21 March 2009

Question the Economists not Economics

I came across this essay by Dani Rodrik last week. I generally think he is on the money here - if anything he is a bit too easy on his colleagues.

"So is economics in need of a major shake-up? Should we burn our existing textbooks and rewrite them from scratch?

Actually, no. Without recourse to the economist’s toolkit, we cannot even begin to make sense of the current crisis.

[. . .]

The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.

They forgot that there were many other models that led in radically different directions. Hubris creates blind spots. If anything needs fixing, it is the sociology of the profession. The textbooks – at least those used in advanced courses – are fine."

My own recommendation for a textbook account of microeconomics that not only avoids, but goes some distance toward puncturing, the arrogance of the economics profession is David Kreps' A course in Microeconomic Theory [Princeton UP 1990]; it is self-effacing and funny and, beyond that offers a quite reasonable account of the scope and, importantly, limits of basic economic models. As a result Kreps is quite useful in sorting out the need for thinking about political economy.



Blogger e.e.nixon said...

At $95, the Kreps book you recommend is certainly economically *significant*, at least to this reader.

With respect to the adequacy of economics as a discipline for preventing and/or solving our problems, I think of a series of features Paul Salmon made for the PBS Newshour a month or so ago: he interviewed economists at a convention and asked them why they hadn't predicted the crises. One or two of those who responded were candid enough to admit that in large part the view of our economic world is defined by the politics of academe and the tenure track. I think, by implication, they were also saying that the politics of university chair and research funding plays a role. So, while the history and study of economics is wide, varied and rich (and perhaps adequate to the task), the subset of economic theory and practice that receives support and the points of view that are expressed are constrained by more mundane matters of job security and career ambition.

21 March, 2009 09:06  
Blogger Jim Johnson said...

Textbooks generally are way overpriced ... ask any college student. I tend not to use them. For texts on basic topics nothing much changes except the cost to bu them!

I'd ask the local library to purchase a copy if they don't already own one.

21 March, 2009 10:53  
Anonymous Anonymous said...

For what it's worth, as someone who studied economics in Stanford University, my impression as to why free market economics rules the day in academia is because that's what the students want to learn. It may come as a surprise to you, but most students in elite universities who major in economics are not concerned with saving the world. They want to go to Wall Street to make loads and loads of money. Typically what happens is that classes on subjects like development economics get a handful of students, while courses on capital markets get filled up in minutes. In New York lingo: it is what it is.

22 March, 2009 11:19  
Blogger Jim Johnson said...

I agree with your assessment of the motives of grad students. Turning them loose sre has worked really well!

The faculty tend to way, WAY overstate what we know or (even) can know about the economy. I am not a luddite, but the models are sometimes useful and typically bear mutiple interpretations. By hewing to the free market lines with such blindness, economists invite charges that they are simply ideologues. And surely a politician should be able to get sound advice from economists who escape that label.

(PS: I am not naive either, I uderstand what progressive policy stances elicit in investors!)

22 March, 2009 13:51  

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