits which made predictions accurate enough to satisfy him.

Some “economists” have been predicting US hyperinflation for years: it’s failure to materialise is a vast error compared with Kepler’s 8 minutes of arc: but there has been no urge to modify the theory.

*Translated by Arthur Koestler in The Sleepwalkers.

Disclaimer: I am an economist and hence biased.

Having read the paper, it seems to contain zero evidence that the structures it documents for the academic economics profession are in fact inefficient / suboptimal / bad.

All the evidence it contains is consistent with economics being a hierarchy-obsessed cargo cult. But all its evidence is also consistent with economists having better and more consistent quality criteria, better sorting, and larger grad programs at the top. But somehow, based on nothing really, the paper again and again draws the conclusion that is least flattering for economics. Which may be the correct conclusion, but as a social scientist one isn’t allowed to draw this conclusion without actual evidence. Null vs. alternative hypothesis, identification, and all that jazz.

The great thing about economics is that it allows you to talk about the quantity and price of things without having to worry too much about the conditions in which those things are made. You can’t have the same confidence of not coming into touch with all that in a sociology or anthropology department. They just don’t have the same pathos of distance. The other thing I love about economics is that you get to focus on every preference on the same footing without paying undue attention to needs. That allows a kind of distance from the frail, needy and frankly ugly human body.

Without that pathos of distance you would be vulnerable to checking Steven Greenhouse’s twitter feed to find something like this
http://scroll.in/article/692477/Your-car-has-been-built-on-an-assembly-line-of-broken-fingers
And that is not what economics is about. Leave it the sociologists and anthropologists or even a stray political scientist concerned about regulation.

Another great thing is the comfort economics gives me that amidst all the chaos of unemployment, bankruptcies, and cycles there is an equilibrium that markets are just about to achieve, perhaps with just a little expert guidance and the right human sacrifices at the right time.

Instead, I suspect that much of the assumed authority of economists (just like the authority, in certain policy roles, of international relations scholars like myself), is socially constructed. Expertise is not just a matter of raw talent, whether mathematical or otherwise. It’s a matter of legitimation – of being anointed with the proper sacraments associated with publicly acknowledged expertise in a particular topic. And that is, unquestionably the product of a certain kind of politics, a kind of politics that sociologists have a lot of experience in studying.

Surely if it were just a matter of raw talent, it would/could still be socially constructed @?

(Somehow I managed to right-justify-munge this window on the screen, hope it looks okay when it posts.)

Forgot to subscribe to thread.

Henry quotes Noah Smith saying:
“economics is the discipline that studies the economy. ”

What on earth is “the economy”? You would never get sociologists saying sociology is the discipline that studies the society, even though ‘society’ as a concept is probably more meaningful than ‘economy’.

“The economy” has become like this mythical, but nonetheless terribly important and pitifully fragile, little flower, that we can’t ever actually see or touch, but all have to look after and think about and be terrifically careful of, otherwise it will just suddenly die and take us all with it. It’s nonsense. We should be thinking about how we, as human beings, look after each other and the earth that sustains us.

My career-long, super-anecdotal impression is certainly that authority and hierarchical positioning follows more from politics than from competence/productivity in all academic fields; that economists are not an exception could come as a surprise only to economists, apparently. I once would have thought, that academic specialties more closely tied to immediate, quantitative checks against reality, ie physical sciences and engineering, would be less subject to politics in determining rewards and authority; alas, this appears to be another “just so story” with no evidence to support it (that I’m aware of).

As long as we’re thinking about economists and how they are judged to become respected and authoritative, what do we make of the parallel observation, (which I have seen in a number of places but have no link handy) that among academics in different fields, economists are on average the most politically right-wing? (a term I don’t use interchangeably with “conservative”, BTW, even though many seem to.) I’d be curious to hear from the sociologists out there, who are perhaps the best equipped to comment.

Yeah, Henry needs to fix this. QJE is notorious for being the Cambridge in-house journal. It’s edited at Harvard. According to FN 8 of the paper, it’s even more clubby than JPE, which, as Stefan above points out, is the U Chicago journal. (This isn’t exactly a shocker for anyone vaguely familiar with econ publishing).

Suppose a Pol Pot came to power and all economists were liquidated. How much would the economy suffer? Would the economics profession be revived in its present form, or would something strikingly different be developed which did all the jobs economics does, but without the arrogance and the ideological and methodological dead weight?

This is a THOUGHT EXPERIMENT, not a suggestion. Like a trolley car problem. There are no actual trolley cars with fat men being pushed in front of them, and there is no actual Pol Pot in the offing. Perhaps I should have hypothesized that The Rapture carried off every economist in the world, but no one else, but that’s even less realistic. Let’s just assume that all economists were pensioned off at twice their present salary on the condition that they quit doing economics. That would be both humane and practical.

Rakesh @ 19 — I admit it: I got that far before catching on.

Tom @ 16:

Economists have quant skills (as Smith says) and also their skills can be used in sectors where there is a lot of money. Finance, first of all. . . . That is why they make more than statisticians and that is why actuaries make more than economists. And that is why math and engineering people who study finance end up making a fair amount of money. . . . Obviously expertise is a matter of legitimation . . .

Economists have legitimated making a lot of money in finance, even though making a lot of money in finance is pretty obviously deleterious for society, aka the vast majority of people. It is kind of circular: bad economics opens opportunities for bad economists to make a lot of money doing bad economic things.

Commenter @ 13: All the evidence it contains is consistent with economics being a hierarchy-obsessed cargo cult. But all its evidence is also consistent with economists having better and more consistent quality criteria, better sorting, and larger grad programs at the top.

Two mints in one! Policy macroeconomics pretty much is a cargo cult, as far as its content is concerned. This is widely acknowledged in Naked Emperor remarks and so on, but it doesn’t seem to matter. Which, I suppose figures in the motivations for the research of Fourcade et alia. It is the contrast between outside political critiques and “derision” directed at economics and the arrogant confidence of its inside practitioners about which the authors are most curious.

Tabasco @ 9

You don’t need to know anything about the economy to be a highly successful economist, in the sense of the getting papers published in the best journals. And knowing a lot about the economy not only is no guarantee of career success, it invites condescension from economists who wear the ignorance about the economy as a badge of honor and sneer openly that economists who study the economy are just journalists.

Said as plainly and bluntly as that, it can seem like superficial sarcasm, but it is so accurate a description. The emphasis on “rigor” and the pride in irrelevant maths becomes a remarkable absence of curiosity and a doctrinal rigidity in a sizeable and highly influential minority of economists. And, all that is compounded by the rank corruption afforded by those fabled consulting opportunities.

I don’t think the fact that sociologists also train in stats negates noahs argument. An econ phd can still work as a signal in maths competence in the market, even if other social sciences also train to a high level, if (1) econ PhDs are generally perceived as more competent on quant skills or (2 ) they actually generally are(my understanding from a few people I’ve asked is that even in quant heavy pol sci/ sociology they don’t train to the same level as economists.) This is consistent with a very competent quant oriented sociologist being less in demand than a mediocre economist- and duncan watts can’t really be seen as representative of anything here,afaict.
What about Roy @10 claim that it’s the critical thinking + maths that explains noahs argument more plausibly ?

The market is for private sector PhD economists is not that large, so I don’t think there is a direct outside demand pulling up econ wages. If anything, PhDs have a reputation for being awful at making money in finance.* Though it is pretty easy for a new PhD to jump into a consulting career.

I would guess is that where wages are getting driven up is in the demand for business school teachers. As inequality increases, MBAs become a path to the 1% and B schools become profit centers. They need lots of econ profs hence wages go up in Econ.

*Here is a fun recent example http://thereformedbroker.com/2014/05/28/brokers-liquid-alts-and-the-fund-that-never-goes-up/

On the one hand, I’d rewrite Noah’s quote as “If politicians want to sit cross-legged and chant, they should go to a Buddhist. If they want to play volleyball with no clothes on, they should go to a nudist and if they want a load of boilerplate rhetoric in support of the status quo they go to an economist”. The “ist” in “economist” is akin to “Trotskyist”, not to ” physicist ” – it indicates ideology, not study.

On the other hand I’m going to push back on the “statistics” thing. In terms of applied work, which is what we’re talking about here, there’s no such thing as “Statistics”, in the abstract as a general purpose toolbox. There are a whole lot of specialised tools, specialised to different kinds of data, and econometricians are specialised in the statistics of economic data, which in turn is defined as ” the data which economists have found it useful to collect “. Even those demigods of physics that we are always hearing about end up having to take the equivalent of conversion courses.

Thank you js and JanieM, much appreciated. One of things that often is discussed about mainstream economics is how much it’s a tool of privilege and oppression – which I totally agree with – but the thing that doesn’t get discussed often enough, in my opinion, is how much it dumbs down public debate, how boring and lifeless and depressing it makes our discourse.

Mainstream economists have their dogma about individuals and utility, and it seems they will fit anything into it, no matter what intellectual contortions are required. Being expected to take them seriously is like being forced to converse with Mormons.

@39 & @41
This predictable approach is probably a large part of the appeal of the discipline to those in traditional power structures (many of whom are trained in the lawyerly doctrine of not asking a question unless you already know what the answer will be).

#31 John Emerson

Let’s just assume that all economists were pensioned off at twice their present salary on the condition that they quit doing economics.

I expect it would have no, zero, zilch effect on politics. Politicians and pundits would keep on making the same stupid economic arguments they do now. They would keep on making up numbers to predict the results of proposed policies. They would keep on claiming that science proved them right.

There are various government jobs that are currently done by economists. These jobs would continue to be done the same way they are now, perhaps at first by secretaries and then by people with some other job description. We would still collect unemployment figures, inflation estimates, etc. The way they are done is mostly fixed by tradition and it doesn’t much matter whether trained economists are present when they are done. It might possibly matter about new data collection etc. Somebody competent should devise new economic activities by government. Assigning economists to that task doesn’t guarantee competence but it might improve the odds. Perhaps it could be done by operations research guys.

The biggest result I would expect is a lot of jobs for brand-new economist while it was getting started. A brand-new graduate with an MS in economics goes to JP Morgan and says “Hire me for a year at $1 million, and then when I retire for $2 million/year I will give you $1 million/year for the rest of my life.”

Or is that something we should expect more from MBAs?

Speaking as a professor of statistics, I admit that I’ve always assumed that economists — and even more, business school professors — were paid more because 1) their professional concern with monetary incentives makes people (i.e., university administrators) assume that they can’t be bluffed with other amenities; and 2) their profession brings them into close contact with the people who control the flow of money. But fundamentally, I assumed that economists were probably strategising collectively about this sort of thing far more than my colleagues and I. This post suggests that I perhaps attributed too much objective optimisation to them.

Suppose a Pol Pot came to power and all economists were liquidated. How much would the economy suffer?

Well, how about a re-do of the Great Depression only without Keynes?

Or put it this way: what reason do you have to believe that in the absence of the profession the pro-stimulus position, which Krugman and others are struggling to advance, would be ascendant? I see no reason whatever to believe that.

People fight over gelt. Is it necessary for the left to be gobsmacked about it?

Or put it this way: what reason do you have to believe that in the absence of the profession the pro-stimulus position, which Krugman and others are struggling to advance, would be ascendant? I see no reason whatever to believe that.

The pyramids. Joseph and the lean years. Stimulus from public works, gov’t spending, currency devaluation was not discovered by Keynes.

Mainstream Economics is absolutely nothing more than a priesthood used to justify inequality of wealth and income, the distributional privileges of the ruling class.

#49 Mattski

Well, how about a re-do of the Great Depression only without Keynes?

Or put it this way: what reason do you have to believe that in the absence of the profession the pro-stimulus position, which Krugman and others are struggling to advance, would be ascendant? I see no reason whatever to believe that.

There were economists arguing that we needed the depression to cut out the dead wood, to free up resources for newer expansion. It appears that nobody understood Keynes at the time, they just used him as the economist-prophet who said it was OK to do what they wanted to do anyway.

Toss out both sets of economists, and you get politicians who see the government can get low-interest loans and spend the money for jobs building infrastructure etc. You get a bunch of voters who want that, and a bunch who are afraid it will give the government unsupportable debt. The unemployed and the socialists etc win, and it turns out just like it did in real life except there aren’t economists on both sides arguing their abstruse positions which the voters don’t understand.

But without economists could we measure unemployment, GNP, national debt, number of starved citizens, etc? Probably. We might have a measure of something that didn’t fit our needs as well as GNP, because it wouldn’t have as good a theoretical backing. Or maybe we’d accidentally get a better measure. These days people usually say GDP doesn’t really fit our needs but it’s what gets measured so they use it.

I don’t see any way to prove how things would have gone if they were different. We can have different opinions with no way to tell who’s wronger. But it seems quite plausible to me that the Depression could have gone about the same without economists, and it seems quite plausible that it could have been very different. I don’t feel a lot of certainty about this one.

I imagine the Cosmic Apothecary…. The ists are offered in sealed bubble packs, but require no prescription, and may be purchased by any customer. The isms, are kept in locked cabinets behind the counter, and sold only to adults with the proper ideological qualifications. What is thought to be the Ding an sich is sometimes glimpsed scampering from one dark corner to the other in the back of the shop. Pest control has been called.

Do you have one experience with computer programming? If so, you might consider voing through an introduction rto the R language, a specialised language used for statistics. In the process, you’ll encounter a lot of the widely-used concepts.

I’d second Francis spuffords request, but just add(from someone completely innumerate) that on the main concepts naked statistics and the cartoon book of statistics(I know, I know) are the best explanations I’ve read. They might be at too low a level, so I’m working my way through the Freedman/pisani/purves book “statistics”, which is handy.
My impression is that experts give out about it for not being mathy enough, but for a layman it’s pretty approachable.

And to really throw the cat among the pigeons, the “magna book on linear algebra” is amazing (as far as these things go)
Don’t be afraid of cartoon guides, is what I say.

@46

> Many statisticians (the non-frequentists) would also have difficulty.

> A calumny and very definitely untrue. Bayesian statistics isn’t an excuse to be
> ignorant and nobody uses it as one.

Other way round, in fact, I would have thought. Given how staggeringly unintuitive the definition of a confidence interval is, it is a useful stick for Bayesians in the Bayesian/Frequentist wars.

I would never ask for the definition of a confidence interval in an interview, unless I was actively on the lookout for reasons to reject the candidate – I would assume that _only_ a proper statistician would be able to give a correct definition.

Okay, that’s a little snarky.

John Emerson: I always think of the shadow Rocket project in Gravity’s Rainbow when I think about that question.

re 54: intro to stats Charles Wheelan Naked Statistics, Gary Smith Standard Deviations, Lorenzo Fioramonti How Numbers Rule the World, Robert Abelson Statistics as Principled Argument

For those looking for an intro to stats, the best book far and wide is the Statistics textbook by Freedman, Pisani, and Purves. You should be able to find old editions for cheap, they haven’t changed much. It isn’t very technical and is very low on difficult math, but it’s very rigorous about statistical concepts and should enable you to become a decent reader of statistical evidence. I’ve seen this used over and over again in intro to stats classes for social scientists and it’s written and structured well enough for self study.

For more advanced stuff, good books quickly become specialized depending on what you’re interested in and I’m not aware of anything that’d be relatively accessible.

The field of economics suffers from the same affliction as the Boston-NYC-Washington pundit/media world. The latter was shown to read each other a lot more than outside sources. That gave rise to the justifiable critique of living in an echo chamber. Economists would do themselves and the world at large a lot of good if they got out of their offices, seminars, conferences and colloquia to see how people live. Try a road trip across country, stopping in small towns to see how people, businesses, farms, schools, local governments and assorted others are coping, and how they live their lives. Try practice before theorizing! Without that, economics will continue to be a dry, unrealistic field that will devolve further from reality. At least Krugman sometimes makes an effort to try to reach the public, even if it is via a biased, discredited organization like the NYT

71: I suspect that, on balance, astrologers have done less damage than economists.

the Statistics textbook by Freedman, Pisani, and Purves

Wish that had been used in the (fairly worthless) quant class I had to take in first yr of grad school instead of the (mediocre, imo) books that were actually used (that i won’t name out of pity for the authors, basically).

Individual sociologists, who actually are scientists, have plenty of biases and ulterior motives, of course; but what’s a failing in them, is foundational for the economists. Economics is about power, not truth</I
Someone I knew used to remind us time and again, "Don't trust sociologist, they are obsessed with power"

It was a half-snark. Woud sociologists be as imperialistic as economists, given the opportunity?

Well look, 95per cent of what people are saying at any given moment is bullshit, there just happens to be 10-20 per cent we give any credence to, but averages still hold. Duncan watts elaborates this arguement in the link in the op.
For my part, anyone curious who arsenal should buy come January transfer deadline, then feel free to ask.

I’m letting my cynicism show through, but it would seem to me rather likely that the difference in compensation between economists and statisticians is due to the value to the financial industry and other big players in the economy of co-opting economists — and in general using very large carrots to make sure that the discourse in economics is dominated by theories that will increase the profitability of the industry in question.

TM @78
thank you for giving the links to the debate about Chetty’s findings. Look forward to reading them. Quick question: I would guess that disengaged teachers don’t want the stronger students, given that their parents are more likely to be involved and more likely to complain (this being one of the reasons that they are stronger students in the first place). And principals can’t want to put up with tiger parents scheduling endless appointments. Is the assignment of kids to classes random? How does Chetty control for this?

Rakesh 82: assignment of kids to classes? Difficult question. I don’t know and I’m not sure you will find an answer at the links. For the record I’m not claiming expertise in the field of education science but I do have some expertise in data analysis and logical reasoning.

OK it seems like Chetty has controlled for this:
“In interpreting these results, it is important to note that children of higher-income parents
do get higher VA teachers on average. However, such sorting does not lead to
biased estimates of teacher VA for two reasons. First, and most importantly, the correlation
between VA estimates and parent characteristics vanishes once we control for
test scores in the prior school year. Second, even the unconditional correlation between
parent income and VA estimates is small: we estimate that a $10,000 increase in parent
income is associated with less than a 0:0001 SD improvement in teacher VA (measured
in student test-score SD’s).3 One explanation for why sorting is so limited is that 85%
of the variation in teacher VA is within rather than between schools. Since most sorting
occurs through the choice of schools, parents may have little scope to steer their children
toward higher VA teachers.”

Rakesh @ 87

Analysis of variance with a weak model of mysterious treatments and with noisy, error-prone data about instrumental variables drawn from uncontrolled samples — what could go wrong?

10% are really good does not mean 90% are talking rubbish. Thats a really weird point to make.

45: You garble the point. All economists, including economists in training, would be pensioned off. Anyone gaming the system as you suggested would be handed over to Pol Pots’s secular arm.

92:Just a toss, but I might posit that the ascendancy of economics and economists can be correlated with the amount of credit, or for David Graeber, debt. It takes a culture and a technology to induce a stranger to loan a large sum for a house or a factory.

This is not simply understanding markets and the effects of innovations and other shocks, but a more general sense and confidence in the predictability of social, political, and macroeconomic conditions.

It is the ambition of economists to a) create a stable and long-lasting understanding of material interactions, a science that will, if served b) create a stable and long-lasting dynamic distribution of resources, an economy (which is created by the science), and c) train and discipline states, nations, peoples, institutions and bodies to relinquish sovereignty and obey the laws of economics.

And this is all to serve banksters and rentiers, to guarantee a decent return on investment. It is no small thing to part the rentier from her money.

The dangerous part of 2008 was the capitalist strike, the TED spread.

Mirowski is probably better than this paper in that reading him should make you madder (2 senses), and there are people, actually it is done all the time, historicizing and contextualising the organization and social system of economics. I have read two histories of Chicago economics, and a book on neoliberalism probably comes out every week.

I’ve said it before, but it bears repeating – given the inability of most economists to find anything wrong with their field, it’s really hard to trust them. Just about every other field is aware of the difficulties of maintaining the academic enterprise in the 21st century and talks about it. The silence of economists looks an awful lot like a lack of self-reflection.

And as someone with a serious engineering background, I laugh at economists and their claims of mathematical superiority. Economists are mostly second-rate with the math, even statistics.

This allows me to notice how they’ve built up well-paid territories in business schools that involve teach undergraduates and MBAs badly. It’s well known how ill-served the business students are by much work by economists – but because MBAs and BBAs are effectively captive customers, it is unlikely to change…

OK. So economists have constructed a reputation for themselves. True enough. For example, if you search for a ranking of economics blogs you’ll get maybe 200 of them. What happens if you search for sociology blogs? Not so much. Whether it’s Putin and oil or robots and the labor market or or immigration or why traditional journalism is doomed at least economists always have something to say. “Everything is a social construct” gets kind of boring.

Is it possible that the flattening and dumbing down of everyday discourse by economism (if I can call it that) is contributing to depression?

(Anomie, Durkheim, never mind)

Cheer up! Soma, hypnopaedia, and lots of recreational sex is in your future. You’ll feel great. After the big die-off, of course. “More stitches, less riches!”

jch @ 90, Val @ 97

It seems to me that it isn’t hard to come up with a workable concept for denoting “the economy”: the political system of production and trade.

Val’s concern seems to be that the concept of the economy synthesized by academic economics and consumed by us as politically-aware citizens is mythically detached and unreal. Instead of helping people think productively and insightfully about the political economy in which they live and work in ways that enhance their ability to make the system work better in satisfying their material needs without compromising important values, economics produces something more akin to astrology or theology, obscuring and legitimating by loading false meanings on to ritualistic or dramatic enactments without identifying latent or kinetic functional relationships, thus insulating from effective critique, functional political systems that perform poorly for some or most people.

A narrow peak in the discipline’s political pyramid of status and power engages in highly abstract theorizing, with few if any conceptual referents to the observable economy. Within the narrow confines of that theorizing elite, social consensus plays a large part in permitting practitioners to simply ignore valid criticism. Then, the larger middle part of the professional pyramid uses abstruse statistical methods, which are often extremely weak in the chosen applications, to carry on “empirical” inquiries. Between the theoretical methods that contradict or ignore all observable phenomena and weak empirical methods that filter out almost all contact with facts, the economics profession has enveloped itself in Dunning-Kruger effect, where they continually congratulate themselves on their rigor and mastery, with little apparent awareness of their ineffectualness and irrelevance. And, finally, millions of students are indoctrinated in the dogmas of economics in colleges and business schools, and one of the principal, demonstrated effects of economics education is to make students less ethical!

The sensible thing, I think, would be for the outside world, to simply acknowledge that lots of other people do economics as a practical matter, and do it better. As for business schools, let the humanities and liberal arts evict the social sciences altogether. If business schools graduated people, with “skills” in moral reasoning, rhetoric, history, and, yes, mathematics and probability, without the economics indoctrination, we’d probably all be better off within a generation.

