Economic Relevance

Many people think of economics as a dry and boring discipline, fixated on mathematical models used to describe matters of limited interest to the general public. However, in recent decades economists have broken free of that mold, and used the tools of their discipline to address issues that are anything but dry and boring.

One of the first to do so was Gary Becker (http://home.uchicago.edu/~gbecker/), winner of the Nobel Prize in 1992, who used economics to explain the behaviour of families, among a vast range of different topics. (Although he’s now 77 years old, Gary remains very productive, and writes an indepth blog each week on a current policy issue, at http://www.becker-posner-blog.com/).

Some have complained that this is a bad development: economics is better off as a dry and boring discipline, rather than one that addresses every-day issues that non-economists can relate to. Steven Levitt of “Freakonomics” fame has come in for special criticism (http://www.freakonomics.com/blog/2007/04/25/am-i-ruining-economics-or-not/).

I’ll give my two cents here. Just last week, I attended a seminar presented by Marciano Siniscalchi of Northwestern that used a structural economic model to explain lots of curious results about the differences between identical and non-identical twins that are puzzles given the standard models used in behavioural genetics (the paper is here: http://www.faculty.econ.northwestern.edu/faculty/siniscalchi/parenting-113006.pdf). It certainly wasn’t traditional economics, but it was informative and, to an academic economist as least, entertaining. Further, thinking of agents as maximizing, rational actors in a structural way provided insights into an aspect of human reality that we otherwise might not understand so well. We may be treading on the turf of the biologists in this case, but the world knows more as a result.

The same justification may be used for addressing many issues. So are there any topics that should be off-limits to the tools of economics? I would argue no. But just because economics may provide insights into many interesting issues, that does not mean that it has any monopoly on understanding reality. To take an example from my own subfield, empirical evidence shows that the level of inflation influences how often firms change their prices, which in turn influences the business cycle. But there are many other far more important drivers of the frequency of price change for any individual firm that I as a macroeconomist know little about.

I believe that this general principle applies more generally to whole disciplines. Economists can provide insights in many different areas that other disciplines cannot, but we should be humble in doing so, as there is much that we don’t know.

As a very practical application of this, consider families: we may be able to understand some general principles about the formation of families and their structure using economics, and even be able to find strong empirical evidence that our theories are correct. But for any particular family, economics is likely to play only a minor role in determining their behaviour. Thus our understanding, however “correct,” may be of little use in helping families in improving their relationships. For that, we’re probably better off going to a psychologist.

Not all economists appear to go along with this. Tim Harford is a very well known who writes a “Dear Economist” column for the financial times. Reading his recommendations for various relationship dilemmas based on economic theory is very entertaining, but it would be highly unwise to follow much of his advice! (You can find his letters at http://www.timharford.com/writing/labels/Dear%20Economist.html. Extracts of his answers are included towards the bottom of the column without having to register at ft.com). But to be fair, Tim’s column is intended primarily to entertain rather than to offer serious relationship advice.

So let’s keep economics interesting, and be willing to tread on other disciplines domain as we see fit. Hopefully they’ll return the honour, and maybe even find interesting insights in areas that we have come to consider dry and boring in Economics!