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A Presentation of the Book: How Economics Professors Can Stop Failing - - PDF document
A Presentation of the Book: How Economics Professors Can Stop Failing - - PDF document
A Presentation of the Book: How Economics Professors Can Stop Failing Us: The Discipline at a Crossroads (Rowman & Littlefield, 2017) By Steven Payson {The PowerPoint Slides Corresponding to this Presentation Can be Found at
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3 I define it in terms of three criteria; it must meet every one of these three criteria – otherwise it is not literature-only economic theory. (1) It relies on strong arbitrary assumptions. And if the assumptions were replaced by other, equally defensible, alternative, assumptions, then its findings would be completely different. (2) It goes so deep into highly mathematical constructs that it is generally incomprehensible to nearly everyone, including other advanced economists who are adept in mathematics. It is comprehensible only to the very few people in the world who happen to be thoroughly familiar with that particular thread of mathematical modelling, or those who are not familiar with it but would be willing to spend days to study it, and very few people would do that. (3) And this is especially important: The literature-only economic theory will never see the light of day in any textbook or classroom lecture, and will never be put to any practical use. So if we do see it in a textbook or a lecture, then it does not meet this criterion, and it is not literature-only economic theory. In short, literature-only economic theory serves only one purpose which is to be published in a technical journal—and to be accepted for publication on the basis of its impressiveness to the journal’s editor and reviewers. This is why I call it “literature-only” economic theory--because it is confined to the literature in technical journals, and working papers. At the top of the slide I have a very small sample of what literature-only economic theory looks
- like. It is created from the development of a very specific, highly sophisticated model.
It pretends to be discovering something real, but it is simply studying the mathematical properties of whatever it created in the first place. I will come back to this point in greater detail – this was just a sneak preview. Yet, in spite of Literature-Only Economic Theory providing essentially no useful purpose, for applications, OR for improved understanding, it generally represents the most prestigious work there is within the academic economics profession.
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4 Slide 5. As shown in the pyramid, I have identified three categories of the research and writing that academic economists perform: (1) Applied Economic Analysis and Economic Statistical Findings, (2) Useful Economic Theory (for application OR better understanding), and again, (3) Literature-Only Economic Theory. Of course, useful economic theory is what economic professors are supposed to work on. The trouble is that useful economic theory is often too hard to come by, and often too “unimpressive” to be accepted in the top-rank journals. So the lion’s share of the work that the most prominent economic professors perform, and what is expected for them to achieve their prominence, is contributions to literature-only economic theory. It is what the top journals want, and publications in top journals is what academic economics departments want of their faculty. It is, and has long been, the limelight of the economics profession and the road to stardom for prominent economics professors. Slide 6. Now let us put this all aside for the moment and consider the distinction between two things: the scientific pursuit of useful knowledge, versus competition in an intellectual game of amusement. There is surely a clear difference between the two. The first involves a commitment to make the world a better place, and to honestly understand causality, where such a greater understanding is the end in itself, regardless of whether such knowledge can be directly applied. The second is about having fun, and taking pride in being able to win the game. Of course, as I show here, both are also motivated by fortune and fame.
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5 For many people in the economics profession, and for many economics students, it is obvious that the generation of literature-only economic theory is a legitimate science, and not merely an intellectual game of amusement. In fact, I would say that it is as obvious as the difference in colors between these two middle squares in the Rubik’s cube in the next slide. Slide 7 We can see with our own eyes (if we are not color blind) that the top middle square is dark brown, while the middle square on the front side is light orange. These colors are completely different, in the same way that literature-only economic theory, as a legitimate science, is completely different from any intellectual game of amusement (like chess). But bear with me for a moment – I want to take a deeper look at this Rubik’s cube. Slide 8 I am going to start blocking off parts of it, without changing any of the colors in any of the squares. All I am doing is blocking them out as I go – and as I do this you can stare at the two middle cubes to be totally confident that I did not change their colors. ... We just witnessed a fantastic optimal illusion: The colors we see, or the colors we may think we see, depend enormously on the colors of whatever surrounds them. Slide 9 Squares #1 and #2 are essentially the same color, but because of their environment, one looks dark brown and the other light orange. The same illusion takes place in the view that many people, especially academic economists, have of literature-only economic theory. When we deeply examine precisely what literature-only economic theory is, and how it is produced, and compare it to an intellectual game of amusement, we will indeed see no difference between them. But why does literature-only economic theory appear, to the casual observer, to be a legitimate science? It is simply because it is surrounded by things that make it look like a legitimate science, such as:
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6 its esoteric mathematical models, the research grants it receives from science foundations, the fact that university departments stand behind it, and that technical journals publish it. Likewise, we see that leadership positions in our society are often offered to the champions of this intellectual game, with media coverage of what those champions of the game have to say about economics, and we see those champions surrounded by naïve believers who are simply too impressed with the mathematics in their theories to question the scientific legitimacy of those theories. Slide 10 Here is a simple example of what I mean. It is the presentation of only part of certain literature-only economic theory of the phenomenon
- f human drug addiction – supposedly explaining the consumer behavior of drug addicts.
