How economics is slowly changing, again

Economics Now Points Away From the Laissez-Faire Approach”: This recent interview of Sureish Naidu (Columbia) briefly summarises all the reasons why economics these days has a lot more to contribute to the policy world, and that the (mistaken) conflation of economics with “neoliberalism” should be entering its final days. Here’s a few quotes to which I feel most personally related:

Q: But of course, everyone claims to be empirical. Those who hold the opposite view from you would say that they’re on the side of empirics, and you guys are the ones doing the purely ideological work. 

Yeah, I guess everyone will say that. In a way, everyone has always said that: ”Of course, what we’re doing is evidence, what everyone else is doing is just pure ideology.” But it is now very difficult to lie with statistics in economics.

Q: And you don’t see economists’ capture as having a major role in this?

(…) The vast bulk of economists are not involved in any of that stuff. They’re doing their work and not even particularly ideological about anything, just doing their economics work and thinking about things. It’s only in the economists-for-hire world that you see the corruption side of things, where people are basically getting paid to write reports about things. That creates a distorted view of the field. But those are not professional economists. It’s a whole set of people that call themselves economists that work in DC and basically say that economics says things like “Mergers are generally efficient,” in total contradiction with the empirical evidence.

Q: Sure, but the financial crisis set in motion a process of introspection, didn’t it?

(…) I agree with you that something is different. It might be a general “Millennials are left-wing.” I know for a fact that some of my grad students who were research assistants at the Federal Reserve all became pro-Bernie [Sanders] people in the ’15–’16 election cycle. That’s surprising to me that you could see this very left-wing politics alive in very traditional economic circles. So something’s definitely changed.

This also comes to suggest that the majority of (academic) economists actually enjoy far less influence in the policy world than many people outside the discipline tend to believe, and thereby, condemn economics by its entirety (e.g. “What if Sociologists Had as Much Influence as Economists?“). From the point of critics, the latest launch of the “Economics for Inclusive Prosperity” initiative may be a subtle confession by “mainstream economists” that the latter group are now supposedly taking responsibility for the calamities of e.g. the 2008 financial crisis. But in my view, this launch should be treated as a firm attempt to establish the fact that economics is not, by its inherent nature and history, a mere tool for promoting conservative policies.

A day after I wrote this post, a highly informative piece by Bloomberg columnist, Noah Smith, depicted historical and current frictions between economists and conservatism/US republicanism: “Republicans Turn Away From Experts and Economics” (2019). In relation to this piece, also check “Economics Stars Swing Left” (2015), “Do Economists Lean Left?” and “Economists Are Warming to Government Intervention” (2016). Nevertheless, whether or not economists are turning right or left, more globalist or localist, these directions should be treated as coincidental intersections with ongoing, pragmatic needs and symptoms of society rather than as permanent ideological turns. As current unacceptably high levels of income inequality, especially in the advanced democracies, are comparable to levels seen during the Great Depression of the 1930s, of course it makes sense from a policy making point of view to turn more to the left of politics. Against all forms of labelling, what I try to repeat to myself these days is: use systematic empirical evidence as a disciplining device against ideological policy prescriptions (Naidu et. al. 2019).

In fact, there is so much variety of economists and economics research going on these days, as correctly noted by Naidu together with Gabriel Zucman and Dani Rodrik in another piece that has sparked some debate: “Economics After Neoliberalism“). Given the ever-growing ample availability of digitalised (big) data and progress in statistical tools, the sub-fields of economic history, behavioural economics and labour economics are particularly earning greater focus and importance. By my own curiosity, I would like to also mention my excitement for current trends that are taking place in political and cultural economics: how do institutions or cultural practices establish different development trajectories? Theory has gradually been losing steam since the late 90s, when highly data-driven studies on the (insignificant) impact of minimum wages on employment by David Card and Alan Krueger (and most recently in this study by Dube et. al. (2019) achieving the same empirical results) set forth the gradual transformation of economics as an empirical exercise.

But when compared to other fields, the exciting changes that are happening within economics are perhaps slower than desired. A recent study by Angrist et. al. (2017) calculated weighted citation rates between each of five social sciences: political science, sociology, anthropology, psychology and economics, to the other four based on papers cited and published between 1955 and 2015. The inconsistent scaling of the y-axes doesn’t boost the image of economics that much. But it is moving in the right directions.

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