Opinion

The Great Debate

Economist, heal thyself

By Roger Martin
July 27, 2011

By Roger Martin
The opinions expressed are his own.

Reuters invited leading economists to reply to Mark Thoma’s Op-Ed on the “great divide” in economics and will be publishing the responses. Below is Roger Martin’s reply. Here are responses from Ashwin Parameswaran, James HamiltonDean BakerLawrence Summers, and a recap of Paul Krugman’s.

I have a great deal of sympathy with Mark Thoma’s thesis of the great divide between academic and practitioner economists, though I have a somewhat different perspective on the reasons why the great divide exists.  I am less convinced that the divide is spurred by a desire on the part of academic economists to look down their noses at practitioner economists. I think it has more to do with the strictures that they have slowly but surely placed on themselves.

Social scientists – economists included – have long bristled at the degree to which the hard scientists stare down their noses at them because they are not ‘rigorous’: their models aren’t specified precisely enough and their data aren’t pure enough to satisfy the physicists, chemists, biologists, etc. Over time, some social scientists – led by the economists – battled back by becoming more quantitatively rigorous, by making the methodologies they used more similar to those of the hard scientists, with more thoroughly specified models, more high-flying math, more precise data and bigger sample sizes.  That helped the economists in particular stand up to the scientists and say: my math is as big as your math; my data is as sound as your data.  This made them happy and helped them look down their noses at ‘softer’ social scientists – like psychologists and historians and anthropologists.  And as they felt that rush of satisfaction, they were inclined to continue to up the ante some more to move closer to the hard scientists and distance themselves more from the soft social scientists.

But it created a problem. If things are complicated in the hard sciences, they are even more complicated in the social sciences. People (not to be confused with human bodies) are really complicated, especially when they interact with other people.  And lots of things that they do are really difficult to model using the techniques approved by the union of hard scientists.  So economists have increasingly decided to model only what they can model using the required techniques.  If they don’t use the requisite techniques, they get lumped back with the softies – and given the emancipation they have felt by doing rigorous analysis, they would never go back.

Practitioner economists, on the other hand, live in and face the problems of that horribly complicated world filled with ambiguous data, small sample sizes – sometimes of one – and confounded causal relationships.  They need to make sense of their world and do the best they can to model the difficult-to-model world that confronts them.  They want to know: how fast will the US economy recover from 2008-9?  The highly quantitative macroeconomists predict the course of recovery using the exact same rigorous, quantitative models that, as late as the second quarter of 2008,  failed completely to predict the economic crash that happened a mere quarter later.  These are rigorous quantitative models that the practitioners look at and say: rigorous but irrelevant.

The academic economists don’t refuse to engage in these problems because they think the problems are unworthy or that the practitioners are beneath them.  Rather, many of them are like Snowy, our Bichon Frise, in the yard of our house back in Wellesley, Massachusetts.  Because like many Bichon Frises, Snowy was not a deep and careful thinker, we installed an invisible dog fence (with a collar that zapped her if she crossed the line) to make sure she didn’t run out into the street and get mowed down by a car.  Snowy got zapped by her collar a couple of times and that was it: she was never going to cross the barrier again.  And that even meant not crossing it to the side when she saw her favorite play partner, Oliver – another foofy little dog breed, the name of which I can’t remember – in the neighbor’s front lawn.

They don’t hate or mock their proverbial Oliver.  In fact, they look longingly and lovingly at Oliver. But they will be damned if they cross that line and get zapped by their collar.  The main difference between those academic economists and Snowy is that we put the zapping collar on Snowy and the economists put on their own collars.

Comments
13 comments so far | RSS Comments RSS

Every five years or so academic economists should be kicked out of universities and sent to work in the real world.

And only if they get decent reviews by their working (not academic) peers should they allowed back into universities.

Within no time at all economists would start getting in touch with the real world.

Come to think of it this should apply to all academics especially those in sociology and political science.