In reality, the main support for a model like this is the psychological suggestion to the readers that the author is very good in advanced mathematics—therefore whatever he has done is somehow important for economic science. In particular, one of the many absurdities of this “optimum control problem” (as shown here) is that there is absolutely nothing in it that pertains specifically to drug addiction —the same equations could be used to explain how much toilet paper a person chooses to buy. The model also implicitly assumes, by the way, that drug addicts are more adept at solving advanced mathematical optimization problems than most professional mathematicians. This begs the absurd question of why these drug addicts are assumed to have so little income when they could simply work as well-paid mathematics professors, given their assumed abilities. Slide 11 Contrast this to what real scientists—neuroscientists in particular—do to understand the behavior
- f drug addicts.
Without going into any details about this figure we can automatically see that the perspective is completely different.
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7 This is because neuroscience research, like any legitimate science, is focused on understanding causality as it occurs in the real world. It is not focused on impressing readers and peer reviewers with esoteric mathematics. However, from my making this point for decades, I feel that I need to repeat a point that I already expressed early on in this presentation: Slide 12 What I am saying here is not a criticism of economic theory itself. Economic theory, like the Slutzky Equation, or the Heckscher-Ohlin Model, or the Lancaster- Lipsey Theory of the Second Best, etc., are exactly what makes economics, economics. The problem is not with abstraction—the problem is with relevance— Economic theory must be relevant to understanding the real world or to having real-world applications. Along the same lines, this is not, I repeat— not, a criticism of economics professors overall. Many economics professors perform very good work in developing useful theories, or in applying economics for useful purposes. This is a criticism of the economics professors (often the most prominent ones) who do not pursue economic thought for useful purposes, but who focus their efforts instead on the production and publication of Literature-Only Economic Theory. Slide 13 As I have indicated, literature-only economic theory is driven primarily by mathematical weightlifting, that is required for the one purpose of winning the game of getting published, preferably in “top journals.” But why is this even done? The reason for this is purely economic: This work is simply what economics professors are paid to do by their employer. By the way, the equations I show here {in Slide 13} are from an article in American Economic Review that I discuss extensively, as an example, in one of the chapters of the book.
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8 OK – now, whenever I have spoken like this to groups of people, I have received two general, and completely different reactions, with very little in between: One group’s reaction is that of being bored to death, wondering why I am wasting their time by telling them something that they already know. People in this group tend to have the most experience in seeing what happens in academic economics among professors who produce literature-only, economic theory. And then there’s the other group, usually of people who have little experience with academic economics, and their reaction is generally of shock or disbelief, where they are thinking something like: Slide 14 “Who Let This Nut-Case Into the Building! (He Obviously Has an Axe to Grind Against Economics Professors) Nobody Else Thinks This Way, Do They?” So for those people here who may be bored to death, I ask for your indulgence while I speak for a moment to the other people—the ones who are shocked by all this. Well, as it happens, there are some other nut-cases like me who have been vocal about the same issue, especially soon after the great recession hit in 2008. Here is one of them - a guy named Joseph Stiglitz, who won the Nobel Prize in economics, chaired the President’s Council of Economic Advisors, etc. He wrote in the Financial Times, “It is hard ... to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply—and that meant ... no
- unemployment. (Right now a lot of people are just enjoying an extra dose of leisure ...)”
