There are lots of explanations for why economics has become so excessively formalised. Because much of its subject matter is readily quantifyable – because it deals with money and the creation and distribution of standardised things it is certainly possible, and beneficial to quantify and formalise lots of stuff. But then a lot of the ideas are best explored in discussion – or so people thought until around the 1950s.
In the 1950s and 60s lots of disciplines succumbed to the siren song of formalism and mathematicisation. There were people who thought that cliometrics would displace history. But, though obviously enough quantifying things can be very useful in history as in any attempt to get at the truth of things, there are a vast number of questions in history for which quantification is not particularly useful. Today in history there is no presumption that you can’t be doing important work if it hasn’t been formalised.
If I were to speculate as to why this sorry state of affairs exists in economics, I’d say that it has mostly been driven by the professionalisation of academia. PC Chair Gary Banks commented on the lack of academic engagement in contemporary policy issues:
Whether academics could be drawn on more is a key issue. In an earlier era, the involvement of academics was instrumental in developing the evidentiary and analytical momentum for the first waves of microeconomic reform. Examples from the trade and competition policy arena alone include Max Corden, Richard Snape, Fred Gruen, Peter Lloyd, Bob Gregory, Ross Garnaut, Fred Hilmer, among others. Where are the new academic generation’s equivalents in support of the ‘Third Wave’? Only a few names come to mind, for example, of academics making a notable public contribution to policies bearing on human capital development.
I would argue that this is driven to a substantial extent by the need for academics to target publication in top journals. And top journals are unlikely to publish highly context specific applied economic work. Yet I would have thought that, except for some with very specific and high level strengths in theory that’s where economists will be most socially productive.
Anyway all this comes to mind as I read of what’s happened in the academy in marketing. It’s been subjected to a similar process of formalisation – a process which has gone hand in hand with academics writing for each other, rather than for practitioners.
Academics who teach undergraduates and coursework masters programs accept, albeit with qualifications, that their students expect to learn skills that they can sell in the marketplace.
When it comes to research, however, scholars often publish for their peers, producing papers less abstruse than arcane, research that working marketers struggle to understand, let alone utilise.
“Lots of researchers see their audience as other academics,” says the prolific professor Jordan Louviere from the University of Technology, Sydney. . . .
The dichotomy of industry practitioners in business and ‘the discipline’ or ‘the academy’ is not a very happy one. Professional economists working for banks and so on need know very little of economics to be useful at what they do – mostly economy watching. What does matter however is the social utility of the discipline. An obsession with quantification and formalism, the idea that it is OK that you only see what is formalised (what practical activity could survive that kind of assumption?) is profoundly disorienting, whether the discipline lends itself particularly well or not to quantification and formalism. The fact that training which embodies such ideas is seen as unhelpful to industry is a symptom of a problem, rather than the problem itself. The knowhow people in industry need is knowhow that can turn a quid. Lots of very socially valuable knowledge doesn’t turn a quid, so we built public institutions wherein it should be able to thrive. But then they become subject to the neuroses of excessive formalisation.
It’s strange. A marketplace where everyone seeks principally to advantage themselves, will often throw off, as a kind of residue, profoundly useful public goods. Markets generate the public good of price discovery – and other things like commercial precedents and, based on that the gradual evolution of commercial mores. In the market for ideas inside universities however, it seems that those seeking their own gain and glory – the ‘currency’ of the marketplace for ideas is reputation – have somehow managed to create a public ‘bad’, borne of a conversation amongst insiders. Of course for something in which so much time and energy is invested, it throws off lots of highly beneficial things. But I can’t help feeling that it could be a lot more socially productive than it is. A discipline which takes the more extreme versions of the efficient market hypothesis, rational expectations or real business cycle theory seriously is in a bad way.
For the opposite perspective on the same issue from a policy engaged economist, try this fine essay.
The old battle between something good, verbal diarrhea, and mathematical diarrhea — At least politicians can’t usually think of and hence don’t use the latter stuff to try and convince people (I haven’t seen any mathematical formalization of the currently controversial mining tax and how it effects the economy being offered by any of them, despite the fact that it’s no doubt possible). I also think that whether academics participate in social policy making with any three of these techniques is essentially an orthogonal question to whether they are producing something good or not.
Yes DD, this is an area in which I disagree with Krugman – for reasons that I haven’t had time to elaborate properly, but let me have a stab. The trick if you want to argue Krugman’s line is to make it an either or. Either we have quantification or everything is qualitative. I’ve not said that and it is of course ridiculous on its face.
