Apparently I've Ruined Economics (Again)

A few years back, the New Republic accused me of ruining economics.

Now The Economist magazine, in a much more subtle way, makes the same implication. Here’s the second sentence of an article entitled “What Went Wrong With Economics”:

A few years ago, the dismal science was being acclaimed as a way of explaining ever more forms of human behavior, from drug-dealing to sumo wrestling.

The article actually turns out to be an indictment of macroeconomics and financial economics — two fields I’ve had nothing to do with — so I can’t fairly take credit for the most recent ruination of economics. But I do appreciate their attempts to make me relevant.

I have one complaint though. The article is about how the models that macroeconomists thought described the economy have been revealed to work much less well than was previously believed. In contrast, my descriptions of drug-dealers and sumo wrestlers are no less applicable than when I did the research. Indeed, recent research by three Swiss economists suggests that my research on sumo actually changed the sport for a few years (they got rid of the sharp non-linearity that led to cheating, and the cheating disappeared), but later the non-linearity was reintroduced and the cheating came right back.


Science Minded

I say you did not ruin economics, you made the "dismal science" just a bit more interesting or interesting to a bit of an exagerated extent, but not sufficiently interesting to warrant real optimism re its future. That's my job-- as will be the work of my fellow economists to carry on.

Mahdi

It's fairly rubbish criticism to say because from what I understood, your research is more bottom-up research than top-down...so how in the world you're at fault for anything, especially ridiculous models, is not really understandable.

Vasanth

Hi Steve,

If it helps, you were one of the inspirations for me to read and delve into economics. I hope this doesn't deter either of you from continuing to shine a light to everyday "economic" issues like why my real-estate agent is cheating me.

Vasanth

TimB

There are interesting overlapping topics within Economics, Finance, and pure Statistics. I'd be interested in seeing that elaborated on in a Venn diagram kind of way.

Hannah

Economics is far too broad of a field to claim that "Economics went wrong." Sure economic models can fail, and they do all the time, but to claim the entire field is wrong or bad would be like saying psychology is failing because a theory was disproved.
I would have hoped that a publication like the Economist would be a bit more specific.

Denys Usynin

The Economist article is rubbish.
There were plenty of economists who predicted the crisis, and plenty more who were warning that the financial system was on a non-sustainable path.
That those voices were suppressed is not a failure of the economics itself. All the ideas and tools necessary to understand and foresee the crisis WERE available in the economics. That we humans chose to ignore them is our fault, not the fault of the science.

ktb

Actually, the assumptions that macroeconomics models make which in retrospect may have been their weaknesses (the market will act rationally on average, and eventually any market will reach the ideal prices) are exactly the kinds of assumptions you DON'T make in your research (and because you work on small scale have the luxury of not needing to make). Presumably if you were able to apply profiles of realistic human participants in such a large scale model the model would be closer to real life...

JRC

All those "other" economists are just jealous because they don't have books on audio. ;)

Hunter

The 'dismal science' is still in its infancy. It has yet to reach the maturity of, say, physics or chemistry. Those fields have developed theories which are capable of reliably predicting future events given a sufficient picture of initial conditions. Macroeconomists, in my view, don't even have the proper tools with which to measure initial conditions, let alone derive testable hypotheses or reliable theories. It's like asking Newton to come up with the law of gravity without first having invented scales or the telescope.

Another David

Ya know who ruins economics? Ivory tower academics who shun the idea that economics can be used to explain everyday phenomena.

Tom Jones

Keep it up Dr. Levitt.

Scott B.

Anyone that gets people interested in economics is not capable of ruining it....so thanks. And keep up the good work!

Bobby G

Ditto, Vasanth.

Additionally, it wasn't Freakonomics that made it so people couldn't see the insanely broken incentive structure being set up in the mortgage-backed securities market. It was short-sighted politics, mostly. Darn you, Freakonomics for malincentivizing our politicians 6 years before you were published!

Chris S

You've ruined economics for many economists! [1]

I think most of the rest of people who know who you are would say you've improved economics.

[1: You haven't ruined it for Paul Ormerod ... http://www.timeshighereducation.co.uk/story.asp?storyCode=203943 ]

Wendell

Steve, it may not sound like it, but I mean this as a compliment. It seems to me that Freakonomics is to economics what MythBusters is to science. Rigorous methodology applied to fun questions. Well, your methods seem to be a little more rigorous, and I'm really referring to the book and not your academic contributions. But it is an apt comparison, no?

ilze42

As long as we remember that economics IS human behaviour, no-one can be accused of ruining economics. I admire the approach taken in Freakonomics that encourages people to look at the world around them and wonder about the economic implications of absolutely everything.

The study of economics over the last century (especially the latter half) has become too dominated by mathematics and the analysis of inherently artificial financial systems. Not that math is not necessary for representing complex relationships in a simple way but it became the default that if you could generate a new function or equation, that amounted to innovation in economic thought. There has been little incentive for economists to explore the real workings of everyday economics and impacts on the real economy.
This view is rapidly changing with our most basic real economy concerns - natural resources - under critical threat.

We must never forget that economics is about people and how they interact with the world around them.

Read more...

Caliphilosopher

You may have not ruined economics, but you gave me fodder for pointing out the strange leaps of faith that macro-economics makes, and illustrating that it's no more special than any of the special sciences.

Levi

It is called the dismal science for a reason, and has been since before this recession.

Rbaliq

It is all about paradigms and evolution. Your book contributed to erode the dominant paradigm, and economics must find a new and more robust one. Instead of blaming we must be thankful to all of them that helped economist realize were using the wrong glasses to study the real things.
Being more punctual, as someone previously said, many economists predicted the crisis, and were warning about what was wrong. Unfortunately, we did not wanted to heard them! That's part of our believes we must rebuild in order to evolve if we want one day a better approach an understanding as a science.

Simon

You've ruined economics for some but you changed economics for others!