That’s kind of sarcastic – don’t you think? Here is another one—Paul Krugman—who said in an article in the New York Times that “[T]he central cause of the profession’s failure was the desire for an ... intellectually elegant approach ... to show off ... mathematical prowess. ... [T]his romanticized ... vision ... led most ... to ignore all the things that can go wrong.” While we are at it, here is another one—some guy named Robert Solow. When Congress was investigating the academic economics profession right after the great recession—essentially asking “how could you guys let this happen to us”—they asked this guy, Bob, to testify.
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9 And what did Bob say? Well he said, in so many words in his testimony before Congress: Hey, those models that academic economists believed in ... well, they stink! They’re phony! Then there is this guy—Wassily Leontief, who happened to have been Robert Solow’s dissertation advisor, the Nobel Laureate in Economics in 1973, founder of Input-Output Analysis (a subfield of economics itself), etc. And, when Leontief was President of the American Economic Association back in 1970, he described literature-only economic theory, at that time, in his presidential address before the AEA members. He described this literature as being “scandalous” and reflecting an “unsatisfactory and slightly dishonest state of affairs.” I will stop at these four Nobel Laureates, and rest my case that I am simply not alone in my criticisms of literature-only economic theory, and that such criticism need not reflect a lack of understanding about economics itself, and need not be reflective of anyone having an axe to grind with the prominent members of the profession. Slide 15 So let us now ask: If the profession already realizes that literature-only economic theory is only a game, motivated primarily by self-amusement and by a need to publish, then why has the profession allowed it to continue? Well, there are several reasons; First of all, there is a misunderstanding over what makes certain forms of knowledge more valuable than other forms of knowledge: Are impressive, hard-to-understand, equations that are proven to be correctly derived on the basis of their mathematical properties, but which have virtually no connection to reality, valuable forms of knowledge? Scientists know the answer to this, and that answer is a resounding “no”! All scientists, and economists alike, have a very important job to do, and that is to understand reality—not to impress one-another with their prowess in mathematics, as Krugman put it. In addition, there is a Darwinist survival, within the profession, of those who lack a strong interest in the pursuit of useful knowledge, but who enjoy the mathematics, and the game of getting published.
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10 Similarly, we have a Darwinist survival of the individuals who are naïve admirers of the profession’s most prominent leaders, And, along similar lines we have a misunderstanding of the difference between loyalty and disloyalty to the profession, which I will get to in a minute. There is also a severe underestimation of the true costs (including opportunity costs) of the horrible incentive system that is now in place in academic economics (which I’ll talk about soon as well). Finally, the profession is indoctrinated into thinking that only extremely complex ideas are worthy of interest and attention, as if we must always maintain a pretense that we are all so smart already, and so we already know and understand all things that are easy to understand. So anything that is already obvious and well-known, like the wastefulness of literature-only economic theory, is a topic that is not complex enough in many academic economists’ minds to be worthy of any thought or discussion. In short, when one accuses the profession of being interested ONLY in ideas that are complex, the profession’s circular response is: “Well I have no interest in addressing that criticism, since it is not complex.” Many of the criticisms of literature-only economic theory have been made in the most sophisticated manner, through thousands of pages of highly philosophical, highly scholarly, and
- ften rather esoteric historical literature.
Yet, in my view we can get the strongest understanding of the problem by the wisdom displayed in one of the greatest children’s fables ever written. I am referring to the extremely cliché fable by Hans Christian Andersen, entitled the Emperor’s New Clothes. Slide 16. But I am not referring here to the cliché metaphor about an emperor walking around naked while everyone is quiet about it, because they have deluded themselves, as the emperor has deluded himself, into thinking that he is actually wearing beautiful clothes. (As many of us know, at the end of the story a small child shouts out in the crowd, “But he has no clothes” and then people believe the child because of his or her innocence.) That is the cliché main plot of the story, but there is something much richer, and indeed brilliant—and timeless—about Andersen’s story.
