Five Reasons You Should Blame The Economics Discipline For Today’s Problems

This ended up being a pretty long piece so, for the “tl;dr” people, here is a quick summary:

We are experiencing deep economic problems and it is the fault of the economics discipline. Their macro theories suck. But, there is no mechanism forcing it to alter its models when they don’t appear to work. This is so because economists basically write for each other in a language only they understand and their jobs depend on impressing a limited number of journal editors and referees, not correcting real-world problems. The academic inbreeding that has resulted has led to dysfunctional theories and, despite the fact that there were economists who accurately forecast the Financial Crisis, because their work is incompatible with what is published in “good” journals it has been all but ignored. Economics is broken and there is no internal incentive to fix it.

Now the unabridged version:

There is no question that this has been one of the most divisive presidential campaigns on record. Hatred for each candidate runs deep and whoever becomes the new White House resident on January 20, 2017, many Americans will be bitterly disappointed — perhaps even angry.

And yet, despite all the vitriol and personal attacks, there is something about which both parties and candidates agree: a key problem facing our country is economic stagnation. The middle class is suffering, private-sector debt is weighing us down, government services are being starved of income (especially in education), and full-time jobs with a complete range of benefits are few and far between. What happened to the decades of post-war growth when each of us could safely assume that we’d have a better standard of living than our parents? That’s hard to do when you are living in their basement, trying to pay off your college debt.

The consequences of our current economic woes go well beyond our checkbooks and our borders. Many of our domestic political and social struggles are linked in some way to a lack of economic opportunity, as are a number of the conflicts and controversies around the globe. People who are not hungry, bewildered, and scared find it much easier to compromise and cooperate.

What happened? What mysterious force knocked us off track?

It is my contention (and that of many of my colleagues) that the fault lies not with the rich, not with corporations, not with China, not with the Illuminati, not with Al Qaeda, but with the economics discipline. Bad ideas have done at least as much damage to our world as anyone’s bad intentions. Decades of misguided policy from both political parties and in other nations has critically weakened the core of our economy and left us in a situation where, despite our tremendous level of technological achievement, we seem to be regressing. Just as in the Great Depression, we have the ability to solve these problems practically over night. What we lack is sound theory to guide our actions.

Economics As A Profession

Here’s something that may frighten you: the people responsible for national economic policy are economics professors. Donald Trump may develop a different plan than Hillary Clinton, but they both pick and choose from the same set whose contents is determined by that joker who stood in front of your introductory macro class–well, assuming you did so at Harvard, MIT, Chicago or the like. But make no mistake, it’s professors nevertheless. Just do a quick Google search to see who the current and past members of the Council of Economic Advisers or the Federal Reserve Board are. This means that whatever those college professors think is a good idea eventually affects whether or not you can find a decent job.

But that should be good, right, since a major part of being a professor–especially at the most prestigious universities–is doing research? They spend untold hours reading others’ analyses, building models, running regressions, and writing and publishing articles of their own. Who better to tell us how we should be running the economy than those paid to study it?

Yeah, you’d think that, wouldn’t you? Except that…

1. Economists write to impress each other in a language only they can understand.

Economics emerged as an academic discipline some time in the late 1800s. At that point, we stopped writing for policy makers and the general public and started writing for each other. That, in and of itself, is not problematic, except that a) we became increasingly insular as we spent more time with each other than those using or being affected by our policies and b) the language we used became much more specialized so that those outside our group couldn’t really look over our shoulders and say, “Hey, wait a minute, that doesn’t make any sense!” If you aren’t an economist, it’s very difficult to decipher what economists are saying.

A huge part of writing to impress each other is getting published in refereed academic journals. You spend months, maybe years, writing papers that you hope some journal editor and referee(s) believe is worthy. Typical rejection rates are at least 75%, often higher. That doesn’t prevent the individual from sending the article elsewhere, but since our etiquette dictates that the paper can only be under review at one journal at a time, it means that the lag can be considerable. Nor is this just for fun. If the portfolio you submit when you come up for tenure is inadequate, you’re fired (they give it a nice name: you are offered a terminal contract). Thus, any economist who wants to keep her job must be able to impress the senior faculty in charge of the publication outlets. There is absolutely no incentive to engage with anyone other than these individuals. Indeed, one can have a fantastically successful career having never once written something understandable by a policy maker, business person, or consumer. Furthermore, unlike, say, engineers, we don’t get clear and direct feedback from those who employed our policies. There is a very large disconnect.

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