Posted by eleno | Report as abusive
 

Is not there a conflict of interest between business economy (outsourcing…cheapest location for labor)/financial economy (profit for the shareholder) and the national (social)economy.

The latter demanding proper wages, based on our level of cost, allowing us to buy goods…that are currently made by our companies on foreign shores?…

Hence the impossibility to significantly create jobs out of QE?

Was that problem probably overseen when Reagonmocs started to grab hold of the economic thinking?

Posted by Checksbalances | Report as abusive
 

Ridiculous supposition. The real reason the study of economics is a joke right now is that the level of corruption and conflict of interest inherent in the system has gotten comical. The temptation is too great for “economists” to tell the think tanks and foundations and universities that prop up the bizarro Robin Hood style system we have in place that their greed will eventually benefit everybody. When it inevitably doesn’t, there’s no consequences or responsibility taken and the cycle perpetuates itself. If biology was this backwards, we’d still be using leeches to balance out our humors.

Posted by Shamrock21 | Report as abusive
 

In academia, economists work on static, theoretical models based on parameters they set, and tinker with those esoteric, and largely irrelevant variables endlessly with no measurable value to society.

In the real world, economists work on dynamic models, affected by an infinite number of parameters which constantly and dramatically change based on a collective human perception of reality.

On a broader scale academia is broken. Swap the word “economists” for virtually any other profession and you come to the same conclusion. For example, a “lawyer” with no practical experience whatsoever, in any relevant field, is the President of the United States…… and look where we are today as a country — broken.

Posted by elusivesolution | Report as abusive
 

It was Milton Friedman and the Chicago School that pulled out Economics from the real world.With great arrogance,they built the ivory tower that defends them against any attack.
Because “the market is self-regulating”.With their mathematical models,they refuse any possibility of falsification.This philosophic approach,neo-positivist,is two centuries old.Everything was born in the XIX century
Vienna. The world’s changed,but their Theory is eternal
like the Bible.You must trust in it,against any evidence.

Posted by SteveP | Report as abusive
 

It was Milton Friedman and the Chicago School that pulled out Economics from the real world.With great arrogance,they built the ivory tower that defends them against any attack.
Because “the market is self-regulating”.With their mathematical models,they refuse any possibility of falsification.This philosophic approach,neo-positivist,is two centuries old.Everything was born in the XIX century
Vienna. The world’s changed,but their Theory is eternal
like the Bible.You must trust in it,against any evidence.

Posted by SteveP | Report as abusive
 

The real difference seem quite simple. Real world economices has concequences and the theoretical does not. In the real world you must take a more conserative approach to account for unknow or changing variables. In the real world the cost of miscalculations can cost big dollar of lives.

Posted by freedomfora11 | Report as abusive
 

The article explains the status quo. THerefore should academic economists be ignored simply because they are unable to model the real world?. On the other hand the non-acdemic economists have been equally incapable of modelling the real world, as their models have also proved to be incpable of predicting real outcomes.

Until economic models start to reflect the real world they are incapable of predicting the possible consequences.

Perhaps one should say economicts and their models are not capable of dealing with econmic crises or in predicting crises accurately.

Ecnomists are very good at scare mongering when one vested interest group can find economists to back up their point of view and the other side can do the same.
This confirms how useful the current economic models are for political reasons and not for the economy at large.

Posted by vard3 | Report as abusive
 

interesting read
too much emphasis has been placed on economic models that are broken in the real world, the problem with economics is that its not just another social science, it has profound implications and consequences to how we live, and we “rely” on the flawed models to predict our future and dictate how we should live

i admired the ending speech my economics professor @ university of toronto gave on the last lecture, and that economics is a social science, its an art, and should be viewed as such.

Posted by jhero | Report as abusive
 

If the models used in economics get more accurate, maybe they will be able to predict employment rising from 8.8% to 9.2% in the June jobs report, using the data that was available prior to that time.