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11 Even though it was written 180 years ago it is as applicable today as it ever was. The gem of the fable was the premise that was laid out by the swindlers who came into the town to pretend to sell clothes to the emperor. The premise was that, if someone cannot see the clothes, it would only be because they were feeble minded and thus not fit for the office they hold. In the story, the emperor therefore assigns his most trusted minister to inspect the clothes, and the minister comes back saying that the clothes are beautiful, this is because the minister was terrified that, if he dare says that he cannot see the clothes, he will be seen as unfit for his position. This is precisely one of the greatest problems that faces the academic economics profession today: Those who say that they see nothing of value in the literature-only economic theory are simply afraid to say it, because they think that they will be seen as being unfit for their positions. Remember, even though many economics professors do not work on literature-only economic theory, it is still widely believed that literature-only economic theory is at the top of pyramid (or career “food chain”) —the gold standard for economic thinking in many people’s minds, and the source of stardom for the profession’s most prominent and most highly acclaimed members. Slide 17. The problem is pervasive. I ran into it, big-time, in the late 1980s when I worked on my dissertation about technological change. At that time there was a fad in the profession, in the form of literature-only economic theory, about “general purpose technologies” that offered absolutely no useful understanding of the process of technological change. The fad was promoted by famous academic theoreticians as if their theories were brilliant discoveries, only because of the heavy-lifting of mathematics that they used. Slide 18. So let us now ask, “How far has the profession’s leadership actually gone to address the problem?
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12 Unfortunately, not very far at all. I will now give an example from my own experience in communicating with leaders of the profession. In 2006 I had started a nonprofit organization called the Association for Integrity and Responsible Leadership in Economics and Associated Professions (or AIRLEAP for short). In 2008 I was writing to various professors I knew to seek their endorsement of the organization and in some cases to see if they might be interested in serving on our Board of Directors. This effort was actually fairly successful. For instance, we received a nice endorsement from David Colander at that time, and another very nice one from Deidre McCloskey who, soon after that, became the Chair of our Board of Directors. At that time I also wrote to Robert Solow who I knew from when I had worked, many years earlier, at the National Science Foundation, while he was there as a member of the National Science Board. We exchanged a couple letters back and forth. (Bob Solow always refused to use email.) Here is a copy of one of the letters in which he basically supports the opposition that I have expressed, to what he called, in his own words, “excessive abstraction, high theory with no apparent tie to any pressing problem, and so on.” But what does Bob Solow say we should do about this problem? Well, one thing he said we should not do, or at least he would not support it if we did, is to have any {quote} “organized campaign to redirect what bright young economists do.” {unquote} He said, “the resistance should resist by example, in writing and teaching. The sessions of the AEA and regional conventions are exactly the right sort of thing ... Perhaps a good idea would be sessions in which ... approaches to a particular question are both exemplified, each by their own protagonist ... rather than a general ‘debate.’” In short, leaders like Robert Solow, have called for polite discussions of alternative perspectives–
- not even a “debate”—on the issue.
In my view, and from my experience, I know that these polite discussions are surely destined to be inconsequential, with each side politely agreeing to disagree in the end.
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13 Slide 19 So let us ask this: “What has the profession’s leadership done for generations to prevent literature-only economic theory from crowding out useful and valuable economic theory in economics?” First of all, I would argue that they have done less than nothing. That is, the leadership of the academic economics profession has done more to contribute to the problem than to correct it. But wait a minute, isn’t it true that many of these leaders have contributed by complaining about the problem in blogs, op-eds, and occasional articles? Yes they have—I have just shown some of them to you, in fact, earlier in this presentation. And yet, these have done nothing, and the leaders themselves realize this. But why do such blogs and op-eds have no effect? Well ... first of all ... they simply preach to the choir to those who already recognize the problem. So these blogs make their authors feel proud to be supposedly trying to improve the situation, while at the same time knowing their influence would be miniscule at best. By the start of the next day they can say, “I wrote my blog, but I can’t make people read it, or react to it. So ... I did what I could. And today is a new day. So today I will just write about something else.” Slide 20. What the leaders have not done, for the most part, is to consider economics—the fact that it is the incentive system within the profession that creates, and maintains, the problem. In particular, instead of making futile, altruistic appeals for a greater interest in reality, the profession’s leadership should realize that, borrowing from Adam Smith, it is not from the benevolence of economics professors that we expect our useful theories, but from their regard to their own interest. That is, the profession’s leaders must understand that it is the incentive system that needs to be changed, and only they have the power and authority to change it.
