Thursday, August 28, 2014

The Mythmaking and Storytelling Of Economics

Noah Smith (@Noahpinion on Twitter) waxes lyrical on the culture of economics (excerpt):

Economics Isn't Science or Literature

…Economists use many of the same tools as scientists and engineers -- matrix algebra, multiple regression, control theory. But they don’t use them in the same way. In economics -- especially macroeconomics -- the goal is often to persuade other people of your point of view. As Federal Reserve economist Kartik Athreya writes in his 2013 book “Big Ideas in Macroeconomics”:

“My view is that a part of what we do is "organized storytelling, in which we use extremely systematic tools of data analysis and reasoning, sometimes along with more extra-economic means, to persuade others of the usefulness of our assumptions and, hence, of our conclusions...This is perhaps not how one might describe "hard sciences[.]”

Basically, a lot of economists use the tools of science to accomplish literary-- or lawyerly -- goals. That may sound to some people like a silly exercise, or even a dishonest one, but the fact is that in many economic situations you don’t have good enough data to really pin down what’s going on. You can give up and go home, or let your political leanings give you an emotionally pleasing answer -- and many people take those easy exits. But if you want to do the best you can at describing reality in the face of poor data and uncertainty, you want to make sure your lawyerly arguments are as self-consistent and precise as possible. Hence the math.

Econ has plenty of critics, who slam it for being too deductive, axiomatic or chock-full of unrealistic assumptions….But…econ isn't just a cheaper, poorer version of science, or a more nerdy, uptight version of literature. There are insights that you get from doing economics that you won’t get in a physics lab or from Shakespeare.

Spot on.

There’s actually a small corpus of literature on this issue, including a lovely old essay by Nobel Prize winner Robert Lucas that basically says much the same thing. The metaphor of economist as storyteller carries over also into the teaching of economics – the most effective and interesting teachers (and writers like Paul Krugman) are generally also the best storytellers. An awareness of narrative coherence, plot devices and pacing should be as much a part of a good economist’s toolkit as VARs and DSGEs.

I might go a bit further and label economists as modern-day witch doctors or soothsayers (though with a mite more basis in reality), explaining and making sense of an uncertain and unknowable world to those around us. Economic data are our tea leaves and chicken entrails; models and statistics are our wands and beads.

Part of that is because an economist’s audience demands it – data and statistics without context are hard to fathom. A set of  data with a storyline weaved through it is much easier for folks to swallow and understand, hopefully without too much abuse to the underlying reality.

I’ve less contact with those in academia or the policy space, but those of us who work professionally in finance and banking know this truth, whether we want to admit it or not.

1 comment:

  1. Dear sir,

    I came across similar stuffs in Ha Joon Chang's writing...he cited books Freakonomics , Economic Naturalist and the Logic of Life... his concerns, tho is that until now not enough focus done on production, but rather on consumption and exchange..

    -peddling destiny-