Is economics getting more liberal?
Here’s Noah Smith in Quartz:
As an econ blogger, I get the sense that this is exactly how many Americans still think of economists””as self-appointed defenders of the free market, spinning theories to show that greed is good. Watching those old Milton Friedman videos, I wonder if that picture might have been accurate in the 1960s and 1970s. But some big things have changed in the field of economics, and America should know about them. Three big changes stand out in particular: Econ today is more data-driven, far less politically conservative, and in general much more like engineering than it used to be.
I think it’s much more complicated. Economics was very liberal in the 1960s and 1970s. When I studied at Wisconsin (1973-77), Milton Friedman was viewed as a crackpot. So Smith is actually 180 degrees off in terms of the 1960s and 1970s. Then after the mid-1970s the profession started moving to the right, becoming much more conservative in the 1990s. Policy also moved in that direction. Since 2007 economics has moved sharply to the left, and indeed was already moving a bit in that direction before 2007.
I don’t see much evidence that economics is more data-driven. Then and now you have policy pundits (Friedman, Krugman, etc) and lots of ordinary economists doing empirical and theoretical studies. Here’s one example of my skepticism. If we really were becoming more like engineering, why is it that in 2008 lots of top macroeconomists didn’t seem to be able to offer any useful policy advice. Their models seemed unable to handle the biggest fall in nominal spending since the 1930s.
And let’s say I’m wrong about Paul Krugman, and that Krugman actually had good advice on fiscal stimulus. As far as I can tell Krugman was relying on 1960s IS-LM models, not modern “engineering-type” DSGE academic studies. Is that wrong?
PS. After I wrote this I saw a similar post by David Henderson. I almost refrained from piling on, but then I realized that it was Noah Smith.
PPS. I see the Swiss voted 3 to 1 against instituting a minimum wage law. I guess we can anticipate huge shantytowns on the outskirts of Zurich and Geneva, as the low paid Swiss workers struggle to survive in their squalid slums. The voters also rejected the military’s request for more jet fighters. Two good decisions. I wish Americans could vote on projects that even the military says are not necessary, but are funded because a few Congressmen need jobs in their districts.
Swiss unemployment is 3.2%.
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19. May 2014 at 09:08
Was Dan Hammermesh’s evidence not convincing, regarding theory vs. empirics?
19. May 2014 at 09:30
I’ve come to the conclusion, that economists today simply don’t understand what the Internet, digital deflation, and data darwinism mean.
1. Read the comments at Huffington Post when a taxi driver tries to tear down Uber:
http://www.huffingtonpost.com/umar-lee/cab-drivers-uber_b_5179635.html
I go into this on two posts regarding technology and Haidt’s Moral Foundations Theory:
https://medium.com/libertarian-thoughts/801a2aacf6ce
Given DATA, given PROOF that someone’s personal best / solution isn’t best for consumers, and liberals turn on him like a pack of wolves.
In just 15 years, conservatives have gotten over gays marriage, drug use, and their love of state security. The same thing is happening to the left on fairness / cheating.
My point is what left economists TODAY think is a left outcome, is not going to be tomorrow.
2. It can’t won’t be long before the idea of wages being used as a lever for the social safety net is coming to an end.
The MOMENT that one little stupid assumption is LET GO:
– who cares about real relative value? WHO CARES if we as a culture have shit wages for jobs that aren’t worth much to people? because the person who CHOOSES tot do that near valueless job, is STILL being taken care of.
We literally are granting our poor and and least competent the freedom to behave like rich poodle kids, doing shit that they like that NOBODY thinks is wroth anything.
– What possible reason is there not to maximize production / consumption?
What possible reason is there not to embrace digital deflation? WHO CARES if robots take your job?!? because wages are not how you take care of yourself.
19. May 2014 at 09:36
We shouldn’t blame economists for not understanding what Digital vs. Atomic means.
Scarcity is so deep in their head, that when it disappears, its hard to let go off all the other derivative rules they have built their castles upon.
Even Tyler Cowen went crazeballs there for a while.
19. May 2014 at 09:37
What isn’t convincing, Noah, is stupid statements like; ‘…self-appointed defenders of the free market, spinning theories to show that greed is good.’ Since no economist I know of believes that. Are you confusing movie script writers with economists?