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14 Along these lines, there is the need to look critically and honestly at the true value of the cherished publications. The entire profession (but especially its leaders) needs to seriously address the true value of the literature-only theoretical economics that is lucky enough (through the right connections in most cases) to get published in top-ranked journals. This is the “prize” that drives the whole system. But is that prize truly valuable? (As already suggested—it is not.) To do this kind of analysis the leaders of the profession need to redefine who the heroes of the profession truly are. Those heroes are not, necessarily, those who have the most publication counts in top-ranked journals, or the most citation counts, but those who have contributed the best ideas. This means the profession has to now read and understand the literature again, instead of just counting it in terms of the number of publications or citations, which the profession has learned to do all too well in the past generations. Slide 21 Furthermore, as I alluded to earlier, the profession needs to redefine loyalty. For example, I am certain that there are some people in the profession who would consider this presentation itself to be disloyal to the economics profession. Leaders of the academic economics profession generally see their positions as serving the interests of their academic departments, or their universities, and so they see themselves as spokespersons to defend how the profession is run. As spokespersons they are essentially politicians, who may feel that it is their responsibility to describe their department’s work with the most favorable spin possible, for better public relations, for receiving more research grants to support the department’s work, etc. In my view, loyalty in the context of promoting good public relations for your own institution is fine, ceteris paribus. If, however, such loyalty involves a public deception—falsely claiming that certain theoretical literature has much more value than it actually has—then this is a form of ultimate disloyalty to the profession, and ultimate disloyalty to the public. Conversely, exposing the problems that need to be fixed, even if it means criticizing your own department or your own departmental colleagues, is a form of loyalty to the profession and to society.
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15 It is analogous to how a “good cop” in a police department should act when finding out there are corrupt cops in the same department. If the good cop turns a blind eye to it, simply to protect their peers, that may be loyalty to them, but disloyalty to the public, and in fact, it makes them co-conspirators. The same principle should apply to academic economists in their publicly expressed, positive assessment of literature-only economic theory. Indeed, the profession needs to capture the ethical high ground by placing loyalty to the public, and loyalty to truthful economic science, above any loyalty (in the context of public relations) to their own individual institutions or to their peers (or cronies) in their particular subfields. Slide 22 Yet, in spite of all these arguments, many will be inclined to ask the simple question: “Geez Louise—What’s the big deal?” In particular, many might ask, “What’s the big deal if a bunch of the most prominent economics professors dink-around all day long, gratifying themselves by looking at their beautiful models, instead of doing valuable work? Their classes are still being taught—so why not let them have their fun? (Isn’t that what being a professor is all about?)” And they might further ask, “And besides, who needs them anyway? Serious economics—the economics that will make a difference for society—will still be handled by the applied economists in business, government, and NGOs.” In addition, many others might say: “All this talk about a lot of theoretical economic literature being valueless doesn’t make any sense. That literature is peer-reviewed and selected prior to publication, so its quality is assured anyway, isn’t it? (And the number of citations it receives further corroborates its legitimacy, doesn’t it?)” Now let us address these questions. Slide 23. First of all, no one is “having so much fun” (as if this were a legitimate excuse to begin with).
