Dylan Matthews writes that tomorrow belongs to Raj Chetty.
Chetty has made his name as an empirical economist, working with a small army of colleagues and research assistants to try to get real-world findings with relevance to major political questions. And he’s focused on the roots and consequences of economic and racial inequality. He used huge amounts of IRS tax data to map inequality of opportunity in the US down to the neighborhood, and to show that black boys in particular enjoy less upward mobility than white boys.
Ec 1152 is an introduction to that kind of economics.
Pointer from Tyler Cowen.
I have been saying for quite a while that economics is on the road to sociology. I first made that case two years ago.
Economists will need to see economic decisions as embedded in cultural circumstances. In order to understand economic phenomena, we will have to pay attention to the role of beliefs and social norms.
. . .There is a very real possibility that over the next 20 years academic economics will congeal into a discipline, like sociology today, which is definitively shaped by an ideologically driven point of view.
I have mixed feelings about seeing the new approach to economic education. The pluses, which were alluded to in my essay, include:
1. Recognition of the importance of cultural factors.
2. Getting away from thinking in terms of optimization problems.
3. In empirical work, recognizing the problems created by what Edward Leamer called specification searches.
The minuses include:
1. Traditional economics emphasizes that outcomes do not come from intentions. The supply-and-demand model is not one in which one individual or group controls the outcome. Students are thought to think in systemic terms, rather than personal terms. That is useful (a) because it provides valuable insights into the economy and (b) because it is good for people to practice thinking in abstract, systemic terms rather than only in concrete terms. I think that not giving students the systemic perspective is a loss.
2. The research can be, and often is, oriented toward filling in the oppressor-oppressed framework. That is the ideological trap that concerned me in my essay. We also need to be able to step outside of the oppressor-oppressed framework and examine it critically, and I fear that this examination will not take place.
3. The newer research methods are not without their own weaknesses. They are subject to replication failures and narrow applicability. Data can be of questionable validity. Interpretations of results can be misleading.
I think that economic education can arrive at something better than neoclassical economics. But the road to sociology may not be the way to get there.
“Mankiw’s textbook covers the abstract theory that underpins economics as it has been understood for decades. It is about supply and demand, about how prices can be used to match production of a good to its consumption, and about the power of markets as a tool for allocating scarce resources.”
Says Dylan.
I never bought the book, but this is totally false. Prices do not adjust supply and demand. Solving the queuing problem in the firm or household set supply closer to demand, then pricing becomes accurate and capital costs can be counted. Queuing management first (PSST), then the accounting identities can be a base for Econ 10. But I would just skip Econ 10, and treat classic macro as accounting with a probabilistic calculus.
Consider how agents would quantize transaction sizes to prevent the inventory from bunching up? What sets the basket sizes?
This is the mathematical statement of PSST, it is a well known momentum, uncertainty, quantization problem, with a humongous humans sized market uncertainty. Is is solved with pattern matching, or market analysis techniques. But the words almost exactly translate into combinatorial systems with allowance for chaos. Patterns of flow are fundamental under the assumption of a tendency to aggregate with local knowledge. PSST is really a set of boundary conditions needed to be met even before accounting identities work. Or patterns of sustainable flow, pattern meaning it can fit into a price based spreadsheet with bounded accuracy.
On the road to sociology, or to market research?
Steve Sailer points out:
“Of course, Matthews misses the point that Chetty’s quantitative methods in big data analysis course is extremely different from Mankiw’s microeconomic theory course. That’s like saying that this amazing new course, Shakespeare 201, is revolutionizing how English is taught by offering a radical alternative to Composition 101. No, they’re different courses on different topics.
A lot of what Chetty does is closer to my old career, market research, than it is to economics.
[… …]
That’s exactly what I was doing for a living at a marketing research firm in the early 1980s: running test markets with a test cell and a control cell and reporting results to consumer packaged goods firms exactly like that. (We actually had a far more sophisticated system for running test markets in 1982 than Chetty has today.)
Perhaps why I’m so much better than Chetty at making sense of Chetty’s own data is my long experience in American market research gave me a toolkit for thinking about his data superior to what economics provided Chetty with.”
In another post at his blog on Unz Review, Sailer also usefully points out that one reason for the large number of undergraduates majoring in economics is that some of the prissier institutions find a business major to be too unclean to offer:
“Similarly, Raj Chetty’s popular Big Data analysis class at Harvard is offered under the Econ rubric, but it’s more like a combination of market research data techniques and sociology content.
The reasons economics have been imperializing adjacent disciplines like sociology, political science, anthropology, and geography (with perhaps psychology holding out as a separate, somewhat imperialist pole) are numerous. One is that economists are slightly less neutered by political correctness that academics in other disciplines. Another is that you can make a fair amount of money as an economist, so it attracts the ambitious and practical.
But another reason is that the number of economics majors at elite colleges is bloated by the refusal of most to allow undergrads to major in Business or Finance or some other get-a-job field. (Penn is one of the few Ivy League colleges to allow undergrads, such as Donald Trump, to major in Finance.)
(Harvard, of course, has a famous Business School with extremely well-paid professors, but you have to be about 27 years old to be admitted to the MBA program.)
So, if you go to Harvard, the way you signal to employers, such as Wall Street, that you find money interesting and appealing is by majoring in Economics.
Hence, at many elite colleges, the Economics department is prospering, while other departments are withering. If the other social sciences wanted to cut Economics down to size on their campuses, they would demand the creation of Business majors.”
The good doctor has recommended exposure to real business as a valuable educatonal experience.
Perhaps building upon that recommendation, a portion of the discipline of economics could be saved from despoliation by social justice fundamentalists by supplanting the micro- and macro- split with a move to raise the status of Business Economics as a discipline. A handful of universities already offer a Business Economics specialization but I can only find a few who offer majors. The curtain walls may have fallen, but perhaps a barmkin may survive.
It would flounder on assumption about human nature. Sociology assumes atheist anthropology in which people are born innocent and turn bad only because of oppression. Society determined individual character. Socialism can perfect humanity. The truth is that people are born with a strong tendency to evil. We can socialize children to some extent. But can’t determine character. That is a matter of choice. Adam Smith based his economics on the latter.
Although I’m not religious and don’t see “original sin” as a useful concept, I do agree that Chetty’s approach to economics will probably produce enough heresies to be excommunicated from the social justice (SJ) movement in short order. From what I’ve seen, data on SJ issues usually conflicts with theory, which in a well-functioning science would mean tossing out the theory but in SJ usually means tossing out the data.
I would enjoy Prof. Arnold detailing what some of the best examples are, moving forward.
Not in a four legs good two legs bad way, but just general pointers of
“We need more stuff like this”
and on the other hand…
“This is the kind of stuff that I think is not really very productive–it’s not good scholarship, the opportunity cost is high, it’s easy to use it as evidence to push forward bad policies that shouldn’t be put into place anyway…`”
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Back in the day, Deirdre McCloskey frequently exhorted her followers like this: “You see? You see? This is what good scholarship looks like!”