Making Economics Relevant Again?

I "discovered" economics while pursuing my MBA at the University of Florida when I was working as a project engineer for Mitsubishi. I fell in love with the writings of economists like Milton Friedman and Thomas Sowell and decided to pursue a PhD in economics because I wanted to learn to think the way they did. I had traveled to many parts of the developing world and saw abject poverty first-hand. Economics seemed to provide the best explanation for why things were so different in those regions compared to how they are here in the US. I had hoped to discover new applications for improving the world using the "economic way of thinking".

To be honest, I have been somewhat disappointed by how few applicable ideas I've learned since starting my PhD. It seems like much research in economics today is trivial and of interest only to academics who try to outdo each other with esoteric mathematical cleverness. Many of these ideas hold very little relevance to understanding or impacting the "real world". I am not the first person to feel this way.

Fortunately, there are some indications that this trend seems to be changing:

It was only a decade ago that economics seemed to be an old and tired discipline. The field no longer had intellectual giants like John Maynard Keynes or Milton Friedman who were shaping public policy by the sheer force of their ideas. Instead, it was devolving into a technical discipline that was even less comprehensible than it was relevant.

Over the last decade, however, economics has begun to get its groove back. Armed with newly powerful tools for analyzing data, economists have dug into real-world matters and tried to understand human behavior. Economists have again become storytellers, and, again, they matter.

Who is doing the best job to use economics to make the world a better place?

I received dozens of diverse responses, but there was still a runaway winner. The small group of economists who work at the Jameel Poverty Action Lab at M.I.T., led by Esther Duflo and Abhijit Banerjee, were mentioned far more often than anyone else.

Ms. Duflo, Mr. Banerjee and their colleagues have a simple, if radical, goal. They want to overhaul development aid so that more of it is spent on programs that actually make a difference. And they are trying to do so in a way that skirts the long-running ideological debate between aid groups and their critics.

“Surely the most important societal question economics can help answer is why so many people are crushingly poor and what can be done about it,” David Romer, a professor at the University of California, Berkeley, said. The macro issues (like how to build a democracy) remain maddeningly complex, Mr. Romer noted. But thanks in part to the poverty lab, we now know much more about how to improve daily life in the world’s poorest countries.

Read the whole thing and check out the website for MIT's Poverty Action Lab.

For the record, I am not disappointed by having decided to pursue a PhD in economics. Had I not done what I did, I would know not know what I now know. The PhD program has also reinforced many of the concepts I originally fell in love with. My best experience so far which underscored my understanding of economic foundations was working as a teaching assistant for Professor Hazlett this past semester. Ironically, this was actually part of my law school experience, not directly a part of my PhD.

In my PhD program I have been focusing on fields that I hope will have meaningful "real world" application. My areas of concentration include economics of religion (with a keen interest in international religious freedom issues), public choice (the economics of politics), and law and economics. I hope the latter two will help me better understand how institutional structures affect economic outcomes.

My bias towards application is also what attracted me to agent-based modeling, which is a great method for simulating how economic agents might interact with one another in unexpected ways. I view agent-based models as a great compliment (not a substitute) to empirical work like MIT's poverty lab and experimental economists are doing.

As with many other disciplines, I think the most profound concepts of economics are the most basic ones. I was talking with a professor here at GMU and another PhD student recently and all three of us agreed that after earning all the advanced degrees, nearly everything you ultimately use in economics, you learn in Mankiw.

As someone who hopes that education in economics can help make powerful, positive changes in the way people think, this is good news indeed. If the most basic concepts of economics are the most meaningful, then if you can effectively teach these principles to enough people, you just might help make (to quote Marginal Revolution) "small steps toward a better world."

(HT Tyler Cowen)