Tuesday, 2 June 2009

Larry Elliott is wrong about the 'shortage' of great economists

by Neil McCulloch

Was anyone else disappointed to read Larry Elliott's article in the Guardian on 1 June bemoaning the 'shortage' of great economists today? It demonstrates how out of touch with the real world of economics he is.

There are many superb economists working on extremely policy relevant issues affecting the world today. As only one example, last week I interviewed Paul Collier at the University of Oxford – an enormously influential economist who is tackling real policy problems about what generates and what stifles growth.

There are many others, including in the UK. Larry Elliott’s rant simply demonstrates how out of touch he is with the modern profession. He perpetuates the myth that economists only teach perfect competition, or that we believe that the price mechanism always works to align demand with supply. This is nonsense. Most of the maths that he complains about is trying to model the infinitely more complex world of uncertainty, imperfect competition, and asymmetric information. This is a point which the only modern economist he praises, Paul Krugman, makes with elegance in his chapter Models and Metaphors about the value of mathematical models in his excellent Development, Geography and Economic Theory (MIT, 1997).

10 comments :

John Humphrey said...

It's worth emphasising that there is a difference between econometric work, using stochastic approaches in the face of impossible to understand, complex causal interactions and some of the more abstract theorising. I think he has a point about some economic theorising, but not all.

Dirk Willenbockel said...

I wholeheartedly agree that Elliott is hopelessly out of touch with modern macro- and microeconomics. The economics of Ponzi games and rational bubbles has been part of mainstream dynamic general equilibrium analysis for decades (and I have taught this stuff in courses on macroeconomics using mainstream textbooks for more years than I care to remember).

The experimental evidence against the Nash equilibrium solution to the ultimatum game cited by Elliott against economists has actually been accumulated by experimental game theorists affiliated to mainstream economics departments, has been published in mainstream economics journals and is standard fare in the game theory sections of any better microeconomics textbook. Has this guy been kicked out of academic economics at some stage or what makes him so frustrated?

Richard Jolly said...

My understanding is that with the retirement of Geoff Harcourt a couple of years ago, Cambridge no longer teaches Keynesian economics. I have been told this is true also of Harvard. Surely this is a sign of something wrong with economics – at a time when Keynesian ideas are being used to justify trillions of expansionary stimulus.

Actually the Larry Elliott article was focused on choosing a team of eleven outstanding economists. Who would you choose and who would you suggest as captain?

Neil McCulloch said...

I’m not criticising Larry Elliott because he doesn’t know maths – I’m criticising him because he (possibly deliberately) gives completely the wrong view of a profession. A view which I’m sad to say is far too widespread, precisely because no economist can be bothered to respond.

As regards the leading lights of economics – just look at the Economist top 10 list on the website (which they have published repeatedly – admittedly more micro than macro, but it also contains some good macro people). I doubt that in the 1930s there would have been consensus about who the greats would have been then – it is much easier to see in hindsight, but there is no question that people like Oliver Blanchard, Stanley Fischer, Joseph Stiglitz, Paul Krugman, Barry Eichengreen, Charles Goodhart, Rajan Raghuram and many others are very good macroeconomists, whether you agree with them or not.

Dirk Willenbockel said...

Elliott’s article reminds me of a quote by LSE’s Mark Blaug (1997) from a review of one of the many ill-informed routine exercises in economist-bashing:

"By all means let us slay the dragon of orthodox economics but let us do it with a sharp sword".

As to nominations, for a dream team of current generation economists, I am not sure that Elliott’s football analogy really works. Looking at Elliott’s eleven of dead economists, putting Marx and Hayek (or John Hicks and Joan Robinson (i.e. the inventor and the most fervent critique of the IS-LM macro model) in the same team sounds like a sure recipe for relegation to me. (Of course, Elliott is aware of that himself).

But when it comes to naming “impressive, comprehensible and relevant economists of our generation” (I take that to mean economists with an outstanding academic track record who also write in eloquent prose for a wider audience, address real world problems and/or try to influence policy), I would probably include (in addition to Paul Krugman and Paul Collier already mentioned by Neil) in no particular order

Jeff Sachs, Joe Stiglitz, Amartya Sen, the prominent crisis prophets Robert Shiller and Nouriel Roubini, Jagdish Bhagwati, George Akerlof, Alan Blinder, James Buchanan.

OK, 11 already without effort and I am sure I missed a few others. I realize the gender bias, but Susan Strange (author of the book “Casino Capitalism” in the70s!) is dead and Vicky Chick retired, but Anne O. Krueger, if one likes her or not, surely fits the bill as well.

As in the case of Elliott’s incongruent dead economists list, one can of course not simultaneously agree with all the views held by these economists.

Lyla Mehta said...