Oh, and many of the criticisms of econ I’m reading above also strike me as true. Econ has tons of flaws and faults, but they know how to get the $$. And they also have been effective at colonizing areas of sociology, and sociologists will need to be quantitative if they are going to fight back effectively!

That’s an incredibly smug response that fails to engage any of the actual points in Henry’s post.

What’s weird about all this is that a lot of the evidence that Fourcade et al. provide is quantitative! Has Noah Smith actually read the paper?

“If they want to know how to boost productivity at U.S. companies, or increase employment, or auction off broadcast spectrum rights, whom should they ask for advice? A sociologist?”

Politicians going to economists for help in boosting productivity at US companies – because the business people (who earn quite a lot of $$ for their expertise) need politicians advised by economists to get their job done… No wonder the US economy is screwed up.

Sounds like the ego of the economist is beautifully stroked by the politicians in need of such great advice. (Not seeing the value of this advice, particularly since the great crash of 2008. But who am I? Just a resident of Main Street, not an “economist.”)

The MOST important social scientists, at this moment, are the political scientists studying the social cognitive bias of right-wing tribalism. It appears to be a kind of mental disease that fully infects about half the population, including, we must assume, the same or greater proportion of economists. Consider the quantitative, statistically-correlated symptoms among the general population:

1. On the group/grid axes, it is hierarchical (vs. egalitarian), and individualist (vs. communitarian).
2. It is an in-group phenomenon (i.e. it is reinforced by the values of the group you belong to).
3. It is a “system one” strategy in risk assessment, and in dealing with complexity. (And often, system two.)
4. It is partly about justifying the status quo (i.e. conservatism).
5. It correlates with lower need for cognitive activity and higher need for cognitive closure.
6. Additions of factual knowledge do not counteract it.
7. It correlates with greater existential fear, with fear of a dangerous world, with fear of the Other, etc.
8. The attitude toward science is more positivistic and technologically optimistic, and devalues “impact” (i.e. regulatory) science and environmentalism.
9. In the US, there is a strong “white male” correlation.
9. It is even more pronounced among the elites and political actors, than in the general population.

What are the real world effects? Presently, the economists who preached against more fiscal stimulus are the ones who are most responsible for the extenuation of the output gap. As are the rest of the economists who didn’t have the cojones to stand up to the likes of Robert Lucas and the Chicago Rationaloids. These people are supposed to be studying “the economy”? You can argue all you want about the roots of growth, or lack thereof, but the fact is that short-term mitigation might have alleviated some longer-term consequences simply by creating greater access to food and education — right now, at this moment, in the present.

Instead, we have kids who aren’t getting proper nutrition after birth, and lots more teenagers who cannot afford college, nor even find a job. These numbers have grown over the last six years. Maybe it is turning around now, MAYBE. But much damage is already done. We (the “society”) are going to be saddled with MORE welfare spending in the future, to take care of MORE social problems in the future, –why? because many economists, who are supposed to be studying “the economy”, cannot think clearly (they have lower cognitive needs), nor take responsibility for their discipline (because it’s an in-group hierarchy), nor speak up for what is right (because facts really don’t matter).

Instead it’s a ridiculous argument about “Keynesianism” or whatever.

Economists should be ashamed of themselves. They aren’t superior, by a long long shot. This will be the judgment of science.

My experience in public policy is that really advanced statistics are rarely useful, except for torturing the data until it gives the “right” answer. The data are usually patchy, unevenly collected, difficult to join across domains and so on, and the effects sought are fairly large. Attention to what is being talked about, how that is reflected in the data, quality of data and similar issues are much more valuable than statistical expertise. The Chetty case (and the judge’s use of it) above illustrates most of the point.

This is not to argue against better training in statistics, but if it takes a lot of maths to find a one per cent difference with a large error bar, then the support it offers to policy will be rhetorical.

[Have a comment in mod.]

js.:
But one way of stating the problem would be to note that while social and political theorists would recognize these thinkers as part of their intellectual heritage, the overwhelming majority of economists almost certainly wouldn’t (with the exception of [Adam] Smith I suppose, tho even there, one wonders if any of them actually read him).

Fair enough, and the same w/r/t your next paragraph.

(For the record, I’d note that it was an economist albeit a somewhat heterodox one, R. Heilbroner, whose The Worldly Philosophers introduced a few generations of U.S. high school and college students to the hist. of economic thought in this broader sense. It was one of his earliest books (maybe the first, I forget), the most famous, and prob. the best.)

15 The great thing about economics is that it allows you to talk about the quantity and price of things without having to worry too much about the conditions in which those things are made.

I think this is a very succinct statement that cuts to the heart of why economics annoys a lot of people on the left, justifiably. Unfortunately most lefty critiques of the profession aren’t nearly so lucid.

24 Not one of them could explain, in words, what a confidence interval is.

Try asking a physicist for a clear explanation of the 2nd law of thermodynamics. (I’m mostly persuaded that it can’t be done.)

76 The exercise was meant to show that most people’s opinions aren’t worth getting too wraped up about since only 10-20% of people in any profession really have opinions that matter.

Ha! The beauty part is there is hardly any field of human endeavor where it doesn’t apply. It’s too bad ‘hierarchy’ is such a radioactive word here, if you see what I mean.

:^]

LFC@112
I guess there are actually two points I’m making:

One is the dogma: there is one true economy and this is how it works

The other is the reification: it’s a fragile plant and if you don’t treat it the way we tell you to, it will die and we’ll all be doomed.

Tabasco @24
About 10 years ago a big government department in Britain decided that it needed someone who could evaluate whether its programs were working as intended. So they interviewed 30 people with master’s degrees in social sciences.

Not one of them could explain, in words, what a confidence interval is.

That is just terrible. I wonder if they understood representative samples, sample size, or anecdotal evidence?

Val @ 98:

Mine was a simple “clarifying” comment. And, sorry, I’m afraid that you’re the one who is being condescending and “dumbing down”. (The definite article is linguistically relative, and has nothing to do with the diversity of phenomena and their means of explanation).

There are all sorts of human purposes and ends, (or, in a diminished sense, natural ones), that have nothing to do with economic calculations, of whatever sort. But there are few human activities that aren’t subject to some sort of budget constraint, and thereby subject to economic considerations.

The diversity of phenomena doesn’t obviate the questions about the boundaries, conditions and constraints under which they occur and the basic principles by which they can be explained and “justified”. Nor about how individual agents or agencies generate and are subject to those constraints and conditions, thus leading to systemic pressures and implications, which operate beyond the cognizance and intentions of participant agents or agencies. That would be the point of various social “sciences” or studies, which themselves, (in contrast to the natural sciences), are embedded in the very social practices and activities that they study. So your apparent account of “scientific method” and its simply “empirical” basis is itself naive.

Some quick comments:

@Rich Puchalsky

Mainstream economics in the U.S. is inalterably opposed to the moral values of the left. As such, mainstream economists have to be right-wing moralists, although they never can admit this. The not admitting it part is what a lot of this ideological superstructure is about.

Here’s an example. For there to not be too much inflation, we’re told, a certain number of people have to be kept unemployed.

You’re not told that. Or at least you shouldn’t be, for the past thirty years or so. Antiquated and refuted theory.

As for the condition that “mainstream economists have to be right-wing moralists”, come off it.

@TM

[Binscatters don’t have confidence intervals; no R^2’s reported; etc]

I’d be curious if people from the social sciences could have a look at the charts and judge whether respected journals in their field would publish such. Until recently I would have thought no way, not in 2014, but maybe I’m deluding myself.

1. You’re right that binscatters don’t include confidence intervals. It’s all part of the recent emphasis on the benefits of taking a nonparametric approach and “stretching the axes”, as you say, in a data-driven way. Much of what you ask about is explained http://michaelstepner.com/binscatter/binscatter-StataConference2014.pdf. Excessive use of binscatters is undesirable. But they are a good, robust way of expressing conditional density functions. (They’re also quite a new tool – the same Chetty paper was the first, I think, to use them – so there’s no agreed convention on how useful they are, and I’m speculating/giving my opinion on this.)
2. R^2 is not particularly relevant for policy evaluation. If you’re trying to explain overall variation, then R^2 is a intuitive but gameable and often silly criterion. By “silly” I mean if you include obviously endogenous variables you can explain as much variation as you want, but your estimated coefficients are meaningless. If you’re estimating the treatment effect of a policy intervention, the residual variance is not your focus and it’s all about the estimated coefficient. (That said, I imagine Raj would tell you the R^2 if asked him.)
3. I can’t comment on the significance/lack thereof of that particular variable, I just haven’t looked into it.

@Metatone

I’ve said it before, but it bears repeating – given the inability of most economists to find anything wrong with their field, it’s really hard to trust them.

Way off track here, Metatone. Pop along to an economics research seminar. Economists rip each other to shreds and see (others’) entire reseach agendas as ludicrous. Structural versus reduced form types, for example, have been at each other’s throats. See if Guido Imbens and Jim Heckman are best friends or not.

More generally, I’ve always seen the difference between statistics and econometrics as the focus on causality. To paint a vulgar picture, statisticians are great with developing methods for experimental data. Econometricians are great at finding causality from observational data. As a social scientist I am of course biased, but the latter skill-set seems more useful to the world.

Any economic theory that is criticized instantly becomes antiquated and refuted. Tell the central banks, somebody.

#54 Francis – given the work you’ve already done on linear programming for the first chapter of “Red Plenty” there’s really not much more to do if you just want to achieve educated layman status. Nearly all of statistical modeling is simply about defining some function of the vector of “residuals” (ie, the difference between the actual data and the model) and using constrained optimisation techniques to minimise that function. Unless you want to get into the weeds of exactly how that optimisation is done, that’s it. Then the rest of statistics is about making assumptions about the distribution of the residuals from the optimised model to make deductions about the probability of some quantity of interest.

It’s not really a guide to statistics as she is generally done by statisticians, but Charles Manski’s “Identification for Prediction and Decision” is a beautiful book.

134: Apparently CT won’t take the three links I got from googling “Phillips Curve 2014”

Papers or posts from the Minneapolis Federal Reserve (Fitzgerald and Nicolini November 2013); CEPR (Laszlo Andor, Oct 2014); and a long post by Simon Wren-Lewis (Mainly Macro) October 14 2014 are all about the trade-off between inflation and unemployment

“The final chart goes from 2000 to 2013. Note that the inflation axis has changed – it now peaks at 4.5% rather than 16%. The interesting point, which Paul Krugman and others have noted, is that this looks much more like Phillips’s original observation: a simple negative relationship between inflation and unemployment. ” …S W-L

Don’t let them lie to you.

TM: ” and that “mainstream economic” shouldn’t be held responsible for right-wing Voodoo (Blinder doesn’t use the word) economics (just like “mainstream biology” isn’t responsible for creationism). ”

The difference is, of course, that creationists don’t become biology professors, who are also willing to publicly and severely criticize creationists.

When the austerian professors are no long published in economics journals, and economists in general treat them as Krugman does, then and only then will mainstream economics be innocent.

The pattern of this debate seems to be that Noah Smith says false or clueless things that we then respond to. So in response to his recent post:

It is false to say economics is such a popular major and that undergraduate demand is high. I do not have recent data, and would love to see it is someone can locate it. But, sociology did a report on the 1990s:
http://www.asanet.org/footnotes/mayjune00/ba.html
This shows a) economics declined dramatically in the 1990s, and b) sociology overtook economics in the 1990s. See for example:
http://www.asanet.org/footnotes/mayjune00/batable1.pdf

Following Noah’s argument, did sociology salaries gain on economics during this period? Did economics salaries decline in the 1990s? I doubt both. For a post claiming economics’ superiority in quantitative analysis and data, there is a rather striking absence of either in support of his claims.

The other major problem with his post is that he doesn’t at all know what he is talking about when he discusses concepts like power and legitimation. There are huge and rich literatures on both. Power, for example, is studied by political scientists, sociologists, philosophers and psychologists. Noah seems myopically clueless about all of this. Instead, he links to a paper by Acemoglu to say a literature on power exists(!?!). Sorry, Noah, Acemoglu is NOT part of that literature and you’re linking to him signals a lack of awareness of the literature.

This leads to a claim I cannot support with data, so I’ll pose it as a hypothesis. Noah and perhaps other economists do not read enough, and certainly do not read enough outside their discipline.

Economists do have more options and more influence outside of academia.

And it’s because of the things they know and study rather than some vague, poorly defined “legitimation” or conferment of “sacraments”.

What exactly would you contribute to a discussion at, say, a major bank when the managing director says that a major client needs a forecast of interest rates to determine what combination of derivatives to use to hedge an investment?

I doubt your knowledge of social hierarchies and power relations will impress anyone when you’re sitting around the conference table at midnight and the client needs answers in the morning.

None of this is about “legitimation” or sacraments.

It’s about the fact that economists can deliver an answer to a question that someone is willing to pay good money for.

You can’t.

And so when a bank is trying to hire someone to deliver those answers, they’ll recruit at the econ department, not at the sociology department. Hence, more outside options.

Likewise with policy-making.

An economist that has done 20 years of research on financial markets is going to be relevant at a Federal Reserve meeting about the proper structure of the Fed’s asset purchases or on the staff of a CBO team forecasting the effects of reducing a certain tax deduction.

What would you contribute to such a meeting or project exactly?

I don’t think anyone would have the time to listen to you lecture them on power hierarchies when there is work like that to be done, with very high stakes and tight deadlines.

So no- people aren’t just deifying economists and listening to them instead of you because they have some kind of unfair socially constructed advantage.

It’s because they study specific things that matter in specific situations to decision-makers outside of academia, when there is money at stake.

#120 Jerry:

“And of course there’s zero accountability to the public; if you were on record saying circa 2006 that there’s no housing bubble, no one is holding your abject wrongness against you in 2009 when it’s time to make public policy. Convenient, that.”

http://economics-files.pomona.edu/GarySmith/BrookingsHousingBubble.pdf

Incidentally this professor is the highest paid faculty member at his college (total comp over 300K).

It’s a shame so much of this thread has wbeen given over to bashing economists. Jim Quin has finally stated the obvious.
– How should I design the auction for mobile phone bandwidth?
– How would a reduction in sales tax effect the labour market?
– Is it sensible to build an oil rig here?
– Should I buy the company that makes my company’s inputs?
These are billion dollar questions. Economists can sometimes offer answers, or at least attempts at answers or pretences to answers. That’s why they command higher salaries.
The point about how prestige works within the profession is more interesting. Krugman suggests that local/faculty networking, being in with the department head etc, really does not matter much. It is national/global reputation in your specific subfield that matters.
Is that true? More/less so than other social sciences?

Jim Quin 141

What exactly would you contribute to a discussion at, say, a major bank when the managing director says that a major client needs a forecast of interest rates to determine what combination of derivatives to use to hedge an investment?

What is the track record of economists like when it comes to forecasting interest rates? (Not sure, that’s why I’m asking.)

If you want to deregulate labor markets, fend off living wage advocates, deny to emergent countries the protection the wealthy ones historically used, eliminate tenure for California elementary school teachers, deregulate the derivatives market, create a panic about govt debt/GDP ratios, prove that stock options should not be expensed, have dependent employees (mis)classified as independent contractors or temporary workers without protections and of course dull young people’s social sensibilities so that they can enjoy equanimity in face of extreme inequality and permanent high, albeit disguised, unemployment,
you simply cannot rely on Anthro, Ethnic Studies, History and Sociology Depts.
There is only one reliable place to go.

A H@145 – “Designing auctions is the only place where academic econ has had something like an engineering success.”

A lot of this work – on Networks, Algorithmic Game Theory, Auction Theory, Computational Anything-at-all theory etc – is , in fact, done in Engineering departments. You could conceive of shutting down every Econ Dept in the solar system without any reduction in the quality of research in certain application areas like Auction theory, mechanism design and so on.

Rakesh @150:
“Do economists read non-economists who write about economics?
Gilliant Tett
Justin Fox
Jonathan Schlefer
Eve Chiapello
Donald MacKenzie
Thorstein Veblen”

Me @112:
“Smith, Marx, Veblen, Mill, to name a few, were social/political theorists (sociologists, if you like) and economists.”

@147 LFC

“What is the track record of economists like when it comes to forecasting interest rates? (Not sure, that’s why I’m asking.)”

Its a mix, but some of them are pretty good. Time frame is definitely an issue – out 6 months to a year, the accuracy is investibly good, beyond that its going to come down to whether all things being equal are really equal.

The guys who are consulted for these type of projects/reports are not the academics and comparatively high profile writers most people are familliar with – its usually a house economist, they usually have a PhD from somewhere (but not 100%) and while their writings might be well known within the financial community and among the banks customers, they almost never have blogs, write for newspapers or do articles – said differently, the writing is for paying customers only, its not given for free.

They are not trying to solve macro problems like how inflation interacts with unemployment – they are aiming to forecast particular economic data and then suggest how investors might make choices based on their view. If one expects 10 year treasuries to move from 2.3% to 3.3% over 12 months, its not really important if it turns out to be 2.8% or 3.5% – it is important that its not 1.8%….as some have mentioned, its an applied part of the field and has different goals and methods than the theorists that get so much attention.

@152 Toughen regulations in the derivatives market? I guess that I would turn to Lynn Stout before any economist I can think of. As for the Scandinavian welfare state, it may also have been the work of anthropologists–eugenic anthropologists? There is a dark side here, I think. So there are problems across disciplines of course. I think Myrdal’s Political Elements book should disqualify him from being an economist–does any economist trained in the last thirty years actually read him? He would seem much more likely to be read in a political science department and of course ethnic studies department.

My impression of interdisciplinary academic politics from the outside is something like this. Anthropologists, sociologists and political scientists all stick together, at a general level, though political scientists see themselves as more empirically minded than the other two, while the other two think that at base political scientists are racist/sexist/homophobes who havent properly accounted for their privilege biases. All three *hate* economists, as economists don’t understand the importance of ‘power’, but economists dont even realise this hatred exists as, due to the ability to add and subtract at a reasonably high level, they see themselves closer to physicists than social scientists. Physicist’s find economists tiresome, their assumptions juvenile, their models useless. If only a team of physicists were given the opportunity, the argument goes, all economic and social life could be reduced to a handful of models. Mathematicians appear embittered for reasons I can’t understand, and spend their time complaining that none of the aforementioned even partly understand the methods they use. (Philosophers something similar) Engineers and computer scientists argue among themselves over who is ‘the more practical’ , deals with ‘the most difficult questions’, and gets ‘the best results.’ Quantam biologists are the only ones speaking any sense in the whole matter, afaict.

Perhaps we should read Big Ideas in Macroeconomics: A Nontechnical View Hardcover –
by Kartik B. Athreya. I began last night. And then we can figure out whether the DSGE/ADM/Solow/Harrod-Domar models represent progress over Marx’s reproduction schema and the way that were developed by Otto Bauer, Henryk Grossman and Duncan Foley.

Ronan @159
I assume this comment is intended mostly to be amusing, i.e. tongue-in-cheek. ‘Cause it’s hard to generalize this way even w/in disciplines, as you presumably know.

This is generally how I’ve found public interaction with mainstream economists goes. I say something like “Economists say that we can’t have full employment because we’d get too much inflation” and someone hastens to inform me that I’m misinformed and that economists no longer believe any such thing. Instead there are apparently much different reasons why we can’t have full employment because we’d get too much inflation, an entirely different theoretical basis that I’m not familiar with for why the same observable behavior by economists continues.

Daniel Davies: ‘Nearly all of statistical modeling is simply about defining some function of the vector of “residuals” (ie, the difference between the actual data and the model) and using constrained optimisation techniques to minimise that function. ‘

This is a really good statement; I never thought of it like that.

I would just rephrase it as ‘statistical model-fitting’.

JW Mason 12.04.14 at 5:30 pm
“John Cochrane makes a useful point: The “economics” taught in grad school and published in most journals has zero connection with the “economics” used in macroeconomic policy settings.”

What’s interesting is that the school macro is not being used outside of school, even when there are a large number of sophisticated companies who make/lose lots of money by not being right about macro stuff, and who hire lots of economists.

In fact, a blogger named ‘Noah Smith’ had an post on this.

This is generally how I’ve found public interaction with mainstream economists goes. I say something like “Economists say that we can’t have full employment because we’d get too much inflation” and someone hastens to inform me that I’m misinformed and that economists no longer believe any such thing.

If this is really happening repeatedly, Rich, you may want to brush up on what economists are doing before you criticize them. Yes, economics has changed an awful lot in the past 25 years. If old theories have flaws that you outline, but that these theories have already been sent to the graveyard, that’s not something to moan about.

“really, you think it makes sense to ask economists about the siting of oil rigs?”
Some people think it makes sense to consult them about say, commodities markes, or the best ways to value capital investments. Perhaps they are fools. Or perhaps Shell keep all those economists on the books so they can write memoranda in favour of low taxes and union-busting. That seems to be the consensus in this thread.

Ab 173, you have piqued my curiosity. Why would Shell ask economists about the siting of oil rigs?

“Or perhaps Shell keep all those economists on the books so they can write memoranda in favour of low taxes and union-busting.”
You write this as if it were implausible. Seems a whole lot more plausible to me than your explanation. Or am I overlooking some higher level irony here?

#155 Trader Joe

Its a mix, but some of them are pretty good. Time frame is definitely an issue – out 6 months to a year, the accuracy is investibly good, beyond that its going to come down to whether all things being equal are really equal.

The guys who are consulted for these type of projects/reports are not the academics and comparatively high profile writers most people are familliar with – its usually a house economist, they usually have a PhD from somewhere (but not 100%) and while their writings might be well known within the financial community and among the banks customers, they almost never have blogs, write for newspapers or do articles – said differently, the writing is for paying customers only, its not given for free.

OK! So here’s an important topic, and in general economists can’t give good answers 6 months or a year ahead. The experts who use secret knowledge to do that sell their predictions to people who will keep them secret. These experts are not all PHD economists, and presumably they are valued according to their results. If your track record goes down, presumably your remuneration will too.

These guys are good at predicting the direction that interest rates go, nobody much cares if they get the magnitude right.

It occurs to me that this probably has nothing to do with the economics people learn in school. More like something you might do with neural nets or something. Provide the known time series, weighted in favor of the most recent, and whatever other data might help predict, and choose the nets that predict best.

It might be a game that anybody could break into. Make your guesses public for long enough to show how good you are, and then take it private. Sell your predictions to every subscriber, or if one of them pays enough then sell only to him. How long do you have to get great results before somebody will pay for them?

You could prove how good you are without making your results public. Six months and a year ahead, publish digital signatures of the documents that contain your predictions. Then after the fact you can publish the actual documents which show what your predictions were.

It looks to me like this sort of prediction probably has no connection to academic economics whatsoever, except that people with econ degrees have a head start at the recognition and trust they need to get the work.

Hmm. Predicting interest rates. Does that have something to do with predicting what the Fed will do within the next 6 months? How could academic economics possibly help with that?

