Sunday Essay - economists and the decline of economics

Today's Sunday Essay was triggered by a loosely connected overlap in my current reading.

My train reading at present is focused on the stories of the various disciplines that occupied central places at the University of New England for much of its earlier history. I am interested because it bears upon the broader history that I am writing (On writing a history of New England), but I also find it interesting because those stories reflect broader changes in the disciplines themselves, in the academy, and in Australian life. The three pieces that have been my focus this week are John Pullen's story of the rise, fall and very partial recovery in the teaching of the history of economic thought; Agricultural Economics in Australia, a collection of essays published to mark the sliver jubilee (1958-1983) of the establishment of agricultural economics at UNE; and Paul Barratt Snr's history of the psychology department.

Coincidentally, there were a number of blog posts that fed into my thinking in different ways: one was Don Aitkin's Higher Education, Lower Morale, an essay looking at changes in the academy; the second Winton Bates'  Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?; the third Steve Keen's series on the self destruction of economics (here one, here two, here three).

By way of further background, I know very few economists now whereas they dominated my immediate environment when I first started working. That's partly because of changes in work and my interests. It's more, I think,  because there aren't actually very many economists around outside some narrowly defined spheres. There are fewer still generalist economists of the type that I once was.

It's odd, really. I can't talk economics properly with the few specialist economists I know because I don't understand the models that they are talking about, nor can I talk economics in a day to day work sense with colleagues because the analytical tools I use are simply unknown. There are no economists at all!  I have to try to translate, to fit, my thinking into quite different modes of thinking.

To begin my analysis with a quote from Steve Keen:

Economics has declined from 40 per cent of any business-oriented degree to 4 per cent in 40 years. For a profession obsessed with linear regression, it has suffered a near-perfect linear regression of its own.

In his presentation to the conference held to mark Agricultural Economics Silver Jubilee at UNE in 1983, Geoff Miller wrote:

It would be a mistake to infer that the influence of economists is on the wane. It most definitely is not. What is happening, however, is that proportionately fewer and fewer applied economists are willing to identify themselves as economists. They masquerade under the titles such as business manager. market analyst, administrator, treasurer and even bureaucrat!

Geoff was then Deputy Secretary at the Department of Primary Industries in Canberra. He went on:

This audience will be well aware that just as proportionately fewer applied economists identify themselves as economists, so too is proportionately less applied economics being taught in faculties that identify themselves as economics faculties. We are well into the era of the business school.

To Geoff's mind, the most useful economist was one who had been taught as rigorously to apply theory as the theory itself. He continued:

Good theorists with little training in applications, usually burn up all their energy (and other people's patience) telling policy decision-makers  why the data cannot be usefully employed, why no inferences can be drawn from the results of the analysis, or (at the other extreme) advocating excessively simplistic solutions to complex problems.

Now I don't completely agree with Geoff here for reasons that I will explain in a moment. But it is true that the greatest value to me of economics lies in the way that it helps me to understand and analyse problems, to come to quick judgements. even though I may struggle to express them sometimes in comprehensible form to people who do not have knowledge of the same analytical tools. It is equally true, and this has been an enormous frustration sometimes, that I have struggled with colleagues who demand that I comply with their economic models or ideological frameworks even though I am trying to articulate a new position that might help us to solve an immediate problem.

Economics at UNE was first taught as part of Arts. There were three features to the course.

The focus was on teaching, something that comes through in all the early history disciplines at UNE. It is also something that Don Aitkin feels that has been lost with the current emphasis on research. There were applied elements to the course and especially to the research carried out by staff since this focused especially on problems of development. Finally, the course was solidly grounded in the humanities.

This is where John Pullen's paper is instructive. For those doing honours, the history of economic thought was effectively a compulsory unit. You cannot study the history of economic though without becoming aware of the way in which views on economics, the resulting models, are human constructs grounded in the cultures of the time. UNE also developed a strong economic history school, another declined discipline, for just that reason.

