Friday, March 26, 2010

David Brooks on the State of Economics

In today's NY Times, David Brooks has an interesting column on the field of economics.

While the column is well worth reading, I think it is more wrong than right.  Journalists are fond of writing articles about how recent events require a fundamental rethinking of economic theory.  It is their job, after all, to identify new things on the horizon.  But when they try to predict trends in academic theorizing from current events, they are usually incorrect.  In particular, I think what we teach in economics courses is more robust than a reader of David's column would think.

David writes, "Economists and financiers spent decades building ever more sophisticated models to anticipate market behavior."  I don't know about financiers, but relatively few academic economists devote their time to forecasting.  The economists you see on TV are often trying to predict the future, but that is hardly a random sample of top economists.  Indeed, one reason I am not fond of TV appearances is that TV hosts frequently ask questions that presume PhD economists can see into the future better than others, whereas actual PhD economists know that very little of our training has anything to do with forecasting.

Oddly, David refers to Reinhart and Rogoff's new book on financial crises as a work of history.  He fails to note that the authors are two prominent and very mainstream economists.  Moreover, this research project began long before the recent crisis.  It would be a mistake to say that economists did not study financial crises.  Their book is in fact evidence that some of the leaders of the field were working on precisely this topic long before it caught the public's attention.  The fields of behavioral economics and behavioral finance have also been active for many years now.

To be sure, in undergraduate economics courses, some specific topics will need more coverage in the future, as I noted in a column a while back.  The role of leverage in financial institutions is one example.  Those people who study financial institutions and their regulation have moved to the forefront of the profession for a while, and that area of work may well get more coverage in the undergraduate curriculum. 

But I doubt there will be a fundamental change in the field of economics.  The old textbooks don't need to be thrown away.  I admit, however, that on this point, I may not be the most objective judge.