Don Boudreaux offers one hypothesis.
Academic journals are not the place to repeat long-ago-discovered truths. A bias, however, arises from this role of academic journals and of the need for scholars to publish in them – namely, a disproportionate amount of attention is given in academic journals to speculative ideas and to exceptions to long-ago-discovered truths. Foundational ideas and long-ago-discovered truths appear only in the background of academic journals, or whenever someone discovers (or believes that he has discovered) an exception to these.
David Henderson has his own take.
I read this as suggesting that the bias toward novelty in academic journals retards progress in economic thinking, by crowding out established truths. That may be an issue. But I have a different issue, which I will get to.
First, on the topic of trade across borders, I share with Boudreaux the presumption that once you establish that A has voluntarily bought X from B and that this was an ethical transaction, you are done. It is not relevant which side of a border B happens to live on. To come up with a relevant distinction, you will have to try some fancy intellectual footwork, and even then you are unlikely to overturn the logic of the free trader.
But for the most part, the problem in academic economics is not that truth has stood still and economists have moved away from it. On the contrary, I am struck that the economy is evolving faster than economics. Economists are still using 19th-century apparatus, such as the capital-labor distinction and marginal-cost pricing theory, in a 21st-century economy that those concepts do not fit very well. Even worse, many economists have so much confidence in their work that they are willing to advocate policy schemes based on very unreliable analytical methods. This gap between antiquated and inadequate models and the hubristic claims of economists is the issue that most disturbs me.
We are not white-coated scientists dealing with brainless inanimate objects or unintelligent lower creatures. We are not continuously cutting down on our ignorance and increasing the share of economic behavior that we understand.
We are studying phenomena that can change at a faster pace than we can acquire knowledge. We are studying humans who are embedded in institutions that are more nimble and clever than we are. In the markets where we attempt to make policy, such as health care or banking, there is usually much more knowledge embedded in the people and organizations that work in those fields than there is in our long-distance observation of them. And we are not gaining on them. They are gaining on us.
The power of science is from the Control. If “economists” want to enjoy the power of science, they must offer a path for policy Control.
But as you mention, real humans don’t like being Controlled.
Plus there’s the related issue that, if there is an “economic law” that allows people to make money, i.e. higher than standard return to investment, people will follow that law. And in pursuing money, will invalidate the prior regularity based on prior behavior.
Tiny typo (missing d): “willing to avocate policy” << advocate
Arnold wrote: “We [economists] are studying phenomena that can change at a faster pace than we can acquire knowledge.”
Unfortunately, business people (like myself), are studying our industries as those industries get ever more complex and global and are also changing at a faster pace than we can acquire knowledge. As a result, it’s very, very difficult to make investments, even in our own industries, that have acceptable risk parameters to go along reasonable returns on investment. For example, I could invest money and time in many things, but if someone else (or many someones) is also doing it (and perhaps gets patents first), then I’ve wasted (lost) my investment so it’s usually better to just keep the money in treasuries or stocks of huge companies that have marketing, not technological, advantages.
I think Cowen’s Great Stagnation is more due to this than anything else – there’s still plenty of potential opportunity, it’s just not worth the risk to an investor. Hayek’s knowledge problem has, in my opinion, been turned on its head. Yes, central planning still won’t work, but local knowledge is no longer sufficient to make decisions either because no knowledge is truly local.
I think a great deal of it is how highly politicized Economics gets. Not in the “X person I don’t like is a shill”, but rather I see the same arguments over variations of the same issues that only vary by the buzzword of the day.
The math for a new economics isn’t there yet; just like it isn’t there yet for genomics and ecology.
At least as far as finance (if considered a part of economics) is concerned, I disagree with Boudreaux and echo Kling’s sentiments.
There is very little new in journals — I would characterize the overwhelming majority of papers to be work akin to “epicycles”, wrapped into needlessly complex notation obscuring an often mundane contribution. This I believe his characteristic of a field which has no external feedback that point to new problems or provide observations that can truly test hypotheses.
I see this as partly due to professors now almost always being hired directly from academia, and stepping out into industry for a non-trivial time (you need 5 years on a trading floor to truly understand a modern market) usually resulting in the death of academic viability. The problem is compounded by the fact that in finance there is no robust path for information back to academia, unlike in for example engineering fields — good and novel ideas are too immediately valuable. Woe the quant who publishes a working strategy, a solution to an open trading problem or a working micro-market result (while the sell side does publish, they just have to get the customer to eat what they produce — closer to an academic model. Prop side which generally have practical and working models is generally a black hole).
More than the math skills, it is the barren research areas and techniques of business schools and the stilted thinking instilled in its graduates that has opened the doors to engineers and physicists on Wall Street. It really is an indictment of how academia researches and trains in its claimed discipline when one of its core applied areas of expertise is so easily and completely raided by graduates from other disciplines. And it arguably should cause pause for society when amateurs have to step in.
The world is changing, trading is global and interconnection has changed the world. Yet academia still produces graduates that spend their best years proving yet one more stochastic calculus theorem on volatility of volatility of interest rate curves. No one cares — it will just get added to some broker handout which now under MIFID no one will even pay for any more.
I am not widely read in the wider economics literature but from a few deep dives into narrow subjects I have generally found very little true novelty after around 1990. E.g. I spent a few weekends looking at some research on Clinton’s tax plans, supposedly reflecting best thinking on capital tax plans and firm growth. Turns out the whole area was generated by a few junior professors circularly citing each other’s work, completely ignorant of how traders look at tax implications of trades. (Ok that was a cheap shot — trying to find good research using politics as an entry point is not defensible. Cancel last paragraph…)