Students Are Leaving the Politics Out of Economics

New York Times ^ | January 27, 2006 | LOUIS UCHITELLE

[Sonny M]

Taking as a model the research techniques that Steven D. Levitt displays in his best-selling book, "Freakonomics," graduate students in economics are focusing on small insights about the economy rather than broad theories that explain how the overall system works. In doing so, they are withdrawing in effect from political debate.

The broad-brush approach was a defining characteristic of the economists who were shaped by the Depression. The younger generation has tried to shun prescriptions that seek to cure the economy's ills. Instead, they cast economics as a scientific inquiry, using mathematical models, for example, to explore the economy without becoming advocates for one solution or another.

Mathematical modeling tries to determine such things as rates of economic growth by plugging into computer models assumptions about inflation, hiring and the like. It is still the thrust of graduate training, but the students themselves are pushing for training in another form of exploration — empirical research like that of Mr. Levitt, which relies on statistical evidence.

Mr. Levitt, a 38-year-old professor at the University of Chicago, analyzes data that seem to explain behavior — why the crime rate has declined, for example — and that is what a growing number of graduate students in economics want to do, according to a poll of 230 of them at seven prestigious universities.

"They don't see themselves as having political persuasions," said David Colander, an economic historian at Middlebury College, who conducted the poll and a similar one in 1987. "They see themselves as doing the best analytical-statistical work that can be done, better than in sociology and other social sciences. They are telling you what the options are, but not which option to choose."

[Toddsterpatriot]

Cheap labor stifles innovation:

How is that expensive labor innovation working for GM? LOL!!

[Sarastro]

Macro-economists' claims that their discipline is a science are way overblown. They haven't mastered mere description, never mind prediction. Their economic theories seem, coincidentally, to reflect their political views (rather than the other way around).

No analytical models of the real world capture anything near its complexity (if they did, they would be mathematically intractable). Therefore, no analytical models may ethically be used to make policy prescriptions, though that seldom prevents economists from trying.

I don't mean to imply that macroeconomics is a waste of time -- far from it. But they need to be far more modest about what they have accomplished.

Here's an example of good economic work: Kenneth Arrow's impossibility theorem. He proves that there can be no scientific algorithm to make objectively correct social choices that can meet a small set of innocuous "fairness criteria." (In plain English, people have different welfare preferences, and there's no scientific way to weigh them all on a single scale to reach the "best" social decision.) The implication of this is that social welfare choices must be sorted out by a political process, not a scientific one. This conclusion gives enormous support to democratic government over any form of totalitarian or centralized control.

In effect, Arrow proved conclusively that economists should not rule the world -- a conclusion that we can all rejoice in!

[JerseyHighlander]

This new approach to economics is the underlying reeason the Conservative Party of Canada and Stephen Harper won the election in Canada. It's the reason the Chicago School controls the Western Economies.

Economics students now have, from a single person or workgroup or company's perspective, an infinite data stream that no longer allows for the exclusion of contradictions in the data stream, because peers will have access to contradicting data.

You come to realize early on that any economist who stands up with a "grand scheme" is a sucker with an overinflated ego waiting to be shot down and ridiculed. Those grand schemers in Davos for WEF, in Stockholm for pollution credit exchanges, in Tunis for the Internet Governance UN conference, those Turtle Bay pinheads, the Brussels egomaniacs, the Beijing autocrats, The Damascus failures, they are the last of their breed, they will not be able to continue their strains of economic theory in the face of massive amounts of contradicting data streams. They are the high priests of a dying cult, shilling out their theories to strongmen and ruthless governments to make their daily bread because their psalms boxes are not refilling. They will soon join the panoply of disregarded gods, lost religions, and forgotten sagas.


There is a downside though, ruthless efficiencies through micro level gains in productivity, the future might not be any better with less sweeping grand schemes.

[USFRIENDINVICTORIA]

The only new thing is the use of laboratory research -- similar to the way Behaviorists (Skinner et al) approached psychology in the 60's.

This research will probably lead to changes in several of the variables used in econometric modeling -- but the modeling will continue to advance. Mathematical modeling has grown along with the growth in computer power. Modeling (or theory building) used to be done using far fewer variables, and more human logic and intuition than computation. Humans used to be able to understand economic theories (whether or not they were right) -- no one really understands how the computer models work.

[A. Pole]

the modeling will continue to advance. Mathematical modeling has grown along with the growth in computer power.

Of course. As long as there are enough suckers willing to pay for this.

[Sonny M]

Of course. As long as there are enough suckers willing to pay for this.

You think that mathematical modeling using the growth of computing is "for suckers"?

Interesting idea.

Thank the good lord, this sucker uses it for my business, if I had been smart, I would be losing money instead of making it.

[USFRIENDINVICTORIA]

So long as there are governments and central banks, there will be.

Economic models are as complex as models of the weather or climate change -- and just as unreliable. In a few years, computers will be 1,000 times more powerful. Then, it's a matter of how you build the model, and what variables you plug into it.

When I studied economics, the underlying assumptions were concepts like "economic man". Psychologists and sociologists said that economists had too simplistic a view of human nature. Perhaps they were right & this new research will provide better building blocks.

