Reshaping economics

I'm linking to Gregory Clark's article not for the same reason that some people have - enjoyable though it is to poke fun at professors - but to examine his suggestion that economics as a discipline is being reshaped.

There are a number of details which qualify only as interesting gossip - the suggestions on academic economists' salaries and the dismissal of the "not real" "Nobel" prize.

But the substance of the article is that:
  • the "mathematical contortions of academic economics" are useless
  • nobody predicted the downturn
  • economics has not advanced in 80 years; the terms of the bailout debate date back to the 1920s and 1930s
I'm conflicted about the last point. Selfishly, I want to believe it because, if true, it opens up more space in the discipline for new research such as my own. But I don't want to be working in a intellectually moribund field; and I want to believe that the rich and interesting range of work done since 1940 is actually worth building on.

As an aside, I have now worked (to varying extents) in four academic disciplines: mathematics, physics, computer science and economics. If Clark's assertion is true, the only one whose mainstream has advanced substantially since the 1930s is computer science, and that's mainly because it wasn't invented until then.

One could argue that the last serious, interesting and definitive advance in the mainstream of mathematics was Godel's theorem; in physics, the development of general relativity and quantum theory; and, according to Clark, in economics it's Keynesian fiscal theory (and perhaps game theory, around the same time). Naturally there has been lots of work since 1940 in all three fields, but I would not accuse any of it of advancing the core of the subject. Essentially everything taught at undergraduate level - in maths and physics at least - is pre-1940.

Now I don't really think this is the case for economics - Clark has forgotten monetary theory, to name but one - but it's surprising that the discipline has sufficient lack of credibility to invite such attacks.

Touching on the first two points - which are related - the mathematics of economists is perhaps a bit like the mathematics of meteorologists. It is good for predicting short-term behaviour - tomorrow's weather - and it can give lots of general rules which apply most of the time. But it can't predict a storm two weeks out, and there's still intensive debate about the extent and speed of global warming.

In fact, I know a meteorological physicist who has become an economist and now bemoans economists' lack of mathematical abilities. I kind of agree; it's not advanced mathematics that causes problems for economists, it's a lack of testable models and sufficient input data to calibrate them. Some people say that macroeconomic behaviour, because of complexity theory, can never be predictable. I am not convinced - I think there is room for huge improvement in the models and their power.

Despite that, economics still does a much better job than no economics. So let's do what most academic economists are busy doing: work at improving it without dismissing what it has already achieved.

Incidentally, the Atlantic also has a much better article along similar lines from Jim Manzi today, along with a nice followup note from Gregory Clark. Along related lines, this item from Anatole Kaletsky pushes for new directions in economic thought.


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