In the article you link to Krugman tells the story of maps of Africa – which is repeated in this profile of him in the New Yorker.
This is reported as a kind of fait accompli. It’s just the way things are. Now if you’re into map making I guess it doesn’t really matter. Along comes one aesthetic and it displaces another. So what. Get with the program.
But if you need to go to Africa, if you need to use maps to get around, you’ve got a problem haven’t you. That’s the position we’re in in economics. It’s supposed to help us find our way around the world of policy. Now if it was really difficult to imagine how to map both aesthetics – the one that takes what information it can get – and some disinformation along with it and the more verified information with appropriate ‘health warnings’ regarding the quality of each bit of info then there would be a case for this kind of amnesia. But there’s no difficulty in presenting both kinds of knowledge.
Here’s more of the New Yorker profile of Krugman:
So there you have it. The ethos of the profession is that you have to walk or chew gum, but if you can’t do both – well who cares? – this stuff is to get publications anyway, and helping policy makers deal with the world, well it could be a spin-off but only really by accident. The current situation is as ridiculous as the converse would be – which would be to say that we won’t accept any research unless it can be encapsulated into an emotional one line story. Oh wait . . . we already have that. It’s called the media.
Here’s a challenge for you. Have a look at any work of Krugman’s and see if you can find him asking the question “Will the benefits of formalisation in this case outweigh the costs”. Compare that with pretty much any economics before the 1950s where it was part of what you did – see for instance Hicks’ discussion of his choice of perfect competition in Value and Capital.
This is one of the reasons why I leaned against continuing studies in economics before providence made the decision for me. I wasn’t very enticed by the ritual dancing and totemistic formalism when every day I could see the PR spivs (and what Krugman once called policy entrepreneurs) who weren’t constrained neither by these pointless rituals nor the sensible constraints of intellectual honesty. The games weren’t satisfying either my desire for knowledge for its own sake, nor the desire to actually improve opportunities and outcomes for everyone.
There’s a lot of economists that have been led into a dead end that (among other things) asserts the primacy of material rationalist incentives to explain behaiviour and dynamics; How striking it is that they were led to this assertion by social institutional incentives such as academic prestige and reputation.
I have wondered however if this problem is mitigated in many countries (such as Australia), at least compared to the US and the handful of American schools that hold the most academic prestige, since there’s a large number of PhD’s produced whilst serving government institutions like treasuries and central banks, or where government research grants are important. The money behind these wants policy level research rather than pure theory/Riksbank prize winning stuff.
Maybe blogging can provide enough of a new institutional setting so economists can be rewarded and censored reputationally both by peers policy makers and the rest of us, whilst being freed both from arcane ritual or the need to serve a vested interest with a PR budget. We can hope and dream…
Great comments Richard though IWSTWI?
I’ve always marvelled at the anxiety with which people feel they need – absolutely need – some official credential in order to trust people – that they’ve got a PhD or are in a high ranking journal or have the Nobel or whatever. Even some Nobel Prize winners are close enough to barking mad – certainly close enough to get your country or your hedge fund into a tight spot! (That link is a bit cheeky as there is nothing barking mad about Myron Scholes and Robert C. Merton, they were just naughty hubristic boys.)
But Muth, Prescott, Lucas? Very clever people but not people who you wouldn’t trust to pour you a cup of tea.
The problem of credentials and the ‘status’ of journals is a bit of a non-problem. I know who I trust and I know who’s judgement about others I trust. I’m having a fine time finding blog posts and articles through the blogosphere. And yes, double blind assessments of the quality of articles submitted are a nice thing to have, but the cost is huge including the capriciousness of the process and of course the time taken to get published. All the while things are happening, and decisions have to be made. I tried to bring this out a little in my column on blogging the crisis.
Peter Bauer was helpful on development economics and he did not need to use a lot of maths.
Physics envy would not be so bad if they only understood the effective methods of physics instead of going along with some form of positivism or Popper misread as a “falsificationist”.
Theory should develop in intimate contact with practice, as happens in medicine and applied science, that way theorists are constantly getting feedback and also contributing to practical policy development. Praxis can act as a spur and also a bridle, as someone suggested.
As for the strange idea that you can’t do experiments in economics, in addition to the field that is called experimental economics, every action in the marketplace, both public and private, can be envisaged as an economic trial or experiment.
Nicholas – I must admit I am mystified by the acronnym IWSTWI (and google does not enlighten). Is it perhaps an anagram?.
