“The Flexible Unity of Economics,” M. J. Reay (2012)

Michael Reay recently published this article on the economics profession in the esteemed American Journal of Sociology, and as he is a sociologist, I hope the econ navel-gazing can be excused. What Reay points out is that critical discourse about modern economics entails a paradox. On the one hand, economics is a unified, neoliberal-policy-endorsing monolith with great power, and on the other hand, in practice economists often disagree with each other and their memoirs are filled with sighs about how little their advice is valued by policymakers. In my field, innovation policy, there is a wonderful example of this impotence: the US Patent and Trademark Office did not hire a chief economist until – and this is almost impossible to believe – 2010. Lawyers with hugely different analytic techniques (I am being kind here) and policy suggestions both did and still continue to run the show at every important world venue for patent and copyright policy.

How ought we explain this? Reay interviews a number of practicing economists in and out of academia. Nearly all agree on a core of techniques: mathematical formalism, a focus on incentives at the level of individuals, and a focus on unexpected “general equilibrium” effects. None of these core ideas really has anything to do with “markets” or their supremacy as a form of economic organization, of course; indeed, Reay points out that roughly the same core was used in the 1960s when economists as a whole were much more likely to support various forms of government intervention. Further, none of the core ideas suggest that economic efficiency need be prioritized over concerns like equity, as the technique of mathematical optimization says very little about what is to be optimized.

However, the choice of which questions to work on, and what evidence to accept, is guided by “subframes” that are often informed by local contexts. To analyze the power of economists, it is essential to focus on existing local power situations. Neoliberal economic policy enters certain Latin American countries hand-in-hand with political leaders already persuaded that government involvement in the economy must decrease, whereas it enters the US and Europe in a much more limited way due to countervailing institutional forces. That is, regardless of what modern economic theory suggests on a given topic, policymakers have their priors, and they will frame questions such that they advice their economic advisers gives is limited in relation to those frames. Further, regardless of the particular institutional setup, the basic core ideas about what is accepted as evidence to all economists means that the set of possible policy advice is not unbounded.

One idea Reay should have considered further, and which I think is a useful way for non-economists to understand what we do, is the question of why mathematical formalism is so central a part of the economics core vis-a-vis other social sciences. I suggest that it is the economists’ historic interest in counterfactual policy that implies the mathematical formalism rather than the other way around. A mere collection of data a la Gustav Schmoller can say nothing about counterfactuals; for this, theory is essential. Where theory is concerned, limiting the scope for gifted rhetoricians to win the debate by de facto obfuscation requires theoretical statements to be made in a clear way, and for deductive consequences of those statements to be clear as well. Modern logic, roughly equivalent to the type of mathematics economists use in practice, does precisely that. I find that focusing on “quantitative economics” meaning “numerical data” misleading, as it suggests that the data economists collect and use is the reason certain conclusions (say, neoliberal policy) follow. Rather, much of economics uses no quantitative data at all, and therefore it is the limits of mathematics as logic rather than the limits of mathematics as counting that must provide whatever implicit bias exists.

Final July 2012 AJS version (Note: only the Google Docs Preview allows the full article to be viewed, so I’ve linked to that. Sociologists, get on the open access train and put your articles on your personal websites! It’s 2012!


6 thoughts on ““The Flexible Unity of Economics,” M. J. Reay (2012)

  1. Anonymous says:

    I was wondering if you had read the Acemoglu, Robinson, Verdier paper (http://economics.mit.edu/files/8086) that the blogosphere has been obsessed with recently(http://noahpinionblog.blogspot.com/2012/10/acemoglu-and-robinson-versus-blogs.html) and if you have anything to say about it. The paper concerns innovation, a topic that interests you, and in relation to this paper, the blogs have also been discussing the worth of theoretical economic models, another topic that receives a lot of attention in this blog.

    • afinetheorem says:

      I won’t write a post on this paper, as I explicitly try to avoid getting involved in blog fights or dealing with the “flavor of the month” instead of just presenting new research.