[A. Pole]

You think that mathematical modeling using the growth of computing is "for suckers"? Interesting idea.

It is not mine: GIGO.

[A. Pole]

When I studied economics, the underlying assumptions were concepts like "economic man". Psychologists and sociologists said that economists had too simplistic a view of human nature. Perhaps they were right & this new research will provide better building blocks.

Trying to reduce human beings into " building blocks" is silly. And sooner they will find Bigfoot than "economic man".

To be honest, if I had to make a living as economics professor, maybe I would play along too. In soft sciences like economics you need to know which side your bread is buttered.

[USFRIENDINVICTORIA]

"Trying to reduce human beings into " building blocks" is silly."

I agree (unless they're frozen solid, of course :-) ).

I was referring to the building-blocks of the model. "Economic man" simply refers to the assumption that, on average, people tend to make rational decisions about what's in their best interest. There are all sorts of "on the other hands" -- like imperfect information.

Economics is probably the "hardest" of the "social sciences". It is really applied systems theory -- always has been. Today, the mathematical modeling is as complex as anything in, say, structural engineering. The other social sciences tend to attract touchy-feely mathphobes -- economics (at least econometrics) attracts mathematicians.

[Sonny M]

GIGO, they have now taken the most basic common sense idea and turned it into a computer term.

Good grief.

Regardless of math models, or any formula, or anything period, if you enter bad data, you'll get bad results.

Knocking mathematical models used for economic analysis by saying GIGO is akin to saying screwdrivers are for suckers, as a screwdriver is only as usefull as the guy using it.

[A. Pole]

"Economic man" simply refers to the assumption that, on average, people tend to make rational decisions about what's in their best interest.

And this is a nonsense. What is "rational" (those pseudo scientists are not rational or even smart for sure!), what is the "best interest", what is "decision" making etc ... It is all hopeless crap.

[A. Pole]

Knocking mathematical models used for economic analysis by saying GIGO is akin to saying screwdrivers are for suckers, as a screwdriver is only as usefull as the guy using it.

There is a big difference between screwdrivers and voodoo dolls.

[DesScorp]

This is good.....kind of a "we report, you decide" ethos...which is what they should have been doing all along.

[USFRIENDINVICTORIA]

Adam Smith's "invisible hand" -- which makes a free-enterprise, market system work so well -- is based on the assumption of "economic man". You don't need everyone to be rational to be able to make useful predictions. For instance, "rational man" will buy more of something he wants if it's cheaper -- therefore, I predict a store will sell more when it's having a clearance sale.

Market economists leave the decision of "best interest" to the individual. Communists believe the government should determine what's in everyone's best interest.

Figure out decision making, and you'll either get a PhD, or become a CEO.

Humans are far less predictable than building materials -- but it doesn't mean that it's not worthwhile studying how they act in the marketplace. If you're right -- you can make a ton of money. If you're wrong -- you can try to fix your theory.

[A. Pole]

If you're right -- you can make a ton of money.

So what does it mean that the economical experts are not the richest men on the earth? Does it mean that they are wrong? Or maybe they are not "rational"?

[USFRIENDINVICTORIA]

Good retort.

I said in my # 27 that the econometric models are as unreliable as weather or climate models. Look at Sarastro's # 22 -- he says why better than me.

I said that the modeling is here to stay -- not that I necessarily liked it. When we get 1,000 or 1,000,000 times more computer power, maybe the problems won't be as intractable. You mentioned G.I.G.O. -- I don't disagree -- but, maybe the new research will reduce the G.I. part of that, and make the models better.

Economists aren't rich, cobblers have no shoes. Same goes for most scientists, etc. -- entrepreneurs have something extra.

[nmh]

"Actually, this is a good trend... just provide the facts, and let people make their own judgements based on them, rather than coming up with grand theories to match the facts (or, what happens more often, come up with facts that match the theories)."

LOL!

History repeats itself. There is nothing new under the sun in this area. I disagree to push situational ethics or this idiotic non judgmental crap.

[paudio]

Mathematization of economics happened parallel with the increase of positivism in social sciences since Comte. The main idea is that there's a 'law' in social relation that applies everywhere, every time. This way, there's an 'objective view' that independent of one's reality.

The other end of the spectrum, of course, is the post-modern way of seeing things: there's no such thing as 'objective view'. Reality depends on each person's way of seeing things. It's not different in perspective. It's different reality altogether.

The 'middle road', actually offered by Karl Marx, with his 'realism'. He conceded that there's 'objective things' independent of our mind/view. These things, as well as the mechanism of one the relationships between one thing and another, can be observed and studied like molecular chemistry. However, people have different backgrounds, etc., that give them different perspective. Just like us looking at one object, but from different angles as we stand on different places. As a result, Marx argues that social sciences (inc. economics) should try to find social mechanism that exist in particular society if we want to understand and explain any phenomena in that society.

Unfortunately, to some extent Marx (and/or his followers) didn't really follow this practice of social sciences either. After all, they believe that in every society the workers are oppressed by the capitalist class; hence, workers need to unite and revolt.

[paudio]

...as well as the mechanism of the relationships between one thing and another...