Tuesday, July 7, 2015

ACE 2015: Day 1

This week I'm attending the Australian Conference of Economics.

The main event today was a debate on the topic that economics education needs saving. To me the debate revealed that the desire for change is widespread amongst the old and young alike within the discipline. What is not clear is agreement on an alternative - everyone wants to do 'something else', but agreeing on what that something else might be is a task never quite tackled systematically by potential reformers.

In my mind Rethinking Economics and Post-Crash have most clearly articulated an alternative pluralist, dare I say it, scientific, core. But few seasoned economists are willing to make such radical change. Opening the doors to cross-disciplinary research is scary. Alternative methods might just prove superior to the equilibrium representative agent models that dominate economics.

As a small example of just how hesitant even the relatively ope minds are in economics, when discussing that direct surveys of firm managers and anthropological-style observational studies of firms are a valid method in micro-economics (ala Alan Kirman) I was faced with the following response:
But how do we know that respondents would tell the truth? That's the power of models and various regression tools. We know the assumptions being made
But of course, most data that gets into these estimations is the result of a survey asking people to self-report their views, their income, their expenditure, and so forth. This response (from someone I respect white a great deal who is an excellent experimenter) simply reveals the narrowness of economics training.

To ram home the point, when Alan Blinder did actually send researchers to go and ask questions of firm managers and observe their decisions, his results, summarised in his fantastic book Asking About Prices, has had little relatively little impact on the profession. As Steven Keen writes in his review on Amazon
The chief author of this book is Alan Blinder, once a Vice-President of the American Economic Association, a Vice-Governor of the Federal Reserve, and currently President of the Eastern Economic Association. He is, in other words, no maverick, but firmly within the mainstream of economic thought. And yet the research he reports in this book challenges many of the accepted tenets of both micro and macro economics. 
The publication should therefore be taken seriously by the economics profession, and raked over carefully to find out whether what Blinder reveals is really the case, or simply a product of poor research. 
It speaks volumes for the way that economics handles contrary evidence to accepted beliefs that this has not happened. Blinder's book has instead simply been ignored. The book languishes around the 750,000 mark in Amazon's "best sellers" list, and this review will be the first ever given of it. Meanwhile Mas-Colell's Microeconomic Theory, published three years before Blinder's book, which states the accepted neoclassical microeconomic canon in excruciating mathematical detail, ranks in the mid 100,000s, and has over 80 reviews--most of them from economics PhD students and highly laudatory.
We'll see what Wendy Carlin, author of INET's CORE Economics project, has to say about it all on Friday.

Another productive chat was whether the core economics program could do away with supply and demand diagrams and market equilibrium altogether. Thinking this far outside the current norms are what is really required for change. So you know, two of us believed an economics course could be even more valuable the current standard courses by doing away with supply and demand as currently formulated altogether.

In another session on how to improve your academic writing some quality advice was offered
Focus on the problem of interest, not the method.
This resonated with me. I've long come to the realisation that economists have a small simple toolkit comprising equilibrium models of representative agents, who take that method to new problems, adopting the method across its infinite possible contortions to fit any problem - from reproductive choice, to education, and more. Even when vastly superior alternative are available. The simplicity itself, despite its irrelevance, seems to be quite attractive.

I had expected to be exposed more to new methods and new ideas but came away very much with the impression of the continued dominance of the core. One of the respected elders of the professions suggested we work together on a model of housing markets, but as soon as he talked about equilibrating forces of supply and demand I realised he hadn't actually thought about the housing market (crucially, the timing problems due to the real option nature of housing investment for landowners). Instead he was taking the method to a new area (for him at least).

More updates to come tomorrow.


  1. Cameron,

    I like your blog and I agree with the sentiment of what you (and Steve Keen) are saying here but it doesn’t go nearly far enough.

    I am not an economist. However, I spent many years working in business and government as an employee and then as a consultant. I have been reading about economics for about five years. As a result, I see the economics profession as completely dysfunctional.

    There are many symptoms of dysfunctional businesses / organisations (or, in this case, professions). One of the most common is insularity / self-obsession. Division of labour divides us into suppliers (who are specialists) and customers (who are not specialists). In an open society, we then let the dumb customers determine which of the suppliers, if any, are providing the most useful products and services. Problems arise when specialists forget about the value they are supposed to provide to customers and, instead, debate, often acrimoniously, amongst themselves.

    Suppose society wants to be educated on how businesses actually work. Here are five options:

    Ask people who run successful businesses
    Ask consultants who help businesses solve problems
    Ask business schools who teach students about business
    Ask economists who occasionally talk to businesses
    Ask economists who never talk to businesses but who use abstract theory to form their views.

    Your post talks about the last two options but ignores the first three. However, most non-economists would choose any of the first three over either of the last two.

    I agree that it is important to “focus on the problem of interest, not the method”. That is the first rule of effective consulting. A second rule is that it is the customer’s problem, not the consultant’s. A third is that it is the customer’s decision on whether to ask for advice and whom to ask for advice. A fourth is that any proposed answer must persuade the customer, not just the consultant. A fifth is that the consultant should normally provide options for the customer to make the final decision using language which the customer can understand.

    Most economists don’t appear to understand any of this. I agree with the call of economics students for a more pluralist education. However, that education should start by asking what value economists can or should add to society and how society would recognise that value? Why is the economics profession best placed to provide advice when other people are more knowledgeable on many specific topics e.g. business, banking, government, China, risk, the psychology of decision making, the analysis of statistics? In short, what is the unique selling point (USP) of the economics profession, what are the outward-facing objectives of economics, and how should the rest of society assess whether economists are achieving these objectives?

    When I was consulting with a particularly dysfunctional group of people I would sometimes ask them what difference it would make to the rest of the society if they if they were abducted by aliens. How would economists answer this question? (I am not suggesting that there isn’t a valid answer but I am asking for an answer that non-economists, six or seven years into the worst economic recession for half a century, would find credible).

    [Note that any answer to this type of question has to start by thinking about what customers want and need from the specialists, rather than what the specialists want to provide to the customers. That’s why insularity / self-obsession is such a problem.]

  2. It's very pleasing to see that nestled within the economics profession are people who are very skeptical of it.

    Here's an observation I've made of myself that might explain why skepticism is hard to spread.

    I believe economics ought to be subject to criticism, and have its assumption rigorously questioned. But when I see non-economists criticise economics' assumptions and units of analysis, I tend to chide them and suggest they do more reading to make sure they fully understand why these assumptions/types of analysis exist.

    To generalise my experience I suspect everyone in economics agrees the discipline needs critical thinking, but every insider suspects the outside critical thinkers are all criticism, no thinking.

    I imagine concentric rings of econ gate-keepers with even the innermost ring still believing econ should be criticised, but being suspicious of everyone that does so.