Critics of economics miss what it gets right
At this point, blanket critiques of the economics (or “econ”)discipline have been standardized to the point where it’s pretty easy to predict how they’ll proceed. Economists will be castigated for their failure to foresee the Great Recession. Some unrealistic assumptions in mainstream macroeconomic models will be mentioned. Economists will be cast as priests of free-market ideology, whose shortcomings will be vigorously asserted. We will be told that economics moves in cycles of fad and fashion. Readers will be reminded that economics deals with humans instead of atoms, making scientific certainty impossible. The piece will end with a call for humility on the part of economists, a more serious consideration of unconventional ideas and reduced prestige for the economics profession.
Writers for the British newspaper The Guardian are especially adept at producing this sort of broadside. The latest one, by John Rapley, is entitled “How Economics Became a Religion”, and it follows the script pretty closely. But by now it feels like the refrain is getting a bit stale.
There are some grains of truth in this standard appraisal. I’ve certainly lobbed my fair share of criticism at the econ profession over the years. But the problem with critiques is that they offer no real way forward for the discipline. In the wake of the Great Recession, outbursts of anger might have served to awaken economists from their contented intellectual slumber, but at this point a more constructive tone would be preferable.
Pundits should focus on what is going right in the discipline—because there are some very good things happening.
First, economists have developed some theories that really work. A good scientific theory makes testable predictions that apply to situations other than those that motivated the creation of the theory. Slowly, econ is building up a repertoire of these gems.
One of them is auction theory, which predicts how buyers will bid for things like online ads or spectrum rights—Google’s profits are powered by econ theory as much as by search algorithms. Another example is matching theory, which has made it a lot easier to get an organ transplant. A third is random-utility discrete choice theory, which is used in everything from marketing to transportation planning to disaster preparedness.
Nor are econ’s successful theories limited to microeconomics. Gravity models of trade, though fairly simple in nature, have proven very successful at predicting the flow of international trade.
These and other successful economics theories can be used confidently in a wide-variety of real-world situations, by policymakers, engineers and businesses. They prove that anyone who claims that econ theories will never be reliable, because they deal with human beings instead of atoms, is incorrect. Of course, economists still use a lot of theories that don’t work nearly this well, but writers should recognize and praise the successes more often.
Second, economics is becoming a lot more empirical, focusing more on examining the data than on constructing yet more theories. Economist Daniel Hamermesh classified papers in top economics journals in 2013, and discovered that the discipline has shifted strongly away from theory since the mid-1980s. My Bloomberg View colleague Justin Fox flagged this research back in 2016.
Recently, another team of economists conducted a similar analysis, using machine-learning techniques to classify papers as empirical or theoretical. Their findings echoed those of Hamermesh—econ is paying a lot more attention to data these days. Curbing the proliferation of models and applying more empirical analysis represents a positive trend, because a narrowing set of theoretical papers will be a lot easier to check against the facts.
Third, empirical economics is becoming more directly and immediately relevant to policy matters. A popular new style of research, often called quasi-experimental economics, evaluates the results of policy experiments like Seattle’s recent minimum wage hike or European countries’ acceptance of refugees. Instead of relying on complex theory or unrealistic assumptions, quasi-experimental studies give clear answers about the results of government action. That won’t make economic theory obsolete, but it vastly increases the speed with which economists can give policymakers reliable feedback.
Finally, even if the economics profession once leaned toward free-market ideology, that is no longer the case. Not only are today’s star economists likely to fall on the left side of the political spectrum, but economists in general are more pro-government than the general public on most issues. So the caricature of economics as the priesthood of free markets is way out of date. Free-market writers and think tanks may still use simplistic old ideas to justify laissez-faire policies, but among academics, nuance, moderation and complexity prevail. Meanwhile, though ideology probably does bias economists’ results to some degree, evidence shows that the degree of bias is modest.
Instead of trotting out the standard boilerplate critique of economics, pundits should be encouraging and publicizing the positive trends. The image of economics as a hidebound, unchanging discipline is a myth. The field has its problems, sure. There’s still a long way to go. But academics are working hard to make econ more scientific—to create reliable, applicable theories, to gather and understand new data, to provide rapid, useful feedback to policymakers, and to gain a more balanced and refined understanding of the economy. Maybe it’s us writers, not academic economists, who need to catch up with the times. Bloomberg View
Noah Smith is a Bloomberg View columnist.
Comments are welcome at email@example.com
- Telecom: Firms continue to bear Reliance Jio’s scars
- India seen returning to close to 8% growth by fiscal 2020: Sameer Goel of Deutsche Bank
- Retail: Some carts are more loaded than the others
- Sunteck Realty to invest Rs1,500 crore in commercial leasing portfolio
- Real estate: GST, RERA compliance issues continue