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!