The traditional state of economics is captured by the joke about ten economists, each of whom has a different theory of how the world works, none of which is directly tested or verified. Looking ahead, I am most excited about the prospect of having clear, evidence-based answers on which policies have the most beneficial economic impacts. I am especially optimistic that the expansion of access to large administrative datasets, such as earnings data from social-security records or student-achievement data from school districts, will yield sharp, quasi-experimental evidence that allows us to test theories and estimate key parameters of economic models. While theory will play an important role in guiding this research, its assumptions and conclusions will increasingly be empirically founded.
Eight young, respected economists are considering what breakthroughs need to occur in economics in the next two decades. The above quote is from Raj Chetty, a 32-year-old Harvard economist. Chetty did a study on how children with good kindergarten teachers and positive classroom environments often grow up earning more than their peers who had mediocre ones (I had a good one!).
One thing the young economists agree on is that they now have access to technology that will allow them to better evaluate empirical data. Will they be able to see the next crash coming and sound the alarm to soften the blow? Maybe that’s just a thing that happens in the movies.
I liked this piece when it came out! I especially like the emphasis on economics becoming very data-driven, and a special shout-out to Nicholas Bloom’s idea that industrial organizationad firm management in the developing world is an important area of inquiry (see also: the entirety of David McKenzie and Christopher Woodruff’s work).
But Mike Dang! Predicting the stock market is not something a lot of academic economists do, just a very few financial/macroeconomists. It’s really considered the purview of financial analysts and businesspeople on Wall Street. And the market index may be important to retirement portfolios, but it is considered distinct from the real economy, as in the exchange of goods and services, which is where most economic, as opposed to financial, models are.
@readyornot Oh, I’m talking more about predicting bubbles—people like Morgan Kelly, the Irish economist who predicted that the housing bubble was going to burst in Ireland, and predicted the collapse of the Irish banks. The problem was that no one paid any attention to him.
@Mike Dang Gotcha. The housing market crash and subsequent banking debacle. So Sheila Barr gets included in warnings who got ignored: http://www.newyorker.com/reporting/2009/07/06/090706fa_fact_lizza
ugh, as someone who just wrote a master’s thesis on economic development theories in the US, economics is a shell game of a discipline where people dice data to come up with ridiculous answers that are usually divorced from reality. also, even if they have the data to “stop” the next crisis, how would they do that? convince congress to pre-emptively deal with a possible domestic problem? HAHAHA.
@nerd alert I am preparing to write a master’s thesis on economic development in the US! I would love to read your paper!!
Nope. What they mean is, a lot of economic theories are in a format like “A = B + C + (D – E)” or “When A goes up, B goes down by C” but nobody has any freaking clue what A, B, C, D, or E actually are.