Dishwater Dull: The Strange Death of Applied Economics?

 [Warning: The 1st paragraph is an impregnable reaction to the shock of the BBC’s loss of Bake Off]

Economic theory, at least to the passing pie eater, can come across as a bitter tantrum against the healthy recipe of practical relevance. Limp analytical posturing, based on heaping ludicrous assumptions on a mathematical chopping board, seems to be the mainstay of the textbook chef. The pie eater of course ignores the diverse palate offered by political economy, with numerous schools of thought providing for a kaleidoscope of taste. They should perhaps commence by perusing the menu for Fresher first courses. Arguably the prawn cocktail of Undergraduate education is Applied Economics. Here there is a fusion of cuisine, as the teacher combines analytical rigour with the cream of practicality, enabling a rich sweet as we shift from theoretical posturing to policy recommendation. A tip should be guaranteed, as the pie eater finally appreciates why economics is the premier social science and, for good or bad, so substantially impacts on the politician’s grunt. As I eat a biscuit and move away from this dreadful food metaphor, I’d like to simply put why this is often not the case. Here is a summary of the argument, but feel free to foot-stamp and disagree: Most Applied Economics modules are merely an attempt to echo basic concepts presented in Introductory Economics. It is used to confirm a biased storyline, rather than embrace the conflict that a multidisciplinary subject such as economics should naturally generate.

Modern Economics, so the doomsters will typically crow, is over-reliant on mathematics. Blaug (2002, Ugly Currents in Modern Economics, in Fact and Fiction in Economics: Models, Realism and Social Construction, Cambridge University Press) sums it up nicely:

“Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing.”

The ‘maths is bad’ line, however, isn’t always supported by the student. As a Kent undergraduate I certainly didn’t see technical modules as the axis of evil. Indeed, the ‘you’re with us or against us’ bimodal distributions of their assessment outcomes can be a blessed thing. Get things right and you fly, substantially increasing the odds of securing that angelic first class honours. Nevertheless, I do have some sympathy with the outlook that we use maths too much. From journal articles that only a handful of people can be bothered to comprehend to those lectures seemingly fixated on just advertising the greek alphabet, a good economist should not just be a good technician. Nevertheless, there are also dangers in breaking the mathematical backbone. Maths, representing one of our most valuable tools, arguably accounts for why economic graduates are in such high demand. We therefore should shy away from a blanket criticism of the technical aspects of economics. Our assault should instead focus on how elements of maths are used to narrow economic study towards a preferred fable.

Let’s deepen this viewpoint with a short hop into the history of economic thought, a subject area which economic departments unforgivably have often replaced with modules promoting a bland ‘market fundamentalist’ homogeneity. Let us take Weintraub’s (2002, How Economics Became a Mathematical Science, Duke University Press) remark and play with it a just a little:

“[i]f economics is intertwined with mathematics in the 20th century, in order to understand the history of economics we need to understand the history of mathematics”.

We will typically refer to Marshall as the fellow who codified the modern economic approach. But the tools of neoclassical economics do predate this fine fellow by some time. Consider a chap such as William Whewell (1799-1866), who adapted mathematics to render economics more systematic. The historical account provided by Cohen (2007, Equations from God: Pure Mathematics and Victorian Faith, The John Hopkins University Press) characterises Whewell as a Victorian idealist who yearned to find certainty through mathematics:

“[He] cited the Roman naturalist Pliny the Elder, who declared upon the mathematical prediction of an eclipse, ‘Great men! Elevated about the common standard of human nature, [have] discover[ed] the laws which celestial occurrences obey”

And here’s the lesson from that in a nutshell. The very mathematical approach used in neoclassical economics arguably originates from an era characterised by a desire to replace the uncertainty of language with the precision of mathematics.

Now let’s attempt to use that to appreciate the engineering consequences for the ‘Applied Economics’ curriculum. One of the most popular topics covered, as shown by a quick perusal of on-line module information, is road congestion. Why? The following cartoon describes the secret…presentation1

It is easily taught. There is no uncertainty. It confirms the storyline in Introductory Economics. It comes out with a convenient simple truth, with an ‘optimality’ peddled in terms of certainty. Here the focus is on ‘tame’ snags. There is an agreed problem, enabling an understanding of rational economic agents to derive a market equilibrium that neatly advertises what is efficient and what is inefficient. Wickedness of problems will be pushed under the carpet. In any real world application to policy, there is no agreement on the nature of the problem and no agreement on whether a policy has improved or worsened the situation. The inconvenience of this debate, as an artificial notion of efficiency is sought, is simply ignored.

So how we can rejuvenate Applied Economics? Battie (2008, Wicked Problems & Applied Economics, American Journal of Agricultural Economics, 90: 1176-1191) essentially offers the solution:

“Wicked problems, which are sometimes called social messes or untamed problems, are dynamically complex, ill-structured, public problems.  The causes and effects of the problem are extremely difficult to identify and model; wicked problems tend to be intractable and elusive because they are influenced by many dynamic social and political factors…”

There is no consensus. There is no simple path to optimality. There is, however, discussion over how different political economic schools of thought can add to the debate and eek out valuable insights. There is consideration of conflict between different arguments. There is also a need to learn from the non-economist, with other academic disciplines used to show where economics triumphs or where it falls flat and has to adapt to ideas alien to the modelling in Introductory Economics. Applied Economics becomes a means to both champion and condemn specific economic approaches. It is only through that confrontation that we can rejuvenate Applied Economics and return it to its rightful place: the key module in the economic portfolio.

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