Make economics relevant again

July 27, 2011

By James Hamilton
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 James Hamilton’s reply.  Here are responses from Roger MartinAshwin Parameswaran, Dean BakerLawrence Summers, and a recap of Paul Krugman’s.

University of Oregon economics professor Mark Thoma has an interesting article on the direction economics should be taking.

Mark writes:

How much confidence would you have in the medical profession if the teaching faculty in medical schools had very little experience actually treating patients, and very little connection to– even a lack of respect for– the practitioners in the field? Would your confidence be improved if medical research had little to do with the questions that are important to the doctors trying to serve patients?

Unfortunately, that’s a pretty good description of how economics has been practiced….

Economics has lost the connection between the practitioners and the academics. This may have something to do with the desire among economists to become more of a science– a heavy focus on theory and math is the result. But no matter the cause, if we want to do all that we can to avoid big economic problems, and if we want to use the feedback from those testing economic ideas on real world applications as a way of better understanding how the economy works, then we must reestablish these ties.

I couldn’t agree more. Too many of my colleagues pay too little attention to how markets and institutions actually function. The profession and our ability to offer constructive policy advice are seriously impoverished as a result.

I should add, though, that there are a great many academic economists who feel exactly as Mark and I do about this and are trying their best to change things. Joshua Angrist of MIT and Jorn-Steffen Pischke of the London School of Economics have recently surveyed what they describe as acredibility revolution in econometrics, which is grounded in convincingly developing the connection between data, experiments, and policy advice. University of Chicago Professor Chad Syverson’sdetailed studies of the ready-mix concrete industry are a breath of fresh air, as are Berkeley professor Severin Borenstein’s research on airlines and electricity and Brandeis Professor George Hall and colleagues’work on autos and steel. And there are many others whose research exemplifies what Mark is suggesting we should be doing.

Indeed, this is exactly the reason I began the blog Econbrowser six years ago, and I suspect the reason that Mark and a number of other prominent academic economists have been doing the same thing. I feel it’s quite vital for us to be engaging real-world events, policies and practitioners, and an economics blog is a very good forum for doing just that. As a researcher, I want to make sure that what I am doing is relevant and informed by what’s actually going on, and I want to be able to explain and defend what I’m doing to an intelligent reader who doesn’t necessarily buy into the jargon and maintained assumptions of the economics profession.

So I read Mark’s column as an invitation to economics graduate students, and older economists like myself, on how to have a constructive impact in our chosen field of study.

This response originally appeared on Hamilton’s blog and was posted here with permission.


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