September 08, 2010

Why Bad Economics is Like Bad Art

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It's economics bashing time again.

The latest to have a go is Gideon Rachman in yesterday's Financial Times. "Sweep economists off their throne!" he demands. He compares economists unfavourably to historians, "archive grubbers" who at least have a sense of modesty about their claims to rigour. He goes on to complain about the "brash certainties, peddled by those pseudo-scientists, otherwise known as economists." 

As an economic historian -- and I do grub around in archives -- I suppose I have some sympathy for this view. Only a year ago I was writing about the advantages of history in helping us see what's coming round the next corner.

But as a trained economist I think it misses the point.

Good economics isn't brash and doesn't make unjustified claims of predictive power. Specifically, good economics is not the handmaiden of the journalists and politicians who most want economics to support their nostrums and interventions. My Hoover colleague Paul Gregory makes a powerful case that what our first year students have been learning is still pretty much on the button in today's world. It is, above all, an economics that promotes scepticism, critical thinking, and the avoidance of Type I errors.

My point is that there is not just "economics." There is good economics and bad economics. I don't care if it is radical, liberal, conservative, or what. It's interesting that good economics of every school or tradition has more in common with the good economics of other schools than it has with bad economics of any school.

The problem is that there is always a demand for bad economics and there is also a plentiful supply of it. Why? We won't discuss good and bad physics, because that annoys too many people. Instead, think about bad art. On the supply side, untalented artists exceed the number of talented ones by a large margin. So, bad art is abundant. The same is true of economists; there are many more people like me that are writing about economics, for example, than there are Keyneses, Hayeks, and Friedmans. (I hope there's an even larger number of economists that are worse than me, but that's not for me to say.)

On the demand side, many people (myself included) are not really sure of the difference between good and bad art. Also, there are many reasons why we positively desire bad art: because it is comfortable; because it fits with the decor of the room we live in; because it promotes our fantasies without transcending them; and, particularly, because some critic tells us it is good when it's not. I'm sure I personally subscribe to at least some bad art for each and all those reasons.

The demand for bad economics is similar. In fact, just as critics and reviewers mediate the demand for bad art to the public, bad economics has a bunch of people that do the same job of telling the public to buy it. Who are they? Well, many of them are politicians and, er, journalists.

Since this is about economics, we should also think about price. Good economics is relatively scarce, difficult, and uncomfortable; it's designed for truth, not reassurance. In short, the price is high. Bad economics is abundant, soft, and easily absorbed. For all these reasons, it's cheap.

In fact, I'm fairly sure some of the journalists that are now hopping mad at economists are mad just because they themselves previously invested too much of their beliefs in bad, cheap economics. I once had a rather ill-mannered go at Anatole Kaletsky of The Times on this score. Not all of them are to blame, though, and specifically not Gideon Rachman. (I checked out what Rachman was blogging about before the crisis broke in 2007. At least, he wasn't promoting buy-to-let.)

Anyway, let's get back to sweeping the bad economists off their throne. Get rid of them; then what? Who are we going to ask about the economy? Sociologists? Some guy in the pub? Use common sense?

The trouble is, this is a surefire way of replacing bad economics with ... more bad economics. It was Keynes, himself a great economist, who wrote:

Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

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  1. Matt

    Do you have any evidence that the economics undergraduates learn promotes “promotes scepticism, critical thinking, and the avoidance of Type I errors”?

    The classic Thorndike study of the effects of studying different subjects found that studying economics actually decreases scores on intelligence tests (it’s better than sewing, but worse than drawing).
    Thorndike, E. L. (1924). Mental discipline in high school studies. Journal of Educational Psychology, 15, 1-22.

    10 Sep 2010, 14:13

  2. Mark Harrison

    Thanks. The IQ tests with which I am familiar reward speed in recognizing symbols, imposing patterns on data, and extrapolating from them. I suppose they’re based on cognitive abilities of a kind that has been found to be valuable in evolutionary terms. But the same abilities also promote Type I errors. If you approach an IQ test from the starting point that all patterns may turn out to be meaningless or break down and that the default answer should generally be “I’m not sure,” you will probably not score well. To this extent it might even suit my argument if those trained to avoid Type I errors did worse in IQ tests.

    The Thorndike study is of interest but does not say exactly what you suggest. It is a study of more than 8,000 high school students in the United States, comparing their aptitude scores in 1922 and 1923. The result to which you refer is based on their finding that economics as a school subject was somewhat overrepresented among those with lower gains between the two years. If you put the causal weight on this finding that you are looking for, you would say that studying economics decreased the gain in scores between the two years; on average, it did not reduce the level.

    In order for this not to be a Type I error, I would look for three things. One is control for selection: the inference you want to make requires that pupils were allocated to subjects randomly, and this was surely not the case. Another is control for change in the nature of the discipline studied. I have no idea what was taught for economics in U.S. high schools nearly a century ago. Finally, I would look for some replication of this research using modern data and methods. There are many questions that Thorndike could not formulate because his data did not convey any student-level information and he lacked the means to analyze fully even the data that he had.

    11 Sep 2010, 17:40

  3. Matt

    Two brief remarks:

    (i) Of course you’re correct about the randomisation, it would be ethically outrageous to conduct such a study.
    (ii) Intelligence tests are typically normed by age, so I don’t think it’s misleading to say that studying economics was associated with a reduction in (age standardised) scores.

    My main point, however, which you haven’t addressed, was to point to rather delightful irony of an economist saying that good economics “doesn’t make unjustified claims”, before going on to do exactly that in the same paragraph!

    Not only was the claim unjustified, the only evidence that speaks to it of which I’m aware (perhaps you know of other evidence?) is actually consistent with it’s opposite.

    12 Sep 2010, 20:13

  4. Mark Harrison

    My point was primarily normative, not positive. It defined good and bad economics by their attributes. It made no claims whatsoever about the results of IQ testing. I remain unsure why you place such weight on a study that has an independent variable of questionable relevance, no standard errors and no confidence limits, no controls for selection, and (unless I have misunderstood) has not been replicated in more than 80 years.

    13 Sep 2010, 08:59

  5. Matt

    My reading of the sentences in question was that you were claiming that the economics taught to first year undergraduates promotes scepticism and critical thinking. Perhaps you didn’t intend to write this? But if you did intend to write it, it’s hard to see how it could be interpreted normatively.

    14 Sep 2010, 09:19

  6. Matt

    Incidentally, the reason IQ is a relevant IV is, of course, because it’s very strongly correlated with critical thinking measures. Watson Glaser and Ravens have an r of about .6 if memory serves.

    14 Sep 2010, 09:27

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I am a professor in the Department of Economics at the University of Warwick. I am also a research associate of Warwick’s Centre on Competitive Advantage in the Global Economy, and of the Centre for Russian, European, and Eurasian Studies at the University of Birmingham. My research is on Russian and international economic history; I am interested in economic aspects of bureaucracy, dictatorship, defence, and warfare. My most recent book is One Day We Will Live Without Fear: Everyday Lives Under the Soviet Police State (Hoover Institution Press, 2016).

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