How many economists does it take to screw up the economy?

Barry Eichengreen has an excellent piece on how the economics profession went astray in the years before the Great Meltdown (hat tip: Matt Yglesias). I’m not an economist, but it’s more nuanced and convincing than some of the other jeremiads I’ve read on this subject. Money quote: The late twentieth century was the heyday of ...

Walt-Steve-foreign-policy-columnist20
Walt-Steve-foreign-policy-columnist20
Stephen M. Walt
By , a columnist at Foreign Policy and the Robert and Renée Belfer professor of international relations at Harvard University.

Barry Eichengreen has an excellent piece on how the economics profession went astray in the years before the Great Meltdown (hat tip: Matt Yglesias). I'm not an economist, but it's more nuanced and convincing than some of the other jeremiads I've read on this subject. Money quote:

The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.

In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time."

Barry Eichengreen has an excellent piece on how the economics profession went astray in the years before the Great Meltdown (hat tip: Matt Yglesias). I’m not an economist, but it’s more nuanced and convincing than some of the other jeremiads I’ve read on this subject. Money quote:

The late twentieth century was the heyday of deductive economics. Talented and facile theorists set the intellectual agenda. Their very facility enabled them to build models with virtually any implication, which meant that policy makers could pick and choose at their convenience. Theory turned out to be too malleable, in other words, to provide reliable guidance for policy.

In contrast, the twenty-first century will be the age of inductive economics, when empiricists hold sway and advice is grounded in concrete observation of markets and their inhabitants. Work in economics, including the abstract model building in which theorists engage, will be guided more powerfully by this real-world observation. It is about time."

Of course, I like this line of argument because I once wrote something similar about the imperial tendencies of rational choice theorists in the field of security studies. The point is not to eschew all formal approaches or become atheoretical, however; the point is to maintain a healthy balance between deductive theorizing (whether done with formal tools or not) and various forms of empirical testing (experimental, quantitative and qualitative/historical).  

Stephen M. Walt is a columnist at Foreign Policy and the Robert and Renée Belfer professor of international relations at Harvard University.

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