Thursday, March 05, 2009

The Economics of Doubt

Well, I went to the famous-all-over-town DeLong-Boldrin stimulus debate at UC Davis last night (Pugilistics on the Putah? Nolo in Yolo? --wait, that doesn't make any sense at all). I must say I thought it a disappointment: I don't think either of these guys was at his best in this forum. Indeed, DeLong has posted followup stuff at his weblog this morning that is on the whole better than the main event (see e.g. link, link; cf. link).

But perhaps the most interesting touch was a couple of remarks from other economists in the followup sesion. Let's face it, one of the biggest problems with economists even for those of us outsiders who are actually sympathizers (that would be me) is their insufferable smugness: their off-the-rack assurance that they've got an answer to everything and the rest of us dolts should just shut up and listen.

I've got a bit of first-hand exposure: I've been teaching finance to law students for near onto 20 years now, during which time the presiding narrative has been one of almost uninterrupted triumph. Markowitz: big bang! Modigliani-Miller: blinding insight! Black-Scholes: oh brave new world! On and on and on.

Attentive observers, when they aren't absorbed in the comparative pricing of cat food, may have noticed that some bits of this model recently have seemed just a tad out of kilter: granting that we are in a train wreck, aren't these guys that were blowing the whistle and manning the signals?

It's one thing for the rest of us to notice the evident intellectual bankruptcy that seems to radiate from the wreckage of all this grand theory. It is quite another to expect any such self-awareness from the practitioners.

But I wonder if I didn't hear just a teensy bit of hesitancy from one or more of the participants in last night's commotion. Someebody even mentioned the Butler screed, now meming through the profession, which can read as saying that all macro is bunk. Someone--it may have been DeLong himself, my notes are fragmentary--said that macro theorists deserve an okay score for the history of the recent past, but that financial economists look pretty bad.

Well, whoda thunk it? I mean--sure, it's obvious to any detached observer that grand econ theory has a lot to answer for. Might be interesting to watch as economists try to figure that out for themselves.

Update: Lots more here.

1 comment:

Robert said...

I for one am glad to collect a salary as an economist while denouncing economic theory (there is some solid empirical work especially in labor economics).

I think Brad has been dancing on the edge of blasphemy for decades. I think that, on his blog, he has, until recently, toned down his denunciation of economists as part of an effort to present himself as the voice of the economics profession.

Or maybe nothing makes you appreciate an economist like two years of working with politicians, lawyers and flaks.