Quote of 2015

From an interview with Dani Rodrik (in Econ Focus by the Richmond Fed)

Question: That theme seems to run through your work — that economists have an inherent obligation to be of use in helping to guide policy, conflicted with the danger that the public thinks economists know more than they do. How should we think about dealing with that tension?

Rodrik: The root of it is the problem that the profession has more or less the wrong idea about how economics as a science works. If you ask most economists, "What kind of a science is economics?," they will give a response that approximates natural sciences like physics, which is that we develop hypotheses and then we test them, we throw away those that are rejected, we keep those that cannot be rejected, and then we refine our hypotheses and move in their direction.

This is not how economics works — with newer and better models succeeding models that are older and worse in the sense of being empirically less relevant. The way we actually increase our understanding of the world is by expanding our collection of models. We don't throw out models, we add to them; the library of models expands. Social reality is very different from natural reality in that it is not fixed; it varies across time and place. The way that an economy works in the Congo is very different from the way that it works in the United States. So the best that we can do as economists is try to understand social reality one model at a time. Each model identifies one particular salient causal mechanism, and that salient effect might be very strong in the Congo but it may be very weak at any point in time in the United States, where we may need to apply a different model.

If you look at the progress of economics all the way from perfect competition to imperfect competition, from incomplete information to behavioral economics, at every step we have said, "Here are some additional realities for which we need newer models." Behavioral economics doesn't mean that we want to ignore models in which people are rational. There are plenty of settings where presuming people are behaving rationally is still the right way to go.

When you look at economics in that way, as a collection of models, then what does it mean to say that economics knows something about the world? Economists know how to think about various causal mechanisms that operate as part of social reality, but what they're very bad at in practice is navigating among the models describing them. How exactly do I pick the right model for a given setting? This is a craft because the evidence never settles it in real time. We have these periods of fads where we say the New Keynesian or the Neoclassical model explains everything. We lose sight of the fact that models are highly context-specific and we need to be syncretic, simultaneously carrying many models in our mind.

Certainly, there are things in economics that can be said to be fairly universal; many of those are actually quite innocuous, such as the assertion that "incentives matter." I think we can often also agree after the fact: We can say that the Soviet system was economically inefficient, or that the 2009 stimulus package of President Obama reduced unemployment. These are things on which there is a fair amount of consensus, and rightly so, because the evidence is more or less in. But the vast range of propositions over which economists agree in public don't have that kind of support, and that's where I think we often get into trouble.

Quote of 2014

From László Lengyel: The melancholy of freedom

(In Hungarian: A szabadság melankóliája, Budapest: Kossuth, 2014)

But nothing turned out the way I expected [in the early eighties]. [...] I was convinced that the laws of economics must assert themselves mercilessly and the regime cannot get out of its organic crisis unchanged. (As a digression I note that I was of a similar mind in 1989-1990, then in 1994, in 2004-2006 and after 2010. This is a typical error of the economist’s point of view: governments commit countless errors which, following the logic of economics, lead to crises which in turn, in the absence of a correction, lead to bankruptcy. But economies “can survive a lot”; the fate of countries is not decided by economic factors alone. Finally, economic logic works only in the framework of a given (world) system, and if a regime is able to place itself outside that framework, it may be able to survive for a prolonged period of time, functioning according to a different set of laws.)

Quote of 2013

From Dennis C. Mueller: Public Choice III

Any model that mixes ideological goals and opportunistic behavior, substitutes satisfying for maximizing behavior, myopic for rational expectations, and the like, is vulnerable to that most devastating of all criticisms -- that it is ad hoc. My dictionary defines "ad hoc" as being "concerned with a particular end or purpose."

Quote of 2010

From Deirdre McCloskey: The Rhetoric of Economics

Kelvin's Dictum: “When you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind.“

[Footnote:] From Sir William Thomson (Lord Kelvin), Popular Addresses, edition of 1888–1889 [...]. An approximation to this version is inscribed on the front of the Social Science Research Building at the University of Chicago. Frank Knight, the famous University of Iowa economist, is said to have remarked on it one day: “Yes, and when you can express it in numbers your knowledge is of a meagre and unsatisfactory kind.“

Quote of 2008

From Deirdre McCloskey: Economical Writing

Around 1830 the humorist Sydney Smith wrote, "In composing, as a general rule, run your pen through every other word you have written; you have no idea what vigour it will give to your style." He might have followed his advice more fully, and would have done so if writing nowadays:

In composing [of course it's composing: that's what we're talking about, you dunce!], as a general rule [what would be the point of any other?], run your pen through every other word you have written [of course writing: again, that's what we're talking about; and in any case, what else would you run a pen though? Your finger?]; you have no idea what vigour it will give to your style [for goodness sake, how often do you have to repeat that you're talking about style?].

The result is: "Run your pen through every other word; you have no idea what vigour it will give."

Quote of 2006

From John Maynard Keynes: Alfred Marshall (1925)

In 1917 Marshall put into writing the following account of his methods of work at this time and later:

„An epoch in my life occurred when I was, I think, about seventeen years old. I was in Regent Street, and I saw a workman standing idle before a shopwindow: but his face indicated alert energy, so I stood still and watched. He was preparing to sketch on the window of a shop guiding lines for a short statement of the business concerned, which was to be shown in white letters fixed to the glass. Each stroke of arm and hand needed to be made with a single free sweep, so as to give a graceful result; it occupied perhaps two seconds of keen excitement. He stayed still for a few minutes after each stroke, that his pulse might grow quiet. If he had saved the ten minutes thus lost, his employers would have been injured by more than the value of his wages for a whole day. That set up a train of thought which led me to the resolve never to use my mind when it was not fresh, and to regard the intervals between successive strains as sacred to absolute repose. When I went to Cambridge and became full master of myself, I resolved never to read a mathematical book for more than a quarter of an hour at a time without a break. I had some light literature always by my side, and in the breaks I read through more than once nearly the whole Shakespeare, Boswell’s Life of Johnson, the Agamemnon of Aeschylus (the only Greek play which I could read without effort), a great part of Lucretius and so on. Of course I often got excited by my mathematics, and read for half an hour or more withough stopping: but that meant that my mind was intense, and no harm was done.“