Economics is useful

It’s always refreshing to keep being reminded about the reasons why I remain optimistic about what’s actually going on in economics research. A recent podcast episode by VoxEU, which featured this year’s Yrjö Jahnsson Award winners, Oriana Bandiera and Imran Rasul, proved to be just one of those reminders.

Generally speaking, the interview was aimed at explaining to the broader audience about (1) what (academic) economists actually study (apart from financial crises, in particular) and (2) the role and value of (academic) economists in society, whom at times can be in contrary to the ways in which many other non-academic economists may present themselves of the discipline. The podcast left me with plenty of points to reflect on.

So, what do economists actually study? The main reason why I am particularly into applied microeconomics is due to the huge variety of questions that economists within this sub-field are asking and addressing, which many people (including myself in the past) would not expect economists to be also concerned about: how do different incentives by people determine how people react to policy? how do people in turn respond to different incentives in an organization, such as at the workplace or in a co-operative where farmers learn about how to work together in larger groups?

In an intriguing study of the recruitment of health workers in Zambia (see “Losing Prosociality In The Quest For Talent? Sorting, Selection, And Productivity In The Delivery Of Public Services“), it was found that incentives (in this case monetary compensation) don’t necessarily crowd out candidates with strong pro-social motivations. Although it remains true that higher pay attracts more “corporate”-minded people, the need to recruit the latter group doesn’t have to be the only strategy to improve the quality of human resources in the public health sector as long as the possibility to attract both high-skilled and pro-social people exists.

Admittedly, economists have an overt tendency to approach problems in terms of rational incentives, where people are viewed as optimizing agents. For instance, while economists nearly unanimously endorse the idea of carbon taxes on the grounds of incentives, other people have found this approach to be controversial, especially when reducing gasoline consumption is motivated by tax rebates. But in a broader sense, rational incentives are powerful and remain key to understanding the motivations behind our preferences and decisions in daily life. Economic analysis is better off if people’s altruistic and rational incentives are considered together for use, rather than having either (especially the latter, as often at the heart of criticism toward economics) rejected as intrinsic to any human being.

Most importantly for me, a sense of fulfillment comes from asking the kinds of questions as above from the perspectives and tools of economics: the ability to draw rigorous conclusions and design practical solutions. Both economists featured in the podcast explained that economic development and policy interventions that come from their research are what motivate them to continue asking questions and draw findings that may go against common sense. One of my all-time favourite economists is Alan Krueger (1960-2019), a meticulous academic and civil servant with a generous concern for society and his students. I was devastated by his recent passing, as he is one of those who made me want to become an economist. A few days ago, Brookings held the session: “What Krueger Teaches Us About How Economists Can Influence Policy“, in memory of him.

I would also like to emphasize another relatable point made in the podcast: that economics is really the subject to study if one wants to incorporate economics with philosophy, history, political science and so forth. Ironically, I didn’t realize this interdisciplinary scope of economics until I studied political science for my master’s degree. Just to my knowledge that there exist some impeccable economists out there who are, as deeply engaged as other social scientists, about the role of democracy (see especially “Direct Democracy and Local Public Goods: Evidence from a Field Experiment in Indonesia“, #1, #2, #3, #4), religion (#1, #2) or even music (#1) makes me quite hopeful about economics and its tools. I lament the current ways in which economics is being taught however, in the sense that the majority of students never get exposed to all the exciting research that is going on in economics. This may partly explain for why especially many female economics students end up leaving the discipline.

The hashtag #WhatEconomistsReallyDo was mentioned in the podcast, a trend on Twitter that I myself have been closely following since early 2018. In November 2018, Oriana Bandiera dedicated her entire annual lecture to the Royal Economic Society (UK) explaining the motivations behind the hashtag: it was born out of frustration with people not understanding the basic facts of what the discipline is meant to produce of research and the lack of comprehension of the vast spectrum of topics that economists study across other social sciences disciplines these days.

While the technocratic and interdisciplinary side of myself think of borrowing insights from other disciplines as a welcoming trend, others have however labelled it as another camouflage of “economics imperialism“. I have heard this being stated by way too many non-economist social scientists: “Why do you economists study this, it belongs to our discipline!” or “Have you guys simply become too bored of studying about money?“.

