In most human endeavors I am an optimist -- tomorrow will be better than today. The human imagination is able to see things that weren't noticed before and progress is made. Pretty soon we live in a world with improved technologies that bring convenience to our lives at lower real cost than the previous generation. But I am not sure that this argument for progress grounded in economics holds for economics as a discipline itself. Tyler Cowen recently had a nice description of the three types of economists: math jocks who advance through the professional ranks through their technical prowess, undergraduate teachers who relish the role of introducing young students to the power of economic reasoning, and iconoclastic thinkers who are able to find their way in the academic world despite their tinkering on the edges of professional respectability.
Consistent with that description I would also divide economic discourse into the following types: technical economics that goes on in the professional journals, policy economics that goes on in think-tanks and government agencies, public intellectual economics that goes on in the newspapers, magazines, radio and TV, and now-a-days to a considerable extent blogs. As modern technologies have lowered the costs of publishing there has been an explosion of opportunities in these three different types of economic discourse. This has many positive consequences, including lowering the professional costs of being an iconoclast. But I also think there are some significant negatives that we should consider.
The most significant negative in my opinion is the disjoint that exists between the different types of discourse. As I mentioned in an earlier post on John Kenneth Galbraith, in the 1960s when Milton Friedman and Galbraith were the public face of economics as a discipline, they also were important figures in the other types of discourse (professional and policy), and there was a coherence to the arguments that they would give across the types of discourse. Friedman's technical arguments about the quantity theory resulted in his argument for a monetary rule rather than discretion, and both fueled his public stance in fighting inflation. A similar coherence could be found in Galbraith's work.
In the economic discourse today, however, the coherence often disappears. The same individual may argue one thing in his technical work, a different argument in his policy pronouncements, and yet another thing in his public intellectual work. Greg Mankiw recently discussed a debate between Ed Lazear and Paul Krugman on inequality and returns to education. Krugman is actually the poster-child for the problem I am suggesting plagues economic discourse. As Mankiw says after quoting Krugman from his textbook where he holds basically the same position on the subject as Lazear:
I suppose that Paul has changed his mind since this book (copyright 2005) was written. It is a bit harsh, however, for Paul to be so hard on Eddie for believing what Paul believed not very long ago.
Perhaps Paul would reconcile the apparent disparity here by drawing a distinction between acquired skills and inherent talent. Eddie suggests that the increased inequality is mostly from higher returns to acquired skills, and Paul may think it is more from increased returns to inherent talent. But that is just conjecture on my part.
But the real problem is that Krugman is like wrestling with jello. He is on three sides of any issue seemingly pulling arguments out of thin air. Well, he is not that incoherent --- he rarely has seen a liberal pro-active government policy that he doesn't like and he rarely finds a conservative concern with big governemnt worth considering. But his academic work doesn't seem to impact his policy position, or his public intellectual stance in any logical manner.
My concern is that Krugman's case is not isolated, but a general trend in economic discourse that is enabled by advancing in modern technology. Multiple outlets have emerged in print, blogs, podcasts, etc. that have led to an expansion of opportunities for would-be economists to voice their opinion. But whereas in the market economy, producers of goods and services are disciplined by the buying and abstaing from buying decisions of the consumers, in the "market for ideas" the discipline of profit and loss is either absent or deemly perceived. So incoherence results and the discourse gets worse over time rather than better. My general optimism turns to pessimism.
There are arguments, namely by Michael Polanyi in his "Republic of Science", that sees the scientific process as analogous to the market process. Bill Butos and I have countered this argument in our essay "Kirznerian Entrepreneurship and the Economics of Science" and David Prychitko and I develop a similar argument to the organization of philanthropic activity as well in our essay "Is an Independent Non-Profit Sector Prone to Failure?"
The question of science and economics brings up a number of different and overlapping issues. One of these topics is the matter of getting the best economic payoff from science, getting dollar value from the D part of research and development. The success of some rural industries in Australia suggests that three important factors can be identified, including free trade which is likely to surprise people who think it is all about picking winners for government support. For more on this topic http://badanalysis.com/catallaxy/?p=1490
On the question of science becoming more like market activity, there are problems of funding since people stopped being able to win Nobels in physics with components of equipment purchased from the local hardware store. The need for megabucks means that the government has to come to the party or commercial firms or both. So the national research budget becomes a political football and there are major issues about access to the results. The age of innocence would appear to be well and truly past, and those who can remember better days are bound to be disillusioned.
On entrepreneurial activity and scientific research (or the growth of knowledge more generally) the difference between the Type 1 (classic) entrepreneur and the Type 2 (organisational promoter) may be fruitful. As an aside, what about Type 3, the welfare recipient who knows more about his entitlements than the clerks at the front desk of the agency. This is a person who keeps up do date with the complex and volataile mix of welfare opportunities (including the pickings from private charities) in order to maximise their return from their particular field of expertise. Leaving aside Type 3, the issues spit in two (a) the mindset of the entrepreneur and the researcher and (b) the traditions and institutions which help them to flourish - the ecology of creative problem solving. Hamming has a fine paper on (a) and Jacques Barzun has addressed a wide range of issues connected with (b).
Posted by: Rafe | July 20, 2006 at 12:41 AM
This particular example doesn't indict Krugman at all.
He seems to agree that over the past few decades, skill biased technical change has been important for explaining inequality.
But his NYT article was talking about patterns of inequality simply in the past few years. In these years, all the gains in income were being captured by people at the very top of the distribution. This cannot be explained by changes in returns to skill.
There is no contradiction.
Posted by: Jason | July 20, 2006 at 02:13 AM
Pete,
You claim that the lower costs of publishing has erupted the clear signals of quality in the old institutions. I don't think we disagree on this but I think the analysis is incomplete there. Think of a simple technology advancement like digital music sharing (for example Napster), the first response is that it will be harder for artists to earn money off of their music sales, because there is a lower cost to getting free music via the internet. This is true, but I think it's great for music in general. My thought is that one hit wonders or teenie bopper heartthrobs whose record sales used to soar because one track on their album was huge won't sell as many albums and thus won't top the charts. What it means to be a chart topping musician is thus up for grabs. Who ever bundles the highest value musical package for the consumers will win the day in the new institutional context.
I think the economics profession could be much the same way.
Posted by: Daniel J. D'Amico | July 20, 2006 at 03:41 PM