Dani Rodrik’s critique of economics as a profession.

https://www.ias.edu/ias-letter/rodrik-economics

@TM, Shell has loads of people who weigh the numbers on businessy questions. Comb through the cash flows and expected future cash flows of projects, build arguments on which possible investments make sense under which conditions. Including, yes, whether they should fund a certain platform.

As far as I know, this has not much relation to cutting-edge economic Theory. But people educated as economists have an affinity for such work, they already know part of the jargon, and they tend to be theoretically stronger than people who went to straight to business/management school out of high school. Economics is the go-to education for people who want to do money-work and have an academic bent of thinking.

@177 J thomsas

It is an important topic since it hopefully helps illuminate the difference between academic economics (which is what the OP is mostly about) and the non-academic alternatives which as many have mentioned have a lot of money behind them and is why there is so much ‘care’ are about economics relative to the social sciences.

There isn’t one set answer as to how people get jobs as bank economists. Most investment banks have a person who is named as ‘chief economist’ and whose name goes on the top of the estimates/forecasts. Under that person is a team of people who are doing the data work, analytics, model building etc. and as you say, that’s where the credentialing comes in to get a spot on the team in the first place.

Often there are different specialists below the chief economist – perhaps ‘rates strategist’ or “currency strategist’ These guys tend to be deep, but narrow in their specialty whereas the chief economist is going to be a bit more broad.

I’m sure it’s happened, but I’m not aware of many cases where some academic PhD has been helicoptered out of academia and anointed a chief economist – the skill set doesn’t immediately translate. They don’t talk the talk. They can’t convert the concepts to investment ideas. Most often guys work their way up the ranks from analyst to sector specialist to chief maybe moving between firms to get the promotions.

The guy who gets the top job ultimately has to have two key attributes – first some ability to consistently reach the right conclusions from the data he is working with and two the ability to communicate how he reached his conclusion and therefore what should happen if he’s right and just as importantly what could make him wrong and how to respond to that.

The combination of the communication skills and the analytics are what make that person valuable to their customers. The customer isn’t only paying for being “right” (although they won’t pay indefinitely for wrong). Part of what they want is insight into the numbers, what can change and just as importantly what other investors are thinking about and the questions others are asking. Part of their insight is listening to what market participants are thinking about and that’s not something directly captured in an econometric model.

Investors will ultimately make their own decision about how to invest their portfolio they aren’t being “sold” something. They are paying for insights and someone that helps them make better decisions over time is well worth what they are paid (an extra 5 basis points on a $10 billion bond portfolio pays for a lot of economists).

The proof is in the pudding so to speak, these guys do get compensated and unless all of their customers are making uneconomic decisions, they must be adding value in some way or else, as you say, they’d get rid of that guy and send in the next.

Economics is to the economy as physics is to baseball.

168: 4. This is ten million miles from “For there to not be too much inflation, we’re told, a certain number of people have to be kept unemployed.”

Dean Baker, today:”It is central banking 101 that you raise interest rates to slow the economy and throw millions of people out of work in order to head off inflation. Paul Volcker is a hero in elite Washington circles precisely because he raised interest rates and threw millions of people out of work in order to bring an end to the inflation of the 1970s. To his admirers (which do not include me), the longer term benefits to the economy were worth the pain suffered by the millions of unemployed and their families.”

You are going to have to parse that for me a little. Was the “ten million mile away” problem with the phrase “certain number?” As in the number (s, disputed) that is NAIRU?

I kinda assumed the commenter was not totally informed and so did not demand a perfectly phrased question. I tried to respond in the spirit rather than the letter.

Hell yes, most economists, liberal or conservative, fresh or salt, believe in the inverse relation between inflation and unemployment.

Back to OP, though probably repeating myself, in an age where everybody wants to learn statistics and some check the box office everyday and some watch sports with a calculator to catch WaR or twitter followings, our society have the disinterested, scientific, objective, empirical dismal economists we deserve. We are being consumed by our numbers, no longer a Panopticon, we are watching each other counting whose watching. And timing it. And placing our bets.

Since I believe the problems with economics are pretty much constructed, like everything else, at the ground level in everyday social interaction Foucault of Birth of the Clinic and Order of Things (and biopolitics) is more useful than the Bourdieu of Homo Academicus and Reproduction in Education

@Jerry V 186: I guess Deirdre McCloskey could be one candidate. Another, very different candidate might be Philip Mirowski

@ 180
Well that was a rather lengthy post, telling me a lot of things I already know, making some claims I don’t agree with but which are probably a bit too off topic here to debate, and not really answering my question.

I think you actually acknowledged my point that when we attempt to distinguish between dogma and theory, we usually have some recourse to empiricism, but had to say it in a way that showed your empiricism was a better kind of empiricism than my kind of empiricism.

I guess if you (me) tell someone that what they are saying is dumbing the conversation down, then there is some likelihood of an antagonistic response. I wouldn’t normally start a conversation with someone that way, but you know it was relevant because you were illustrating my previous point about economics (or econo-speak) dumbing conversations down. Oh well lost cause I guess, but I’ve spent years studying social theory, so I think you are accusing the wrong person of being a naive empiricist here.

Why do economists get paid more? Over 40% find work in the private sector, int’l organizations, gov’t, nonprofits, etc and most of these jobs pay a premium over academia. Not so much for the other social sciences. By the way, something like 64% of new US econ PhDs are not US citizens.
See, “15 Years of Research on Graduate Education in Economics: What Have We Learned?” by Wendy A. Stock and John J. Siegfried Charts and tables are at at the end of the paper.

#183 Trader Joe

The guy who gets the top job ultimately has to have two key attributes – first some ability to consistently reach the right conclusions from the data he is working with and two the ability to communicate how he reached his conclusion and therefore what should happen if he’s right and just as importantly what could make him wrong and how to respond to that.

The combination of the communication skills and the analytics are what make that person valuable to their customers. The customer isn’t only paying for being “right” (although they won’t pay indefinitely for wrong). Part of what they want is insight into the numbers, what can change and just as importantly what other investors are thinking about and the questions others are asking. Part of their insight is listening to what market participants are thinking about and that’s not something directly captured in an econometric model.

OK. Too bad. If all you needed was a way to fit the data without fitting too much of the noise, and you didn’t have to say how you did it, there might be room for fresh competitors to enter the field. But when you also have to come up with a convincing story, if you find a particularly believable story then your competitors can copy you. It isn’t enough to be right, you have to impress people by your credentials, your personal appearance and office decor, your job title and history, etc etc, whatever you can use to be believable that can’t easily be copied. So it looks much harder to enter that competition. It was a beautiful pipe dream for a few minutes.

Thank you for the explanations.

The proof is in the pudding so to speak, these guys do get compensated and unless all of their customers are making uneconomic decisions, they must be adding value in some way or else, as you say, they’d get rid of that guy and send in the next.

Not to be too cynical about something which is not really economics, when the topic is about being cynical about economists, but since uncertainty is unsettling and unpleasant, anybody who can reduce customer uncertainty will be perceived as adding value. Supply something they believe in, and they will like that unless they find out the predictions are too often in the wrong direction. Even then they may prefer stories that make sense of the situation in general — even though they fail in specific predictions — to being uncertain in general.

Or maybe when there are billions of dollars at stake people behave more rationally than usual. ;-)

@195 Well it doesn’t look wrong from deep inside. That’s why they call it a paradigm.

But this confirms it:
If this is really happening repeatedly, Rich, you may want to brush up on what economists are doing before you criticize them. Yes, economics has changed an awful lot in the past 25 years. If old theories have flaws that you outline, but that these theories have already been sent to the graveyard, that’s not something to moan about.

This is the dance that’s been going on since the first push back against the Freshwater boys. It involves lots and lots of jargon filled lectures on YouTube. And it’s all eithe Sudoku or moral philosophy… And a lot of lipstick.

Oh yeah. It kills poor people.

How much stat does a person need to know to be able to do statistics without having better informed people call bullshit on them? I get the impression that everybody thinks everybody else is doing it wrong (especially in medicine).

Though not by any means an uncritical fan of academic political science (which can be just as scholastic, narrow, and insular as anything else), it does strike me that at least a few political scientists have done important work recently on inequality and its ramifications, e.g. Gilens & Page, Hacker & Pierson etc.

The November issue of Am. Pol. Sci. Rev. arrived in my mailbox the other day. It has two (and possibly three) articles that I probably will actually read (as opposed to just reading the abstract), which in itself is noteworthy and somewhat unusual from my standpoint.

Don’t think any broad conclusion shd be drawn from this, and I wdn’t be as praiseworthy as T Hall about pol sci. But thought i wd mention, fwiw. (Btw I think “broken windows” and pro-incarceration are two different matters. But that’s OT.)

#198 Chris Mealy

How much stat does a person need to know to be able to do statistics without having better informed people call bullshit on them? I get the impression that everybody thinks everybody else is doing it wrong (especially in medicine).

If you learn the statistical methods from 80 or so years ago, and learn them well enough to do them correctly, people will not call bullshit on you.

There are more modern approaches which will get better results. They might find out whether your results are significant at a given level with less data. This is useful when more data is expensive or slow. But the old methods will give you correct results, if they’re correctly used.

The most common errors all boil down to common sense, but when things get complicated it’s easy for common sense to fail except in hindsight. If you throw away part of your data, try to make sure that the part you throw away is just like the part you don’t. If you throw some away because some of your measurements didn’t come out, try to make sure that the times your measurements don’t work are just like the times when they do work. If you make a botch of some data points, it’s OK to throw them out provided you’re sure that the times it happens come at random, independent of what’s going on with the data.

Traditional parametric methods usually must assume finite mean and finite variance. If those assumptions are not true you will have problems. You can test for those problems and use advanced methods to deal with them. Or you can throw out outliers and get much more normal results. If you throw out the outliers, you lose data about rare events which might be important.

Usually you can’t measure the variables you are most interested in. Instead you must measure something which is easier to measure, which you hope correlates with the important variable. Ideally you will have evidence about that correlation, and you can show that in the conditions that you are measuring the two variables correlate well, and that it is not true that in those particular conditions the two variables are independent or correlate in reverse etc.

There are lots of ways to get into trouble, and most of them involve saying that your results show things that they do not in fact show. In general, the more interesting your claims, the more likely somebody will look carefully at your methods and find flaws in them. Also, people are more likely to look for flaws when they have something to lose if you are correct. If you get a result that looks like it’s good for everybody, people are far less likely to criticize your statistics.

I keep hearing echoes, especially in jch’s contributions, of Polanyi’s Great Transformation. If, as we all in one way or another suppose, Capitalism and the Necromancy of Finance have now permanently upended human society, it seems odd to me that the priests of the new order, the economists, should be as unconcerned as they seem to be about the remnants of the defeated human institutions of the past still entangled in their mechanisms, and of those parts of the human psyche which still pledge allegiance, as it were, to the old gods.

At the moment, economists seem concerned mostly to shave off the parts which don’t fit their predictions, and if, as Thornton Hall suggests, this kills poor people, presumably that’s only because the poor haven’t heard the Good News. On the off chance that Bishop Tutu or Arundhati Roy get snippy about the body count, it can be waved away as the unfortunate consequence of non-overlapping magisteria. If that doesn’t do the trick someone in the outer office will surely call security, and tell them to make doubly sure that everyone admitted to the conference has the proper credentials.

In case it wasn’t obvious @24, the inability of the job candidates to describe a confidence interval had nothing to do with frequentists versus Bayesians. What they couldn’t do was explain in words what generations of Statistics 101 students have been taught to do in a cook book fashion.

The first part of that anecdote, by the way, which I left out, was that these people with masters degrees in social science could talk at length about deconstruction but could not explain in words …

Some people have pointed out that economists are paid lots to help BP site oil rigs, or forecast to businesses the likely direction of interest rates. And tell government about Pigovian taxes.

Hmm. It’s as if no-one sited oil rigs, took punts on interest rates or thought to tax naughty things before economists came along. Or even – poor things – thought to measure the results and check. I tell you, before economists we hunted mammoths with rocks.

While john halasz has a good intellectual point, we really do make better progress when we check against whatever bits of reality are available. The natural sciences do this, albeit in a less than perfect fashion. So, too, does academic history (popular history often prefers the old stories). Anthropology tries to document social reality. Many of the other social sciences are much less attached to this kind of empiricism. Even when they try, they usually lack the inclination, resources and methodology to collect enough “facts” to test against (see IR Theory for a good case in point). The kudos that ensues to the climate researcher who assembles a better coral core sequence or measures glacier flow does not apply in these fields. Bold speculation wins the day. In the case of economics, the field is often hostile to the kinds of detailed historical research that would really test the models – especially research on periods before good stats were available. And also hostile to drawing on other fields for context (see Acemoglu et al for egregious examples).

Yet economics takes the money. Why? For the same reasons theology students took the money in renaissance and early modern Europe, and military types in C19/early C20 Europe. Because in those periods the salvation of souls and the preservation of the nation were felt to be the highest goals. We now worship money, but that is changing. I predict that by 2200 ecologists will rule, and economist will be a tragic remnant persisting in odd corners of the academy. Either ecologists or rats.

Zamfir

I agree. Most of the jobs economists do (apart from economic theory and prognostication) can be, often are, and were, done by others just as well. Economics is where it is because people, by and large, think the economy is the most important public thing. This belief is, in itself, justification for the prestige and rewards accruing to economists. My feeling is, however, that this is changing.

BTW, the parallel with theology is quite exact. there were any number of qualified high theologians prepared to explain, yet again, that indulgences or simony or immediate translation to the afterlife were not orthodox doctrine but vulgar errors – nothing to do with the real religion. yet their fellows persisted in selling benefices and pardons and masses for the soul.

Besides bankers, the main product of the econ biz is udergrad econ students who don’t go to grad school. And very few indeed of these students. and I don’t know how many of the bankers, are aware od the True Scotsman Economics that In the Sky proclaims as the only real economics. That’s all late-graduate school, back of the book stuff. All of the obsolete stuff is still around in force, even though the top new economists scorn it.

@210
Many economies, many societies, and many intellectual sub-cultures – even in faraway Australia. I talk to the people on Prof Q’s blog – we are all pretty amiable now – but there were times was my name was mud, with all my talk of framing and assumptions and what have you.

Just to restate my original point – there are societies and there are economies. Mainstream or positivist or neoclassical – whatever you want to call it – economics tries to reduce this to one model, in which there are individuals and there is utility: ‘the’ economy. It’s just a way of seeing the world, but it’s a particularly boring and depressing one, which was my other point.

Of course I talk about ‘ the economy’, like everyone else – probably partly because it’s a convenient shorthand, partly because I’ve been brainwashed, like everyone else, I suppose. But “economists study the economy” is clearly a form of words suggesting there is only one economy.

Because I studied the way that ‘economy’ was understood in twentieth century Australia, I could talk a lot about this, and how even terms like production and consumption are basically pretty woolly and ideological, but I feel I’ve said enough. I just think something has to be done about the way that economics has colonized our polity.

WD40’s argument above is quite interesting, but this :

“Sociology employs almost exclusively the monopoly model (hierarchy, hegemonic, and power are sociological terms for monopoly or near monopoly)”

surely is wrong ? What about a Social Network or institutional analysis (to name the only two i know) ? These could, at some level, be termed ‘hierarchial’ I guess, but that really doesnt tell us much. Afaict sociologists can utilise numerous models or methods (perhaps not as many as economists, but still plenty) not all of which adopt a ‘monopoly’ perspective.
I think in the sky is making a number of fair points. At this stage it seems people just want to beat up some caricature of economics(an explain all for the problems of the world.) It’s pretty tiresome and not very convincing (imo)

#217 Ronan

Ive generally found economists (particularly those trained in ‘neo classical’ economics) far more approachable to a layman than any other discipline, and also far more willing to accept there are limits to their knowledge.

I’ve found that Austrian school economists are the most approachable.

In their explanations that government deficit spending is always inflationary, that Keynes was dead wrong about everything, that we would do better with a gold standard, that fractional-reserve banking is a form of theft, that free markets are always efficient and always the best possible way to allocate resources in the face of uncertainty, they explain economics in a way that is easy for laymen to follow.

Of course In The Sky says that this isn’t the real economics, but a lot of laymen don’t get that this is old discredited economics but instead think that the new economics from Keynes on is all wrong, and that Austrian school will emerge as the truth.

@217
Well Ronan(rf), I may be one of those people who are “critiquing a highly technical, sophisticated subject with apparently little to no knowledge of it”, since I’ve never studied economics (though I have read several texts, including a large undergraduate introductory text, in an attempt to learn more), but on the other hand, I do have direct relevant experience since I work in the reasonably good Australian public health system, which is continually – as now – being threatened with privatisation, price signals, market discipline, etc.

There is no evidence that any of these measures will make the system any better, and considerable evidence that they could make it significantly worse. So given that real example, how do you defend those economists who prescribe all this? This is not about whether economists are nice people, and I am asking you a genuine question.

Val – Im not defending the economists who want to privatise the Australian health service. Take it up with them. Economists come in all shapes and sizes, a lot of the ones where I come from (Ireland) have taken very progressive stances on numerous causes, such as paying back bank debt (against). Afaict most also arent in favour of a privatised health service, so Im not sure that your generalisation is fair.

Here’s a decent first touch polling off mainstream economists on policy issues. Certainly seem to skew to ‘market based solutions’, but noy uniformly and with qualifications

http://www.igmchicago.org/igm-economic-experts-panel

@222 and 223
Ronan(rf) I’m not disputing that you know some nice economists, but you seem to be missing the point. The fact that you can get these very highly credential led economists to give this nonsense advice to conservative governments is one of the very things people here are critiquing them for. It’s not just because we are ignorant and don’t know anything about economics, as you suggested.

Look at the biography of one of the guys on our conservative government’s latest “Commission of Audit”, which recommended a $15 co-payment fee, not just for doctor’s visits, but for every test or procedure associated with it (in addition to what we pay through our taxes). This guy is blue ribbon economist. And it’s no good saying ‘oh well he’s one of the old bad school economists, nice modern economists don’t think like that’, because these guys have been running this stuff out since the 1980s, and it has had seriously bad effects – and, as I’m telling you right now, they’re still doing it.

http://en.m.wikipedia.org/wiki/Peter_Boxall

No Val, people are not criticising specific economists who are offering policy advice, they are offering generalisations about a discipline they (and I) do not understand.

This is not about me knowing ‘nice economists’ (I know none, personally) It’s about the intellectual bankruptcy of the left.
People seem to be combining three things – the manifestation of ideas and rhetoric in policy and public debate, economists who do the bidding of corporate interests, and economics as a discipline, into one whole which they can critique with meaningless generalisations and displays of moral superiority.
Here’s the Rodrik critique (from inside economics) again

https://www.ias.edu/ias-letter/rodrik-economics

Jim Quin
Better than the track record of sociologists forecasting interest rates

Funny. Have you considered a sideline as a stand-up comedian?

John Emerson,

What do you think of the work that people like Krugman, Joe Stiglitz and Dean Baker do, for example? Is it economics?

Ronan @ 228

Well said.

#228 Ronan

It’s about the intellectual bankruptcy of the left.

I thought it was about the intellectual bankruptcy of the economics community.

People seem to be combining three things – the manifestation of ideas and rhetoric in policy and public debate, economists who do the bidding of corporate interests, and economics as a discipline, into one whole which they can critique with meaningless generalisations and displays of moral superiority.

Imagine that a whole lot of climate scientists did the bidding of corporate interests, and publicly announced that it is completely proven that there is no human-caused climate change and there can never be such a thing. And then when people claimed that a lot of climate scientists are unscientific corporate shills, somebody responded that *real* modern climate scientists disagree with that.

Imagine that a whole lot of biologists and MDs did the bidding of the nuclear industry and publicly announced repeatedly and over decades that ionizing radiation is good for you.

Imagine that influential epidemiologists announced publicly that if people lived right there would be no epidemic diseases, and so there is no need to spend money to prevent epidemics and no need even to spend money to find out whether epidemics are happening or study how they happen when they do.

And imagine that there was not enough agreement about the disciplines of climate science, biology, or epidemiology that these views could be regarded as kooky.

And then people made defenses like “Well, no good, modern epidemiologist holds those views” as if the bad, old-style epidemiologists were not effective at getting funding cuts.

It sure looks to me like those three things you describe are linked together into an unhealthy whole. It would be a good thing if a way could be found to break that linkage so they don’t work together to kill people.

Let me give a hypothetical example to show what I want. Suppose that I said “We don’t need police or bank guards to stop bank robbers, because the bank robbers will police themselves to protect the long-run interests of their profession.”. Crazy, right? If I tried to make economic justifications for that crazy idea, people could say “J Thomas is not a professional economist and he does not understand economics. His idea is crazy.”

But suppose that somebody who did have a PhD in economics announced the same crazy idea. They couldn’t refute it so easily. Other economists could present their contrary opinions, and the result would be that economists disagree.

If a physicist announced that he believed in phlogiston, other physicists could say that he is not doing physics. Physics has no room for phlogiston.

If a molecular biologist announced that he believes in copy-choice, that has been disproven. Molecular biology has no room for copy-choice.

If a professional economist announces publicly that he believes the economy is inevitably doomed unless we switch back to a gold standard, there’s nobody who can say it is not economics. In general, voodoo economics is economics. Economics is whatever economists do.

So if we actually had a discipline of economics that was robust enough to announce that (for example) Austrian economics is not in fact economics, that would be one good thing.

And if we actually admitted out loud to everybody that there is no discipline of economics, that the most fundamental assumptions are in dispute, that the Austrian school is not in fact discredited nor are economists who believe almost the opposite about almost everything, that would be a different good thing.

If we agreed that economics as a discipline deserves no credibility yet. That would be good for the world.

J Thomas

And if we actually admitted out loud to everybody that there is no discipline of economics, that the most fundamental assumptions are in dispute, that the Austrian school is not in fact discredited nor are economists who believe almost the opposite about almost everything, that would be a different good thing.

A better way of saying this, imo, is that economics, despite whatever pretensions it might have to the contrary, is still in many ways like the other social sciences, where some things are widely agreed on, but many other basic issues and assumptions are in dispute. Which puts the burden on policymakers and voters to decide which economists make sense and which don’t. Which I personally prefer as an approach to the more broad-brush “economics as a whole is bogus and should be abolished and all economists sent to Siberia” approach. Which is one reason I have tried to refrain here from making clever anti-economist jokes/snark, tho i cd retail one or two pretty recondite ones (albeit not original w me).

“If we agreed that economics as a discipline deserves no credibility yet. That would be good for the world.”

