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February 04, 2009

Have Economists Failed Us?

Ray Fisman
Lambert Family Professor of Social Enterprise
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Last Friday, I participated in a dinner conversation at the World Economic Forum in Davos on whether economics itself is in need of a bailout. The consensus view, which included perspectives from several far more distinguished economists than myself, was that as a predictive social science, economics has not failed. That is, people do generally make decisions based on cost-benefit trade-offs and incentives, and thinking about human decision making in this way is a very effective means of understanding what people do in companies, markets and the economy as a whole.

The natural question, then, is why the world out there has such a dismal view of the so-called dismal science? My answer was that we, as economists, have been terrible ambassadors of the profession in two critical ways. First, we have not properly conveyed the limits to economic predictions. An economy is a very complex system with highly imperfect information and many moving parts. Perhaps more importantly, we also haven’t properly communicated — to students and to the public at large — that economics is about more than the straw man of perfectly efficient markets. Any sensible economist — from Berkeley to Chicago — understands this perfectly well.

What are the implications for policy, and for economics as a profession? First, we have to be a lot better at “selling” our ideas to the public. Rather than leaving it to journalists to parody economic theory, we need to get our voices heard in the public debate. Second, we could do with a dose of humility. If the popular perception is that economics should be an all-knowing, precise tool for fine-tuning the economy, it may be because a lot of economists have drunk a little too much of the economics-as-crystal-ball Kool-Aid themselves.

Photo credit: World Economic Forum

Comments

by audrey | February 04, 2009 at 5:59 PM

I couldn't agree more!, specially in regards on selling our ideas to the public in more didactic simple ways and not leaving that job to journalists or politicians; where I come from, our political situation wouldn't be what it is now if the public understood only a little bit of basic economic theory; people wouldn't follow someone like Chavez if they could understand how incongruous his policies are. Honestly, I don't even think Chavez himself understand simple economics, but he's the only one in Venezuela that speaks to the people in their own terms, so people relate to him and believe any preposterous thing he says. So yes, economists have failed in many ways, and in this particular matter, they should have pushed schools to teach at least some principles on economic theory long time ago, and also be humble, admitting we can make mistakes and that we still have a lot to learn.

by Osifo A | February 06, 2009 at 10:00 AM

Each day this week, I have watched a bit of MSNBC's Morning Joe and I have seen mostly politicians and journalists providing (in most cases awful) economic analysis. Only today did I see a true economist - Paul Krugman provide a crisp and thoughtful analysis of the problems the economy currently faces. Economists should be more visible on these popular shows. If they leave the public relations to journalists, politicians and pundits then the profession is in for some hurt. On the other hand I did watch Ed Glaeser of Harvard square off against Christopher Mayer of CBS on CNBC last night and their debate may underscore why economists aren't invited on a lot of these TV shows. They both got bogged down in technicalities and statistics and Larry Kudlow's flamboyance didn't help matters. The result was an interesting debate for an economist but a rambling match for the average individual. Between both scenarios I guess we have to find an "equilibrium point" that is most effective.

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