      That said, I generally agree with Acemoglu and Robinson’s comment on their paper, though the use of patent data is super misleading, as the general explanation for the high US patent rate has nothing to do with more innovative activity. If you use entrepreneurship directly as a measure (new firms…) then the US in the past few years has been particularly non-innovative as far as I know, though I don’t have the data close to hand.

      The theoretical model seems fine. It is nontrivial and nonobvious to generate the asymmetric equilibria they get for some parameter values. Is it often argued that the “US should be more like Sweden” (and we should, in many ways!), but this is Acemoglu and Robinson, so they will of course point out institutional constraints given the incentives that exist, and their simple model shows some nice conditions where the “Europe is freeriding on our inventions!” model can actually explain something. It’s not mindblowing, and this paper isn’t headed to a top journal, but it seems OK methodologically. If you want a critique, I find Lane Kenworthy’s point the most reasonable.

      As for the value of blogs in this debate, I am sure that every comment at the level the blogs have made will be made to the authors as they present this paper at talks and conferences – I haven’t seen any response that is more than trivial…

      • Noah Smith says:

        As for the value of blogs in this debate, I am sure that every comment at the level the blogs have made will be made to the authors as they present this paper at talks and conferences – I haven’t seen any response that is more than trivial…

        I agree that all the blog comments will be raised in seminars.

        I am interested to know, though, what you would consider a “nontrivial” response?

        Also: Hope you’re doing well! I actually took an academic job, after telling you last year that I didn’t want one…hope I don’t seem like a giant hypocrite now…

  2. afinetheorem says:

    Hi Noah! Where did you end up taking a job?

    I just looked at your blog post on the Acemoglu paper, which I enjoyed, though I don’t totally agree that the result is somehow baked into the assumptions; the asymmetric equilibrium is nonobvious to me. My general point in the comment above is that I don’t, in general, feel like I learn much from most econ blog posts where some political controversy is involved. Other than Lane Kenworthy’s post, I didn’t see any responses that seemed to even recognize the theoretical controversy that Acemoglu’s paper was addressing (and which they mentioned in their response). I didn’t see anybody invoke interesting research, theoretical or not, which speaks to differences in innovation based on reward to entrepreneurs (there is a ton of this kind of research!).

    The fact that this is a Acemoglu/Robinson paper makes me even more skeptical of the value of surface-value criticism, because those authors are clearly neither biased toward right-wing conclusions, nor are they ignorant of the type of institutional effects they discuss in the paper. (There are other authors who I would be less charitable with on this count, but as you have a job and I don’t, I’ll let you point them out!)

    • Noah Smith says:

      Hey! I took a job at Stony Brook business school…it’s small but growing, kind of a “startup” department. Very interdisciplinary…I’m working with people from applied math and people from psychology…when do you go on the market?

      I would be very surprised if A&R are politically biased. I doubt that is the case.

      In general I don’t think blogs are good at getting into the nitty-gritty of modeling issues, for the simple reason that none of the blogging utilities are good at displaying equations. But of course, most readers don’t want to see equations anyway…they just want to get the gist of things. The point of my post – or, half of the point – was to talk about the modeling assumptions that A&R had made. When people see a sort of sensational result like the one in that paper, they tend to focus on the result, not on the assumptions. Revealing the assumptions can, I think, help people to understand that these models are a very “if-then” sort of thing.

      As for the “intuitiveness”, I guess it’s a bit of a side-track…I happened to have always just assumed that exactly the kind of asymmetric equilibrium A&R obtain is what exists in the real world, so maybe it was just intuitive to me

      • afinetheorem says:

        Great! Stony Brook has always had some good game theorists over there in the econ department, as well. I’m trying to be ready for next year’s market – fingers crossed.

        Blogging equations is tough (as you notice by my lack of nice equations here!) My perfect econ blog post would be something like a shorter version of Cosma Shalizi’s post on what we know about central planning and how it relates to the Soviet project. Clearly the work involved in that post far exceeds what any blogger could do regularly, but a 400-word version of posts in the same manner, with actual research results, would be super useful for me.

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