My impression is that ‘mainstream economics’ as a selection of models, assumptions and perspectives explains less than the average economist would like to believe. This is probably the nature of professional socialisation, you overstate the relevance and usefulness of your resarch and mode of thining. I dont think it has *no* credibility nor do I really expect someone trained in it to say so, but a certain level of scepticism would be fine by me. I understand you adopt an extreme sceptical take on things JT, and that’s fine. I like you as a commenter, even if you do (imo) overdo it at times. ; )

Obviously mainstream economists generally think the Austrian School is nonsense (or at least parts of it), and vice versa. Again, Ive no problem with that, it’s the nature of academia (I would guess) to try to develop ‘good’ ideas, which also means discarding nonsense ones. I’ll leave them argue it out as it doesnt interest me.
My only issue is with statements like your one above. It doesnt state anything explicitly. I dont know who *we* is, I’m not sure what you mean by *no* credibility and Ive no idea what your definition of *good* is.
Is all mainstream ecnomics useless ? I doubt it. Are economists given too much credence in policy debates ? I’d assume so. Is rhetoric to ‘free markets’ banal and useless ? Sure. My guess would be economists can explain some questions well, sociologists/political scientists/anthropologists can explain others better, so on and so forth. This is a trivial point, by me, ut I think it more accurately frames what’s at stake here.
Finally, look, Im not an expert on nought so I have to take a lot on the assumption that all these people doing X have some degree of professional competence and integrity and that there’s some sort of professional oversight and system of correction in place. That might be naive, but it’s where I stand at the min. So i dont buy your unerscepticism neccesarily, but Im also not sure where I draw the line specifically. If you get me.

“It seems to me that we know what works best for the majority of the population, and that is Scandinavian style democratic socialism. I only hope that one day we can reach that goal.”

See this is just the type of stuff that too many economists are inclined to trot out. I agree there is much to recommend Scandinavian democratic socialism, and no doubt models and data could be produced to display its greatness.

That said, its a model which has been applied to about 1% of the world and a piece of it that is particularly homegenous, industrialized and well blessed with natural resources. Presuming from this small working model that it would also work in Inida, Haiti and Greece is about the equivalent of inferring from one thriving albino squirrel that all ruminants should be white.

(Meanwhile in the land of prosperous democratic socialism …)

AB @173

Shell economists are in house trained analysts. Here is the education requirments for a and economist job posting

“Bachelors degree (Masters preferred) in a commercial or technical discipline, such as Economics, Business, Engineering, Geosciences, etc.”
https://krb-sjobs.brassring.com/tgwebhost/jobdetails.aspx?jobId=753820&PartnerId=30030&SiteId=5798

What the “economists” at shell are doing has little relation to the specialized knowledge Econ PhDs have.

That said, its a model which has been applied to about 1% of the world and a piece of it that is particularly homegenous, industrialized and well blessed with natural resources. Presuming from this small working model that it would also work in Inida, Haiti and Greece is about the equivalent of inferring from one thriving albino squirrel that all ruminants should be white.

There’s nothing magical in the history of Scandinavia (or, you know, Germany or France or the Netherlands or lots of other parts of Europe) that somehow determined that they’d come up with successful models of democratic socialism. Neither is there any particular reason to assume that it can’t work in Greece (which, last I checked, was in Europe, and also relatively industrialized and homogenous) or Haiti or India. Lots of right-wingers love to hint at (without quite saying so) the notion that somehow non-white people simply lack the fundamental whatevers to create a democratic society, but I’m going to assume that no one engaging in this conversation actually believes that bullshit. Lots of material disadvantages and barriers of course exist for countries like Haiti (imposed primarily by Western powers, incidentally) but that’s no reason to think that Haitians don’t want the same basic things that democratic socialism was created to provide in other countries: security, a safety net, etc.

If laypeople cannot be expected to gain minimal competence in economics etc, then the best we can do is somehow manage to give “our” economists, those who represent our interests (which really should be our only concern) whether or not they are completely correct accurate consistent theoretically, actual effective working authority and influence which returns to the story of the OP. And a working or minimal knowledge of sociology and politics would be much more useful than much understanding of economics. And similiarly to politics, opposition economists should be treated like Republicans, and “friendly economists” (Krugman this week said again he is just not theoretically confidant the inequality hurts growth) should be attacked as viciously and consistently as warhawk Democrats.

For a first approximation, I would suggest that incendiary slogans are more useful than rational discourse:”Workers of the World Unite,” “Property is Theft,” “Cross of Gold” etc.

“A Scandinavian Social Democracy would be as pointless in an impoverished country like Haiti ”

Why? Poor people don’t want social safety nets, strong education systems and deomcratic accountability? The neo-liberal model sure as hell hasn’t worked…

I really doubt that liberals will ever accept irrationalism (because rationalism is their religion) because the competitive scientification of discourse seems to favor intelligent elites, even say within these threads. And of course, technocratic elites will take care of themselves and each other before those not in their meritocratic milieu.

“Iraq is a stupid war”
“Ahh, so there are smart wars and stupid wars. Let us reason together and I will show you that Iraq is indeed a smart war.”
The pigs will always win that.

“I just don’t wanna, don’t need reasons” is perfectly fine for those with confidence in their intuitions, judgements and preferences and who don’t seek their own justification with submission to experts and technocrats

@237 MPAVictoria
Your comment demonstrates why DeLong and Krugman are the two most dangerous economists in the world.

They are both actually quite explicit about why they have been right over the last several years. Krugman tells us time and again:

Reality has a well known liberal bias.

We know, because he has explicitly told us, that his policy conclusions are not drawn from the application of economic theory. Rather, they are the combination of good history (knowing the history of Japan over the last 30 years) and ad hoc modifications to the IS/LM model.

Step back.

It is quite clear that my ad hoc modifications will be different from your ad hoc modifications. The difference will be explained by our different values, assumptions, and preferences. That’s how ad hoc modifications work.

What’s the obvious conclusion?

When Krugman says, “Reality has a well known liberal bias” he is not revealing the deductions of his economic theorizing. He’s explaining the prejudice that he adds to economic theorizing that makes it come out correct.

Krugman is liberal because he’s right. He’s right because he’s liberal.

The danger comes when you attribute his correctness to the theorietical hand waving, because in the hands of other white men, it always seems to favor white men in developed countries. By magic.

J Vinokurov re laypeople/competence etc:
Well, to some extent one is going to rely on one’s prior ideas and commitments, yes. For ex., when I read about a book like James Grant’s The Forgotten Depression, as described in Robert J. Samuelson’s “A Recovery Undermined?” (Wash Post op-ed, Dec. 1, p.A17), I say to myself: “This sounds like bullshit to me.”

Thornton Hall 254

I somewhat disagree. You’re saying that (pundit-style or policy-oriented) economics and constitutional adjudication are nothing but manifestations of the practitioner’s politics. I don’t think that’s right. The person’s politics influence but don’t always determine the outcome, i.e. what he/she writes or, in the case of the Sup. Ct., decides.

How will Scalia vote on net neutrality, for example? I’m not sure, partly b.c I don’t think the answer is deducible from his policy preferences whatever they might be here. Could I have predicted Scalia’s vote on the drug-sniffing-dogs-on-the-porch case from a term or two ago? No, and I doubt you could have either, at least not if all you knew about Scalia was that he is, in your words, “an angry, old, doctrinaire Catholic bigot.”

To bring it all back home, this is why the article in the OP by Marion Fourcade, Etienne Ollion and Yann Algan is so important.

Economics is professed by an inbred clique of white males who hale from rich families.
Economics consistently reaches conclusions that tend to reinforce the power of an inbred clique of white males who hale from rich families.
The methods used by economists to reach the above conclusions have never been shown to correspond with reality.
Those methods are still used anyway.

Huh.

I’m astounded that a thread that began with some sensible criticisms of economics has devolved into baseless, nonsensical assertions that “economics is professed by an inbred clique of white males who hale [hail] from rich families” (T Hall) and that no academic field can have any status unless it is one of the natural sciences (J Thomas).

@261 I’m fairly certain that’s an accurate rendering of the article cited by the OP.

p. 2 ” For instance, economics, like physics or philosophy but in sharp contrast to sociology, is a very male- dominated discipline (see Figure 1). “

The interesting thing to me is the defense mechanisms employed by academics to defend the way their fields are defined.

Calling a perfectly obvious truth “baseless and nonsensical” is one that demonstrates, beyond a shadow of a doubt, that rationality is a poor way to understand human behavior.

@264 Thanks for assuming that my obtuseness had to be intentional, but, alas…. Also I meant to say that CT, not CR, is a cabal of philosophers.

” but superimposing the laws of say Sweeden on Haiti would hardly be the best first step towards change.”

Wow. I don’t think I wrote that… If I did that is not what I meant at all. I meant that social democracy seems to be the best system for the average person. So lets go and try and get some form of it implemented. A social safety net in Haiti may look different then one in Canada but you have to start somewhere.

J Thomas @ 252:

There are lots of basic ideas where reputable economists disagree.

Physicists have a large set of ideas they all agree on. Conservation of mass and energy. Conservation of momentum and angular momentum. Etc. For a big collection of practical problems they will pretty much all get the same answers, which will turn out to be measurably right within margins of error. For another big collection of practical problems they will all agree that physics does not (yet) have the tools to solve them. They don’t get a big spectrum of answers and then brag later about who was right.

Economics does not have that. Before economics gets that sort of status they must either develop a set of fundamental claims that are so compellingly true that they all agree, or else arrange that people who continue to disagree do not become economists.

JW Mason @ 160 linked to a recent blogpost by John Cochrane, in which Cochrane says Krugman is right, twice! (It’s funny, because Cochrane frequently rants that Krugman is wrong about everything. Cochrane, an expert in the theoretical analysis of asset pricing, has made an internet career out rants against the macroeconomic heresies of Krugman, an expert in the theoretical analysis of increasing returns in international trade.)

Here’s some of what Cochrane wrote:

Thus, if you read Krugman’s columns, you will see him occasionally crowing about how Keynesian economics won, and how the disciples of Stan Fisher at MIT have spread out to run the world. He’s right. Then you see him complaining about how nobody in academia understands Keynesian economics. He’s right again.

Perhaps academic research ran off the rails for 40 years producing nothing of value. Social sciences can do that. Perhaps our policy makers are stuck with simple stories they learned as undergraduates; and, as has happened countless times before, new ideas will percolate up when the generation trained in the 1980s makes their way to to top of policy circles.

I think we can agree on something. If one wants to write about “what’s wrong with economics,” such a huge divide between academic research ideas and the ideas running our policy establishment is not a good situation.

The right way to address this is with models — written down, objective models, not pundit prognostications — and data. What accounts, quantitatively, for our experience? I see old-fashioned Keynesianism losing because, having dramatically failed that test once, its advocates are unwilling to do so again, preferring a campaign of personal attack in the popular press. Models confront data in the pages of the AER, the JPE, the QJE, and Econometrica. If old-time Keynesianism really does account for the data, write it down and let’s see.

Cochrane is being misleadingly pious here, in a way that is directly relevant to the OP, in that the work of Fourcade links the legitimating authority of the journals to the pathological arrogance of economists. One of his perennial arguments in his anti-Krugman rants is that the economics of the blogposts and op-ed pages is different from the economics of professional journals, and that economists, like Krugman, often make claims in journalism that conflict with, or do not reflect the more erudite and ethically constrained claims published in peer-reviewed journals. In this particular passage, Cochrane is, quite accurately, noting that the macroeconomic ideas of actual policymakers, such as central bankers, is quite different from the macroeconomics of the journals. (For the commenters, who have been going back-and-forth on whether professional economists have practically useful skills, this would seem a more directly relevant datum, than whether economists have any involvement in siting oil derricks.)

Thornton Hall has been doing yeoman’s work in his comments on this thread. I’m afraid at any moment that he’s going to fall off his tightrope, crash to earth and not realize it, but, so far, he’s been doing really well. Certainly, he’s right about Krugman’s macroeconomics. There’s no there, there. Krugman has intuitions, which flow from his political liberalism primarily; there’s no deep theory behind what he says. And, in fact, as JW Mason and Lars Syll and others occasionally point out, Krugman, the textbook author and pedagogist of economics, is every bit as conservative and orthodox in his economics as Cochrane, pushing indoctrination of students in esoteric concepts like, say, the long-run neutrality of money. And, as another commenter pointed out, as a paid-up member of the elite inner circle, Krugman regularly does his bit to police the boundaries of the profession, scorning the unwashed or blessing the orthodox. He’s enlisted people like Eggertson and Simon Wren-Lewis, which one can see, politically, as coalition-building, but within the profession, confirms the legitimacy of mainstream methods, including the infamous DSGE models.

So, finally, getting back to J Thomas’ comment about agreeing on a set of ideas. From the outside, agreeing on ideas may look like science, but it’s the social form of science and not the substance. This is the fundamental play of sociology and anthropology: to separate the role enactments from the claims of participants, noticing the constrast. Hence, the OP. Economics — mainstream academic economics — is organized socially around agreement on a set of ideas. Unfortunately, it is a set of seriously flawed ideas, and the social organization functions to insulate those ideas from effective criticism.

The problem, as I see it, is that economists do not know what they disagree about. People like Cochrane and Krugman are going to disagree about political values — that’s built into the nature of political discussion as an airing of the range human ambivalence. We may narrow the range of ambivalence, but we are never going to wake up to find everyone is a liberal.

A subject as abstruse as astrophysics demonstrates the range of human ambivalence, and there are disagreements between points-of-view. Whether you see the universe as fundamentally random or fundamentally determined, or whether you see the universe as going on forever or having a definite beginning and definite end — these notions are founded in primitives of human psychology, and physicists translate those differing points-of-view and personal temperament into arguments, and try to externalize those disagreements into social inquiry into logic or measurement.

Having a point-of-view is essential to being a working scientist or scholar, and contrasting points-of-view drive a lot of productive argument. At least, potentially.

The problem in economics is that certain points-of-view are embedded in doctrinal amber, and economists do not engage, critically, in identifying what they disagree about. The clash of New Keynesians with the Real Business Cycle (RBC) or New Classical economists occurred in a context of increasing social comity: the New Keynesians adopted the DSGE models the RBC morons dreamed up. They agreed that modeling intertemporal optimization was a good theoretical strategy, which entailed agreeing on a point-of-view about what drives the behavior of the economy, but, somehow, they do not know what they disagree about.

The Cambridge Capital Controversy has become a favorite touchstone of the econblogs, in part because people have a lot of difficulty even understanding the issue or the outcome. Here’s the point: the critics were right, the mainstream in the person of Paul Samuelson admitted as much, and the mainstream brushed it off, and went merrily along without altering anything. The social consensus within the mainstream just decided to retain a fundamental way of conceptualizing capital, which had been proven wrong. They decided to keep agreeing on something they knew was wrong. And, in doing so, they lost the ability to know what they disagree about.

Mainstream economics entails a lot of agreement and arrogant confidence based on that agreement, that is founded in social structures, rather than intellectual accomplishment. There’s a lot of agreement on point-of-view, which is very pernicious. For example, the idea that the economy, as a system, is governed by a systemic tendency toward general equilibrium is in the nature of a point-of-view, derived from psychological primitives of temperament — there’s actually a substantial body of economic theory that suggests strongly that it is not logically possible. So, the disagreement is there, and productive in its way, but without the mainstream abandoning its devotion to its point-of-view.

By enshrining a point-of-view and social agreement in place of actual, critical inquiry into fundamental disagreements, mainstream economics has run aground. It is that dogmatic point-of-view, which lends so much weight to reactionary and conservative politics.

For the life of me, “too much acid back in the day” is the only way I can make sense out of Thornton Hall.

Yak.

the New Keynesians adopted the DSGE models the RBC morons dreamed up.

And I think they did so for largely political and sociological reasons, involving getting published tenure, policy positions, conference invitations in the 80s. There are reasons DeLong is at Berkeley and Wray in Kansas City, and they aren’t necessarily meritocratic.

In other words, J Thomas thinks that if members of a discipline or field (or whatever word you want) disagree on some basic matters, their field has no status.

You do this a lot, you know. People make long statements because their positions are complex, and you pretty much can’t ever summarise someone’s position without distorting it at least a little bit. Sometimes quite a lot.

The take-home lesson here — there are other things you need to learn not-here, some of which will [partially] contradict this — is that you shouldn’t conclude a person is speaking in absolutes, “all” or “every” or “any”, unless they introduce the absolutes themselves or you can logically demonstrate that they’ve left no possibilities out. And even if they are using absolutes, you need to make sure that the absolutes are the ones you think they are [“all black-haired people” is not “all people”, even in japan]. JT didn’t use the absolutes you need for your conclusion to be valid: you have misinterpreted him.

So if some people think I’m on acid, and some think I’m blockheaded (and Mattski is someone whose comments I frequently agree with) and yet multiple people can write multiple paragraphs building constructively on what I’ve said, what does that say?

I think it says something very important. Especially when you think about the agreement between what I said, what the “superiority of economists” article describes and what any reasonable person would acknowledge about the demographics of graduate school and the academy.

I am deliberately provacative. I throw bombs. But exaggeration and rhetorical excess seem to be required where an intellectual dead end has been reached, everyone knows this is the case, and yet everyone is still there in the dead end after literally 40 years of wandering in the desert. If trying to end that wandering is “nonsense” or “on acid”, well, I guess there’s always more desert to explore.

only the exaggerations and distortions are true. Of course I have not been reading this thread.

For example, the idea that the economy, as a system, is governed by a systemic tendency toward general equilibrium is in the nature of a point-of-view, derived from psychological primitives of temperament — there’s actually a substantial body of economic theory that suggests strongly that it is not logically possible.

You don’t need economic theory, because this is essentially the same problem as designing a stable amplifier with feedback.

[ans: you can’t do it unless you damp the feedback, run a fuck-off huge tax-and-transfer program to reduce income disparity.]

I pointed this out on — was it noah smith’s blog — and the blog-host[1] didn’t seem responsive to my pointing out that the problem was largely solved.

[1] where are all the lady economists, btw? I have a theory as to the exact problem here… yes it’s my normal theory.

#273 Bruce Wilder

From the outside, agreeing on ideas may look like science, but it’s the social form of science and not the substance. This is the fundamental play of sociology and anthropology: to separate the role enactments from the claims of participants, noticing the constrast. Hence, the OP. Economics — mainstream academic economics — is organized socially around agreement on a set of ideas. Unfortunately, it is a set of seriously flawed ideas, and the social organization functions to insulate those ideas from effective criticism.

I want to believe, somewhat against the evidence, that the actual worth of the ideas has some effect on how well they spread. Like, no physicists today disbelieve in atoms, but 120 years ago some did. I want to think it isn’t primarily social reasons that caused the change, but simply that the actual evidence was overwhelming. Maybe they had to wait for the atom-disbelievers to die off, but even before then nobody wanted to listen to what they had to teach.

But we have a surprising number of people who believe in and want a gold standard. The Austrians who teach gold standard have no trouble finding students. There’s every reason to think there will be as many gold-standard supporters next generation as this generation. There is no overwhelming evidence to persuade them. Of course, it probably makes a difference what rich people will pay for, too.

I’m being too idealistic, I know. In physics last generation Jaynes led a neoclassical physics revolt. They were making pretty good progress but there were no physics openings at other places for neoclassical physicists, so his surviving students worked in other traditions and the whole thing died out when Jaynes did. It wasn’t so much about the ideas as the sociology and the biome.

Still, I want to believe that if the fundamental ideas were better they could better dominate the world.

Unfortunately, it is a set of seriously flawed ideas, and the social organization functions to insulate those ideas from effective criticism.

If the ideas were better I want to think they could better outcompete alternative seriously flawed ideas.

The problem in economics is that certain points-of-view are embedded in doctrinal amber, and economists do not engage, critically, in identifying what they disagree about.

That looks like a serious problem all right. So, they have disagreements, and they sort of agree-to-disagree. They don’t look for ways to improve their own ideas by testing them against others. Multiple schools of thought that each tends to last until it becomes politically uncomfortable, or even longer.

Why would they get a lot of respect?

From the OP, Yet if you’re an economist, this is invisible. Your dominance appears to be the product of natural superiority.

It’s certainly a question that’s worth answering. Do they really get all that much respect, or do they just imagine they do? Well, but they do get more money. That’s one sign of respect. It makes sense to say it must be something social since it’s hard to argue there’s real economic justification for it. But the devil is in the details.

247: “A Scandinavian Social Democracy would be as pointless in an impoverished country like Haiti as a miliary backed dictatorship in Denmark….”

But a military dictatorship in places like Haiti just obviously makes sense.

Val @284:

Kenneth Arrow, of all people, published a paper back in the 1960’s on how health care is a non-market good. The economics largely support your POV, even if (some) economists don’t.

Val 284

Perhaps if instead of talking about how the public health system in a wealthy country like Australia has been under threat for at least two decades from economic ideas about privatisation, price signals, etc, I talked about how the death rates of children went up in poor countries in Africa as a result of Structural Adjustment Packages, I could get people like Ronan (rf) or LFC, et al, to understand that there are serious consequences to economic ideas? Possibly even to see that critics aren’t just critiquing them out of misguided lefty wrong headedness?

Val, please show me where in this thread I have: (a) defended Structural Adjustment packages or (b) said or implied that I do not think there are serious consequences to economic ideas. I spent a good chunk of my time as an undergraduate (late 1970s) studying political/economic relations between rich and poor countries. I am aware of structural adjustment and the harm it has often caused. (I also consider myself to be on the left politically, though that statement in itself doesn’t tell much, admittedly.)

I’m very tempted to respond in kind to your statement that I and Ronan don’t understand that economic ideas have serious consequences. But I’ll restrain myself.

Thornton – but (afaicr) you were making the argument in another thread that ideology doesnt explain politics (too simplify a bit), instead we should look at things like tribal affiliation and material interest based explanations for how policy gets enacted and political movements develop, which I agreed with you on more or less. (and ideas and electoral concerns as well, Id guess)
Now you appear to be saying it’s all ideology. It’s all the result of a set of recalcitrant economists and their ideas. The ideology, (not even the specific policy advisor who brings his own interpretation/simplification of the idea to the policy arena), makes the leap from the economics department to the policy making apparatus.
My reading is probably a little unfair, but is there not a contradiction here on the positon you’re holding in this specific case, and your more general theory of how politics functions and policy gets made ?

Following on Ronan @295, I’m also a little puzzled about T Hall’s take on ideology. I suspect his position rests on a particular definition of “ideology.” He uses “ideology” as more or less synonymous with “dogma,” which of course he opposes. That’s not how I tend to use the word “ideology,” tho it may be one of the acceptable dictionary definitions of the word.

@291 John c. Halasz

This is, of course, “pulling a DeLong.”

If you look at his course materials, you’ll see that DeLong introduces static equilibrium in week 1 of Econ 101 and has his students using math to solve problem sets by week 3. Actual human behavior plays no role whatsoever.

Then, in blog posts, he moans endlessly about people who apply this same analysis to the topic de jure. “I don’t understand [Prof. Freemarket] when he says blah, blah, blah… Doesn’t he know about [public goods, imperfect competition, asymmetric information, etc. etc.].

It is yet another defense mechanism against real introspection.

