By Paul Smalera
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 a recap of Paul Krugman’s reply in the New York Times. Here are responses from Roger Martin, Ashwin Parameswaran, James Hamilton, Dean Baker and Lawrence Summers.
Paul Krugman, leading economic light of the New York Times Op-Ed page, agrees with today’s Reuters Op-Ed by Mark Thoma, where Thoma suggests that economists need to behave more like doctors and less like scientists. That is, economists should make themselves relevant by applying their knowledge to “work on the patient” — the patient being the economy. He fears that too often, economists act like scientists, who do valuable research but stay above the fray when it comes time to get their hands dirty. This remove from reality is perhaps a minor contributing factor to the collapse of the housing bubble that sparked the global financial crisis.
Thoma’s argument reminds me of a Planet Money podcast about the economists who saved the Brazil from hyperinflation, among them Edmar Bacha. “Terrified,” is how Bacha described himself when Brazil’s president and finance minister asked him to use a currency scheme he had concocted — over beers with economist friends — to stabilize the national economy. (To his credit, Bacha, to borrow Thoma’s analogy, put down his microscope and picked up his scalpel, and his plan worked.)
Yet Krugman thinks Thoma goes off the rails when he suggests it’s important to listen to practitioners rather than solely academics when it comes time to forecast what’s really happening, or going to happen, out in the real world. Krugman writes, “practitioners, who base their views on how things usually work, are almost totally useless.”
While that may be true, I have a slightly more liberal reading of Thoma’s point: I don’t think Thoma is suggesting academics accept the interpretations of practitioners like say, the National Association of Realtors’ Chief Economist Lawrence Yun, who has long been the object of Internet scorn for calling a comically premature bottom to the housing market. I think Thoma is suggesting that academic economists perform some “signals intelligence” on economic reports that originate from outside the ivory tower. That rather than write for academic audiences on academic questions, they engage with economic realities a bit more frequently. That they knock down those NAR reports when they deserve to be knocked down, rather than merely scoff over them at faculty luncheons.