What Friedman was doing in the Donahue clip you link to, is explaining that greed is part of human nature. That the problem is how to cope with that reality. Friedman believed, with a great deal of empirical evidence to support it, that capitalist methods–trade–do a better job than political (socialist) methods.
Many of the problems Friedman was using as examples on his two Donahue appearances are still with us today, and not any better understood by the public. Minimum wages laws, health care finance, education vouchers, income inequality, legalization of drugs….
The difference today is that Friedman is dead and there hasn’t been anyone with his combination of intellect and charm to come along to replace him.
19. May 2014 at 09:43
Smith is conflating economics with his politics.
As long as the logical categories of human action don’t change, then neither do those propositions we know as true economic propositions change.
Since the logical categories of human action have not changed from the 1970s to today, as our brains are still logically structured the same way, then so too is the sum total of all true economics propositions (many of which have yet to be discovered) have not changed.
How the empirical world has changed since then is a subject matter for historians, not economists.
Whether the politics of the economics profession has become more liberal or otherwise, is like asking whether the medical profession has become more admiring of football than baseball. When “economists” make political advocacies, they are doing so as political pundits, not economists. Economics is value free.
Everyone should read Mises’ “Theory and History“, and “The Ultimate Foundations of Economics. These are invaluable resources that can enable one to deeply understand what it is that one believes in economics and why, and to know how to identify your political beliefs versus your economics beliefs.
19. May 2014 at 09:50
Smith seems to be complete denial that politics is self-interested, “greedy” action.
Healthcare for the masses? Education for the masses? Roads and bridges? -> Wealth stolen by thugs: a greedy action. “I want your wealth, it’s better in my hands than in your hands, and if you don’t relent and play by my rules, you’ll be thrown into a cage if you resist, and if you resist with force, you’ll be shot to death.”
That’s Smith’s vision of a “non-greedy” world. Ha!
19. May 2014 at 10:14
I wonder if there are left and right physics? Just because it is more of a hard science than economics, does not make that question less absurd.
Economics is a social science which has sometimes been taken for granted. For example, at least at the extremes (say Soviets versus USA from 1950-1990), the predictions of the free-er market advocates seem to have been born out.
But it seems very difficult to explain may things. For example, China has achieved great growth, but it appears much of it is driven by government action. I think that is true—this would seem to be in some conflict with the Smith-Hayek axis of free market thinking. Assuming my premise is right about China’s growth, it is difficult to fit that into classical liberal explanation
As far as the US profession is concerned, the choice of “left” and “right” as descriptors, while plausibly accurate, as Major Freedom stated, seems outside the realm of social science.
If Economics is about the study of “material” growth in a world with short term scarcity but long term abundance, then it is a study of dynamic trade-offs. “Left” and “Right” as political movements in Economics should be uncorrelated with economic opinions. Their choice among trade-offs is where the politics should come in. If Left and Right “causes” economic opinion then the field is not science at all.
19. May 2014 at 10:18
Noah, There’s a lot to be said on that issue. First of all I can’t comment on microeconomics, as I haven’t really kept up with the research. But I recall macro being highly empirical back in the 1970s. Monetarists did umpteen “engineering style” studies of money demand, which in retrospect were mostly a waste of time. Keynesians did umpteen studies using hydraulic Keynesian models. Again, very engineering-oriented and mostly a waste of time. Perhaps most of those studies were in lower level journals, and perhaps in those days “theory” was seen as being more prestigious. The modern empirical macro studies (VAR, etc) leave me very underwhelmed. They didn’t seem very useful in 2008.
Friedman and Schwartz’s Monetary History is still the best macro empirical study–so Friedman was much more than a pure theorist. Nor was he an extreme ideologue, as he favored government involvement in various areas such as welfare, education, monetary policy, etc.
You might be right about micro–I can’t speak to that issue.
19. May 2014 at 10:22
Mike, You said:
“But it seems very difficult to explain may things. For example, China has achieved great growth, but it appears much of it is driven by government action. I think that is true””this would seem to be in some conflict with the Smith-Hayek axis of free market thinking. Assuming my premise is right about China’s growth, it is difficult to fit that into classical liberal explanation”
Actually it is the exact opposite. China was extremely poor when the government ran the economy. As it gradually introduced market reforms its incomes rose. More reforms are needed, but the most productive parts of the Chinese economy are mostly in the private sector. So China is an excellent argument for free markets. Furthermore, ethnic Chinese areas with freer markets than China (Hong Kong, Taiwan, Singapore) are much richer than China.