The important problems here are revealed in a comparison to a real social science like psychology. Imagine if Psych 101 were devoted entirely to “normal” psychology, with all sorts of fancy math about how well adjusted adults behave? Then there would be the necessary result that all children would be well raised by their normal healthy parents. Only in graduate studies would you learn about mental illness and the whole realm of the “abnormal”.

But, of course, no one is normal. So the first problem is the utter lack of subject: neither perfect markets nor perfect people exist.

Far more importantly, it’s only by studying the abnormal that psychiatrists learn anything at all. Theories of psychology have as their subject matter the question “how do things go wrong?” Going wrong is the thing to be studied.

So the DeLong move is to say, all the questions that should be the subject matter of economic theory are explicitly defined as not the subject of economic theory.

Now, he still thinks they should be studied. Indeed, the study of abnormal economics is absolutely critical according to DeLong. But only in a way that it is never allowed to cast doubt on the methods and reasoning which he dutifully teaches every year in Econ 101.

#297 LFC

“you [LFC] have misinterpreted him [JT]”

I’ll concede that I might have overgeneralized his point, though istm to be a fairly close interpretive call.

I get a vague impression that you disagree.

Can you say what your view is on this, if it’s something different?

Imagine if Psych 101 were devoted entirely to “normal” psychology, with all sorts of fancy math about how well adjusted adults behave? Then there would be the necessary result that all children would be well raised by their normal healthy parents. Only in graduate studies would you learn about mental illness and the whole realm of the “abnormal”.

In psychology it’s actually almost the reverse of this. You can take math-based cognitive modeling classes (e.g. 85-412 at CMU) but they tend to be more advanced and taught after people have had the basic grounding to not mistake the math for The Truth.

Mainstream economics entails a lot of agreement and arrogant confidence based on that agreement, that is founded in social structures, rather than intellectual accomplishment. There’s a lot of agreement on point-of-view, which is very pernicious. Wilder@273

Yeah, well there’s a lot of this in Lit, Rlst, and Phil departments as well; and a fair bit of it in social science departments that are not econ. Despite valiant efforts, economists haven’t cornered the market on intellectual conformity, mediocrity, and cowardice. It’s their power and, more to the point, the power of that which they claim to seek to understand that is the problem–talk about agreement, and social structures, and psychological primitives is perhaps sociologically useful, but pointless otherwise. It’s reformation non-sense talk among the cardinals at Vatican City.

McManus offers a good, askew point here. Why did the intellectual European left turn away from Marxism and politics generally after 68? If you can answer that then you can come up with a reasonable explanation for the ascendancy of economists as world-explaining priests, uh, I mean experts over the last forty years. Economics departments and economists generally are just signals or signs of something much larger and powerful. The game was already lost the minute you knew who Gary Becker was.

@295
I fell into the language of ideology because that the language used by Krugman and others. As I categorize the defense mechanisms of economics, one of them is definitely “But those criticisms only apply to conservative economists.”

Two things. To the extent there are people whose behavior is actually explained by reference to a “system of ideas” (ideology), almost all of those people are part of academia. Our continued confusion in politics is partially the result of straight forward projection.

Second, in most cases it would still better explain economist’s behavior by reference to their interests and identity, not ideology. Indeed, that is exactly the method of the article referenced in the OP. The process described there is not a conscious shaping of systems of ideas but one in which our identy is deeply tied to the values of our social peers.

J Thomas – just to return to that comment (Im only reading up now) my take away was more or less the same as LFCs. If you’re saying that economics shouldnt be given recognition or status until it has a clear set of standard and accepted theories accepted by the profession as a whole, doesnt that imply the same for all the other areas in the social sciences and humanities who find themselves in the same boat ?
What if we figure out that you cant reduce human social systems to a set of fundamental rules and theories, that the expectations in the social sciences are not the same as in the natural, does that mean that these subjects never get recognition and status ?

What is so difficult about Krugman describing a liquidity trap as a) essentially a Keynesian idea and b) a unique situation that calls for unique policy?

Well, because consistent Keynesian demand management (50s-60s, MMT, JG), not just at the ZLB, most likely is the best available liberal program and much safer. And ZLB as a radical difference is incoherent and unsupportable. What, .00005 real interest we can relax? The saner expression is simply “when monetary policy is ineffective” which I bet can come at 15% (if business gets panicky and won’t invest.)

Krug’s basic assumptions re ZLB are still closer to neo-classicism than to Keynes.

@306 You are of course familiar with Krugman’s habit of dismissing all complaints that “that’s not what Keynes said.” He eventually came around and said, “well ok, IS/LM is Hicks, not Keynes, but that’s not the point.”

But it is the point. Once “Keynesian Economics” turns into a squishy stress ball that can fit any shape, then we are headed for the coal pit. If you can’t pin it down then it can’t be wrong. It can’t be right either, but Krugman is explicitly willing to accept this outcome.

But there’s a bigger problem: how do you criticize others when the economics you claim that they “forgot” is actually a squishy stress ball that can’t be pinned down?

Here’s what he does in practice: he points out the facts, eg, no inflation, points out (eg) Cochrane was wrong about inflation, and then flatly asserts that “textbook economics” would not have made the same error. Then it’s off to the races about IS/LM and the zero lower bound, which sounds convincing.

But when you poke into it, you find no necessary connection between Keynes, IS/LM, and inflation. The way Krugman connects those dots is utterly idiosyncratic. From a policy maker’s prospective, the task for Krugman is this: “teach me an economic method to follow so I will know in the future to listen to you and not to Cochrane?”

There’s no answer. There’s no “textbook” method that works.

I wasn’t going after MPAVictoria. Liberals look to liberal experts for guidance. Those experts, Krugman and DeLong especially, tell us that Econ, writ large, is just fine. But it’s not, and it’s hurting the people that liberals want to help.

The worst thing about it is that what Krugman actually uses is far more reliable than he lets on: history plus trial and error. But he’s religiously committed to hiding that.

@312Ronan
One of the biggest defense mechanisms employed by Econ is the claim “policy makers don’t listen to us.” I cant’t get beyond the pay wall, but this mechanism is explicitly employed by Blinder in his current review in the NYReview of Books.

The problem with this method is that it is deliberately obtuse about how policy is shaped by the academy and deliberately ignores insights from economists such as… (Veblen? Someone else? I know there’s a reference there). There is a constant interaction between the academy, the press and policy makers. Think tanks play a role, mostly by packaging ideas in less offensive language.

This discourse creates a baseline. The Capitol is filled with people on both sides of the aisle who think it is a fact that the purose of every corporation is to maximize shareholder value. Of course, this “fact” is a blatantly false assertion that Milton Friedman literally pulled out of his ass. But we don’t teach that anymore, the academy claims. And true, it’s not in their lectures, but that’s hardly a defense. Where was the mechanism that prevents such nonsense from becoming dogma in the first place? Where is the acknowledgement that the idea still resonates on Wall Street?

That’s just one example.

@315 The best years the American economy ever had are when top tax rates were over 90%.

How do you get people to beliveve that this didn’t happen?

Certainly not an explicit system of ideas. Ideology, in the sense I criticize, can’t make claims which as an empirical matter are flatly false. The beauty of calling a political disagreement “ideological” is that it puts it beyond empirical examination.

No. Instead what happens is an unconscious and largely uncoordinated process that consistently rewards–with money and status–plausible ideas like “efficient markets” and “rational choice.” Again, I think the method by which this happens is the subject of the article from the OP.

I agree with you it can play a role in setting the terms of the game. But again, I dont know to what extent (1) this causes major societal/policy changes rather than is a consequence of/justification for them and (2) that this has a huge amount to do with economics as a discipline.
I assume I could find an economist willing to tell me anything I wanted to hear, or research to justify pretty much any policy I wanted to sell. This is a big, open, contested area. The question is still (imo) who are the people making the arguments, selling this line and what are their interests.
IMO this has very little to do with what goes on in economic graduate programs, very little to do with complicated, caveated research, and more to do with people and groups selling shit as deep insight.

How does economic theory hurt poor people?

A. We need more roads.
B. we have plenty of money with which to build those roads.
C. Building roads puts people to work now and helps build future economic activity and therefore jobs.

Economic theory, with it’s epicycylcles of “natural rates of interest”‘ “inefficient allocation of capital” and “crowding out of private industry” has the effect of causing widespread beleif that even when everyone is certain that A, B, and C are true, there is, nonetheless, lots of very complicated math that one needs to consider.

In fact, all economics is dogmatically dedicated to the idea that in public policy, there is always a consideration “D”, which always involves complicated math, the complicatedness of which obscures the fact that “D” is really just a thumb on the scale tilting it away from government action.

I realize I’m extremely late to this party, and all but a few stragglers have gone home. But I read this long thread with interest. A few brief points:

1. The structure of academic salaries, not only economics but all the other disciplines, is an interesting topic, and one that could be illuminated by careful research. Perhaps it’s already been done. If so, it would be nice to invoke it rather than just speculate. In addition to looking at cross-sections in the US in a given year, you could observe the longer term trends and also compare the salary structure in the US and other countries, at least those that allow wage flexibility to the academic employer. (Civil service rules in many countries prevent this.)

2. The public prominence of economists has to do in part with the prominence of the issues they study. Not all economic subfields are prominent! Economic history, for instance, is fascinating and important, but it’s not a route to glory. What to do about financial crises is. Sociologists of race get a lot of attention when race relations is on the agenda, and some sectors of political science, like the linkage between economic and political inequality, are very hot at present.

3. The critiques of economics by noneconomists are often misaimed because they are familiar with the popularizations of the field but not its professional research. This is not to say there aren’t serious problems with economics—I think there are—but its representation to the lay public is much worse. This shows up especially in the undergraduate textbooks, which are formulaic, obtuse and blinkered, much more so than the profession as a whole. That’s why I wrote my own textbooks, to close that unnecessary gap.

4. The invidious attitude held by many economists toward other social sciences (“they’re not smart enough to do math”) is apparently real and a big problem. In my experience, economists don’t read outside their discipline as much as they should, partly because they think noneconomists don’t have the skills or brains to justify reading one less article in an econ journal. Fourcade et al. point to this.

5. I haven’t read Chetty’s article, so I should keep my mouth shut, but: there are characteristic problems that show up in a lot of econometrics. One is the failure to recognize that, if the goal of statistical work is to test a theory, it needs to be tested against other theories. What other explanations are out there? What results would support your theory against its competitors? You can’t do this unless you consider all the plausible theories that you want to pit against each other. Economists find that theory A is “not disconfirmed” and then think that lends credence to it, when the data may just as well support theory B or C. Second, there is a commitment to average effects that render economists susceptible to noise or data mining. If you have a large N and enough specifications, you can probably, with enough trial and error, get whatever result you are looking for. But large population averages are poor guides to how the world works. You should look at subsamples. You should try to explain error in addition to significance. And report all your specifications in some summary fashion. Third, the dodge that no one cares about R2 (as opposed to p) is not acceptable. A coefficient is only as credible as the model used to estimate it. You have to convince me that the model is plausible, or at least that the shortcomings of the model should not be held against the coefficient of interest.

Econometricians often treat large-sample patterns (suitably massaged) as the end of the process, when they should be seen as just a step along the way. You don’t know what’s happening out there until you have a process that generates the end results which you can observe and document.

@310 The point I’m making is about the difference between less wrong and more right.

In physics, you start with Newton. You roll a ball on the floor and you notice that Newton’s equations accurately predict the time when the ball will reach the other side of the classroom. Many students never get past Newton to Einstein, which is fine, because Newton correctly describes the world they live in. Sure, it breaks down as your train approaches the speed of light, but… Trains never approach the speed of light. Newton is right, but Einstein is more right.

In economics, on the other hand, you start with imaginary apple stands in DeLongs class (IIRC). The world is full of real apple stands, but no one pays attention to them. Instead you get a story about supply and demand at the imaginary apple stand. But it’s not Newton. The ball doesnt arrive on time. Walk out the door and talk to an apple vendor and you will learn, without much difficulty, that his prices are not set at the equilibrium point where supply equals demand. Equilibrium isn’t a simplified view of reality. It isn’t what reality looks like until you approach very extreme conditions. It’s just… Wrong.

At that point the game is lost. Sure, if students remember week 10 and models incorporating asymmetric information they will have a view of the world that is less wrong. But there’s no additive process by which you can keep getting less wrong until you get it right when you start with a basic idea like equilibrium that simply does not correspond with reality.

DeLong (and Quiggin, too) earnestly belive that there is some sum of “less wrong” modifications that get to right. But it’s ultimately in vain.

#302 LFC

“I contend that whatever status you get from being a professional philosopher is status that you fully share with John Lange. You get that status, he gets that status, you both get that status.”

This is a different point, I think, from the one I took issue with earlier, which was directed to a whole field and its (perceived) status, rather than to the status of particular practitioners (or the question whether every prof of X is marred by association with the worst prof of X).

Well, the one you took issue with was not what I was saying. But it could be a sort of logical extension of it.

The basic point I was trying to get at is this: istm there are good ways and less good ways to criticize either mainstream economics specifically or the discipline of economics as a whole. Pointing out that “reputable” economists, or any economists period, disagree on some basic issues does not strike me as a particularly compelling way to criticize the field, b.c in itself such disagreement is not all that surprising.

There’s nothing wrong with reputable members of a discipline disagreeing about things on the boundary of the field that are not yet well-understood. How are they going to expend the field unless they go and look?

What I say is wrong with economics is that a bunch of raving lunatics are for all practical purposes reputable members of the discipline. They teach at universities. They publish (mostly in their own journals, but everybody else has their own journals too). They talk to Congress. They talk to the media. The big difference between them and normal sane economists is that the mainstream economists say they’re crazy, while they say that mainstream economists are crazy. Plus if you look in detail at what they say, it looks crazy.

So we have some economists who do good work on an insecure foundation, and we have others who do bad work on a crazy foundation. And to tell the difference you have to actually look closely at what they’re doing.

This is different from reputable physicists disagreeing about cutting-edge physics. Economists disagree about the foundations of their discipline, and Bruce Wilder says even the mainstream foundations are not good enough to support a heavy superstructure.

physicists have conservation laws etc they can depend on. They don’t know about the real fundamental particles, they don’t really know how the rules of physics have changed since the Big Bang, there’s lots of fundamental stuff they don’t know, but there’s a lot they can do and they know the difference between what they know and what they don’t know.

Economists have conservation laws that are only true when they are defined to be true. They have lots of concepts like comparative advantage which are trivially true under utterly-unrealistic conditions, which get extended so far they become untrue. It’s as if 10% or more of physicists were saying that relativity is disproven or that they can build internal combustion engines that run on water and get 70 miles per gallon of water.

It does deflate the pretensions of those economists who think they are like physicists, true. But that’s about it, istm. Others apparently disagree w me on this. Fine, we’ll agree to disagree.

Are they more like astrologers, then? Given that their fundamental assumptions are flawed, and they agree to disagree about those rather than find ways to test them, do you see something respectable there?

@322 yes, the claim “they never listen to us” is an effective defense mechanism which is superficially true.

Of course, all those surveyed somehow let the following die without the press even noticing:
http://en.m.wikipedia.org/wiki/American_Jobs_Act

@323 #3: this really is a Catch 22. To be able to defend against this charge, you need to get a PhD (or somehow be able to match wits with those that do). Putting that much effort into something has a well known effect on human beings: it makes them think that, whatever it was, it must be very important. See, also, fraternity hazing.

Those really dedicated to actual truth survive the hazing, but come out as heterodox economists. Not only do they labor in obscurity, they still generally refuse to see their critiques through to their logical end: we really should just walk away from all the work done over the last half century. But, says the heterodox, certainly there are some insights, maybe from behavioral Econ or some other field that doesn’t get much press, that is worthwhile, says the heterodox economist. Indeed, “we don’t have to burn it all” seems to be sort of a ritualized throat clearing to gain entrance to the discussion.

And then we end up back in the coal pit. Never quite questioning the basic idea that reflection about supply and demand is simply not the way to start an enquiry if what one is interested in is actual humanity.

Since Val @284 had raised the matter of structural adjustment programs (SAPs, for convenience), I think it worth pointing out (and I hope this will be my last comment on the thread, though who knows) that while some economists advocated and helped design and implement SAPs, other economists severely criticized them. The sub-field of development economics, virtually ignored in this thread, has been characterized by sharp disagreements over the years, and some people on what many of us would view as the ‘correct’ or enlightened side of those disagreements have made significant contributions to/in the real world.

I’d remind people that Albert Hirschman was an economist. Raul Prebisch was an economist. Mahbub ul Haq was an economist. Amartya Sen is an economist. I could go on, but will stop there.

Finally, I don’t agree w T Hall that any exposure to or reflection on the notion of supply and demand is contaminating and warps the minds of anyone unlucky enough to encounter it. (I can see, however, that it might make sense not to start with simple supply-and-demand and equilibrium models but somehow go right to stuff that is more reflective of how much of the ‘real world’ tends to work.)

Well then, Albert Hirshman is now one of my heroes. Clearly ADD, yet managed to succeed in academia and government while relentlessly rejecting the prejudices of his peers in both institutions. And… He fought the Nazis! But I don’t think he would have been in the UofC survey.

But, a bit inspired and typical of my bleary liberal optimism, I would look up thread and say that many look at economics and choose exit. I look at economics and choose voice.
http://www.newyorker.com/magazine/2013/06/24/the-gift-of-doubt

I think part of the problem is that Thorton doesn’t regularly read Krugman.

Hirschman, a German Jew, fought the fascists in the Italian and French underground, the republican army in the Spanish civil war, and the American army. I had known something of his work, but not his bio until reading Adleman’s book.

Anyways, to today’s hierarchical, mathematical mainstream economist, what Hirschman did doesn’t count as real economics. See Krugman’s essay, The Rise and Fall of Development Economics, where he describes Hirschman as leading the field into an “intellectual desert”.

Sen’s work in the 1970s on choice was very mathematical and in the right journals. But, despite the prize, I think your current mainstream economist pays much attention to the capabilities approach.

The point of the Fourcade paper is that orthodox economists have social mechanisms for dismissing lots of work. Citing economists whose work is dismissed or ignored does not seem a good way to defend the profession in this context.

So Krugman: “Well, imagine there is a seasonality in the demand and supply for baby-sitting. During the winter, when it’s cold and dark, couples don’t want to go out much but are quite willing to stay home and look after other people’s children–thereby accumulating points they can use on balmy summer evenings. If this seasonality isn’t too pronounced, the co-op could still keep the supply and demand for baby-sitting in balance by charging low interest rates in the winter months, higher rates in the summer. But suppose that the seasonality is very strong indeed. Then in the winter, even at a zero interest rate, there will be more couples seeking opportunities to baby-sit than there are couples going out, which will mean that baby-sitting opportunities will be hard to find, which means that couples seeking to build up reserves for summer fun will be even less willing to use those points in the winter, meaning even fewer opportunities to baby-sit … and the co-op will slide into a recession even at a zero interest rate.

And this is the winter of Japan’s discontent. Perhaps because of its aging population, perhaps also because of a general nervousness about the future, the Japanese public does not appear willing to spend enough to use the economy’s capacity, even at a zero interest rate. Japan, say the economists, has fallen into the dread “liquidity trap.” Well, what you have just read is an infantile explanation of what a liquidity trap is and how it can happen. And once you understand that this is what has gone wrong, the answer to Japan’s problems is, of course, quite obvious.”

So the story of the baby-sitting co-op is not a mere amusement. If people would only take it seriously–if they could only understand that when great economic issues are at stake, whimsical parables are not a waste of time but the key to enlightenment–it is a story that could save the world.”

What’s the obvious solution? Inflation eroding the value of coupons borrowed over the summer? Why are we confident that will encourage couples to go out on the town?

mattski @ 338

Krugman: those ad hoc approaches tend to get lost in the valley of ignorance. They’re too technical for politicians, and too non-technical to be taught in grad school.

I am not sure why you think the Krugman pieces you linked to contradicted what Thornton Hall (not a school in Toronto) was saying about K’s method. For myself, it looks more like guided intuition, rather than trial and error. K is trying to be reasonable in his appraisal, but he has a remarkable trust in the power of his own reasonableness.

The problem K is confronting is almost lost in his discussion of his own largely subjective and sketchy coping mechanisms. The problem is: how will people (re)act? It is the common problem of the social sciences — how are people to understand the behavior of themselves and others?

What counts as an explanatory or casual factor, when the phenomena are people acting strategically?

Economics has an easier case than other social sciences often enough, because economics can sometimes predict or shape behavior by prescribing behavior: figure out an optimal decision strategy and teach it as the optimal strategy to business students.

Curious then that K thinks the little kludge of IS/LM analysis falls into a valley of ignorance.

#334 LFC

J Thomas 327: I’m going to let you have the last word here, b/c I don’t think further conversation between us on this issue will be productive.

Too bad. I was starting to ask what your disagreement was, and you said that you thought there were good ways and less good ways to criticise the status quo in economics. Plus you had some sort of quibble with a point I hadn’t made. I was hoping that you might say what you disagreed with, or what you looked down on me for, or what you would say that was better than what I said.

Oh well.

Varoufakis versus Piketty …video, 36m

Interview by Andrew Mazzone (Georgist). Varoufakis, who is very left (Marxist?), appreciates Krugman for his prescriptions but not Krug’s theory

Interesting toward the end where he compares Piketty to Rawls, and then says Nozick destroyed/refuted Rawls, and thinks Piketty’s theoretical inadequacies condemn him to the same fate.

My take is that Piketty, like many French intellectuals, is pragmatic and realistic, and doesn’t discuss for instance bargaining power/unions or monetary policy as factors in reducing inequality because it simply ain’t gonna happen. Neither may be likely, but increasing taxes on wealth is more likely than CB’s allowing high inflation.

Varoufakis also, as a quasi-Marxist, is also a productionist, and dislikes Piketty’s conflation of wealth and capital. I think Piketty is more correct here.

Bruce Wilder is likely correct that the ad hoc process is more like guided intuition than my take which was history plus trial and error. But either way, it’s the mushiness of that process, the in ability to even really put it in words, that makes economics incoherent and inferior to other social sciences.

Bruce,

TH made the claim that Krugman is, “religiously committed to hiding” the ad hoc aspects of his reasoning process. So can we agree that’s a ludicrous claim?

And by ‘valley of ignorance’ K is, ISTM, talking about societal ignorance. The difficulty people have understanding the reasoning process, which I admit this debate illustrates.

We’ve been over this ground before. Economics is an imperfect social science, it can be used for good or ill, but smart, compassionate, socially conscious economists like Krugman, Stiglitz and many others do good work that has enormous value and would have even MORE positive effect if only our public discourse wasn’t dominated by, in a word, the rich.

We should be surprised that economists who say things the plutocracy finds convenient have a bigger megaphone than others. AND, we shouldn’t blame economics for this unfortunate political fact.

We shouldn’t be surprised…

Yak.