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16 Academic economists at the start of their carriers are in a very high-pressured environment where they are often compelled to produce literature that they, themselves, do not believe in, simply in order to keep their job security. Many of them would greatly wish to be in a different environment where useful knowledge is given higher value. Secondly, the idea of “academic economics” being separate from the other economics professions is a horrible and dangerous myth. The government in particular often chooses its highest economist positions (like the Chair of the Federal Reserve Board of Governors or members of the President’s Council of Economic Advisors) from among the most prominent academics. Similarly, whoever decides to acquire advanced degrees in economics to enter different sectors has already been influenced heavily by academia and the obsession that many of its leaders have with literature-only economic theory. As a corollary, the students who are most conscientious with regard to scientific integrity may decide against pursuing a higher degree in economics if, after seeing the attention given to literature-only economic theory, they come to believe that the field itself does not sufficiently embrace scientific integrity. Side 24 As for publications and citation counts, a great deal of my book is devoted to explaining how the publication counts of articles in top-ranked journals, and citation counts, are not good measures, at all, of the quality of the literature. In fact, I present a counter-argument that, across fields of science, the number of publications per scientist is often inversely related to the extent of useful discovery in that science. This is because, the less a scientist, or economist, discovers anything useful, the more they need to compensate for their lack of any genuine contribution by pumping up their credentials with lists of publications. In other words, publications can easily serve as a substitute for useful discovery, rather than a reflection of useful discovery. But the 500-pound gorilla in the room is, of course, the bad analyses and bad economic policies that will fall out of all the esoteric, literature-only economic theory. Let us realize that such literature-only economic theory, was driven, not by any desire to have the best analyses, or to facilitate the best policies,
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17 but by the desire to rack-up impressive publications for one’s CV, perhaps on one’s way toward tenure or full professorship. As Stiglitz, Krugman, and others have noted: The academic economics sector was largely responsible for the great recession because of its obsession with literature-only, economic theory! This was NOT a SMALL Cost with regard to the harm that is done by this situation. In fact, when we take these ideas as far as we can, we should realize that, ultimately, millions of lives are at stake because of this problem. As if this is not bad enough, let us also realize that this situation causes a general disbelief, among the public, that economic theory is based on mathematical impressiveness only. So, as a result, politicians and lobbyists look upon economic theory as merely a language for advocacy, rather than a source of knowledge and guidance as to what should be done in terms of the best policies. Ultimately, then, the lack of scientific integrity in academic, economic discourse causes the cart to move in front of the horse. That is, politicians first select the policies they want—or the sound bites that they think will get them elected—and from there find the people to create the economic theory to support those sound bites. And so, literature-only, economic theorists become hired guns, not scientists, because nobody— not even those literature-only, economic theorists themselves—believe in economics as an
- bjective science.
This, by the way, was illustrated quite vividly in the documentary Inside Job, which I highly recommend. Those economics professors who have focused on literature-only economic theory have come to believe that economics is simply nothing more than an intellectual game of amusement, which also happens to provide them with a convenient source of income. The fact that this situation is dangerous and irresponsible, aside from it being unethical, should be obvious. Slide 25 Admittedly, some parts of my presentation have been repetitive ... but this had been by design.
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18 I knew going into this that whatever I might say against literature-only economic theory, I will be accused of criticizing economic theory itself. To me it is analogous to the situation I show in this slide, in which one person is running for his life to get away from a tsunami, and the other is dismissing his concern by saying that he should understand that water is good. I am not saying economic theory is no good – I made that very clear on three separate occasions in the previous slides: (1) When I gave the criteria for literature-only research with one of them being that it would never enter into the standard material in a textbook or lecture, while economic theory certainly does enter into textbooks and lectures, (2) In the pyramid that I showed, I clearly had one section being “useful economic theory” as a distinct section from literature-only economic theory, and (3) I literally put it in writing, in red no less, on slide 12 to be precise, and I read aloud “This is not, I repeat, NOT, a Criticism of Economic Theory Itself.” I thought these three times would have been enough, but you know ... When I gave this presentation once before at a conference, there was a discussant who came to the podium to respond to my presentation. And guess what he said ... He said to me and the audience something that he probably tells his students 10 times a year, and so for him it was simply pressing the replay button in his mind. He said that I have it all wrong, because, you see, I need to understand that “economic theory is not perfect” it is not meant to represent reality but a part of reality that helps us understand certain economic phenomena – that it is not a complete picture – it is an abstraction. Yes, I get all that – I’ve known that for 38 years – I’ve lectured on that very point in countless economics classes that I’ve taught myself for many years – my belief in that is also demonstrated by my own work, in publications, in what I get paid to do in my day-job as an economist, etc. Yes I get that. And I also get that water is a good thing – that our lives depend on water.
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