19. May 2014 at 10:46
Fun NPR China piece:
http://www.npr.org/blogs/money/2012/01/20/145360447/the-secret-document-that-transformed-china
19. May 2014 at 10:49
More data is better than less data. Bad use of “more data” is worse than bad use of “less data”. Clear thinking is even more required. I know next to nothing about the academic field of economics, but know a little bit about statistics. Arnold Kling has written in the past about the poor use of data in economics. Data fitting, in the worst sense, can be rampant in the field, particularly when mixed with politics.
I read part of a text by Jagdish Handa on Monetary Economics. I believe he described the Fed’s attempt at linking M1 with employment beginning in the 50s. Each year the prediction was wrong. Each year the data was recalibrated to account for the error. This went on for 30 years if I recall—-never getting it right. Then they just stopped doing the analysis.
The more data you have, the ability to create errors grows exponentially. When I read “engineer” when discussing economics, I tune out—and know what not to take seriously.
Thinking first, data second.
19. May 2014 at 10:54
Economists as engineers? Sadly, economists (like Smith) are becoming just another subset of content providers, for whom buzz is everything.
19. May 2014 at 11:39
“The voters also rejected the military’s request for more jet fighters. Two good decisions”
The Swiss only have an air force right now from 9-5. When a Hijacked plane had to be escorted recently…they needed to call for help from the better equipped neighbors…
They will effectively have no fighter aircraft at all in 10 years…It is laughable that they voted to maintain their mandatory army service and yet will have no air force…
I would think that a nation as rich as Swiss can afford to help foot the bill for defending their way of life….
19. May 2014 at 11:51
Noah would like Econ’s Left/Right ratio to be in line with other social science departments. Something like 10/1 has proven maximally productive.
For example, at 10/1, someone like Garrett Jones could be screamed out of the profession as a RACIST!
With Econ cleaned of unnecessary diversity, it could duplicate the engineering efficiency of, for example, Education Studies, and its crowning achievement, DC public schools, which delivers 750 SAT scores for a mere $30k per student per year.
19. May 2014 at 11:55
Mr. Smith, Economists are no Engineers. As an actual engineer actually applying engineering skills the only thing I can say is this: Your buildings keep falling over. If you’re engineers, you’re awful.
(The economy isn’t the building in this metaphor, “your” models are)
Maybe it’s true. And maybe you believe it’s true. But I personally wouldn’t bring it to argument.
19. May 2014 at 14:16
As a 23 year old first year Ph.D., my impression is very similar to Noah Smith’s, but I’ll admit it’s not founded in any rigorous review of the profession in the past. As economics got more mathematical, a big focus in micro during the 50’s and 60’s and 70’s was basically proving the first theorem of welfare and other related mathematical theorems and then after that started looking at deviations from perfect competition like asymmetric information. Now a days it seems like most micro guys are busy investigating market failures.
On the macro side, the general landscape seems to be before 1970 it was all liberal Old Keynesians, then from 1970 -1990 it was all conservative RBC types, and then post 1990 it was liberal New Keynesian. I’ve never once actually heard Friedman or any other monetarist, market or not, or their ideas explicitly mentioned in a lecture. But Friedman is sort viewed by most students of my generation as good economists who kind of went of his rocker at the end and so is discounted.
I think I read a lot of older economists who have a bit more perspective, but at least from my courses I definitely think Noah’s view is understandable, even if I don’t personal agree 100%. Basically, its a generational view point thing.
19. May 2014 at 15:53
The new F-35 fighter jet being orderder by the Pentagon will cost taxpayers $1 trillion to $1.5 trillion over the life of the plane. Likely it will never be used in actual dogfights-combat, or maybe at all, but if it is used, probably in some skirmish in a woebegone 3rd-world craphole.
Would that Americans could emulate the Swiss.
19. May 2014 at 16:22
If Americans emulated the Swiss, the Swiss would probably have to spend more on defense, not less. They are free-riding on America’s defense umbrella, and they aren’t alone.
19. May 2014 at 19:06
Benjamin:
“The new F-35 fighter jet being orderder by the Pentagon will cost taxpayers $1 trillion to $1.5 trillion over the life of the plane. Likely it will never be used in actual dogfights-combat, or maybe at all, but if it is used, probably in some skirmish in a woebegone 3rd-world craphole.”
