Data Dictators No More

Economists have gotten in the business of leveraging data scarcity to their advantage. Traditionally, one common way to become a successful economist was to carve out a little data fiefdom using one's social and academic connections. By having early access to a useful trove of data, one could be the first researcher - perhaps the only one - to make extrapolations based on that unique data-set. This had two big advantages. First, it created a sense of scarcity. If you were the only economist able to evaluate a certain data-set, your research could be quite unique and, hence, valuable. Second, it limited the potential for others to criticize your work. Sure, journal articles were/are peer-reviewed, but, at least in the short-term, only a handful of other researchers had the information necessary to rigorously evaluate your findings.

No more. As 2010 comes to a close, the world is absolutely bursting with data. Massive data sets, free data sets, unique data sets - vast amounts of information collected just because our technology makes it so easy, and because we have a veritable army of NGO's collecting data for public use. How are economists responding to this? With reluctance and reticence. Open, widely available data are a scary thing for many economists. It means that anyone can evaluate methods and findings. Indeed, it means hundreds, even thousands, likely will do so. One of my economics professors used to say, typically with a malicious chuckle "Jacob, torture the data enough and they will tell you anything." Well, torture the data these days and you are more likely to be exposed for your crimes.

Yet, it's not just about where a data set comes from or how the data are evaluated. The principle failing of economists has been their total inability to effectively portray and communicate the data they analyze to the public. Economists still use two-dimensional, static diagrams with frightening regularity. Why? Because that's what Milton Friedman or John Maynard Keynes used? Sure, simple illustrations are often useful, but what about visually rich and engaging graphics? Important insights are too often lost because economists stubbornly feel that it is their job to analyze, not to communicate. What hogwash.

Hans Rosling is surely the current king of efforts to make data exciting. He has used novel techniques and software to communicate information highly relevant for anyone interested in international development and health. Why aren't economists following his lead? Why are economists stuck on holding scared only the stodgy? An important question, and one that I struggle to answer. A big part of the answer probably comes down to training. Economists are trained to be mathematicians and analysts - not data presenters. This is unfortunate. Alan Greenspan, among other well-known economists, has publicly lamented that he feels timely, accurate data are far more useful - even without sophisticated extrapolation - models based on old data.



Another reason economists fail to present data in interesting or effective ways is probably because economists are strangers to the world of the real. The entire profession is highly divorced from reality. The models with which economists tinker are often not meant to have any bearing upon what is real. They are often merely mathematical extractions used to explain other mathematical extractions. Reality is derided as a frustrating break from the beauty of mathematical continuity. Math is so clean. Reality, so messy. You can't make clean forecasts with messy data from the real world. Better to make forecasts based primarily on assumptions of what the model says the data ought to look like - that will produce a neater result.

So, where does this leave us? I don't rightly know. But, in an interconnected world where think tanks and universities increasingly communicate directly with the public, rather than via mass media, it seems of the highest importance for researchers to be able to represent their findings in visually compelling/graphically appealing ways. Otherwise, all that research might be pointless.

Paradigms don't just die - they must be killed

I made some bold statements in my inaugural post. Can I back them up? First, I direct your attention to INET - the Institute for New Economic Thinking. Their name pretty much sums up their purpose. A Bunch of fringe quacks? Quite the opposite. Dozens of distinguished economists, among them 5 Nobel prize winners, all admitting that something is very wrong within economics. For a quick look, check-out Joe Stiglitz's take in this video:



The Economist also talks about INET in this article:
A challenge to economic orthodoxy

Now, while I think INET is a step in the right direction, I think it necessarily suffers from immensely entrenched dogma. Yes, dogma - "A set of principles laid down by an authority as incontrovertibly true." Just as atheists don't often become priests, in order to obtain a PhD in economics, one must be a believer in the core tenets of economic theory. Yes, tenets. There are certain aspects of economic theory that are rarely or never questioned. Equilibrium. Rationality. Utility optimizing. These concepts are the basic foundation blocks upon which economic models are constructed, but where did they come from? What proof do we have of their validity? What are they? Can I see an equilibrium scamper through the forest? Can I taste rationality?

First, equilibrium. Here is a concept adopted from 19th century physics. (Economists stole much of their methodology from physicists.) Equilibrium is the idea that there exists a theoretical point at which economic forces balance, at which they achieve "equilibrium." Fine notion, but what does it actually mean? Can we observe this balancing of forces? No. Economists accept it more as a tendency than an actual observable state. Economic forces are always trending or pushing in some direction and equilibrium is a useful way of analyzing which direction forces are trending. Fine, but what does that mean? It means, equilibrium is a metaphor. A conceptual tool - not an actual condition. Holy shit. Thou speakest false! Afraid not. Equilibrium is not an actual state of existence, it is merely a mechanical metaphor adopted from 19th century physics. To be sure, it's a useful metaphor, but it is still a tool rather than an actual state of being. This is a very important distinction, and one that is rarely considered. I have to admit, I might not have considered it had I not read Richard Bronk's The Romantic Economist. The title sounds a bit hokey, but it's actually a very cerebral and engaging book by a professor at the London School of Economics.