When you read newspapers as much as I have to, you also note the way prestige is allocated to economic experts in news articles and especially the ever increasing mass of “commentary” and “analysis” text outside the normal opinion sections.
A figure like Keynes (Or Friedman) is usually just named or prefixed with “the economist…”.
A figure like Krugman or Roubini will be described as “The Nobel prize winning” or “…who predicted the financial crisis”.
And if a figure is described as “the respected/noted/well known/important”, they are instantly recognisable as the lowest form of mercenary pundit and policy spiv….with, *ahem*, exceptions..
Still, I wonder why columnists persist with it, like euphemisms prolonged use has destroyed its original purpose. This has happened to the extent that one of their own, Bill Safire, was able to mock the practice openly – “And whenever you see the word “respected” in front of a name, narrow your eyes. You have never read “According to the disrespected (whomever).””
“Theory should develop in intimate contact with practice”
Not necessarily — just look at some of Turing’s work, some of the initial work on physics, some of the current work on physics (what is the use of current versions of String theory apart from to develop the next better theory?), or the development of computer chips (which were of course useless for a long time). Theoretical progress often occurs far before it becomes used for something practical. Sometimes it’s not even clear what the theories could be used for at the time but they later turn out to be gems. No doubt economics benefits from a mass of theory developed by bored mathematicians which may have had little use to begin with also.
Sorry Richard,
Thought it could be worked out with context and a bit of trial and error – I made it up on the spot and thought it was decodable – but then I would say that wouldn’t I?
Nick,
yes, this is one of your long-running themes. Whatever the merits of your case though, I am willing to make you the clear prediction that it is going to get worse, not better, in the near future: with the advent of academic output measuring devices, like the ARC journal list, academics will be put under more pressure than ever to be successful in the publication game, which, because publications are based on peer-review, means one has to appeal to what other academics want, not what the general public or the government or even business might want.
Counter-forces might indeed come from the blogosphere which is turning into a recognised vehicle for public dissemination of the more easily digestible economic ideas, hence giving incentives to create those ideas. But even the blogosphere is at the moment clearly second-fiddle to reputations created inside the peer-review system: there are almost no economists who make a reputation on the blogosphere that have not first made a reputation inside the tribe (though I can think of a conspicuous Australian exception who really first made a name outside, but then showed he could do it inside as well). One big reason why blogs are mainly derivative of insider reputations is because of all the crap that passes for intelligent (commentary on) blogs and that only peers seem able to spot. The market for blogs has some way to go to specialise sufficiently to get round this problem.
I actually agree with a lot of what you wrote, Nic, and certainly the incentives set in academia can be perverse. They put you in mind of Shaw’s line about all professions being a conspiracy against the laity. And yes, a Nobel is certainly no proof of good judgement or even sanity.
But it’s a bit more complicated than saying “oh well we need to use both words and maths”. The best point in that essay by Krugman was on the practical advantages of simplistic but rigorous models. Having a mathematical model shows that something could be true, rather than that it must be true, as well-honed words will lead you to believe. And the same model will tell you what you need to measure to see if it is true. Measurement without theory is pointless, because you won’t know what’s important and what’s not.
And as I’ve often said, given the limits of human cognition the real-life alternative to simplistic but rigorous and tested models is simplistic, unrigorous and untested mental models.
I agree with most of the sentiment expressed. An enjoyable polemic on the topic, which unfortunately isn’t online anywhere, is Mark Blaug’s critique of the first edition of the New Palgrave Dictionary of Economics, entitled ‘Through the Looking Glass’.
Just a couple of points, Nicholas.
I think you’re lumping too many things together under the heading of formalism. The problem is mostly not quantification. Finding ways to quantifying and measuring things in consistent ways so we can compare different outcomes is one of the most important things economists do. Otherwise all debates, such as over global warming, or whether the stimulus package ‘worked’, would just boil down to itemising pros and cons. Someone like JQ is constantly coming up with killer arguments by putting his finger on some key outcome that can and should be quantified in the debate, and he’s by no means the kind of boffin everyone’s denouncing here.
The real problem is the emphasis on esoteric, incomprehensible, self-referntial theorising, usually on a general equilbrium foundation, which has no reference to empirically measurable variables.
The second point is that, although you probably didn’t mean to single out physics as a source of toxic contamination, that discipline does occasionally contribute useful ideas and modelling techniques for dynamic processes in economics, and they don’t have to be equilibrium processes. We had a seminar from a very enengaging ‘econo-physicist’ last week, who gave a quick tour of some applications he was working on, some of which seemed quite promising (though in some cases he seemed tio be reinventing the wheel).