With due respect – Larry Elliot’s piece may have its flaws and doesn’t recognise adequately heterodox economists and others you mention. But I do feel that both of you are really being unduly defensive and not really very reflexive about your discipline which is what good social science is about.

Economists have had a hegemonic position in development and other disciplines and this hegemony still persists. Heterodox economist are still not accepted by the mainstream (e.g. Feminist economists. Witness how long it took Sen to be accepted by the economics establishment and to get his Nobel). The top economists you cite (Collier etc.) from the viewpoint of anthropology/ qualitative sociology really have some dodgy and essentialist views of the South/ resources/ conflict etc.

I really object to the notion that top sociologists are ex economists. Which ones? This seems to be yet another kind of colonisation of the social sciences that Ben Fine has been writing about. Another example, is the strange way in which World Bank economists have incorporated culture etc. in their thinking in a highly reductionist and dubious manner).

I am currently finalising a book on scarcity and there are similar debates between economists and non economists. There’s no harm in being more reflexive and asking why people are making these criticisms in the first place rather than dismissing everything Elliot and other critics write. One doesn’t have to do Maths to have rounded world views and yesterday, at the Foresight meeting I met economists and other modellers who were saying eloquently that their models have serious limits in terms of dealing with the uncertain, dynamic and complex world we live in.

Xavi said...

Neil,

I agree. The question is why is he omitting anything else than perfect competition and perfect capital markets. Does he know? Obviously, you cannot get playing together Di Stefano, Pele, Cruyff, Maradona and Messi; just different generations, but that does not mean that there are not other fine players at the moment. I am not sure if we will ever have another Keynes, but that is not the end of the profession. There are many good economists capable of tackling the slump, but he may not have met them yet.

It is clear that the crisis has an impact on economics and economists. The crisis has buried existing financial risk models, ideas of self-regulation and has shown the importance of bubbles and financial constraints. Many economists were wrong, others were right. It is also true that part of the profession that is not interested on engaging in policy relevant issues (same than in other disciplines) and it is a fact that some mainstream models have been based on very shaky foundations. Of course we need to be self-critical about all this, but at the same time we cannot ignore that many economists work focus on dealing with complexity, imperfect competition, multiple equilibrium, segmentation, and different types of expectations. This is exactly what is frustrating from the Larry Elliott’s piece, the complete disregard for all these elements, some of which are already and/or will be mainstream.

Lyla, I am not sure how the way World Bank economists have incorporated culture impacts the economic profession (?). If anything, it should impact the view about World Bank economists and not the entire profession. Also being heterodox does not necessarily imply to be right. We do need more dialogue with other social sciences, but it has to come from a more informed critique about what we do. We (economists) need to be humble about the limitations of our models and try to improve them, at the same time some mainstream social scientists should justify why they apply little statistical rigour to what they do or draw general conclusions from simple case studies. Maybe we could all improve our own disciplines by using a more informed critique. Larry Elliott’s piece seems to me quite biased or not well informed.

Dirk, let me add Daniel Kahneman to your dream team.

Rosalind Eyben said...

Larry Elliot's list of economists battling against the mainstream revealed his own blindspot. The most interesting and challenging heterodox economics for the last twenty years has been feminist economics and the leadership has been here in the UK, with Diane Elson carving out a totally new way of thinking about how the economy works.

An economy is more than markets. The market is just one element of a broader system of production, distribution and consumption of goods and services. Research has illuminated the close interdependence between the sphere of the market and the sphere of ‘social reproduction’ – the continuation of society through the care we take of each other from birth through to old age and the institutions such as the family that have evolved in relation to this - and of the gender division of labour within it. From an economic perspective production uses people as one of the resources necessary to make things; the task of reproduction is to restore that resource into people. Reproduction is not just about the daily maintenance of people’s lives, but also about less tangible but equally important nurturing of relationships and supporting the social fabric.

In the skewed existing system, where the market receives greater weight and visibility than the non-market sphere, the direction of resources and energy tends to flow from the reproduction of persons to the production of commodities. Feminist economists propose to reverse this direction in favour of a more humane process in which the quality reproduction of people is the goal and commodity production is the means. The current crisis is a moment of opportunity for creating a fairer world. Recognising the inter-dependency of production and reproduction is the first step towards constructing a people-centred economy.

john weeks said...

Larry Elliot's article is symptomatic of a widered problem, that the mainstream media has little interest in dissident views on economics unless the economist is a Nobel Prize Winner or a member of the Bank of England Monetary Committee. Tis can be constrasted to ubiquity in the press and on the BBC of so called buisness economists whose names are hardly household words.

john weeks said...

Larry Elliot's article is symptomatic of a widered problem, that the mainstream media has little interest in dissident views on economics unless the economist is a Nobel Prize Winner or a member of the Bank of England Monetary Committee. Tis can be constrasted to ubiquity in the press and on the BBC of so called buisness economists whose names are hardly household words.