Friday, May 06, 2011

The Economists' View of the World and Planet Money

The Economist's View of the WorldR- once asked me, when I was ranting about about some government policy, if you're so smart, why don't you go fix it. And my answer is that I don't need to, since I just think like an economist and all economists (including all the ones in gov't) pretty much think the same way. (The other tricky question is all economists agree, why don't those policies get enacted, but that's another story). This is especially stark with the recent trend of behavioral economics, where you have people trained in other disciplines, like Dan Ariely, talking about economics, and while Dan calls himself a behavioral economist, he is only an economist by subject matter. I had a conversation with Dan on his paper on stealing. He was noting the huge economic consequences of stealing, whereas actually to an economist, stealing by itself is not bad for welfare, it is only at transfer of wealth that leaves the total sum unchanged. Stealing is only quantitatively bad in the costs people incur to prevent theft and the impact on incentives. But if firms don't care about the theft, (as in the shrinkage that most retail firms expect, the problem is not so costly). Ariely is an excellent scholar, and even an excellent behavioral economist, but he is not an economist.

By economist, I mean PhD economist trained at most mainstream universities. We all largely learned from the same textbooks, read the same literature. There is shocking uniformity in the profession, and though outsiders often think there are large divisions say between keynesians and moneterists, on most issues, there is impressive uniformity on the epistemic basis of knowledge--in terms of which statistical tools and models we consider legitimate--which gives economics I think more coherence than other social sciences. A primer explaining economics to non-economists that I came across in grad school (The Economists View of the World) explains this well.

Probably to non-economists the distinction is subtle. Lots of pundits on tv or writers of popular books claim economic knowledge, but are not economists. Finance people on the whole often think nothing like economists (the very notion that you can make money by trading stock runs counter to central tenets of the economist world view), Black Swan writer Taleb Nassim is a good example of a finance person peddling economic ideas, but not the ideas of economists.

As a result, the vast majority of economic reporting in the news is not really economics. One of the few exceptions to this is the Planet Money Podcast (offshoot of my favorite radio show, This American Life).

I've noticed this acutely recently because I teach a class on How to Think Like an Economist.
 As I catch up with old podcasts, I find that unwittingly, a lot of the topics covered in class (How politicians's don't really create jobs, using externalities to explain npr funding, the economic implications of the japanese Tsunami, for example) were covered by Planet Money. This by itself is not so surprising since the topics were topical, but what was surprising is that they were covered in largely the same way.

In a news environment where the economists' voice is rarely heard in economic reporting, this is really refreshing. Planet Money doesn't always get it right, but it usually does.

I should acknowledge that I'm not saying this uniformity is a good thing, just that it is. Sociologists study the process of professionalization, and I often worry about blind spots it may create. For example, one of our central tenets that free trade is unambiguously good, may not be so unambiguous. After many years of pondering, I have come to believe the benefits of the coherence of the economics edifice outweigh the costs, but that is the subject for another time.
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