If equilibrium analysis is merely a conceptual tool, could not other conceptual tools replace it? Why stay beholden to something arbitrarily adopted over a century ago? Perhaps, other metaphors might be more useful. Rather than trying to fix economics, why not reconstruct it entirely? But Jacob, that's so much work! Why throw the baby out with the bathwater? Well, I think the baby already drowned in the tub. Ouch. No, I merely think that attempting to start from a new perspective would be a useful and potentially revelatory exercise. It wouldn't hurt for a few more economists to try this and see what, if anything, they learn.

For instance, what if we replaced equilibrium analysis with "ecosystem balance." What? Ecology? Yes, why not? I think conceiving of the economy as an ecosystem is a useful approach. Carrying capacity, resource constraints, survival of the fittest - all of these concepts could be applied within economics. Metaphors are only useful when they are useful. (Isn't that a tautological mind-fuck?) No, seriously, We should only use what's useful. This is the measuring stick against which economic approaches must be tested.

I'll address rationality (or lack thereof) in my next post. In the mean time, here are some more links for the curious:

New Economics Foundation
New Economics Institute

Personally, I feel INET is too conservative, NEF is probably a bit too liberal, and NEI is even further out there, not too many actual economists are associated with them, but they're still not totally off and they have healthy things to contribute. The Sante Fe Institute isn't strictly for economics, but they take some very novel approaches.

An Economic Renaissance

Why should you read this blog? Don't. It will bore the hell out of you. It will probably go way over your head and leave you totally bewildered and befuddled. Damn. That's not a good start.

Rational people don't waste their time worrying about rationality. So yes, economists are irrational oddities. Why should anyone care what they have to say? Well, beneath all of their fancy rhetoric, self-absorption, and masturbatory erudition, many economists actually have quite interesting things to say. Unfortunately, because they rarely communicate in any language spoken by humans, the majority of their most salient points are never known. Economicese. That's their language. It's like legalese, but far more rational and ten times more impenetrable. Fear not, though. I'm here to translate.

I'm a good translator because I barely speak the language myself. What? That's not encouraging? I used to worry about it, too. However, after some years studying economics I came to realize something important. It's the language of economics that is often incoherent. Let's illustrate this with a little analogy. Imagine learning a language. Say, French. After learning the basic grammar rules, your language teacher tells you they no longer apply when using bigger words or a thick accent. More still, actually learning French really isn't important. It's a very common language, and no one will be impressed by it. Better to learn Yiddish. If you become really good with Yiddish you'll be better able to intimidate your French speaking friends. If you simply belittle them enough for not speaking Yiddish, they'll feel too marginalized and will be too embarrassed to argue.

So it goes with economics. The most powerful, most well-established, most understood concepts - such as scarcity, the law of demand, and opportunity cost - get overshadowed by discussions of things like augmented Dickey-Fuller tests and instrumental variables. Do those latter concepts/approaches merit discussion? Certainly. But, not at the expense of communicating effectively. Complex methodology should not become an automatic replacement for simpler, more effective, more honest approaches, if such techniques suffice. Discussions limited to an elite cadre are not as subject to critique, and they are not as likely to be disseminated and operationalized. Indeed, much within economics is worse than wrong. Yes. Worse than wrong. A concept cannot be wrong if it cannot ever by operationalized or evaluated. Pure theory is fun for musing. Just like I enjoy those old metal puzzles with rings and odd shapes, I also enjoy musing over the financial applications of geometric Brownian motion. But, such theoretical musings are nothing more than an academic reverie if never applied. Many economists are beginning to realize this. Economics is waking up.

What if economics weren't the "dismal science"? What if economists spent a bit less time salivating over autoregressive distributed lags and a bit more time actively fighting inner-city poverty and malnutrition? What if economists creatively engaged with data analysis using tools and programs not developed 30 years ago? What if economists actually acknowledged the Web 2.0 revolution and used wonderful software tools and apps to better share their knowledge? What if economists actually had hearts?

Wow. Now that would be an incredible world in which to live. That would be a world in which I'd actually want to be known as an economist. Well, thank Schumpeter. Something good may yet come from this awful recession, because that spark of creative energy, that urge for a rebirth in the discipline of economics - it's just perceptible. You can see it flare up on the blogosphere and smolder in the Twitterverse. Once in a while, it even burns its way into newspapers and mainstream media. Most established economists, when they see this flame of renaissance, they unzip their pants and piss on it for all their worth. But not all. Somehow, I believe this fire of energy and truth will not be easily extinguished.

So, that brings me to my conclusion. Just what the hell my blog is about. All popular blogs try to capture some some unique angle, to tease out snippets of wisdom in a particularly specialized niche. I'm doing more of the same. My niche of note: new economics. I aim to use this blog as a forum to bring together the disparate voices of the economic renaissance. Every time I read an article or listen to a debate worthy of attention, I'll make certain to share it. In particular, I aim to pay particular attention to new methods, models, and the search for novel approaches.

I'd love to have you join me in the quest. Follow my blog. Share it with friends. Maybe it will lead to nothing. Then again, every avalanche starts with a pebble.