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Economics and ‘Plumbing’? Getting back to the basics


Fredrik Thor

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May 11th, 2017


As economics is turning into an empirical science, what should be the role of an economist, and should economics refocus from ‘philosophy’ to ‘plumbing’? Fredrik Thor investigates.


Economists as ‘Plumbers’?

In the first few pages of Poor Economics, the authors Abhijit Banerjee and Esther Duflo argue that the state of modern economics is problematic. Too much focus has been drawn on tackling big, abstract philosophical topics and economists should go back to focusing on the data and solving smaller, more pragmatic issues [1]. Esther Duflo, economics professor at MIT and appointed member of the American Economic Association, further develops her vision in a recent paper; that economists should be more like plumbers, not just finding optimal policy interventions but also getting their hands dirty in the implementation process [2]. In many ways, economists should be low key practitioners, ready to adjust the details, rather than mere theory-crafters.

The Problematic rise of ‘101ism’

In contrast to Duflo’s vision, introductory units of economics rarely look at the data or focus on the small questions. Of course, introductory units cannot fully jump into the specifics before introducing students to important principles. But context and implementation are critical aspects of economics that go hand in hand with the theory. And if this message is not communicated correctly, students might take away the wrong lessons from benchmark models of economics 101. A result, noted by Bloomberg View columnist Noah Smith, is so called ‘101ism’, referring to the use of simple models as truths in policy debates, without further nuance or empirical support [3]. As Smith remarks, using supply and demand to analyse the effect of a minimum wage, for instance, might not be very useful and may be plain wrong unless we look at context, empirical studies and modify key assumptions. This is difficult when 101ism underpins economic discussions [4]. Many students never take units beyond basic economics, leading to a branch of economists that may come across as too confident in certain policy matters, without a basis in the data and modern literature.

The modern relevance of economics

Contrary to the simplicity of introductory economics, economic research is today largely an empirical science. Researchers have found innovative ways to identify causal effects, such as using randomized control trials or natural experiments. A recent study by Guariso and Rogall used rainfall and crop growth in Africa to identify ethnic inequality and its effect on conflict [5]. Another study used mortality rates amongst colonist soldiers and sailors to identify if a colony was set up for exploitation or long term settling. These findings were subsequently found to have a causal link to the development status of a country in the modern age [6]. A replication study of experimental economics found that reproducibility, while not optimal, still is impressive in relation to fields such as medicine and genetics, as discussed by The Economist [7]. Economics is highly relevant and alive, yet this is not always obvious in the classroom.

Of course, we cannot expect students to come up with advanced econometric models in their first couple of years. But as economics is turning into an empirical science, developing an intuition for analyzing natural experiments ought to be as high of a priority as studying overconfident models. Universities ought to teach students how to figure out the small questions by examining data and policy implementation, and perhaps to be a bit more like plumbers.

 

Image courtesy of: https://reaganlibrary.archives.gov/archives/photographs/large/c3241-20.jpg

 

[1] Banerjee, A. and Duflo, E., 2012. Poor economics: A radical rethinking of the way to fight global poverty. PublicAffairs.

[2] Duflo, E., 2017. The Economist as Plumber (No. w23213). National Bureau of Economic Research.

[3] Smith, N. (2017). 101ism. Noahpinionblog.blogspot.se. Available at: http://noahpinionblog.blogspot.se/2016/01/101ism.html (Accessed 5 May 2017)

[4] Smith, N. (2017). Most of What You Learned in Econ 101 Is Wrong. Bloomberg.com. Available at: https://www.bloomberg.com/view/articles/2015-11-24/most-of-what-you-learned-in-econ-101-is-wrong (Accessed 5 May 2017)

[5] Guariso, A and T Rogall (2017), “Rainfall Inequality, Political Power, and Ethnic Conflict in Africa”, LICOS discussion paper 391/2017.

[6] Acemoglu, D., Johnson, S. and Robinson, J.A., 2000. The colonial origins of comparative development: An empirical investigation (No. w7771). National bureau of economic research.

[7] Economist.com. (2017). Available at: http://www.economist.com/news/science-and-technology/21693904-microeconomists-claims-be-doing-real-science-turn-out-be-true-far (Accessed 6 May 2017)

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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