What if your ideal increase in NGDP took the form of an inflation financed boondoggle such as this? According to your past comments, ANY form that additional NGDP took, would be better than the status quo.
Hence, according to you, inflating and spending $1 trillion on useless fighter jets would definitely constitute an increase in NGDP, and hence would be better than the status quo.
Some advice: You might want to start considering a Nominal Gross Private Product (NGPP) framework instead. That way, you don’t have to contradict yourself all the time.
20. May 2014 at 00:02
The standard portrayal of Friedman as right wing, pro free market and pro greed is inaccurate in that he advocated full reserve banking. That’s a system in which the private sector is barred from creating money. Under full reserve, money creation can only be done by central banks and governments, while private banks continue with all their other usual activities (lending etc). See Ch3 of his book “A Program for Monetary Stability” after the heading “Banking Reform”.
I.e. Friedman agreed with Irving Fisher who said, “We could leave the banks free, or at any rate far freer than they are now, to lend money as they please, provided we no longer allowed them to manufacture the money which they lend.”
If we are going to divide ideas up into left and right of centre (which I think is a questionable thing to do), then nationalising money creation is definitely left of centre.
20. May 2014 at 02:22
As I see these examples of China or other countries being sucesfull with some government intervention I think that there is one distinction that needs to be made and which Scott already hinted at:
Government has a role in establishing free markets. However government does not have much role in actually running the economy. So the counterpart of free market economy is a centrally planned economy.
To complicate things more I would also add that sometimes and idea that sounds “free markety” may – if carried out in practice – be destabilizing and defeat its purpose. If I may use some practical examples I may use some attempts at implementing free markets in African countries. Sometimes you may see a noble cause and do a lot of work in for instance getting a corruption down in some area. However this act may have unintended consequence, changing balance of power and spurring violence and causing the country to slide deeper into chaos harming the idea of freedom in the long run.
But in the end one has to be honest. Despite of some mishaps if you take a broader look one can see that societies that have institutions promoting free markets are better off than societies that do not have it.
20. May 2014 at 09:40
Scott
Yes on your China comment
20. May 2014 at 10:28
Morgan, Yes, that’s a good story.
Mike, Yup, data-mining is a big problem.
Mikef, If the German’s didn’t invade in 1940, I think we can assume that no one will ever invade Switzerland. They have plenty of military power to deter invaders.
Joseph, There was virtually no RBC economics in the 1970s. Maybe a couple papers at the end of the decade. Don’t assume that papers now viewed as cutting edge represented the profession at the time. Friedman was viewed as something of a crackpot in the 1970s, later his reputation soared much higher.
Younger economists would benefit from reading people like Friedman. Maybe then fewer members of the younger generation would have made fools of themselves assuming money was easy after 2008 and that we were stuck in a liquidity trap.
20. May 2014 at 11:39
Scott,
I agree with everything you said, largely because I follow yours and Nick Rowe’s blog, along with others. The way economics is taught though is by following the cutting edge I think. At least for modern economics so I think it’s easy to get the wrong impression if you’re not gathering knowledge in other ways.
20. May 2014 at 18:10
Joseph, Good point.
23. May 2014 at 06:04
Scott Sumner, you should sell yourself as not liberal, not conservative, not libertarian but just objective and smart. Lets not push to end redistribution (as you do not) but push to end stupid, counter productive and fraudulent policies there are enough of them to keep use busy indefinably. We can then support some level of efficient redistribution.
23. May 2014 at 07:12
It’s more accurate to say that you want to target real-gDp than nominal-gDp. Rates-of-change in money flows effect real-output before it effects inflation. So in any downturn in economic activity corresponding with a deceleration in nominal-gDp will boost real-gDp first. As you recognize, the markets react immediately to monetary injections. But the roc in money flows is always a cumulative figure. It has always peaked in exactly 10 months for the last 100 years.
23. May 2014 at 07:20
The latest figures show roc’s in MVt have deteriorated. So how does the Fed know how to raise the target for gDp right now? Gross domestic product is published in arrears (then revised twice). The only way to do it is to use money flows (our means-of-payment money times its transactions rate of turnover – using Irving Fisher’s “equation of exchange”). I.e., roc’s in MVt = roc’s in nominal-gDp (gDp is a proxy for all transactions).