Agricultural economics was fought for and emerged as a practical applied course bridging the gap between economics and agriculture. Solidly based on what would a little later be called neoclassical economics, it developed a series of analytical techniques that could be applied at farm or industry level. As a non-mathematician, I stood in awe of strange concepts like linear programming or the monte carlo model. So UNE had three streams: a generalist economic course; an applied economics course in agricultural economics; and an economics history course. From my perspective, the wheels then came off.

As an entry point here, I want to take the famous dispute at Sydney University that Steve Keen referred to between Professors Hogan and Simkin and those who saw the teaching of economics and economics as a discipline in different ways. Here I quote from Professor Hogan's obituary:

He was nothing if not a fighter. He believed that ''quantitative rigour'' was the foundation for solving real world problems, rather than sociological and political factors. He wanted to produce economists who would help the corporate world and government. Statistics, spread sheets and mathematics featured prominently in his thinking. In the end, he was not able to resist the overwhelming demands for a change of focus and his economics department was split.

Steve Keen was on the other side of that divide. To my mind, both sides were wrong, but both encapsulated trends holding at the time that are still playing themselves out.

Professors Hogan and Simkin were trying to introduce a rigorous applied content, a quantitative rigour. In so dong, they reduced the generalist stream. Two other professors of economics at the time ( tartly remarked over lunch that Sydney was training bad mathematicians and worse economists. However, those on the other side with their emphasis on political economy were not, in fact, arguing for a generalist course, but a generalist course of a particular type. It became an ideological debate.

  The logical joining of the two positions was to have a core general course with opportunities for specialisation on the generalist, humanities or applied side. This was not possible at Sydney nor. as it turned out, at most other places. The decline of economics as a discipline continued.

I accept that what I have said is partial. I imagine that those of both sides of the Sydney divide would disagree with at least parts of my assessment. Accepting that, if we jump forward, we find the University of Western Sydney retrenching thirteen economics staff including Professor Keen. This passed almost without notice. I am not in a position to judge the eternal dynamics involved. However, I can express my sadness.

Staying in the present, I now want to turn to Winton Bates' post, Should the GFC be viewed as a 'balance sheet' recession of the kind Irving Fisher wrote about in the 1930s?. Winton and I did economics at the same time at UNE. I went on to focus on history, Winton was in the agricultural economics stream, Despite that, we remain friends! 

The first part of the post deals with Mr Rudd's record, the second with Irving Fisher's views of the great depression. I have not been able to check Winton's references in the first part, they are behind firewalls, but both Henry Ergas and John Stone are ideological warriors. That doesn't mean that they are wrong on particular points, but you have to understand where they are coming from. Certainly based on Winton's reporting, I think that they are wrong, imposing a view of what happened on judgements that had to be made at the time.

I will write a proper post on this one not to attack Winton (I have a great respect for his views), but because it is important. I was in Shanghai when the GFC broke. I came back to a traumatised Australia where reactions seemed to me to be at total variance to the economic facts as I knew them. This actually drew me back into writing on macroeconomics, I field that I had left and did not expect to return to. Essentially, I could not match the gloom and doom scenarios to the basics of the Australian economy, so I took a contrary view. However, this did not lead me to oppose the stimulus measures, far from it. My concern at the time was the direction and balance of those measures.

The second part of Winton's post focused on Irving Fisher's views is, if I interpret the argument correctly. very similar to views expressed by Professor Keen. Essentially, a key part of the problem was the combination of levels of private debt with income and price variations.

In finishing today's post, I want to look briefly at economics models. All models are abstractions. This applies to the IS-LM model, to the AD-AS model, to the DSGE model or to Agent Base Models. Models are useful thing, but in each model the critical issue is the specification of relationships that underpin the model's working. If those change, then the model will give invalid results.

This is really why economic forecasters are in so much trouble. This is why so many older theories are being dusted off. The economic world has changed, and we are struggling to understand the changes. We have to look back to the past to develop new ideas for the future.

This is where, I think, the old economics comes in. I actually have no idea how a DSGE or Agent Based Model really works, although I can understand the basic principles. But I don't think that this matters. The foundation economics that I have done in those now ancient days, as well as my past practical experience as a professional economist, gives me the capacity to ask basic questions. That, I think, is what is really important.