Posted by: CJ | January 25, 2009

Civil War in the Econ Blogosphere

For those who’ve missed it, there’s a minor civil war going on in the economics blogosphere. A few days ago Paul Krugman gave a brief description of the state of the war here, as well as wishing he had smarter opponents. Greg Mankiw responded to Krugman, while Brad DeLong went on an epic 5 part rampage against Eugene Fama, Greg Mankiw, and the Chicago school: Part 1, Part 2, Part 3, Part 4, Part 5.

As much fun as the public academic brawl has been to read, it has been a great demonstration of many broader points about economics and economists. The first is from an old Robert Solow article I found from Brad DeLong’s course materials. This is from Solow’s lecture “Economic History and Economics” in The American Economic Review, Vol. 75, No. 2:

“Economics is a social science. It is subject to Damon Runyon’s Law that nothing between human beings is more than three to one. To express the point more formally, much of what we observe cannot be treated as the realization of a stationary stochastic process without straining credulity. Moreover, all narrowly economic activity is embedded in a web of social institutions, customs, beliefs, and attitudes. Concrete outcomes are indubitably affected by these background factors, some of which change slowly and gradually, others erratically. As soon as time-series get long enough to offer hope of discriminating among complex hypotheses, the likelihood that they remain stationary dwindles away, and the noise level gets correspondingly high. Under these circumstances, a little cleverness and persistence can get you almost any result you want. I think that is why so few econometricians have ever been forced by the facts to abandon a firmly held belief. Indeed, some of Fortune’s favorites have been known to write scores of empirical articles without once feeling obliged to report a result that contradicts their prior prejudices.

If I am anywhere near right about this, the interests of scientific economics would be better served by a more modest approach. There is enough for us to do without pretending to a degree of completeness and precision which we cannot deliver. To my way of thinking, the true functions of analytical economics are best described informally: to organize our necessarily incomplete perceptions about the economy, to see connections that the untutored eye would miss, to tell plausible-sometimes even convincing-causal stories with the help of a few central principles, and to make rough quantitative judgments about the consequences of economic policy and other exogenous events. In this scheme of things, the end product of economic analysis is likely to be a collection of models contingent on society’s circumstances-on the historical context, you might say-and not a single monolithic model for all seasons….”

Solow’s big point in the above excerpt is economics isn’t physics, and economists can’t hope to have laws with the same certainty as in physics. His comment about econometricians is echoed in a short (well, 12 page) article/lecture by Uwe Reinhart (link to the paper is at the bottom of the linked post). The article basically says the economists are highly trained at selective use of facts to advance their preconceived notions, and that economists should not be trusted unconditionally.

A related point made by Robert Waldmann and Brad DeLong is that the big name economists are not big name economists because they are intimately familiar with economic policy and law or because they have great ideas about how real world financial institutions should be structured. They’re big name economists usually because they won a Nobel prize for work that was highly mathematical or statistical and done within a rigorous theoretical framework. But that does not mean they have a clue about anything outside their academic understanding of the economy. What seems like a  good analogy to me is that in general you can’t assume an economist knows anymore about real world economic policy than a theoretical physicist would about car mechanics. Specific economists might, but in general you shouldn’t assume anything more until you know more about the individual economist. This has very definite implications for public policy debates though, because it means we need to be more discriminating in who we listen to other than just looking at their credentials and awards. After all, it seems like there is a famous economist supporting every possible economic position, leading to the unfortunate problem that people don’t even have to think about their positions but can instead adopt whatever they want to believe and claim they’re right because a famous economist agrees with them.

For me, the takeaway from everything I’ve read is that economics has very definite limits as a science. Furthermore, those limits are real enough and there are enough screaming voices already that it doesn’t seem like a profession I would want to be a part of. This is somewhat saddening, since the prospect of using mathematics to give a theoretical account of historical and current events sounds like a wonderful, wonderful thing. But it’s not so wonderful if it devolves into a bunch of highly educated, highly informed people screaming at each other about how they’re idiots just using their education to construct highly sophisticated arguments for positions they would hold even without the sophisticated arguments.

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Responses

  1. I’d like to suggest that every paragraph or so, you talk about penguins. Friendly, lively penguins. Maybe they could dance, too.

    This is very interesting. I feel as if I should take notes!


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