More Challenges for Max
Max takes issue with my last post, and perhaps with most of the economics profession as well:
Andrew Samwick sums up everything that is wrong with economics as practiced in the nation's economics departments (as opposed to departments of urban planning, public policy, geography, sociology, political science):This raises two issues that bear further comment. First, what have I left out? The challenge for Max, and anyone else who wants to play, is to enumerate other ideas in economics that are as fundamental as optimization and equilibrium that should be included in the statement. Certainly "behavior" and "outcomes" aren't ideas in the way that I have used the term (if that was the intent of including them). The Comments section is open and awaits your entries.
"What does it mean to "see the economics" in a given situation? Economics consists of exactly two ideas: optimization and equilibrium."
Insofar as optimization and equilibrium do not explain behavior and outcomes, which is to say a ton, "economics" is useless, if not toxic. I should say that theories founded on optimization and equilibrium as employed by Steve Levitt, Samwick, and others can be illuminating, in and of themselves, but I don't think I've ever seen such a breathtakingly narrow characterization of economics.
Second, Max has the proposition inverted. Neither Freakonomics nor my last post are an attempt to "see the economics" to the exclusion or even the diminution of other disciplines that may be relevant in understanding a given situation (unless statistical evidence bears that conclusion out). On the contrary, what Levitt has done is to show that economics (characterized by me, not necessarily Levitt, as optimization and equilibrium) is relevant in situations where it might not seem to apply: baby naming, teacher cheating, sumo wrestling, criminal activity, and others. As I noted in the previous post, this ability to spread the insights of economics into new areas has been the hallmark of the Chicago School and Levitt is its leading member in this generation.
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2 comments:
There is a distinction between "what economists work on" or "what economists think is interesting" and the essential ideas in economics. The latter is supposed to be a far narrower set of concepts.
The former would include historical context and institutions, which are concepts relevant for understanding optimization and equilibrium but are not fundamental ideas in economics or the unique contribution of economics to understanding a given problem.
Some economists believe that the departures from optimization and equilibrium are the most interesting problems to study. Wonderful. I'll look forward to expanding the set of essential ideas in economics to include their work when they come up with frameworks that are as useful as the two I mentioned.
You have decided to interpret optimization as being equivalent to utility maximization and excluding group behavior, not me. What I wrote was that optimization leads to an equating of rewards and costs at the margin. I did not restrict those rewards to be financial or individual in nature. Nor have I suggested that optimization requires agents to be fully rational or to even conform to the standard utility maximization problem.
Most importantly, I have not suggested that economics is always the most useful framework to analyze a given issue or that other disciplines have little to offer. I have simply agreed with the premise of the Chicago School that optimization and equilibrium are relevant in many instances (like those in Levitt's work) that would ordinarily not appear to be within the realm of economics.
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