Part Five - How Freaked Is Economics?
Well, I promised myself I'd finish this before the sequel appeared in the shops, and the conclusion has been made, shall we say, somewhat easier by the fact that the burden of my conclusion - that there is something terribly, horribly wrong with the state of modern economics - has become somewhat of an open door to push against. I swear that my notes for this review (begun in 2003!) contain the draft passage:
"When future generations ask the economics profession 'What were you doing while the great bubble built up ahead of the Second Great Depression?', and we have to reply 'Lots and lots of quirky little working papers about sumo wrestling and speed-dating', it is going to be really, really, fucking embarrassing"
And we did, and it was; thank God nobody told the truth to HM The Queen, or the high brows of the economics profession might be decorating a series of pikestaffs outside Traitors' Gate.
The basic problem with the Freakonomics era was that the profession abandoned the study of production, consumption and exchange. I don't wholly agree with Lord Skidelsky, but he is right - economics is the study of the economy, it's not the study of "rational choice" or "behaviour" in the abstract, and the fact that econometricians have invented a huge part of the toolkit of modern statistics doesn't mean that anything you can estimate using an econometrics package is thereby "economics".
We stopped doing economics and started doing awful amateur-hour sociology, basically, because we believed that all the major problems had been solved, that some form of dynamic general equilibrium was all that there was to be said about the economy considered as a system, and that the only interesting things to do were growth theory and finance. It is no coincidence that Freakonomics began in Chicago; for a guy like Levitt who doesn't possess the engineering-maths to be a finance theorist or the empirical skills to do endogenous growth, there was literally nothing to do.
The sociology of academia in the USA also played its part, as James Heckman spotted at the time. Because of the unenviable economics of the academic labour market in American universities, graduate students were encouraged to finish their PhDs according to a specific schedule, to write dissertations that were capable of being turned into journal articles in a specific way, and to follow fashion in citation-gathering. Heckman was tearing his hair out over this, obviously, as this made it more or less economically unviable to carry out the kind of economic work that he does (and did) - careful, time-consuming, incremental, often abstruse but always relevant to the very big questions of the economy.
And so we ended up with Freakonomics, the disciplinary equivalent of the battery chicken. The subject matter became more and more cutesy and trivial, methodological corner-cutting in "natural experiments" became the norm, and the idea that there could actually be a subject of macroeconomics became almost quaint. ...
But however things have turned out, my intuition is that Freakonomics has had its moment in the sun. The central selling point was always, basically, academic machismo; the presumption on the part of economists that because they were "smart" in the Larry Summers sense, they could turn their hand to anything and the rest of the world was bound to listen to them. Those days, to put it mildly, are gone.
To be able to put such material before student-age readers (of whom I hope I still have some) was one big reason for starting this blog. Will you find a killer critique like this in a textbook? Unlikely.
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