Monday, March 29, 2010
The Trouble with Economics?
Little time on this first day of the Spring term, so I'll point to an interesting, but quite misguided critique of economics by David Brooks in The New York Times (which The Oregonian picked up last week) and a rebuttal from Greg Mankiw. I think Greg's rebuttal is a little off the mark as well, sure we are not terribly good forecasters, but the point of Brooks' column was more about the construction of homo-economicus than the ability to forecast in my reading. And this is where Brooks goes astray, for the economics view of humans responding to incentives is not nearly as mistaken as he would have you believe. So, in general, we can say with some conviction that if the price of Coke goes up, Pepsi sales will improve to give but one example. Where things get sticky is trying to predict an individual's precise behavior - for there are some who would not switch to Pepsi at any price. What the discipline is working on, and making great progress by the way, is understanding common or mass exceptions to the rational behavior that we expect, and this is where the behaviorists have a lot to tell us. But these are prominent economists working within the discipline, not critics from outside. To me that is the hallmark of a healthy academic discipline.