@mattski
In the social science of psychology Freud told stories that made sense. They were mostly stupid. But the reasoning process that he used was brilliant. Changed the world for the better. Advanced human knowledge massively.

Krugman and Stiglitz are two menschen (http://krugman.blogs.nytimes.com/2006/02/21/no-menschen-in-washington/?_r=0)–good, compassionate people. Unlike Freud, they tell smart good stories. People who believe their stories do good in this world. But the reasoning process, the part that made Freud a world changing genius, is pure bunk.

This conclusion is partially obscured by the fact that it’s substance is the aforementioned mensch-ness of Krugman and Stiglitz. The problem: the human condition is characterized by a chronic shortage of menchen. And even if it weren’t, it’s very hard to know in advance whether your economist is a mensch.

Bad people can do good history. They can do good anthropology. But you can’t get good economics out of a bad person. That’s a problem that cannot be defeated by Krugman’s stories.

Thornton – genuine question. What would a worthwhile economics look like to you ? I can see your critique on your blog, but what would you replace it with ? (obviously I dont expect a perfect flawless response, so this isnt a gotcha, but Im wondering where you’d begin to replace it ? You say in your linked post economists dont ‘look at the world’, what would that mean – practically – when trying to create a different, more plausible economics?)

bob mcmanus @ 349

In a recent blog post, De Long praises Matt Rognlie’s criticism of Piketty, which is much like what you say about Varoufakis’s criticism, i.e. that Piketty confused wealth and productive capital. Confused? Conflated the two, that I’ll grant, but confused? I don’t think so.

Lord knows I might have missed something in reading him — easy enough for an amateur to do — but it seemed to me that Piketty blurred the distinction between wealth and capital intentionally, with malice aforethought, and did so precisely because preserving that distinction has become so crucial to mainstream economists in their defense of a normalcy that many of us, for our own non-economical reasons, consider insane. I suspect that this is why the right immediately denounced him as a closet Marxist. My own take is that they were more right than wrong, which, when all is said and done, has to be a Good Thing. Stealth in the face of prejudice — we use what tools are given to us.

Were they mainly bullied out or incorporated into it, though ? My impression is that mainstream economics has made room for some behavioural insights and for agent based modelling ? Isnt the same true for a number of the perspectives given by feminist economics ? I dont know about post Keynesian , but havent political economy and sociology taken the mantle on institutional arguments, so how would an institutional economics differ and why would it be better ? I dont know about econophysics but would guess complexity economics at heart is incompatible with the reductionism of mainstream economics so might potentially be a potential paradigm shift, ? But what would an economics that took all of these other schools of thought seriously look like ? Would it just shift from neoclassical to one of the above, or would it make more of an effort to incorporate insights from each ? What would fundamentally have to change in how neo classical is conceptualised to make it take the insights from the schools mentioned above seriously ?

..theyre all genuine questions by the way. Im not claiming to know anything about this so dont really think any of my impressions above are neccesarily accurate. Id assume, though, at some stage any discipline is going to have to start homogenising theories and concepts and start to develop a consistent set of assumptions, methods and beliefs. Was there a way that could have worked out without the problems associated with neo classical economics ?

When the problem is that people just don’t want to buy even when they can, it isn’t easy to make them buy. It’s only when the problem is circulation of coupons that you can solve it by changing the circulation of coupons. And it makes sense that sometimes the problem is circulation of coupons.

So, imagine that the federal government decided that to jump-start the economy they should give every middle-class family $5000, free. If they spend their money then demand is up, it delays unemployment, etc. But what if a scared middle-class is afraid that interest rates will go up and they will be unable to pay their crushing debts? What if they instead each pay down their debt by $5000? Then demand has not increased at all. The net result is only that the money supply has *decreased*.

The co-op model is too limited anyway. It assumes the co-op members are equal and their need to get baby-sitting and their need to do baby-sitting are equal.

What if one co-op member is sitting on a great big pile of coupons, and everybody else lacks coupons. Whenever he wants babysitting he can say the word and somebody will be eager to do it. That situation is ideal for him. If they flood the system with coupons, so that people are less desperate to baby-sit, that’s bad for him. Is the system designed for average co-op members, or for him?

He’s better off if there’s a chronic shortage of coupons so that very often when people want a baby-sitter they must borrow a coupon from his bank. But on average they can never pay back the loans no matter how hard they look for baby-sitting jobs. On average the number of coupon loans always goes up, and people area always desperate to baby-sit so they can pay down their loans, and he only loses when people emigrate away and forget their debts, or when their children grow up enough to not need baby-sitting and their parents forget the debts.

And if the system really is designed for him, he can get it written into their leases and mortgages that if they don’t pay their baby-sitting debts he can throw them out of their homes.
If that’s how it’s designed, then a chronic shortage of coupons is not a bug. It’s a feature.

There’s this really basic error that you see time and again: “We look at the world and see that, mostly, prices are stable–changing gradually, and that markets are stable, and this fact must be explained.”

Yes! If you throw away the outliers, you can always make things look like they follow a traditional probability distribution.

And as you point out, big explanations are not necessary for the stability and gradual change. Because throwing away the outliers is a sufficient explanation right there.

TH @370 – I’m really not sure what your point is. I agreed with the general observation that economists should be sent out ‘to observe more’, I just questioned how far that really gets anything, except to perhaps breed a little bit of scepticism into the heart of the average economist.
To go back to your bit about DeLong’s econ 101 class. I dont know if there’s a huge problem with teaching people methods and technical skills at the start and allowing them ‘observe the world’, or read X, in their spare time. As a method of teaching this would seem to make some sense. And so I dont really know what sending people out to recognise market imperfections or how people actually make decisions really accomplishes. Certainly at 101 level you’re not really going to develop great insights. Hopefully the more thoughtful class members will pick this up themsleves next time their at the shop. Who knows.
Anyway, there’s a huge amount of research by people actually trained in the area on decision making processes, psychological biases etc. I dont see why economists cant use the insights from this research where applicable, rather than having to do their own independent research down the local grocer.
My impression is that economics *has* adopted some of these insights. Afaik all ‘rational choice theory’ does at this stage is assume people have preferences and know how to rank them. There’s also (afaik) work on how social networks effect economic decision making etc. This is pretty consistent with your view of politics (interests and tribal affiliation – ie rational choice and social networks – explain most) And are there insights to be gained from assuming some level of personal rationality (and economics is far from the only field to do this) Id say, yeah.
Anyway, look, Im not really going to argue this anymore as I dont know enough about it and Ive other stuff to do. So Ill leave it there.

Dont worry about it Thornton, I didnt find you overly antagonistic (I was a little snarky in my response but also I really do have to go!) Anyway, Ive enjoyed your comments here and will be checking out your blog more regularly.

Did you read this, Thornton?

http://krugman.blogs.nytimes.com/2014/12/06/flimflam-does-london/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

Sadly, it was written by the most dangerous economist in the world.

Robert 341

Hirschman, a German Jew, fought the fascists in the Italian and French underground, the republican army in the Spanish civil war, and the American army. I had known something of his work, but not his bio until reading Adleman’s book.

Anyways, to today’s hierarchical, mathematical mainstream economist, what Hirschman did doesn’t count as real economics. See Krugman’s essay, The Rise and Fall of Development Economics, where he describes Hirschman as leading the field into an “intellectual desert”.

Sen’s work in the 1970s on choice was very mathematical and in the right journals. But, despite the prize, I [don’t] think your current mainstream economist pays much attention to the capabilities approach.

The point of the Fourcade paper is that orthodox economists have social mechanisms for dismissing lots of work. Citing economists whose work is dismissed or ignored does not seem a good way to defend the profession in this context.

I’m going to try to explain why I find the above comment somewhat annoying.

What you (Robert) don’t seem to grasp is that is a conversation in a comment thread, and I was responding not to the Fourcade paper, which I have not read, but to what I took (wrongly or rightly) to be T Hall’s implication that all of economics, and all economists, are intellectually and otherwise bankrupt. Although T Hall’s main fire was directed at Krugman and DeLong, he had made broader statements from which the broader implication (i.e., all economists bankrupt) seemed a reasonable inference.

It was in that context that I mentioned the names I did. Hirschman had an extremely successful academic career; Sen got the Nobel prize. I’m not disputing that mainstream economists largely ignore or dismiss them. But I thought it was worth mentioning them (and the others I mentioned) given what I took to be the broader tenor of T Hall’s remarks to that point in the thread.

As I said upthread, I’m not an economist. I have no interest in defending the profession as such, and certainly no interest in defending the “social mechanisms” described by Fourcade et al.

Because my aim was not to defend the profession, your remark that “citing economists whose work is dismissed or ignored does not seem a good way to defend the profession in this context” mistakes the point of my comment.

mcmanus 349
Interesting toward the end where he [Varoufakis] compares Piketty to Rawls, and then says Nozick destroyed/refuted Rawls, and thinks Piketty’s theoretical inadequacies condemn him to the same fate.

I don’t know anything about Varoufakis and I haven’t read Piketty’s Capital in the 21st Century; however, in my opinion, anyone who thinks Nozick “destroyed/refuted” Rawls is, to put it mildly, WRONG.

#377 LFC

I was responding not to the Fourcade paper, which I have not read, but to what I took (wrongly or rightly) to be T Hall’s implication that all of economics, and all economists, are intellectually and otherwise bankrupt.

Ah! But that’s an extreme interpretation.

I wouldn’t say that all of astrology is intellectually and otherwise bankrupt. Some astrologers give people useful readings, that are based on what they intuit about the situation they observe. So what if it doesn’t come from the intellectual models of the craft? It can be good stuff. And the mathematically involved parts of astrology serve to give their advice a gravity and respect it would not otherwise have. Often laymen can’t tell the difference between astrology and science, and so the claim that the advice comes from special knowledge can inspire a sort of awe that human intuition would not get.

Wouldn’t it be better to create a new astrology that was based on actual facts? Maybe. But the old astrology gets respect now, and a new astrology might not. Its assumptions would be open to observation, and if they didn’t actually explain much of the behavior that would be bad. Maybe a new astrology could not get much of a start, if it were to turn out that there simply is not much about human behavior that can be predicted that way. But the old astrology gets a whole lot of respect.

I claim that this whole argument works about as well if you substitute “economics” for “astrology and “economists” for “astrologers”.

Robert: Yes, we are agreed on some things, or at least in liking Hirschman’s work.

J Thomas: Why don’t you go to California and interview Nancy Reagan about why she consulted astrologers in the White House? Sorry to be rude, but I’m not in an esp. great mood right now and I’m not taking the bait here.

@mattski
And “fire up the ovens”?

This is in response to my claim that there is no method to distinguish the way John Cochrane does econ and the way Krugman does it. And therefore the radically different policy recommendations that they produce must come from some other cause, namely, their personal character.

To put it in terms that might not invoke the Holocaust, I might rephrase my point:

All policy recommendations are under-determined with respect to economic theory. There is therefore some other cause which figures in their content. But economists claim their recommendations are fully determined by their theory. This leaves us to speculate as to way some always favor the rich and powerful while others do not.

#382 Ronan

And for the layman (which i am) comparative adavantage is a relatively interesting insight, a simplification that forces you to think in a different way and that clarifies certain ideas.

Agreed. There’s a useful idea there. But just as evolutionary theory gives us an explanation for adaptation but not a prediction that all imperfections will be evolved away, and just as free market theory gives us an explanation for adaptation but not a prediction that all market imperfections will be competed away, comparative advantage gives us an explanation that claims that when people trade across borders etc they both will think they are better off, and tariffs etc will leave them thinking they are not as well off. It does not predict whether or when they will choose to make those trades.

As a simple example, say that you own a subsistence farm and a forest. Somebody can sell you food cheaper than you can grow it, giving you time to cut down your forest faster and sell the lumber. There is no gurantee whatsoever that after you have let your farm run down and your forest is clearcut, that they will want to buy anything else from you or that they will have any job for you to do. Unless they give you some other way to buy food from them, you then need to quickly rebuild your farm to feed yourself while your forest is growing back.

Back to DeLong’s econ 1o1 class. What he seems to be doing is teaching specific skills and methods. Surely this is a good thing ?

For Berkeley student’s it’s fine. I’d have a preference for everybody to learn the general skills about dealing with feedback systems etc. Like, it’s easy to fit a one-parameter curve by eye and then estimate the errors. It’s easy to fit a two-parameter curve by eye. It’s possible to fit a three parameter curve. Four is likely to turn very very hard.

I think it’s better to learn the skills with made-up problems than with something that appears to provide real information about economics. It doesn’t hurt smart perceptive students to make it seem like they’re learning something real, but it can be very bad for average students who might later become president of the USA or something.

Move away from more generalised (and contested) theory to teaching specific tools to answer specific questions ?

That’s *fine*. Start with rough-and-ready methods that reveal possible connections. Give historical examples where the methods were dead wrong on closer examination. Emphasize the uncertainty.

I think the central problem with economics teaching is that too many students come out of it with certainty about things which in fact are wrong and also about things which are very much uncertain.

Far better to teach economics with more of the attitude that the centaur Firenze taught divination in Harry Potter.

J Thomas on comparative advantage:

a lot of laymen believe that comparative advantage means that if imports destroy a home industry, there will be something else you can trade that will more than make up for it, because comparative advantage. Even if the foreign economy is better than yours at everything, you will have exports because they will have full employment making the most valuable things they can make, and they will buy your inferior products — even though they could make them better themselves — because they don’t have the time to make low-value stuff instead of buy it from you. But comparative advantage does not say this at all.

My recollection is that the theory of c.a. does say that an economy (read: country) will be ‘better off’ if it specializes in producing and trading what it can produce most ‘efficiently’. So countries, acc. to the theory, shd specialize in “making the most valuable things they can make” (at a reasonable cost). That does not mean countries always do actually do that, of course, and there are various (often good) reasons they do not (e.g., they might want to retain a domestic XYZ industry for reasons of employment stability or ‘nat’l security’, etc.) , but the theory, insofar as it has an implicit prescriptive aspect, suggests that they should act as mentioned.

If one is armed only w the theory of c.a. from second day of intro econ, one’s understanding of int’l trade will be very incomplete and in some cases wrong, but it’s not so much that the theory of c.a. has been misunderstood by laymen so much as that the theory itself, unsupplemented by many other considerations, is a much less-than-perfect guide to the real world. (Or so I wd suggest — but stand open to correction.)

Just some belated points:
– Austrian economists are strongly marginalized in the profession, few take them seriously. Same for the Laffer’s curve. So, there is some pushback against more extreme elements.
– But I guess that is not enough for many here. We should marginalize other right-wing economists. Let’s see: Mankiw contributed to bring back keynesian elements in modern macro; Rogoff contributed to bring back keynesian elements in modern open economy macro; Alesina wrote a paper with Rodrik about how inequality slows down growth. But they are all hacks and so, I gather, we should ignore them.
– No, still not enough. For some the entire profession is completely useless. Sorry for Saez-Piketty of top 1% fame, for Gruber (Obamacare), for Card & Krueger (minimum wage increases do not necessarily reduce employment).
– Basically, the only economists we may keep are those who agree with your views (the stimulus helps, Sweden’s model works etc.), which are obviously true and need no economist to be ascertained. I am sure many here also think of themselves as open-minded and tolerant; and they decry the epistemic closure of conservatives.
– You may argue that left neo-liberals swung too much to the right, fair enough. But at least they engaged with economics; at a minimum they read a introductory textbook on economics. It is clear from the comments here that many did not do so – or they stopped as soon as they found what they thought a contradiction and called it a day. This is quite a pity because some of the points raised against economists could be argued more cogently but your ideology does not allow to do so.

p.s.: oh, and when somebody gets a chance, please tell me about the track record of other social sciences in predicting social events.

Comparative advantage impresses the analytic thinker, because it is very robust against changes in assumptions. Even when every other motive to specialize and trade is minimized or absent, comparative advantage remains. There are other compelling reasons to specialize and trade, however, and what most of us are instinctively interested in, is a strategic argument focused on the terms of trade, in the presence of these other factors.

In practice, I think it is fair to say, that many economists, in their roles as public intellectuals and teachers of undergraduates, prefer to stop short of a either the strategic arguments that might shape a national policy, or a full data-driven explication of the reasons driving actual, historical patterns of trade and investment. Instead, they make a moral argument for the virtues of laissez-faire “free trade”. (And, yes, Krugman dutifully makes an argument for “free trade” from time to time, despite having received a faux Nobel for theoretical work making mincemeat out of simple-minded comparative advantage arguments for “free trade”.)

Particularly problematic, imho, is the way comparative advantage arguments get embedded in allocative efficiency arguments, in which resource ratios and substitution become explanators: capital-rich economies produce capital-intensive goods to trade with labor-rich economies that produce labor-intensive goods. (Heckscher–Ohlin is the canonical model of Ricardian comparative advantage expressed as factor endowments; literally hundreds of papers have been published proving that H-O does not explain much about actual patterns of international trade.) Pretty soon, a kind of semantic drift takes over, and there’s a lot of pious nonsense about highly skilled populations with accumulated capital stock producing high-value added goods to trade with low-skilled countries producing low-value commodities, or neoliberal claptrap about the importance of direct foreign investment supplying capital and technology to enabling the desperately poor in undeveloped countries to better themselves in sweatshops.

Comparative advantage and free trade are great illustrations of how mainstream economics betrays itself as a research project and transforms itself into a religious project.

I worry about the positivist narrowness of economics. We have this idea: Build a simple model that shows in a state of secular stagnation/liquidity trap you just push the button G to bolster aggregate demand without fear of inflation and crowding out.

But there is a problem here with such a technical approach. As Erich Roll noted in 1938:
To Keynes and his followers “the state is a mechanism
which can be used to influence the economic system according to one’s
ideals. One can readily grant that the ideals of Mr. Keynes and his
followers are noble. But can their analysis offer an effective
opposition to those whose ideals are less exalted and whose policies
are abhorrent? It is clear that they cannot. Their approach uses
abstract categories which demagogy can use and fill with its own real
content. Sismondi and Proudhon used an analysis somewhat similar to
that of Mr. Keynes for Utopian, quasi-socialist purposes. Malthus
used it to defend the remnants of feudalism against capitalist
revolution. A progressive and reactionary purpose can find
support–or at least indifference–in an economic theory that is
confined to the sphere of circulation and that operates with
psychological concepts.”

Joan Robinson who I think coined the term military Keynesian raised a concern: the kind of robust government intervention that secular stagnation requires can only take the form of warfare Keynesianism ; only the possible spoils of war gives business the confidence to put up with an enlarged government sector and the future taxation required to relieve counter-cyclical debt.

Moreover, a state of war allows the state to break strikes with impunity and thus maintain business confidence (or a high marginal efficiency of capital) even as Kaleckian full employment is reached.

One cannot dissociate Keynesian economics from ethics and politics. Social science is necessarily value-oriented and interdisciplinary.

Aren’t some of the important American voices for financial regulation not economists (undergrad degrees in parentheses)–Brooklsey Born (English), Lynn Stout (Public Policy) and Anat Admati (Math)? Women too.

mattski @ 396: Your claim that the institution of economics is on the whole destructive could as easily be made about the news media. Does that mean that people shouldn’t pursue careers in journalism? Does it mean we shouldn’t read newspapers?

So, economics and the news media need to be reformed, and critically informed consumers of economics or the media may be a factor shaping the opportunities for effective reform, no?

Are Krugman and DeLong really the best the left can do? Cui bono?

Robert Reich is pretty great.

B Wilder @393
neoliberal claptrap about the importance of direct foreign investment supplying capital and technology to enabling the desperately poor in undeveloped countries to better themselves in sweatshops.

Seems to me one has to oppose the sweatshops (and corporate-driven globalization) while at the same time acknowledging that, bad as they are, they represent for many an improvement over rural poverty — hence,e.g., why a lot of poor Chinese have left their villages to go work in the sweatshops. Of course, China’s own domestic growth policy has not been esp. egalitarian, but that’s a somewhat separate issue.

I don’t really think of DeLong and Stiglitz as economists, more social scientists. DeLong is actually an economic historian–and will refer in posts over a week to Keynes, Rawls, Polanyi, Pomeranz and goodness knows who else. Actually Krugman who has done as much as anyone to raise critical discussion in the country strikes me as a economist. I appreciate their contributions very much, though I much more sympathetic to Marx than all three of them combined.

I have been reading from this site; it seems to be a major step in integrating economics into the social sciences–history, sociology, political science, even anthropology (though not enough).
http://core-econ.org

#395 Rakesh

I worry about the positivist narrowness of economics. We have this idea: Build a simple model that shows in a state of secular stagnation/liquidity trap you just push the button G to bolster aggregate demand without fear of inflation and crowding out.

To my way of thinking, the big value of simple models is that they give people the idea that unintuitive results are possible.

You have a simple model that includes plausible elements, and they interact in plausible ways, and the result is something people wouldn’t have expected. So they can look at just how the model works and see how simple interactions can get that unexpected result. Done well, the result is that people get less certain what to expect, less dogmatic, more ready to consider possibilities they might otherwise have rejected out of hand.

When they instead take the simple mode and dogmaticly assume that the real world has to work like the model does, I feel like they completely missed the point.

So, the beauty of Krugman’s babysitting coop story is that it shows vividly how a lack of circulating currency can slow down trade. It demonstrates that very very well.

Krugman fixes the problem by giving away coupons. But it would also work to instead make a coupon bank. People who want babysitters could then borrow coupons to spend, and they could pay interest until they could repay them. Either approach has its advantages. The banking approach particularly has advantages for the banker.

It’s a good story. It doesn’t tell you everything you need to know about monetary policy, about what’s a feature versus a bug, about the right way to solve problems, etc. But it gets one idea across very very well.

You seem to be hung up on the fact that professional economists have a diversity of viewpoints, or maybe I’m misreading you.

I think you are. The problem is not that there are multiple viewpoints. The problem is that some of the multiple viewpoints are batshit insane, and everybody else mostly seems to agree to disagree. I tend to think there’s something wrong with that, though maybe it’s that way everywhere and I just don’t know any better.

#391 Tom

Austrian economists are strongly marginalized in the profession, few take them seriously. Same for the Laffer’s curve. So, there is some pushback against more extreme elements.

Congress doesn’t seem to realize that they are marginalized. When we have GOP presidents, they don’t seem to realize that either. A big share of the public hasn’t noticed.

Maybe possibly there might be a way to marginalize them marginally *more*?

But I remember Krugman in one of his books (maybe Dangerous Currents) pointed out that Laffer etc were using the same reasoning as the rest of the profession, they just took it a little farther than others would. And of course he was right. So if Laffer is so marginalized, maybe the people who are doing it could notice just what it is he does wrong, and figure out how to not do it themselves?

We should marginalize other right-wing economists. Let’s see: Mankiw contributed to bring back keynesian elements in modern macro; Rogoff contributed to bring back keynesian elements in modern open economy macro; Alesina wrote a paper with Rodrik about how inequality slows down growth. But they are all hacks and so, I gather, we should ignore them.