It is true that many economists were oblivious to the build-up of the 2007-08 global financial crisis, but there was in no way a unified “economics discipline” behind that as such. As opposed to popular belief, many academic economists have never worked for government or been directly involved in policy-making processes, suggesting that their influence is not as omnipresent as one would have thought. Producing research is one thing, but whether politicians will take research findings into account is another matter. It’s the worst when ideology delegates evidence, as such often prepares people to commit the most terrible acts in the name of ideology.

Perhaps I remain too faithful to interdisciplinary solutions for many of today’s public policy problems to comprehend the point of territorial labelling of scientific findings if the latter is supposedly about being part of a shared community that produces and improves knowledge. To me, economics is penetrable across all social science disciplines, whether one likes it or not, and which makes the tools offered by the discipline so useful in the study of many societal phenomenons.

Another aspect that I have come to appreciate from the #WhatEconomistsReallyDo hashtag is how much it unveils of the non-monolithic nature of economists as a community. If one follows the Twitter hashtag discussions just for one day or even a few hours, one would be taken aback by how much economists disagree among themselves and the variety of values, methodologies and questions to study are being debated on a daily basis. Does the minimum wage have any significant impact on jobs growth, and at what levels? Economists keep disagreeing about the impact of the minimum wage, in conjuncture with a growing literature suggesting that the minimum wage does not hurt jobs growth (see here or here). And this is just one out of zillion topics on which economists never reach an unanimous conclusion.

These observations run in stark contradiction to some widespread predications about the state of the discipline, such as “The end of economics?“, which in reality are brutally lacking in nuance and attention to what is going on in economics. The end of what within economics and for whom exactly? While macroeconomics has struggled to sufficiently adjust many of its core models to the changing realities of a post-2008 economy in many countries today, microeconomics is actually thriving with empirical evidence modifying existing neoclassical theories.

A second important topic discussed in the podcast is the role of economists in society. Despite economics being called a “dismal” science by many critics, the need to clarify the role of economists as a positive force in society has never been as dire as in today’s context of a global surge in populist policy-making that are ill-founded of evidence. Populism itself isn’t necessarily bad, but becomes dangerous when it produces policies that are doomed to worsen the economic and moral well-being of the people that it claims to represent.

In other words, policy accountability is what’s at stake. If not business leaders, then whom else are going to relentlessly point out about abuses of market power (taking place in both product and labour markets)? Insufficient tax revenues and loopholes as one of the underlying causes of inequality in income, wealth and opportunity? The macro risks of deregulation, especially of the financial markets? That what’s good for individual firms versus society as whole needs to be distinguished? That firms growth, innovation and a healthy workforce intrinsically rely on a range of public institutions, such as laws, education and research? In the quest of scrutinizing policies, holding politicians accountable for their policies necessitate making economists credible again:

Take another example of policy scrutiny: Arvind Subramanian, an economist, in a recent paper put India’s methodological changes since 2014 for measuring its economic growth under scrutiny: he found that average annual GDP growth between 2011-12 and 2016-17 might have been at 4.5%, contrary to the more impressive 7% figure offered by official estimates in recent years. In the same period, GDP growth was overestimated by 2.5% on an annual basis:

As long as evidence-driven efforts to scrutinize policies as those above keeps being pushed forward, I remain as optimistic about economics as the following quote made by a panelist during the memorial session for Alan Krueger: “Economics is not a dismal science: it’s a hopeful science“.

1 thought on “Economics is useful”

  1. Really love the strong emphasis on what economists are. In reflection to the recent trend of psychology being applied to existing fields, especially economics, the more humane side of economics are being brought into spotlight. However, it can be a double-edged sword as its implications may be for the social good but at the same time against it through psychic manipulation… I guess this is why the philosophy of Yin and Yang can be readily applied. Thanks for this informative post! It’s quite inspiring and as you have admitted yourself, gives a clear reflection of your individual mind.

    Liked by 1 person

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s