What I've Been Thinking About

A few weeks back, I sat down with the Richmond Fed’s Aaron Steelman for a most enjoyable hour or two talking about my recent research projects and perspectives on economics generally.? If you’re interested in learning more,?click here for the full interview.? Regular readers of this blog may even recognize a few themes that I’ve been hammering away at here on these pages.? At the risk of quoting myself, here are?a few favorite parts:

On the state of economics:

I still believe that economics is the queen of the social sciences. But the metric that leads me to say that is its influence on the world, which is what I think social science should be about. When it comes to almost any public policy problem, you call the economists. This is true in many areas once thought outside of the domain of economics, such as family policy and understanding politics. Economists have been very successful moving into those fields and have provided many important insights.

Economics and her sister social sciences:

The broader issue – the reason why I believe economics is the queen of the social sciences – is this movement of economics beyond GDP. It is hard not to think of Gary Becker as the founder of that, and this has been a very good thing. In sociology, I think our biggest influences have been on research about family or crime, as economists have done a lot of empirical work on those topics. With political science, on topics from election forecasting to political economy, we tend to see quite good empirical work from economists. That’s not to say that we should ignore other research methods. In fact, I had a sociologist on my dissertation committee, Sandy Jencks. I used to joke with Sandy – and he promised not to be offended – that sociologists have great questions and economists have great answers.

OK, so there’s a touch of hubris there.? But probably at least a kernel of truth, too.? But what about psychology?

What is interesting to think about are the terms of trade between economics and all these other disciplines. We are clearly a net exporter to political science and sociology. But at this point the trade with psychology is almost all one way. We are a near-complete importer. I wonder why we haven’t been bigger exporters to psychology. I think it has to do with the research method. Like political scientists and sociologists, economists are almost all about the analysis of observational data. And then there are second-order differences. Formal political scientists write down a model before they observe data; informal ones don’t. Ethnographers observe four people; survey researchers observe 4,000. But it’s all observational. But when I watch and speak with my friends in psychology, very little of their work is about analyzing observational data. It’s about experiments, real experiments, with very interesting interventions. So they have a different method of trying to isolate causation. I am certain that we have an enormous amount to learn from them. But I am curious why we have not been able to convince them of the importance of careful analysis of observational data.

Plus?there’s plenty more, on topics ranging from happiness to prediction markets, discrimination, inflation expectations and political economy.


I believe it is in areas outside of GDP (macroeconomics) where economics shines. Most of human behavior can be expressed as our response to what we perceive to be incentives, whether consciously or not. On the other hand, when it comes to the "bigger picture", the models don't seem to be quite as accurate and I'm being very polite. For example, it seems only a random sampling of economists predicted the Great Recession, the biggest macroeconomic happening in most of our lifetime. Where were the cries against what we perceive as the causes of the recession? At the time the causes were being touted by most mainstream economists as strengths in the economy. A similar occurrence from the hard sciences would be if Newton's Law predicted things fell upward! I love behavioral economics but the macro guys? I strongly suspect a Ouija board is involved in their predictions.

Eric M. Jones

I have to agree with Nosybear. The failure to see the Great Recession casts a pall over any claims to be much of a science. So now they're all going to opine on the subject. Should we believe anything they say?

Microeconomics is really psychology with a few equations (that describe the data) and some coin. That's why Psychology doesn't import your stuff--

It would be like kissing your sister..


This is indeed very interesting. I graduated in Psycholgy more than 30 years ago. I was interested mainly in research, but In my country there were very limited research opportunities at the time, so I ended up doing "applied" psychology in the fields of communications. My hobbie, though, was economics because I always saw a strong connection with psychology that at the time everybody I knew, especially my economists friends, thought was a figment of my imagination. I'm glad to see a trend that is promising although it presents lot of difficulties due to different models and theories.


Speaking as an experimental psychologist, and at the risk of over-generalizing, the kind of psychologists who are using observational data aren't much for serious mathematical analysis like the kind economics would provide. Additionally, none of the researchers I speak with have any respect for the recent explosion of 'neuroeconomics', which is most of what we hear about in my neck of the woods. Which isn't to say that psychology couldn't benefit from talking to economics, it's just that you have a lot of work to do a) getting people interested and b) convincing people it's on par with what we're already doing.


Speaking of Gary Becker and the accuracy of predictions...
Excerpt from NY Times, Jan 8, 2009

The Nobel laureate and University of Chicago economics professor Gary Becker worries that increased government spending in the form of a gigantic stimulus package would "crowd out" private sector spending. He also says he believes that a recent report from Mr. Obama's transition team economists may "overestimate the effects of this stimulus package on the economy, and that the same techniques would similarly overestimate the employment effects of other types of government spending and tax reduction policies."


Commentaters concerns about the failure of a economists to predict the "Great Recession" are off base. Economists do not have a chrystal ball, all that can be "predicted" is probabilities. And yes, plenty of economist spoke out about bad government policies encouraging, even requiring lending to people who have bad credit in the name of equality.

Also, Just look at the ridicule made of Greenspan's comment made on December 5, 1996 about irrational exuberance.


As an engineer it pains me to say this, but psychology is about to make the jump from social science to hard science. Much in the way that biology went from an observational (social)science to a hard science. That's the reason the trade of ideas is so one sided.

The ego of the author is easily identifiable, wondering, "what's up with psychology?" Nothing's up with them. It has, in the past, made extensive use of observational data, It worked much like economics, but it's current state is moving past that. It's a maturing science. Perhaps economics will get to that point one day. It won't, however, until it stops thinking of itself as the head honcho of the social sciences and starts thinking of itself as the small fry of the hard sciences.


when you talk about the economics and psychology i am reminded of F A Hayek's work on psychology and economics. In fact he made some breakthrough in this field but one has to read carefully to understand what made him to work on economics with psychology under the umbrella of social sciences. particularly his work on "The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology"


Elin Whitney-Smith

Economics is powerful because it deals with things that can be quantified. That gives it a feeling of objectivity. However, in back of it is always a question of value. Are all values market values?

One can do an economic analysis of marriage or of education or religion and they certainly capture something of their value but a lot is left out.

Elizabeth Brady

I don't know too many psychologists who are wedded to a rigid ideology the way that so many economists are. That used to be the case when behaviorism ruled the roost but today there is no overarching ideology in psychology to match the free market fundamentalism of so many economists. Psychology is much more of a true science but economics resembles a religious cult that bases ideas on beliefs regardless of data. There are still many economists who are objective but it is the true believers who are dominating. The failure of so many economists to predict, let alone try to avert, our recent meltdown is proof of just how faith-based the profession has become.

Cris Frasineanu

I think the affirmations in the article do not apply to CBT. There are thousands of studies in the CBT field, with hundreds of subjects.


The hubris of economists never ceases to amaze me. The statistical technique is always some version of ordinary least squares regression or some variation of a linear technique to describe or predict non-linear phenomena. There are many other ways to examine questions, and the experimental method is one of those. But Psych, Ed. Psych, and all of the other social sciences already have non-linear methods such as structural equation models, simulation, and partial least squares.
It would behoove economists to read the social science literature first. For example, your linear regression doesn't add any understanding to ideas about the information processing theory of the firm. Jay Gailbraith talked about that around 1970.
Social behavior tends to violate every necessary requirment of OLS. It's the economists that haven't figured that out yet. Stop being so arrogant until you have something to tell us, that the other social sciences don't already know.