If instead the good-guy economists ignore them, occasionally saying something like “Oh, we disagree with them. It’s OK that professional economists disagree about things like whether to measure something to test economic ideas or instead use praxeology. Economists don’t have to agree” then it starts to look like there are in fact no standards.

Assumptions of perfect rationality can have some value. They can predict vulnerabilities in a system.

Like, if the economy provides an easy way for people to do fraud, a whole lot of people won’t do it. Predicting that they all will, gives you a bad result. But it’s predictable that somebody with perfect rationality and imperfect morals will do it, and he may in fact steal as much as he can, enough to threaten the survival of the institutions that allow it.

If your system has a hole in it, predicting perfect rationality (with no morals) can help you find the hole. And your status as an economist can sometimes help persuade people to do the rational thing. “Hey, it’s raining soup! Get a bowl. Get a punchbowl. Attach a pump to your rain gutter! This opportunity can’t last forever, they’re going to figure out how to shut it down!”

“We will look at how things worked out in the past and do our best.”

That’s not good, imo, it’s the other extreme; it sounds like ‘technical analysis’ of stocks. You need to have at least some idea of the mechanism behind the phenomenon.

@mattski
PS in fact I frequently blog about the destructive influence of the news media. The solution there, however, is underway. The problem itself was confined to the totally anomalous character of the media in the post war period. Objective journalism was quite easy to bamboozle.

“We lost Walter Cronkite on Vietnam!” This hoary old tale doen’t reveal how great Walter Cronkite was. It reveals that to prosecute the Vietnam war you only needed to pull the wool over the eyes of four or five lazy white men!

The objective media told us that everyone who took to the streets in LA in response to the Rodney King verdict was a looter. No one mentioned protests. We aren’t fooled like that any more. Tell me where the TNR is buried so I can shit on its warmongering grave.

sorry meant for other thread.

Thornton,

Do you have some utopian vision behind your remarks? It seems that way. If the debate between saltwater and freshwater is little different in your eyes than a debate between 2 schools of creationism then who or what is playing “Darwin” in this vignette?

is there a problem that Krugman and DeLong solve that wouldn’t exit but for the hegemonic economic world view viciously defended by Krugman and DeLong?

I take it you believe we’d be living in paradise were it not for the pernicious influence of K & D. Or something.

#413 Ze Kraggash

“We will look at how things worked out in the past and do our best.”

<i.That’s not good, imo, it’s the other extreme; it sounds like ‘technical analysis’ of stocks. You need to have at least some idea of the mechanism behind the phenomenon.

It’s of course pleasant to have a Just-So story to explain your data. But having the story does not actually make your predictions more predictive.

So technical analysis of stocks can predict stock movement by statistical correlation — when it works. But of course other people who do technical analysis will tend to undo the correlations so it will tend to stop working at frequent intervals.

But if you have made up a mechanism to explain stock movement, then you have a reason to predict it will work that way, not just a statistical correlation. But of course other people who notice the correlations will tend to undo them, so your mechanism will fail to work for any length of time.

In general, if you want to predict human behavior you do better when people benefit by making your prediction come true, than when somebody important benefits by doing things that make it not come true.

Beveridge was a grandee of the U.K. Liberal Party, which was pretty much Keynes’ position. What few people realize is that the Nazis also commissioned studies for the post-war economic order, which, with suitable modifications, became the basis for the implementation of the post-war welfare state in the BRD.

#424 Layman

This is simply a formula for ignoring everyone. Ignore Al Gore on the environment, because he’s rich and fat and flies around the world. Clearly a tool of the establishment! In fact, there’s Thornton Hall, using the trappings of the economic order to rail against the economic order. Don’t trust him, either.

I don’t think he’s saying that.

I think he’s asking what the opportunity cost is for the schools of academic economics.

If we hadn’t had any of these schools stifling amateur economic thought, what might we have accomplished?

He points out that people were arguing similar economic remedies before any of the modern schools had been born. Maybe the academics haven’t produced anything important?

But of course it’s impossible to truly answer the question because we have only one world and we can’t repeat the experiment. If we could make or find 50 worlds just like ours and another 50 that were just like ours except with no economists, then we could find out something. But we don’t know how to do that. So we’re limited to things like Thornton Hall’s understanding of history.

Oh well. I think it’s kind of an academic exercise unless we find a way to do things different. If our only choice is Krugman/DeLong versus their opponents, then we can pick them. Just like we can pick Obama over Mitt Romney. Krugman and DeLong use traditional economics in traditional ways and come up with better answers than their opponents do. Even if the tools are warped, still they can use them to create beautiful works of art.

If some new guys were to develop better tools, that give more truthful results, how could they get anybody to pay attention? Krugman and DeLong get credibility by using the tools that everybody important believes in. Why would something new get status just because it was better?

Opportunity cost?

J Thomas @ 425

What he’s saying is indistinguishable from that. Per TH, he disapproves of Krugman because Krugman is part of the establishment, and the establishment is bad. Even when K might be right, that’s bad, because it just lends credibility to the establishment. Thus all establishment figures are tainted and should be reviled. So, as has been asked but not answered, where should one go for an acceptable countervailing voice?

I think they are crowding out a wider, more diverse palette of views.

Blaming the forest on a tree?

#427 Layman

Thus all establishment figures are tainted and should be reviled. So, as has been asked but not answered, where should one go for an acceptable countervailing voice?

I can see how it would look like he objects to them because they’re “establishment”. But what I read him objecting to is their flawed methods.

It’s like, if the whole establishment agreed that the way to decide how to run the economy was with astrology, and then we had conservative astrologers who said the only way the economy could work was if the people who were already rich got to make all the decisions, and liberal astrologers said that we needed to make sure that money circulated whether the rich people wanted it to or not. And they both used astrology to justify their stands….

So, as has been asked but not answered, where should one go for an acceptable countervailing voice?

One possibility would be to look among the crackpots who don’t accept the mainstream dogmas. Some of them will be worthless crackpots, but since anything that doesn’t accept the mainstream dogmas will be classified with them, it’s one place to look.

Another is to look for people who are basicly doing economics without being economists. That would include some operations research people, maybe some sociologists, etc. And you might get a lot of data and maybe some useful ideas from people who have jobs that involve economic decisions but who haven’t been trained in economics. Like, people who buy supplies for factories, people who sell things to retailers, etc.

As a slight possibility, you might be able to get some online companies to give you lots of old data about how they used to work. Recent data might be useful to their competitors, enough to be worth real money if you sold it, but say it’s 4 years old, that’s pretty much ancient history and yet it might show you something about real businesses in the real world.

Traditional economics assumes that there are feedback mechanisms, from markets and prices. In reality there are surely feedback mechanisms but they might not always work the way traditional economists assumed they did. Find out how they really work and you’re a step ahead just from that.

“Predict which way a cat will jump?”

This is a good example. Your pure technical analysis (as suggested by Thornton Hall) might conclude that, based on the past performance, there is a 0.53 chance that the cat will jump to the left, and 0.47 to the right. Fair enough. But my analysis, based on cat’s nature, may conclude that, for example, that if there is a rustling sound or slight movement in either side of the room, there is a 95% chance the cat will jump towards it; otherwise 50/50. And even if some cats do act ‘irrational’, in the end my odds just might beat yours. My only point being: of course human behavior is not completely predictable, but neither is it completely unpredictable.

“most intelligent people”

this is a joke, right?

433:1) An tasmanian devil just ate your cat.

2) It’s 1912, and those Russian cats are a bargain. He may have been wrong to think it would continue, but this is the world Keynes watched. He also lost two fortunes. Let’s not talk about Fisher.

3) Your accountant just took your capital and your cat to Buenos Aires

Your job, as a reader of entrails economist, is not to predict the world, but to make the world predictable, safe for capital and investment. Economics is not a science of discovery, but a totalitarian hegemonic project

On planet mcmanus they dre-e-e-e-eam of living in the lake social chaos.

See here for details.

@Ze Kraggish
You consistently use an error of reasoning. It’s a bit hard to single out, but it’s a sort of flip-flopping, unconsciously, between taking nouns to represent absolutes and then taking the same nouns to be individual tokens. The result is that other people’s points always tend toward reductio ad absurdum.

To take one of the more innocent occasions: there’s a lot of room between what I described as policy guidance and your reduction of it to technical analysis. But then you recognize that at some points, but not others.

@441, I reacted to what you said:
“And the answer is as obvious as it is ignored:
We will look at how things worked out in the past and do our best.”

This brought to mind the technical analysis of stocks, with moving averages, resistance levels, and so on. And it’s not a reductio ad absurdum: the internets are full of this sort of analysis. I’m just saying that this probably isn’t the best approach either. If I misinterpreted, I apologize.

439: And the most enlightened bourgeois liberal is the first to push back. “Of course your vote really matters.”

Richard Sennett (at hand, there are so many more):

But this “primitive” capitalism was indeed too primitive to survive socially and politically; primitive capitalism was a recipe for revolution. Over a hundred-year stretch, from the 1860s through the 1970s, corporations learned the art of stability, assuring the longevity of businesses and increasing the number of
employed. The free market did not effect this stabilizing change; rather, the way businesses were internally organized played a more significant role. They were
saved from revolution by applying military models of organization to capitalism.

It’s to Max Weber that we owe the analysis of the militarization of civil society at the end of the nineteenth century—corporations operating increasingly
like armies in which everyone had a place and each place a defined function.

In Otto von Bismarck’s Germany this military model began to be applied to businesses and to the institutions of civil society, principally, in Bismarck’s mind, for the
sake of peace and the prevention of revolution. No matter how poor he may be, the worker who knows he has an established position is less likely to revolt than
the worker who can’t make any sense of his or her position in society. This was the founding politics of what can be called social capitalism.

I’ve turned to sociology because it is a harder colder discipline than economics.

Does anybody really understand Krugman’s youthful motivation found in Asimov’s Foundation? Of course economics is about shaping history, society, human psychology, absolutely realizing that in order to be effective the people must not know what’s going on.

On planet mcmanus they dre-e-e-e-eam of … social chaos.

Nah. Its called democracy. To an authoritarian it looks like social chaos.

thanks Zamfir above for spelling it out, i didn’t have the patience.

the notion of ‘smartness’ or ‘the brightest guys in the room’ or whatever is trotted out far too often in american society today to rationalize elite status – most often in the face of clear failure practically speaking. we hear about how ‘smart’ all these economists are, people tout the smartness and intelligence of all those i-bankers and their ilk, and so on and so on. oh, we must defer to them, for they are the Best and Brightest!

but when you tease it out, it breaks down into some combination of elite pedigree (generally bequeathed through inherited wealth/status) and the endorsement of like-minded individuals, which is fairly self-referential (he is smart because other smart people say he is smart – but who is to say that they are smart? why, he did – and he knows because he is so smart! and so on).

the fetishization of ‘smartness’ or ‘intelligence’ or the ‘bright’ – however you want to phrase it – is just masking deference to elite credentials and inside access in the supposedly more neutral category of intellect.

any time i see someone make an ‘argument’ appealing to this element/quality, i know right away that someone is regurgitating a stinking pile of barely digested received ‘wisdom’. some people eat that ish up… but those who can chew their own food generally find it repugnant

Why don’t you take a stab at this, Thornton? I asked you above,

Do you have some utopian vision behind your remarks? It seems that way. If the debate between saltwater and freshwater is little different in your eyes than a debate between 2 schools of creationism then who or what is playing “Darwin” in this vignette?

gianni,

the fetishization of ‘smartness’ or ‘intelligence’ or the ‘bright’ – however you want to phrase it – is just masking deference to elite credentials and inside access in the supposedly more neutral category of intellect.

If dunces formed a confederacy this would be their credo, no?

To an authoritarian it looks like social chaos.

Good point. Average folks would take a good riot over a good latte any day.

Layman, how about a hug?

Thornton,

You seem to me to speak off the top of your head without much heed to whether your words add up to anything. Here you say Krugman is the most dangerous economist in the world, there you say his policy recommendations would have commendable results. You casually, flippantly suggest that your common sense ideas would be “radical departures” from saltwater (roughly speaking, Keynesian) economic thinking.

You might be a good egg, I think you are, but what comes out of your mouth is incomprehensible. Really.

@457 calling him “the most dangerous” was deliberately provacative and provoked exactly the discussion I hoped it would. That said, you don’t really have such a cribbed view of the world such that a person can’t be both right on policy and dangerously wrong on the reasons?

I meant to address @444 to you as well. Check it out.

That said, you don’t really have such a cribbed view of the world such that a person can’t be both right on policy and dangerously wrong on the reasons?

It is unclear to me that Krugman is dangerously wrong or wrong at all on the reasons for his helpful policy suggestions.

When you do that, you’ll be tempted to believe that it’s too complicated, that Krugman is just over your head.

That’s not the way I approach Krugman, at all. I read him because I believe I can understand him. It helps that he writes extremely well, using plain language and avoiding unnecessary provocation.

“Why the fuck does no one ever ask businessmen why they aren’t hiring or why they aren’t investing?”

Krugman touches on this frequently, Thornton. What’s the big mystery?

I haven’t followed that part of the discussion but if you really can’t see any “fetishization of intelligence” in contemporary America, I don’t know what to tell you. I mean, IQ? standardized test scores? Ivy League? The Bell Curve? These are specifically American obsessions that have never really caught on elsewhere to that extent. We want those in positions of power to be smart and competent – well competent at what? Competent at winning and keeping power, competent at furthering the interests of their oligarchical network? You cannot meaningfully speak in these terms without encountering contradictions. We like to accuse our opponents of stupidity and incompetence (I do that myself) but really, the climate change deniers running this country are not stupid. They are very competent at the jobs they are doing. Likewise, the finance leaders responsible for the worst economic crisis in 80 years are smart and competent and successful at what they are doing. They perfectly fit the ideal defined by the fetishization of “smartness”.

Why not judge people by their accomplishments instead of their perceived smartness.

I don’t see any “fetishization” of intelligence to speak of

Wow! You may want to check out the JQ post at the top of the page (just for starters).

PS This is where, if he’s still reading, Bruce explains how I’ve gone off the rails.

But riddle me this: you state that Krugman does not write provocatively. Why then does he have a series of blog posts about “civility” where he endorses the view that he must write provocatively?

#466 Thornton Hall

In fact, I’d be a shocked if you can find a reference anywhere where an economist talks about an IS/LM liquidity trap and in the same article demonstrates empirical evidence of businesses and/or governments responding to interest rates.

Suppose an economist wrote about how he was on the plane heading to a convention and three businessmen he was sitting with told him how they were responding to interest rates. That would be anecdotal evidence, right?

So instead maybe he sends a questionnaire to 1000 businessmen, and 52 of them reply, and then he can do statistics on the replies? The sort of thing that sociologists might do? And he faces the problem that the ones who answer might be somehow different from the ones who don’t. (They are different! They took the time to answer a survey from an economist! You know they’re different from the ones who just circular-filed it.) And then he faces the problem that businessmen don’t necessarily tell the exact truth all the time, especially if they’re not completely comfortable that they don’t act like ideal homo economicus. And then he might make subtle statistical mistakes that somebody might call him on.

Would peer reviewers be impressed? Later reviewers? Far easier to write a normal economics paper.

465

I read JQ’s post. I saw this:

In many parts of economics, the status rankings and evaluation criteria are driven much more by internal and aesthetic factors than by empirical validity or policy relevance.

Also this:

The idea that an understanding of economics combined with attention to actual events is more useful than mastery of a highly specialised bag of tricks is totally antithetical to the ethos of the site (unsurprisingly, they hate Krugman even more than me).

So, no, I don’t see a fetishization of intelligence. Noah Smith has written some about the “specialized bag of tricks” problem, where a lot of highly technical, math heavy papers get written about arcane and ultimately trivial problems. Is this “fetishization of intelligence?” I think it might better be described as fetishization of technique and specialization at the expense of utility.

@471 You’re not paying attention. According to Krugman, and others, the “internal and aesthetic” factors are generally the ability to do extremely fancy math.

Is this “fetishization of intelligence?” I think it might better be described as fetishization of technique and specialization at the expense of utility.

You can describe it like that but the people who fetishize it describe it as intelligence. And they have better access to the airwaves than you or me. This isn’t an argument about the “true meaning of intelligence” or whatever.

473

This is from Krugman’s post on Fourcade:

Again and again we’ve seen freshwater macroeconomists declare that New Keynesians, let alone those who respect the older stuff, don’t get some basic point;

Funny. That’s what YOU do, Thornton.

Krugman goes on:

But the macro wars have been revealing: we’ve seen quite a few highly successful academics, with lots of widely cited papers, prove remarkably dense when trying to weigh in on real-world events. It has been all too obvious that there are people with big reputations who can push equations around but don’t seem to have any sense of what the equations mean.

So, I think there is something going on with using mathematics as a proxy for intelligence. But what should interest us about this is the difference between social climbing (achieving for the sake of status) and excelling in your field in the best sense. In the sense of doing useful work.

Because in that latter sense we want our economists to be intelligent! Is that controversial?

I’ve been following this thread for a while since posting last and it’s gotten away from me, but now that we’re circling around Krugman, let me say something that’s maybe orthogonal to the points being made here.

A number of years ago, Krugman wrote a column titled Economics is not a Morality Play. In this column, he takes right-wingers to task for attributing a moral agency to the market, and he’s not wrong to do so. But he’s not entirely right either. Because economics, ultimately, is a moral science (and if you google that phrase the top result is a post by one of our esteemed hosts), since bundled into the application of technical jargon is some normative notion of the desirability of the outcomes of applying that technical expertise.

Krugman wonders in that column why people don’t understand the necessity of spending, but the question is not about the actual technical outcomes. He doesn’t understand (or maybe pretends not to understand) the opposition because ultimately he has a different moral compass. He sees the economy stagnating and people suffering and says, oh, you can fix this by doing X. And you should do X regardless of whether you think someone undeserving is going to benefit, because we’ll all be better off. But he’s up against a moral code which is explicitly dedicated to the meting out of punishments and rewards, and the code is enforced by interests that don’t care if things go to shit because they have enough resources (they think) to ride it out. And it’s more important to them to punish the undeserving than to do the sensible thing, since that sensible thing would likely leave most of those “undeserving” better off. Krugman wants to fix the economy because he values things like stability and widely shared prosperity, and his arguments are all based on the assumption that these would be good things. Unfortunately he’s up against people who don’t share that view.

This little story crystalizes something that Thornton Hall has been hitting at from a different angle, but I think the attack on the actual technical models and so on is misguided. The issue isn’t that Krugman is so smart that he knows we should spend more and conservative economists are so dumb that they don’t know that. Of course they know it; they just don’t care. They know they’re going to survive no matter what, and advocating for shitty policies gives them a chance to punch down at the proles. That’s what they value, as demonstrated by the actual choices they make; I believe that’s a little something called “revealed preferences.” Hiding behind the purportedly amoral nature of technical economics, as Krugman tries to do, is harmful not because he’s wrong about the facts, but because it obscures this moral conflict. Once the debate enters the heady realms of theory, you can always count on someone to show up with a model that tells the poor to go fuck themselves.

I don’t think Krugman actually doesn’t know this. He’s probably just too polite to say to his conservative colleagues, hey, you know your policies are harmful and therefore you’re bad people. But that shouldn’t keep us from saying it and making the moral case rather than the technical one.

480

The difference is between provoking your allies and provoking your adversaries. Add to that the difference between provoking socially-minded, empirically inclined readers of CT versus provoking self-interested, ideologically blinkered reality deniers…

Jerry Vinokurov @479
yup, well put.

if you read the succession of replies to your initial objection, you would be looking at this beyond the immediate issue of academic economics as well, ie the culture of ‘smartness’ in wall st. and b-schools, and in non-econ related areas too.

i don’t know what your comment 478 is really saying. are you conceding that certain sub-cultures fetishize ‘smartness’ but just dissolving this into status competition, then contending that status competition is natural and inevitable, and not a big deal anyways because we still get stars like Krugman?

i also want you to know that i do not hold either Krugman or Piketty in particularly high esteem. both for the same reason: they are exceedingly hostile to any moves toward heterodoxy, which is, in my mind, turf-policing behavior that limits rather than enhances critical thinking on their areas of focus. re Krugman, see ‘frustrations of the heterodox’ (or similarly titled), re Piketty, see his dismissive comments regarding Das Kapital in interviews in the wake of him publishing a book called Capital that was widely panned for having an incoherent definition of capital (conflating it with wealth) that could have been remedied by reading that book’s namesake.

i tell you this because many of your comments seem to come down to ‘but we have these luminaries right now aren’t they good enough?’ . my answer is no, i think that the value of Krugman is overrated in the current context by US and Euro economic policy is straight up terrible and he is the most prominent voice arguing the case for change. it makes him look like some great champion, but it is just because this is such an ‘easy case’, if our economic problems were not so obvious things would be more interesting

@Jerry Vinokurov 479

I don’t think Krugman actually doesn’t know this. He’s probably just too polite to say to his conservative colleagues, hey, you know your policies are harmful and therefore you’re bad people. But that shouldn’t keep us from saying it and making the moral case rather than the technical one.

I think you’re right about this. Krugman seems to say we have no choice but the battle between Fresh and Salt because nothing else has panned out. At the end of “Paradigming is Hard” (IIRC) where he goes thru a list of heterodoxies, including Agent Based Models (my favored horse) and says, “So far, these are all useless, but maybe they’ll come up with something. Until then, we have to do it my way.”

Obviously it’s difficult to attract talent and make progress when Krugman calls your project useless. And I still can never quite follow where he explains just what is so useful about the current state of affairs.

gianni & js.

I agree with both of you that Jerry’s 479 is well said. The little issue I would take with it is merely that I think Krugman, saying “economics is not a morality play” is trying to point to the scientific aspects of the discipline. Jerry is correct that doing economics is ultimately going to involve normative/moral choices. Krugman–I think–is saying that there is plenty of cause & effect to study before applying our moral preferences.

My original comment was a response to gianni’s 449, which I thought, and still do, is much too sweeping and general in nature.

I realize this is something we’re not going to agree on so I’ll leave it there.

Relatedly, Fourcade actualy wrote about ‘Moral categories’ in economics. Abstract is here

http://ser.oxfordjournals.org/content/11/3/601.abstract

pdf can be found online

The little issue I would take with it is merely that I think Krugman, saying “economics is not a morality play” is trying to point to the scientific aspects of the discipline. Jerry is correct that doing economics is ultimately going to involve normative/moral choices. Krugman–I think–is saying that there is plenty of cause & effect to study before applying our moral preferences.

