Friday, July 17, 2009

Economics and Economists - Trusted or Tainted?

On the surface, two articles that popped up yesterday seem to be at odds. The cover story for the new issue of The Economist asks "What Went Wrong with Economics?" Yet the first page of the Personal section in yesterday's edition of The Wall Street Journal touts economists as "The New Stars of the Blogosphere."

Is economics (and by extension, are economists) to be reviled or revered? As it turns out, there's a bit of truth in both pieces. And the real story lies somewhere between the two extremes.

Let me start with the downer. The piece in The Economist spends considerable time on the fact that economists failed to see the current economic crisis developing. According to the intro paragraph, prior to the housing market collapse, economics was seen as the way to explain just about everything "from drug-dealing to sumo-wrestling." But then the bubble burst, financial powerhouses failed and policy-makers and theorists scrambled for an explanation.

The article continues by pointing out the problems were largely the result of shortcomings within the two areas of macroeconomics and financial economics. And in both cases, the cause may have been unjustified confidence in certain topics of study. As is often the case, it may have been the outsiders who were part of the problem - taking ideas and theories and fitting them to the moment rather than taking them to heart.

But as we see in the article and as was mentioned here recently, the event may provide the impetus for new interest the area and new research on relevant topics. That is often the case in this and other professions. And that provides a lead-in to the second article.

The Wall Street Journal piece talks about how economist bloggers have seen a rise in popularity. Economists with the ability to translate the complicated into the colloquial, to explain without equations, have been partially responsible for increased interest in the workings of the economy at all levels. And some of the bloggers highlighted are among the best. (Additional links in the story lead to lists of the top blogs, ranking them for originality, “geekiness,” and readability. (Several of them are on my blogroll.)

My question for you is "has the current economy increased your interest and your students' interest in things economic?" I look forward to your comments.


Julie said...

I haven't yet read the article in the Economist, but I did read the WSJ article about the blogs of economists. I check these blogs several times a day. In the fall of last year a new routine emerged: Up at 5, turn on the laptop, make the coffee, and start scanning the blogs beginning with Calculated Risk. My students learned to follow these blogs and others also. We all have a favorites. There is more interest in economics and financial literacy as a result of the financial crisis and the recession. When the economy is humming along no one asks me questions or pays attention to what the Fed Challenge team is talking about.

Julie said...

The article in the Economist has stimulated a debate in the economic blogs. Both Krugman and Delong have posts. The debate about economists missing this crisis and macroeconomics has only begun.

Tim Schilling said...

There were two more related articles in The Economist that went into more detail. I recommend them.

Pete Murphy said...

"What went wrong with economics" is that, since the seeming failure of Malthus' theory that food shortages would hold population growth in check, economists have adamantly refused to ever again give credence to the notion of overpopulation. As a result, they are missing the most powerful force in economics today - the relationship between population density and per capita consumption, and its implications for unemployment and trade imbalances.

Economists dismiss the idea of overpopulation with the claim that man is ingenious enough to overcome any obstacle to further growth. This is why world leaders continue to ignore population growth in the face of mounting challenges like peak oil, global warming and a whole host of other environmental and resource issues. They believe we'll always find technological solutions that allow more growth.

But because they are blind to population growth, there's one obstacle they haven't considered: the finiteness of space available on earth. The very act of using space more efficiently creates a problem for which there is no solution: it inevitably begins to drive down per capita consumption and, consequently, per capita employment, leading to rising unemployment and poverty.

If you‘re interested in learning more about this important new economic theory, then I invite you to visit either of my web sites at or where you can read the preface, join in the blog discussion and, of course, buy the book if you like.

Please forgive the somewhat spammish nature of the previous paragraph, but I don't know how else to inject this new theory into the debate about overpopulation without drawing attention to the book that explains the theory.

Pete Murphy
Author, "Five Short Blasts"