Is it not more useful, though, for economics to be able to offer to policymakers a suggestion on fixing unemployment and increasing hourly productivity without the government spending that is not viable in the current political and social climate?

One-Step Plan to Eliminating Unemployment

Background:

“Since the recovery began in June 2009 following a deep 18-month recession, “corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent” of that growth.”
The Wageless, Profitable Recovery – NYTimes.com
http://economix.blogs.nytimes.com/2011/0 6/30/the-wageless-profitable-recovery/

“18. Which comes closer to your own view? 1) The federal government should spend money to create jobs, even if it means it has to borrow the money to do so, OR 2) The federal government should not spend money to create jobs and should instead focus on lowering the country’s debt.”
6/24-28/11
Gov’t should spend money – 42%
Gov’t should not spend money – 52%
Don’t know/not applicable – 6%
NYT/CBS opinion poll
http://www.nytimes.com/interactive/2011/ 06/30/business/20110630poll-full-results .html

“Most employees, about 76 percent, said they are willing to take a pay cut . . . And among those who are out of work, 88 percent said they would take less in salary in order to land a job.”
Most workers willing to take a pay cut: poll – Business – Personal finance – Careers – msnbc.com
http://www.msnbc.msn.com/id/36141641

Step one: President Obama announces that due to the high level of unemployment and lack of consumer demand, companies should feel justified in reducing their payroll costs by lowering the wage rate for all employees working full-time, but giving employees the option of retaining the original wage rate by working less time. This will allow companies to make new hires at lower wages than current employees while retaining skilled workers if consumer demand for the company’s products increases. Companies that feel they are profitable enough can leave wages and salaries the way they were, but still give the choice of an increased wage rate for those who want to work less. This would be a permanent change in how wages work, a direct opposite of the overtime pay system.

Or it can be a law, and businesses can choose to either have lower payroll costs or give pay raises to their employees to prevent them from quitting.

While this does increase the number of people on a company’s payroll, the reason it will improve the economy is that people won’t feel they need to buy high-priced status symbols from corporations, and will instead spend more of their money at smaller, local businesses. This allows money to circulate within the economy, creating jobs, instead of being captured and stored by a small number of very profitable corporations.

Three Arguments – Pastebin.com: http://pastebin.com/QrmDEymL
Detailed explanation of causes: http://pastebin.com/Q86Zhgs9

Posted by Misaki | Report as abusive
 

What troubles me is that politicians and laypeople alike believe, or have been led to believe, that economists have something useful to say about what may happen tomorrow, next week, or even next year. But, as the recent financial tsunami shows, they didn’t have a clue that this was about to happen. This is a recipe for disaster. The inevitable result is that in the real world, if no one is sounding any warnings, then all is assumed to be going as planned. Compounding this problem are strongly held ideological views that blinker many economists to real world threats.

For example, one has to wonder if the Tea Party’s thinking on the debt ceiling “crisis” hasn’t been colored by economists at the Heritage Foundation or other well-known right wing boiler rooms. They could be completely wrong in their assessments. This could have fatal consequences for all of us.

Posted by IntoTheTardis | Report as abusive
 

But academic economists DO predict events. Nouriel Roubini correctly predicted the Great Crash of 2008. Paul Krugman and Joe Stiglitz correctly predicted the Great Fizzle of 2011.

Yes, models fail, but they’re more likely to do so if they’re not constantly updated and checked against real world conditions. This is true of numerical models of every kind – weather forecasting comes to mind – not just those used by social scientists.

Posted by Fishrl | Report as abusive
 

Practitioner economists only see the opportunity for profit and growth. Rarely do they concern themselves with the larger economic consequences of their business dealings.

The world turns a blind eye to the atrocities and low wages visited on the Congolese people by their own government. All because that government’s political allies sell rare earth resources to cell phone manufacturers around the world for dirt cheap.

Surely there is no need in explaining how an unregulated U.S. investment market has lead the world to an economic precipice.

Posted by coyotle | Report as abusive
 

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