Actually, that seems backwards to me from what Krugman is saying. He’s pretty explicit in saying that the cause-and-effect stuff is effectively solved: we know that someone needs to spend more, the government can do that, ergo the government should spend more, and we’ll all be better off. It’s a bit like saying that we’ll all be better off regulating some pollutant; the science is (mostly) in, even if it’s also (mostly) correlational, but we still don’t get the regulation we should have, because a bunch of people have material or ideological incentives to impede it. Demonstrating technical accuracy is a good thing from a scientific perspective, but it pretty much gets you nowhere with people who don’t share your moral framework.

493

I don’t see where the disagreement is Jerry.

472: “It escapes me why you presume I would disagree with this.”

I don’t presume that. What I do presume is that our prevalent culture disagrees with it. In this (American) society, people are far more likely to be judged by their credentials and their reputation (including whether they were admitted to an Ivy League school, but also more generally the kind of circles they belong to) than by their proven accomplishments. That is why for example media pundits who have been demonstrably wrong in almost every respect can continue to be admired for their “smart” expert advice. Likewise, economists with a proven track record of being (empirically) wrong suffer no reputational consequences (as Krugman laments so often). The point is that the American fetishization of “intelligence” (has to be in scare-quotes) is fully compatible with the uninformedness and indeed anti-intellectualism of our public discourse.

or treasury bills just buried. Sorry for typo above.

Wow, I just posted comment number 500. What’s going on here? Oh, economics-bashing – how we love it ;-)

Jerry,

Yes, I am with you pretty much all the way.

because I don’t think cause and effect decouples so neatly from moral preferences.

I think you’re right. BUT, my view: we can’t even DO economics unless we make some abstractions. I think this is basically what Krugman would say. I think that if we follow your critique too rigorously we end up not having a discipline of economics. What would we have then? I’m curious what you think about this.

*For those with strong stomachs I recommend Jim Douglass’s, JFK and the Unspeakable. For it is probably more accurate to say the assault on the leftward progress of the US began in earnest with Allen Dulles’ skullduggery.

@mattski and Jerry:
Steve Randy Waldman’s exhaustive examination of the impossibility of severing economics from moral choices:
http://www.interfluidity.com/v2/5537.html

gianni @ 502

Yeah, I was trying not to make my comment personal — although I don’t suppose I succeeded very well — but rather to use it to show how even well-meant technical advice from experts often comes across to the interested but skeptical layman. De Long has probably forgotten more about economics than I have any hope of learning at my age, but politically I think he has — at best — a tin ear. He’s obviously good at games, so he delights in treating politics like a game, one he clearly believes himself well-equipped to win. He’s not so different in that respect from pundits who are, objectively, a lot farther down the evolutionary tree than he is. A pity….

Alas, politics isn’t a game, or if it is, it’s a desperate one, with real consequences for people without a sufficiently resilient, socially approved bomb shelter — like, say, a Harvard degree and a professorship at Berkeley. Which is not to say that De Long didn’t earn what he’s got, as much as anyone can be said to have earned what he’s got, or that he’s some kind of easily dismissible idiot savant. What I’m saying, I guess, is what both you and JV are saying, that until we get serious about how technology and power have cross-bred in the 21st century, how unassailable the resulting hybrid now seems to be, and how perilous a situation we’re in as a result, I don’t think it makes the slightest difference how smart someone is, or what he knows — not when it comes to who decides what.

Sorry about the spelling of DeLong above. I just recently turned on the automatic correction on my machine, and maybe relied a little too heavily on it. Damned if you do, damned if you don’t.

#474 Rakesh

The theoretical point here is–to use Hayek’s metaphor as noted by GR Steele–that the
continuous flow of the river of investment can vary independently of
the level of the tide (sales of final goods) at the mouth. The upper
reaches of the volume of water is affected by the immediate flow of
the tributaries to the mainstream (variations in new and replacement
technology). In any given period there is no obvious correspondence
bttween changes in the upper reaches and the sale of final goods; nor
between the sale of final goods and employment. Moreover, as Marx
first and Hayek later recognized, it is generally the case that in a
slump the revival of final demand is an effect rather than a cause of
revival in the upper reaches of the stream of production.

Heh. Hayek. Looks at a feedback cycle and tries to decide which part of the cycle is the cause.

I’ll tell the story my way — if there isn’t more demand, then there can be a bit more investment and it will dry up when demand isn’t there.

And if there isn’t enough investment to increase production, there can be a bit more demand and it will go unsatisfied because production isn’t there. If there’s enough excess capacity to soak up an increase in demand, then you might have to wait awhile before increased demand gives you increased investment. Or maybe not. Individual businessmen make their choices based on what they think will happen, and then they revise their opinions based on their continuing experience. They are not fully predictable, unless they have been carefully trained to be predictable.

Meanwhile, when poor people (workers, people on the dole, any poor people) get more money, they can be depended on to spend it and increase demand. Unless they used to be rich enough to have debts, and now prefer to pay them down. Or they are so scared of the future that they prefer to save. Or something else. Not even poor people are completely predictable.

Deciding which is the cause and which the effect is just another delusion. Investment has some effect on demand. Demand has some effect on investment. In either case the delay is variable. In any particular circumstance one or the other may be more a limiting factor, or maybe there will be some other limiting factor that isn’t either of them.

Jerry 506

I just think we shouldn’t fool ourselves into thinking that the abstraction represents something it doesn’t or that it obviates the need for figuring out just what it is we actually want to get out of them and for what reasons.

I think you’re quite right, and consistent with my remarks in this thread. And I’d bet you $5 Krugman wouldn’t argue with you either.

@516 “Ideology” is an abstraction that causes no end of confusion. The loss of Mary Landrieu has spawned several good pieces about the change that was interpreted as the “rightward move” of the country. Historians explain it quite well. The Civil Rights Act and The Southern Strategy. It used to be the case that half the country’s racists voted Democrat, while half voted Republican. The parties (like Coke and Pepsi agreeing not to compete on price) did not compete on race. A fair number of black people (of the small sample allowed to vote) voted Republican.

We now are at the other end of the transformation. All the racists are in one party. Ross Perot gave Clinton a victory and that confused a lot of folks at the time, but in 2014, we should be clear-eyed about the way racism shapes out politics. If you ask people if they support Social Security, the yes answer keeps going up. Medicare, Medicaid, the 1933 and 34 Securities Acts, the EPA, public education, it goes on and on and on. The poll numbers go up.

So what about those studies you see about the shift in public opinion? Half of the “score” is often the answer to two questions: are you Republican or Democrat and are you liberal or conservative? People, unsurprisingly, don’t interrupt the pollster to say, “By conservative, I don’t mean I oppose any particular expansion of the Federal Government, by conservative I mean I don’t like the government giving things to Black people.”

Thornton, thanks for the link to Waldman’s series. It’s really well-written and informative.

Thorton Hall @517
Your story of the rise of the U.S. Right and changing party alignments — that it’s only about race — is too one-dimensional. You’re ignoring, for one thing, the importance of the ‘tax revolt’ that began in the late 70s w Howard Jarvis and Prop whatever-the-number-was in California. Sure, people say they support the major New Deal era govt programs (and no doubt do), but much of the electorate has been v reluctant to pay taxes, even when patently necessary to shore up crumbling infrastructure, schools, etc. The rise of the Right from Goldwater through 70s to Reagan era seems, in short, somewhat overdetermined. (And I’d be surprised if e.g. that’s not the conclusion of R. Perlstein, tho i haven’t read his books — have Nixonland on the shelf, but have only dipped into it.)

Kevin Phillips was an early Republican advocate for a Southern Strategy for securing a Republican majority, publishing The Emerging Republican Majority in 1969 (I think).

His American Theocracy (2006) and Bad Money (2008) are well worth reading for analysis of the current shape of the Republican Party and American politics.

@521 LFC (thanks for not correcting my spelling of the Senator from LA!) No doubt you’re right, it’s too one demonsional. But just like Econ starting with rationality and inch by inch getting less wrong about human behavior, I think political analysis that starts with ideology and later adds in race as a “possible second axis” is only getting less wrong, and not more right.

The biggest (sort of) non-racial change is the rise and fall of support for trade unionism, but I think that history is non-ideological as well. WWII gave unions enormous power here and in the UK. People stopped supporting them because management slowly won the peace. The lack of support was the effect of diminished union jobs, not the cause.

Perlstein (I started the Goldwater book, but barely) has in interviews pointed to the professionalization of the press as a factor. Certainly the idea that a cabal of Harvard Boys could represent a “public trust” as has been asserted by alums of The New Republic suggests simple class ignorance as a factor.

To me, though, Watergate is the watershed. Four government lawyers, Mark Felt, John Dean, Sam Dash and Sam Ervin successfully purged the government of a near-psychopath who had tamed the press with a speech about his dog. Somehow, this has turned into the story of how America needs a free press to expose how terrible government is. That’s not ideology. That’s just the naked self interest of people who sell newspapers for a living. We were far better off when they were far too drunk after work to fight for the glory of the First Amendment.

Ogden 518:

This is how Krugman described the impact of the co-op story:

“Twenty years ago I read a story that changed my life. I think about that story often; it helps me to stay calm in the face of crisis, to remain hopeful in times of depression, and to resist the pull of fatalism and pessimism. At this gloomy moment, when Asia’s woes seem to threaten the world economy as a whole, the lessons of that inspirational tale are more important than ever.”

My discomfort with the story is best expressed by BW 522: “My objection is to the “handwaving”: trotting out a story or a model, proclaiming an insight and then, with little or no basis, waving one’s hands and asserting that the actual economy is “like that”. “

i will note that i participate in an online marketplace for collectors items which has its own internal ‘currency’, which it uses to facilitate trades between the users. this market suffers a bit from the same sorts of problems – big time players horde points, trading activity can periodically fall into a bug lull due to a dearth of available points as people stockpile for specific seasons, etc etc. The solution pursued by the site was to give free points to all users and bonus points for new users. It still needs, every once and a while, an injection of currency to keep the trading velocity up there, but naturally this does not always happen.

whether or not this has any relation to the international macro economy, i will plead the 5th. but on the micro level, the story of the co-op rings very true to me

J Thomas @ 522: . . . I can hardly stop myself from coming up with brilliant theories that go beyond the available data

Yes. I’ve noticed. There are medications that can help with that. Just kidding. I think.

mattski @ 528

No doubt I have been unclear, and I apologize for that. My complaints, as I understand them, are quite different from what you appear to imagine.

The anodyne observation that the map is not the territory misses the larger point that analytical theory is not a map. No one, I hope, would mistake Euclid’s Geometry for a map. Geometry is a theory, laying out conceptual relationships. It can be useful in surveying a territory and drawing an actual map. But, surveying and map making are activities distinctly separate from the study of geometry, per se.

Economists, it seems to me, are often seriously confused on this essential point: they imagine analytical theory — their analytical theory of economics — constitutes in itself a sufficient analogue to the actual economy to work well as a map for intuition to follow in describing and interpreting economic activity. I think economists who hold that view — including Krugman — are wrong about that. I think economists ought to engage in the study of actual institutions and their operations, before pronouncing prophecy on policy.

When I complain of “handwaving”, I am saying that I think the theory is not a sufficient analogue to the operation of institutions, and the “handwaving” constitutes an intellectually fatal neglect of method and mechanism, with fundamental implications. This is not a matter of incidental detail.

Theoretical macroeconomics is obsessed with intertemporal optimization and general equilibrium of a system of markets. That the actual economy consists of relatively few actual institutional markets, that most prices are administered in circumstances that suggest that the associated (metaphoric) market is not structured to clear, that the financial system operates nothing even faintly resembling a flow of funds regulated by an interest rate, and that radical uncertainty obtains would seem to imply that any operational model of the institutional economy — or “map” of the territory of our political economy — would present sharp contrasts of character to the ideal picture presented by theory.

These shortcomings are not trivial matters of insufficient comprehensiveness or detail. They are evidence of a basic failure of professional competence. No one would imagine the theory of aerodynamics would constitute, by itself, a sufficient model to test an airfoil design, let alone supply the intuition to fly a airplane.

Constructing operational models to observe, describe and measure the world as it is, is a normal activity in science. That it is possible to observe and make critical sense of the operational, institutional economy should not be disputed. People used to do it, and were called economists. Economists still do it, though they risk professional marginalization. Minsky was doing it in the work I cited earlier. People do it still, and are given the names of other professions. That economists labor in ignorance of the economy and are proud of their incompetence has frequently tragic consequences.

BW — @531 is really helpful (esp. the map/analytical construct distinction). Thanks!

mattski @534

Perhaps this (thanks for the reference to J.W. Mason) would help you see what Krugman et al. either don’t see, or don’t want to see, or if they do see it, don’t think is worth pursuing. When you denounce BW’s insights as mere vanity, these are the mechanisms that you’re overlooking, and that he, fortunately, is not — mechanisms which are very much at issue when discussing the obtuseness of certain famous academic economists. A closer look at them explains, at least in part, why studies of the political part of political economy have gone the way they have, and why people, both with credentials and without, have gradually developed the temerity to criticize famous economists.

@534
if i may be so bold-
i think what BW objects to is less the lack of attention paid to politics, which they both do care about and can be convincingly argued to lie beyond their purview, and more the lack of attention to the internal organization of and incentives within the economic institutions that make up ‘the economy’ that they claim to study. by treating firms as sort of ‘black boxes’, they can end up developing theories which have little relation to the world they claim to studying, as they mis-understand the motivations and behaviors of the game’s biggest players

so for something like prices and wages – there is a lot of discussion over how external market conditions shape these elements, with a deficit of analysis from the other direction starting within the firm itself. now it can be a lot harder to get a single, elegant, theoretical model out of this institutional analysis, but the preference for an elegant model is about aesthetics, not economics

mattski @ 534

I think interest rates are an excellent example of how economists go wrong. (I apologize in advance for the ranting tone in some of what follows, but I had to write quickly, and a lot of my prime examples are packed in boxes marked, “this pisses me off”)

Yes, in the post-WWII period, in the U.S., the Federal Reserve has, historically, induced recessions for policy reasons by inverting the yield curve, with primary and immediate effect on the rate of activity in the housing and auto sectors.

That’s the kind of short-hand language I would have economists use: institutionally and operationally specific.

I object to what economists actually do, which is something more like: “the central bank raises the interest rate.” Or, a slight improvement, “the central bank raises the policy rate”.

Krugman, when it suits his fancy, will happily trot out a hoary old theoretical model, known as loanable funds, where “the interest rate” is a singular rate — a price of loanable funds — that acts as a valve, regulating the semi-hydraulic flow of funds from savers to investors. That model, often attributed to Wicksell to give it an extra fillip of scholarly hoariness, is operationally wrong. The actual financial system doesn’t work that way and thinking about it as if it does can be seriously misleading in a variety of ways. Money is not an hydraulic fluid exerting pressure or having viscosity, banks are not mediating flows between savers and investors, using an interest rate, and investors/investments are not normally constrained by the rate of interest. But, in the Economics as we know it, nothing is ever wrong, so these zombie theories never get permanently discarded. Theorists operate in a narcissistic fantasy-land, where they can pull the appropriate theoretical model out of their quiver instinctively, rather than in science-land, where objective measurement of observable aspects of actual processes is primary.

I would have economists think and talk in terms of the yield curve, because there are always a vast array of interest rates and what primarily drives behavior — as is always the case in economics — is not any singular or absolute price, but relative prices, or in this case, relative rates. (And, as I will explain, I would have economists take far more account of the pervasive reality of administered pricing.)

So, yes, I would have economists speak in specific country and institutional context. The post-WWII U.S. macroeconomy isn’t like that of any European or East Asia economy. International trade was not a large part of the U.S. economy thru most of the post-WWII period; the U.S. dollar was the reserve currency in one respect or another throughout the period; the U.S. financed a high rate of housing ownership primarily with 30-year, fixed-rate mortgages (which is different from most other countries) and the U.S. throughout the period had a huge car park, where new car sales were a small percentage of used car sales and U.S. car companies made all their profit financing car sales or leases.

In a European country like Sweden with its own respectable currency, for example, where, historically, wages were set in a centralized trade union negotiation on a regular schedule and international trade accounts for a huge portion of activity and drives real incomes, central bank policy operates in a completely different context and with completely different constraints and considerations. Canada, with five national banks, four major urban areas each more tied to the U.S. than to each other, 7 year mortgages and a large auto sector integrated with the U.S. is four large boats and some dinghies riding the tide of the U.S. business cycle.

I think it would be good for economics, for economists and for democratic politics, if economists talked a good deal less abstractly about macro-policy. There has been a movement in economics, sometimes referred to under the rubric of Mesoeconomics, which has argued, not successfully so far, for bringing policy down out of the clouds. So far, the profession seems to think rational expectations at the infinite horizon is just fine and dandy — which is how we get idiot savants babbling incoherently about Ricardian equivalence and the confidence fairy.

I think if economists had regularly talked about U.S. macro-policy with concrete reference to the housing sector as the channel of effectiveness for interest rate policy, and an awareness that many bank rates are administered prices, a giant housing bubble could not have taken place with almost no one in the economics profession noticing or caring.

Moreover, I think the theoretical abstract focus on “central bank” policy rates and reaction functions (the Taylor Rule), while neglecting the operational aspects of bank lending and bank regulation is something akin to criminal malpractice in macroeconomics.

A awful lot goes wrong in economics because many economists remain fixated on the idea of markets allocating resources by price, and no where is that more true than in monetary policy, where economists talk in theoretical terms as if interest rates were valves. In real life, most prices are administered. Every economist should know what that means, but most apparently do not have the first clue. (And, yes, Oliver Williamson has a faux Nobel, so it’s not like no one has ever made this point.)

New Keynesians will talk abstractly about menu costs, but whether those notions of “sticky prices” have any relationship to an awareness of the pervasive reality of administered pricing seems dubious. Alan Blinder published a book, where he documented actual business pricing practice, but few seemed interested. Michael Woodford’s footnotes sketching the efficiency implications of sticky prices reveal an abysmal ignorance. But, I digress.

Banks administer rates and credit — that’s their economic function and will expand credit as long as they can profitably “borrow short and lend long” [see this is where the yield curve comes in: squeeze the yield curve and bank lending (or any carry trade that looks vaguely like bank lending) will contract, and induce financial de-leveraging]. And, the administration of mortgage rates is regulated by the government in a variety of ways, including direct inspection and audit.

When I say a price is administered, what I mean, generally, is that the price is set as part of a system of administrative control, in which other factors are varied strategically to control outcomes. The price might be varied according to some schedule, but it is not the primary means of allocation. The price of a movie ticket is fixed, so that movie studios and movie theatres can coordinate other activities, like advertising and promotion and allocate screens. In bank lending, the administrative activity is focused on ascertaining things like credit-worthiness or the appraised value of collateral.

This is where I think “hand-waving” by economists becomes hopelessly pernicious. There’s a view popular among economists that “market” prices are set by magical processes. Sometimes this is dressed up with handwaving references to the Efficient Markets Hypothesis. The Efficient Markets Hypothesis is specifically about price formation in an actual institutional market for financial securities, which are not goods and have no utility and no cost of production, which, if anyone were paying attention, would clearly rule out its application to, say, the housing market. The housing “market”, of course, is one of those metaphoric markets, not an actual and institutional market. And, houses have utility, land earns a rent, and buildings have a cost of construction.

So, the hand-waving economists say that “markets” magically determine the price of houses and it is not for mere mortals to question the divine wisdom of the market god. Therefore, no one can know whether a housing bubble exists. EMH! If you think I’m kidding in this characterization — check out Scott Sumner’s TheMoneyIllusion blog; I couldn’t parody it if I tried. (Here’s a one quick link from Google to his nonsensical babbling: http://www.themoneyillusion.com/?p=8063)

If economists were paying attention to and grounding their analysis in operational and institutional details, I think you get something more like the Calculated Risk blog. A housing bubble is a consequence of fraudulent strategies undermining the integrity of the administrative lending processes. Without the handwaving, price formation in the housing markets is governed by banks administratively checking out whether a borrower has the income necessary to afford a house, the professional assessments of appraisers, etc. Look at Calculated Risk blog archives for 2006 and ask how any one could be surprised. Also, why are economists so absurdly nonchalant about fraud in finance?

There’s some dim recognition that too abstract and theoretical an approach to macroeconomics — too much handwaving where observed mechanisms should be — has not served either economics or our politics well. Mark Thoma wrote this thoughtful piece; link from Lars Syll: http://www.thefiscaltimes.com/Columns/2014/12/02/Why-Next-Recession-Will-Be-Different

I’m not holding out much hope for Thoma’s conversion, but it illustrates my point about the hazards of too much analytical theory and too little operational and institutional modeling, too few specifics.

That’s the reason why there are too few like Bruce. (Is what I meant.)

@Bruce
As a (mostly) lurker, just want to say thanks for a pair of fascinating posts!

Bruce,

I have to make this short. I wish I had the time to pursue all the leads this discussion brings up. I certainly appreciate the “this pisses me off” sentiment. What I find very aggravating about your perspective is that it’s unrelentingly negative. I think you pick at nits as a way of expressing a generalized frustration that the economics profession isn’t living up to your expectations.

Well, the profession isn’t living up to my expectations either, that is, as a whole. But I see the work done by [insert litany of awesome left-leaning economists here] as proof that economics can be and is done in an exemplary fashion. So, in my view, the problems with economics are primarily cultural and political. The technical problems are inherent to most sciences- an example I mentioned recently, try getting a coherent definition of “entropy” out of a physicist. It is damn near impossible.

Did you watch the video JW Mason posted on his blog of the EPI event earlier this week? If you listen to Krugman’s talk you see he is extremely humble about what is known and what isn’t. What he does do, which I rarely see you do, is make affirmative suggestions for policy in the here and now. And he backs up his suggestions with a fairly exhaustive knowledge of relevant data.

You have a tendency to use hyperbolic language that serves no purpose. Example,

There’s a view popular among economists that “market” prices are set by magical processes.

And this one,

Michael Woodford’s footnotes sketching the efficiency implications of sticky prices reveal an abysmal ignorance.

I’d like to see JW Mason’s reaction, for example.

mattski @ 544

So my first, instinctive reading of your 534 was correct…J Thomas, kindly soul that he is, will be disappointed. In any event, it seem to me that the one most guilty of egregious misreading here is you. Whatever is motivating Bruce’s patient tutelage in these exchanges, it certainly isn’t vanity. Not to put too fine a point on it, his reply to you was a classic — and classy — bit of exposition, as AB @ 543 noted. No need for me to say anything else, except that I believe you’ve got it wrong.

Which mechanisms was I referring to? Those which, according to Beggs, define liquidity as a social relation, chief among them Minsky’s survival constraint as actors in the real economy conceive of it, and respond to it in varying circumstances. As Beggs puts it, Liquidity is not inherent in particular assets or institutions; it depends on the network of market relationships which tie them together. I’m sure Paul Krugman knows all this, and knew it before I’d ever heard of it, but Bruce Wilder, in my opinion, has a much richer understanding of what it means. Either that or Krugman has been keeping secrets from us ;-)