Lamppost Economics?

Paul Krugman came remarkably close to giving economics a big negative review in his New York Times blog last week. To sum up his argument: economics is very good at talking about, although not resolving, issues that are tractable to formal modeling — anything else not so much. You see there’s this gigantic blind spot in modern economics. If a topic cannot be modeled then it doesn’t attract too much attention. At least in the bright lights of the mainstream version of the subject. Which, of course, begs the question: what is economics missing?

Krugman’ attention was brought to this blight by an article by Justin Fox who bemoans the early lack of interest in inequality displayed by a profession whose core focus seems to encompass such a vital topic.

Here’s what Krugman said:

“I’m a few days late on this characteristically lucid Justin Fox column on why it took so long for economists to focus on income inequality. But as one of the economists who did write about inequality — especially the rise of the one percent — pretty early, I think Fox has missed one important aspect: it’s a hard issue to model.”

Well, that’s pretty straightforward.

I may be misreading this, but what I think Krugman is telling us that only subjects that can be scrunched into models are suitable material for economic. Subjects that are unsuitable are game for analysis by lesser sorts or are just not ‘economic’.

Now I am lot more sympathetic towards Krugman than many of you are, I have a soft spot for his thinking because he is willing to lead the liberal charge, but this annoys me.

What has become of economics that it cannot deal with palpably economic topics unless they can be modeled? Why can’t we analyze them using other methods? Or are those other methods inadequate, inappropriate, of otherwise beneath us?

Has economics become so myopic and small that, like the proverbial drunk looking for his car keys, it only searches under the lamppost?

Apparently, though, times are changing. The thrust of Fox’s article is that this year’s American Economics Association meeting is inundated with papers on inequality. There are seventy of them. Feast or famine in economics, and none too soon.

Economists are unwilling to make statements about issues that they don’t have scads of data about that they can them smash through their formal method. If the data is sparse, anecdotal, or tainted by some similar insufficiency then they remain mute. Even if they all acknowledge privately that the issue might be intriguing.

Then again, many more of them are mute because they can’t see the issue to begin with. Their myopia is set in concrete by the self-referential loop of economic method being part of the section criteria by which a topic becomes ‘economic’.

I give Krugman credit for being one of the mainstream economists who did mention inequality before it became fashionable. I criticize him for being so lame about this ‘it can’t be modeled’ excuse. It undermines the discipline’s credibility when what appears to be a big and highly relevant topic can so easily be sidelined because it didn’t fit the analytical pigeonhole. Isn’t this about-face? Can’t we develop tools to take a look at topics that are untidy or messy?

Which leads me to be sympathetic to Fox’s concluding paragraph:

“Still, as I wander from presentation to presentation at this week’s economics meetings in San Francisco, I can’t help but wonder what important knowledge the economists are inadvertently suppressing today.”

Yes, indeed: just what is economics suppressing today? Worse: is that suppression ‘inadvertent’ or deliberate?