The distortion of science due to how research is published and the problems of basic economics

This article offers a perspective from medicine and the biological sciences. Its use of economics is correct. Its claims seem to hold in economics and related fields. I want to discuss here some thoughts it brings to my mind regarding the state of economic theory and economic science in general.

Indeed, most economists follow in the footsteps of “leaders of the field”, as the article mentions in the context of medical/biological research, which is why we currently study abstruse models even in areas of economics that will never be able to answer any important economic questions. Just as Rob Gilles reminds me in every conversation we have, we have not really managed, as a profession, to understand the Causes of the Wealth of Nations truly more deeply than Adam Smith had understood them in 1776.

We still try to understand what it means for people to trust in each other, for example. This is a necessary condition for market exchange and market exchange in turn appears to be a necessary condition for economic prosperity. But in all the years since Adam Smith’s big book was published, even after the development of powerful tools such as game theory, we are attempting to understand trust by studying little toy games and their equilibria. And by “we” I mean a pitifully small number of economists who try to understand the basic foundations of economic exchange.

When the economy is doing well, the great majority of economic research is oriented towards helping the rich get richer. Finance professors in particular are in this business, and will tell you over and over again that a smoothly running financial system is a tide that lifts all boats, so their work is towards everyone’s welfare. The majority of economists and finance types deride economic theorists who try to understand the basics in boom times. If these theorists are so smart, why aren’t they rich, or why are they not telling others how to get rich (at a suitable fee)? Let the financial system seize up, however, as in these days, and we all realize that the basic analysis of what makes it tick is perennially neglected and that research in basic economics has been consistently under-supplied and misdirected due mostly to the system of journal publication of academic research discussed in the article.

This post is practically co-authored with Rob Gilles; I can see in my mind his words tumbling from my ears to the keyboard in front of me. Rob, feel free to post a comment or two.

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One thought on “The distortion of science due to how research is published and the problems of basic economics”

  1. Indeed I agree with this posting full heartedly. In fact I want to go one step further along the indicated path.

    Economists think of the economy as “open” and assume that markets absorb all relevant information for the commodities traded. (Paradoxically this also underlies largely the arguments made in the indicated posted paper on publishing.) This is known as the “Efficient Market Hypothesis”. Thus, the market price of a commodity reflects all relevant information about it. Thus, our trust in presidential stock markets to predict who will the coming presidential election.

    But what if the EMH is wrong? What if markets are in fact fundamentally “closed”, club-like environments in which a few experts determine most trades? In such an environment the price just reflects what these club members know and think.

    In many cases the results of closed communal environments might be pretty good, like the quality of Wikipedia postings show and the stock prices in normal times reflect. But it can also go wrong; the club members might be gripped by an irrational fear and a collapse of trust happens, such as what is the case with the stock market today.

    Economists themselves also form such a club and the dynamics of their interaction leads to emphasis on rather irrelevant questions. How we interact is of paramount importance, since it determines the incentive structure of the club. And this is exactly what is wrong with the economics scientific community; they face screwed-up incentives and teach a world view that in all likelihood is completely wrong…

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