Podcast on the new economics

I’ve probably missed this by a few weeks on Andrew Leigh’s blog, but for those who’ve not seen it and want to listen to a podcast on the new economics do so here at open source radio who have put together a program on the explosion of empirical analysis being done on social phenomena by econometricians in the spirit of Freakonomics. The program includes a good chunk of time with economist Justin Wolfers who seems to be doing a better than average (but not perfect) job of keeping his accent in that den of iniquity otherwise known as the United States.

In it (I think) Dianne Coyle agrees with the proposition that economics courses shouldn’t force their students to study micro and macro-economics. I agree, but a more sensible way to make the point would be for her and the others not to say that what they are doing is economics. They all learned the techniques they are using by training as economists and so they all know the economics they would have been taught as part of the package. But using econometric techniques to analyse what policies are most conducive to high quality teaching, or lower levels of hosptial accidents or whether Sumo wrestlers are cheating is only economics by provenance rather than by content.

Some of what these people do is economics and is some of the most important and promising economics that has come along in the last few decades. I’m all for it. But what defines what they do is the techniques they bring (developed in econometrics) to the torrent of data that is now available. Personally I think that a lot of the work they do should be called ‘social statisticians’ or something like that rather than economics. This is a fairly idle thought – and not intended to suggest that the arrival of such work is anything other than a boon. And yes I agree with Diane Coyle, why bog people down with economic theory unless and until they need it.

Anyway, go listen to the podcast if you’re interested.

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Tom N.
Tom N.
14 years ago

MORE STRAW ECONOMIC MEN

It may well be an interesting podcast, Nick (though I haven’t had time to listen yet), but the write-up doesn’t augur well. Take this, for example:

Economics used to be about markets and predictions: tax rates, interest rates, fiscal policy, monetary policy. In short, about money. But with the advent of behavioral economics, economists began to realize that markets are simply aggregations of human choices…

Sorry, but when I went to school, economics was at its foundational level about wellbeing, or at least utility, in relation to which money, or at least the things it could buy, were only one of several means of attainment. Likewise, the idea that markets are (or, at least, reflect) aggregations of human choices is hardly new either.

Look, I love what behavioural economics can potentially bring to economics – indeed, I started using its early findings in my own work years ago – but let’s not misrepresent the scope of “mainstream” or “traditional” economics in the process.

Tom N.
Tom N.
14 years ago

Actually, on closer inspection, I notice that the statement I quoted was preceded by the following:

We

Paul Frijters
Paul Frijters
14 years ago

I can tell two simplified stories about the explosion of behavioural economics that is flooding the journals in recent years.

1. Optimistic. Haleluja. Finally, economists are starting to unpack the black-boxes they’ve carried around with them for so long. No longer is it ok to just postulate that consumers are rational utility maximisers, but their actual choice behaviour in various situations is coming under scrutiny, both in labs and in less traditional choice situations (sumo wrestling; marriage; migration; etc.). We’re finally waking up to the fact that economics is applied psychology in stead of applied maths. We now know how important self-esteem is; we’re starting to unravel the mysteries of savings behaviour and the complicated psychological games people play at work. We are now starting to fully get to grips with humans as intricate psychological adaptation machines which holds the promise of tailored advise and a deeper understanding of humanity.

2. Pessimistic. After 2 centuries of progress in economics, we’re back to square one. The early economists knew full well that humans were complicated beings. In order to gain understanding of economics as a system, they consciously abstracted from the immense complexity of social life and reduced people to a few simple rules of thumbs. That opened up the language of markets, and visions of how the world could be different, leading to the basic economic policy advise that has served countries so well. All that behavioural economists do is to remind us of the actual complexities we glossed over these last 100 years. It however emerges with no useful new abstractions to help our thinking in actual complex choice situations but just creates a flood of ‘factoids’ that cloud our understanding rather than aid it. And of course first years economics now is the same as it was 50 years ago, so all that’s really happened is that whilst the behavioural economists are making a name for themselves by pointing out the bleedingly obvious (i.e. life is complicated and incentives matter in weird situations), the existing synthesis underlying policy-relevant economics has become unchallengeable by the default of the fact that all new big abstractions are shot down in the narrow-minded territorial feuds that have emerged. We’ll have to wait for the next major crisis to do real economics again.

Take your pick.

Chris Lloyd
Chris Lloyd
14 years ago

You might find this New Republic Online article “How freakonomics is ruining the dismal science” of interest.

Chris Lloyd
Chris Lloyd
14 years ago

..Sorry. Here it is: article.pdf

Jason Soon
Jason Soon
14 years ago

Excellent piece, Chris. Only bit I’d quibble with is where it claims Gary Becker and Robert Lucas don’t deal with data – umm, has he tried reading Becker’s Human Capital book?

Nick Ford
14 years ago

Studying both politics and economics at university, I certainly get a good dose of both sides of the argument. One of the politics subjects I took called “Australian Political Economy” offered the most simplistic of interpretations of economics. The lecturer studied some economics when he was at uni (during the hey-day of Keynesian economics) and is highly critical of basically any economic policy enacted since Bob Hawke came to power. What consistently lets him down in his logic is that he assumes economists are preoccupied with money – that economists believe the only way people are better off is when they get more money, so they can then go out and buy consumer goods and services. That’s absolutely false – when it comes to consumers, economists talk about utility maximisation. We’re interested in their welfare, which is more than just the amount of money or the amount of goods and services they have – it’s their level of satisfaction, their happiness.

Yet equally I know that economics courses do themselves no favours in this – we might pay lip service to the concept of “utility”, but if you ask an average first year economics student to define it, they’re going to struggle. Instead we bore them to death with basic principles and theory, which while certainly important is seldom put in any meaningful context. It definitely isn’t put in an interesting context. You have to wait a couple of years before you get to the good stuff.

Which is why I absolutely love Freakonomics. I wish I still had my copy – I lent it out to a friend, who then passed it on to another friend, and so on, so I haven’t seen it for well over a year. I routinely read the Freakonomics blog though, and the thing that is so brilliant about it is that it exposes people to a different way of thinking about things – which is precisely what an economics course does for so many students (myself included). I think it’s being a bit unfair to say that the sorts of things Freakonomics talks about aren’t economics. It clearly uses economic logic and econometric analysis, but it’s applying them to weird and wonderful situations. It’s about evaluating policies. It’s about understanding the behaviour of economic agents. These are pretty fundamental to economics, whichever way you look at it.

At the end of the day, if it helps portray economics in a more favourable light (compared with the usual references to “the dismal science”) then that can only be a good thing from my point of view.

Paul Frijters
Paul Frijters
14 years ago

Nick,
I’m not disagreeing with you, but just wanted to add that economics was named the dismal science some 200 years ago because it believes in the innate equality of everyone. That was thought of as a very dismal thought by the aristocrats of that time who of course believed in their own superiority over anybody else. Proud to be a dismal economist, I say.

Nick Ford
14 years ago

Indeed Paul, although I would also suggest that that’s not the reason people refer to it as the dismal science today – although it would certainly be preferable if it were. ;)

Andrew Leigh
14 years ago

Justin doesn’t specialise in the economics of IP, but he does know the value of a good trademark. He won’t be losing that Aussie accent anytime soon…