I remember the first time I encountered Spy magazine. It was at Cody’s Bookstore in Berkeley. One of the articles attacked Bill Cosby. Wow! I thought. You don’t see that every day.
Which is why Inside Job, which just won the Oscar for long documentary of the year, is so important: It attacks prestigious professors at Harvard and Columbia and to some extent the institutions themselves. You don’t see that every day. Larry Summers, former Harvard president, is one of the main villains of the piece. Few intellectuals have combined poor understanding and power as much as Summers has. (With bonus points for nauseating treatment of staff.) Perhaps none has done so much harm. Had Summers not blocked Brooksley Born from regulating derivatives, the world would be a different place. And it isn’t just Summers. The movie shows that John Campbell, chairman of the Harvard economics department, has trouble understanding the concept of conflict of interest. What this says about Harvard, the most prestigious academic institution in the world, is not something Harvard professors are going to want to think about. Harvard, of course, is the home of Joseph Biederman, the most ethically-challenged professor I know of.
Michael Moore’s Sicko did a great job of provoking outrage. At the same time, however, it was empty of interesting thought. It was not a new idea that American health care might benefit from imitating other countries. So the outrage boils away unused. In contrast, Inside Job contains the beginning of a thoughtful critique: It says that economics professors were corrupted by all the money they could make praising and doing the bidding of Wall Street (e.g., resisting regulation). Summers made out especially well. You won’t find this critique in The Big Short, All The Devils Are Here, Too Big to Fail, or How Markets Fail. A viewer of Inside Job might stop giving money to Harvard until Harvard enacts conflict of interest rules for economics professors.
I don’t think conflict of interest is the whole problem with Summers et al. Poor understanding is a big part of it. A friend of mine at Berkeley took introductory economics. What about data? I asked her. Where’s the data for all these assertions? She went to her professor. Where’s the data? she asked. Don’t worry about data, he said. Economics professors have started paying more attention to data (Steve Levitt, John List), but they have a long way to go.
I’m confused by that last paragraph. Can you be more specific as to what kind of claims constituted all these assertions that needed data to support?
Glen, claims such as “if this happens, people will do such and such”. For example, microeconomic theory. The course was big on “laws” (cause-effect statements), short on data supporting those laws.
Much of micro is practically self-evident if correctly explained, but doing so includes keeping a lot of nuance that it sounds like was lost in translation here. It’s more like “if this happens, people will *tend to* do such and such, on average, all else being equal, assuming simple motives”. The underlying principles that lead to those rules get tested a little every time a store has a “sale” and sells more than they did at the old price. Every time the government sets a price control and causes shortages or subsidizes something and causes surpluses. Every time somebody prices something too high and it doesn’t sell.
Sometimes simplifying abstraction is appropriate. If your student took introductory physics, would you ask “where’s the data?” when working out assertions about what would happen when a perfectly spherical billiard ball on a perfectly frictionless table hits another with twice the mass in a perfectly elastic collision? Econ 101 is mostly about the *predictable* components of human action, just as Physics 101 is mostly about the *predictable* components of physical action.
Glen, my friend’s class was before the rise of behavioral economics, the whole premise of which is that ideas about “what people will do” should be tested, not assumed. The rise of that field supports my view (that economists didn’t care enough about data), I think. From my point of view, behavioral economists are mediocre data collectors. This is no surprise, since they are just starting, whereas experimental psychologists have a hundred years of practice. Behavioral economic experiments are usually just one step better than demonstrations — they are pretty good for showing whatever idea they started with is right (which is a lot better than not collecting any data), but poorly designed for uncovering new ideas. John List’s work on the ultimatum experiment reveals the low average level of experimental technique. That’s what I mean when I say economists have a long way to go.
An intro physics class that didn’t spend at least half the time discussing data would be pretty bad. It should cover how data is collected, how data leads to theory, how data tests theory.
A lot economic theory concerns things that are hard, if not impossible, to measure. How would you measure a demand schedule for Coldplay CDs, for example? Mine is ZERO at ANY price, but I am a special case.
People measure demand schedules for Coldplay CDs continuously. Wal-mart fiddles with prices at different stores, and measures with frightening precision empirical demand schedules for thousands of commodities. No, they don’t exactly follow the curves microeconomists use to simplify their theories, and the demand for each commodity is far from independent of the prices of various others, but it doesn’t matter very much, except, of course, to retailers.