Sad individual that I am, I’ve been thinking and reading recently about the state of economics. One conclusion is that any assessment is confused by the existence of different tribes of economists, so not only do non-economists mix up one for another, but economists themselves also make assertions that only speak to their own tribe. In a famous article, Life Among the Econ, Axel Leijonhufvud described the separate castes of Macro and Micro. Here is my quick (and far less amusing) guide to today’s key distinctions.
1. Macro and micro still differ enormously, but a more important distinction is overlaid on it, academic versus applied. Many academic macroeconomists adhere to Dynamic Stochastic General Equilibrium models and are, in my view, away with the fairies. This approach is exemplified by Mike Wickens’ textbook, [amazon_link id=”0691152861″ target=”_blank” ]Macroeconomic Theory[/amazon_link]. (I like him enormously but not his models… sorry, Mike.)
2. Sticking with macroeconomics, City and financial market economists probably form their own category. Their preoccupation tends to be asset markets and global financial flows, for obvious reasons. There is a high variance in the quality of their work, although this is difficult to judge from their frequent media appearances.
3. A third group of macroeconomists are often really microeconomists who feel compelled to try to make a sensible contribution to the policy debate because they are so exasperated by Group 2 above. Among them is my good friend Jonathan Portes.
4. The gap between the academic and practical world is smaller in microeconomics – more academic micro-economists do directly policy relevant empirical research, and there are more think tanks and research centres doing this cross-over work too. Microeconomics has been open to behavioural research, experimental methods and so on. However, there is still a gap, and too many academics are still inflicting a narrow and reductionist version of micro theory on impressionable young minds.
5. Finally, there are the people who have been refusniks from mainstream economics for many years and find it hard to accept that the crisis has made the mainstream far more open to a range of ideas than it has been for decades. Another friend, Paul Ormerod, may be in this category – his new book [amazon_link id=”0571279201″ target=”_blank” ]Positive Linking [/amazon_link]is about network theory, and paging through it suggests he thinks the mainstream has a long way to go before network models are seen as acceptable. Maybe he is right – but on the other hand Andy Haldane at the Bank of England has advocated this approach in his financial stability role, and network theory is used in many of the applied working papers I read on telecoms markets. Anyway, in general the ‘heterodox’ economists are in the habit of being oppositional, for understandable reasons.
[amazon_image id=”0571279201″ link=”true” target=”_blank” size=”medium” ]Positive Linking: How Networks Can Revolutionise the World[/amazon_image]
There may well be other categories I’ve not thought of – maybe others can think of more. Sociologist Dave O’Brien of City University has suggested to me that the existence of other tribes has been useful for those economists in the mainstream citadel who want to deflect criticism of the subject. The present confusion is perhaps more suggestive of a subject in a state of intellectual flux – or at least I hope so. It would be a silver lining to the economic stormcloud if economics itself responded with reflection and reform.
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With micro-econometrics there are distinct tribes: certainly structuralists are different from the rest. Then there is the Freak-economists at the other extreme – although they are a much bigger group and a smaller group of semi-structuralists in between.
And as for Bayesians…
Fair point. I should have turned the spotlight on myself….
I have always viewed micro economics as pertaining to me and mine.
Macro economics pertains to us and ours.
What is perfectly logical for me to do to fix my problem in my business is not at all logical for all of us to do to fix our problems in our businesses.
Have you never heard of the Paradox of Thrift?
Those may well be the classes you find along the micro-macro axis, but this is not the only axis that divides economists. You have the short run-long run axis (which is not too different from the previous one) or, more significantly, the monetary axis, where you find
– on one extremity people who believe that money is neutral or even that inflation is wrong (long-term, micro and neo-classical economists mostly)
– and on the other extremity, people who believe that monetary expansion is a solution to many economic crises (neo-keynesians, macro and historian economists mostly).
This axis matters the most because it tells a lot about the inner feelings and political orientations of economists. It also has a considerable political importance, because money is by far the easiest tool public authorities can use.
Dave O’Brien is certainly correct historically and there’s good reason to fear he is correct this time too. By far the most common argument put forward by economists is that “somewhere out there, in the sea of heterodox papers, someone got it right, therefore we don’t have to change anything.”
As an aside, it’s worth viewing your friend Mr Ormerod through the “O’Brien” lens. Mr Ormerod is great at noticing all sorts of fields (including networks and complexity theory) that economists should be thinking about and does great micro-economic work with them. Yet somehow, every time, this results in his macro-economic views remaining largely the same. This is a little worrisome.
I would venture that when it comes to “political economy” we’re still arguing over whether the Newtonian world of the Neoclassical Economists is superior to that of either Instituitionalist critics or Keynesian ones. What concerns me is that the mental discipline of approaching issues is distorted by ideology, self-interest (Sinclair Lewis’s comment) or hubris.
Economics is a habit of thinking that looks at mechanisms and data to understand a criitical aspect of society. Principles of theory are never to be clung to so close as to not wonder if they accurate or relevant.