“and certainly the incentives set in academia can be perverse”
Yes, some people think that apart from teaching, research, marketing, getting money from anywhere and everywhere, admistrivia, and community liason, academics should also be talking to governments that obviously can’t do their own research well enough (presumably for free vs. the obvious alternative of working as a consultant).
Observation 1: Lecturer Level B Salary = somewhere between APS6 and Executive Level 1, Level C = about Executive Level 1. These are not especially high levels in the government (The average salary is about APS6). Surely the government can find smart enough people to function without being told what to do by a bunch of academics on essentially the same level? Observation 2: Universities need to make money, and doing work for free doesn’t do this.
Given this, it would be great if people could limit their suggestions as to what other people should be doing in their jobs so they don’t become the set of everything.
James,
I agree with your points. Measurement and formalism is useful where it’s useful.
No-one has quantified or formalised anything in this discussion because it’s not well suited to quantification.
And JQ is always doing as you say. My sentiments entirely. Quantification is often the best way to settle things – particularly using back of the envelope calculations to rule out silly ideas.
Keynes did this too. In WWII in the Treasury they tried to fit him out with the African map and told him they didn’t know stuff. He would explain that that meant they had to guess – as best they could. So he suggested a procedure – presumably he didn’t make it up because it’s commonsense – of getting people to guess what would almost certainly be too small a number and one that would be almost certainly too large. Then they’d split the difference.
That’s quantification for you – suited to the situation. And of course more specific formalisation and quantification has great power as well.
And, as my daughter would say ‘no offence’ to physics. Agreed.
Paul, yes, things could well get worse, like I said, a situation where individual incentives produce perverse macro outcomes.
Rafe @ #6 said:
”.
In much ’empirical’ economics – and here I mean econometrics for the most part – there is no need to worry about economists “going along” with a misreading of Popper as a falsificationist because hardly anyone makes any serious attempt at falsification of a model anyway. The word “testing” certainly gets used, but I think this is an abuse of the language – “checking” and “fitting” might be more appropriate terms.
Rafe @ #6 said:
There are certainly foreseeable technological and material benefits to be gained from this, but equally, as conrad noted, there are also unforeseeable technological and material benefits to be gained from doing ‘pure’ research as an end in itself. Something like this latter point is made by the slightly nutty R. Aumann (2006). Here’s his recommended approach to curing cancer:
Rafe @ #6 said:
This old methodological horse is pretty much dead now as far as microeconomics goes thanks in large part to the work of D. Kahneman, A. Tversky, V. Smith & co. It still stands as far as macroeconomics goes, however – hence the importance of modelling and simulations – roughly speaking, rigorous thought-experiments based on available data and reasonable stylised facts and intuitions.
James Farrell @ #13 said:
A neat summary of Blaug’s concerns (polemical complaints) about the “the disease of formalism in modern economics” is his 1998 article in Challenge. It’s full of indelicate quotable quotes, such as this:
Nicholas:
I think James is right on the money about conflating formalism with quantification. Methodological debates going on in the 1950s make the distinction fairly clear. M. Friedman for example was ‘pro’ quantification and ‘anti’ formalism – where quantification was taken to be the virtue of constructing empirically-informed, get simple models and testing their factual predictions in concrete cases, and formalism was taken to be the construction of elaborate, logically coherent symbolic systems in which the symbols were given economic labels and then touted as elucidating the ‘structure’ of any economic system.
It is interesting that what Friedman wrote in 1953 resonates with concerns expressed today. Here’s the relevant (fairly level-headed) quote from Milt:
It is also worth noting however, as a corrective to Friedman, it need not be the case that the symbolism of an elaborate, logically coherent symbolic system be ‘mathematical’ per se. As Blaug points out at the end of the Challenge article,
REF:
* Robert J. Aumann, 2006. “War and Peace”, Proceedings of the National Academy of Sciences of the United States of America, Vol. 103, No. 46: 17075-17078.
* Mark Blaug, 1998. “Disturbing currents in modern economics – trends in 1990s economics”, Challenge, May-June.
* Milton Friedman, 1953. “The Methodology of Positive Economics” in Essays in Positive Economics, University of Chicago Press.
I just found this quote from Alfred Marshall.
Couldn’t agree more.
Perhaps this might be of interest:
“’Physics envy’ – physics abysmally misconstrued!” – http://www.repiev.ru/articles/Physics-Envy.htm