Some of these issues also came to the fore in the debate on "Why Economics Matters", which was held at the London School of Economics in May to mark the launch of The New Palgrave Dictionary of Economics. This immense eight-volume book, edited by Steven N. Durlauf and Lawrence E. Blume (and just published by Palgrave Macmillan at £1,600), brings together the contributions of more than 1,500 economists as well as a few outsiders such as the Swedish zoologist who contributed an entry on "game theory and biology". Although full of diagrams and mathematics, it also bears ample witness to the way that economics has loosed its moorings and now takes in pretty much all of human life. Entries range from "addiction" and "altruism", "bribery" and "bubbles", "convict labour" and "co-operation", all the way through to "tulipmania", "user fees" and "value of life". It is precisely because economic perspectives can be applied to parenting and speed dating that there is a popular market for the subject. Yet there have also been criticisms that economics has colonised and taken over much of the other social sciences, to the detriment of both sides.
The two panellists at the LSE debate who had contributed to the dictionary took very different lines. For Franceso Caselli, professor of economics at the LSE, books about sumo wrestlers and United Nations diplomats not paying their parking fines were all very well, but it was often the most nerdy, technical and even mind-numbing areas of economics that provide the crucial insights to improve lives. His "unsung and unlikely heroes", he said, were Alan Heston and Robert Summers, economists "who spent most of their professional lives developing - and implementing - methods to make national accounts comparable across countries, particularly, but not exclusively, by putting them on a purchasing-power-parity basis. The result of this lifetime effort was the publication of the Penn World Tables, in 1991."
While their work might sound dull and offputting - it certainly required one "to set up and solve a rather opaque set of many equations in many unknowns" that took "several hours to explain even to advanced PhD students" - it provided a set of vital practical tools. "Economists (and policymakers) used to think poor countries were poor because they invest too little, whether in physical capital or in their people, and as a result at any point in time they have too little capital," Caselli pointed out. "What the Penn World Tables allowed Chad Jones and others to do is to check these assumptions against the data - and to find that they were completely wrong ... the problem of poor countries is not that they have too little resources to produce, but that they use these resources very badly. What they need is not more investment or more schooling: they need to become more efficient." All this will make a big difference to the lives of the poor "in the same way that in medicine getting the right diagnosis for a sick patient improves his life relative to having the wrong diagnosis. Different diagnosis implies different therapy."
Although he is also a contributor to The New Palgrave Dictionary, Klaus Nielsen, professor of institutional economics at Birkbeck, University of London, was far more worried about the highly mathematised state of economics today. For a start, he suggested, technical economic arguments were often a smoke screen used to disguise quite different reasons for making decisions (as when Britain stayed out of the eurozone or aggressively bid to host the Olympic Games).
But he also worried that the subject had become "autistic". "Mainstream economics", he has written elsewhere, "has developed too much in the direction of an excessively specialised and formalised state of de facto withdrawal from the study of the economy in favour of exercises in applied mathematics". While its language "makes dialogue with other disciplines impossible ... the self-image of the discipline makes it unnecessary".
Part of the problem, Nielsen continued, is that economics is now "based on an expansive research programme with a strong core and a flexible protection belt". All the claims of the "belt" were up for discussion, provided the core remained intact. But it was the core, unfortunately, that incorporated a lot of basic assumptions about human nature and behaviour that disciplines such as anthropology, psychology and sociology had long called into question.
When economic research is impenetrable to those outside the subject (or even outside the subdiscipline), there will always be disputes about whether its difficulty is unavoidable, given the fiendish complexities of the real world, or whether it just amounts to an arid exercise in applied mathematics. And, because every example is different, there is probably no general answer to this question. But what about cases where economists do have important insights but dress them up in jargon and formulas that only their fellow specialists can understand?
Harford of the Financial Times, who was another panellist at the LSE debate, had something to say about that. Long may academic economics remain impenetrably opaque, he declared. It left a very lucrative gap in the market for people like him to step in as "translators", taking the best ideas of the ivory tower into the airport bookshop.
Friday, August 08, 2008
I've always felt the role of a third rate economist like myself was to be a ditch digger for the profession. You know, someone to carry out the grunt work. If an econometrician develops a new technique to estimate trade elasticities for industrialized countries, someone needs to do the same thing for the other 180+ countries. That would be my calling. But we are also in a good position to be a bridge between the superstars and the laity. As Tim Harford says, we can be the translators. I also think we need to be better educators of the public, so we can better inform policy debates. A recent article talks about the opaqueness of much academic research.