Other Alpha Sources
Steve Waldman has a very good post this week about the folly about the austerity vs non-austerity discussion which seems to be going the rounds at the moment. In fact, it you take a mental picture of the current financial market discourse most arguments can be bracketed along the two axes of austerity vs non-austerity (as a matter of preference) and inflation vs deflation (as a matter of prediction). Note in particular the following from Steve;
I think the austerity debate is unhelpful. There are complicated trade-offs associated with government spending. If the question is framed as “more” or “less”, reasonable people will disagree about costs and benefits that can’t be measured. Even in a depression, cutting expenditures to entrenched interests that make poor use of real resources can be beneficial. Even in a boom, high value public goods can be worth their cost in whatever private activity is crowded out to purchase them. Rather than focusing on “how much to spend”, we should be thinking about “what to do”. My views skew activist. I think there are lots of things government can and should do that would be fantastic. A “jobs bill”, however, or “stimulus” in the abstract, are not among them. If we do smart things, we will do well. If we do stupid things, or if we hope for markets to figure things out while nothing much gets done, the world will unravel beneath us. We have intellectual work to do that goes beyond choosing a deficit level. The austerity/stimulus debate is make-work for the chattering classes. It’s conspicuous cogitation that avoids the hard, simple questions. What, precisely, should we do that we are not yet doing? What are the things we do now that we should stop doing? And how can we make those changes without undermining the deep social infrastructure of our society, resources like legitimacy, fairness, and trust?
Elsewhere, in the world of academia, I also noted this piece by Mark Bauerlein, Mohamed Gad-el-Hak, Wayne Grody, Bill McKelvey, and Stanley W. Trimble in the Chronicle of Higher Education on the avalanche of poor research. The authors point towards a growing problem of sub-par research in general pointing to, as far as I can see, three things. First, that the growing amount of poor research is a strain on the system of peer-reviewed work (too many articles to review by too few able reviewers); secondly, that the pressure to produce in academic circles leads to quantity over quality and thirdly that the increasing tendency of money to flow to the amount of publications by default exacerbates the problem.
While brilliant and progressive research continues apace here and there, the amount of redundant, inconsequential, and outright poor research has swelled in recent decades, filling countless pages in journals and monographs. Consider this tally from Science two decades ago: Only 45 percent of the articles published in the 4,500 top scientific journals were cited within the first five years after publication. In recent years, the figure seems to have dropped further. In a 2009 article in Online Information Review, Péter Jacsó found that 40.6 percent of the articles published in the top science and social-science journals (the figures do not include the humanities) were cited in the period 2002 to 2006.
Our suggestions would change evaluation practices in committee rooms, editorial offices, and library purchasing meetings. Hiring committees would favor candidates with high citation scores, not bulky publications. Libraries would drop journals that don't register impact. Journals would change practices so that the materials they publish would make meaningful contributions and have the needed, detailed backup available online. Finally, researchers themselves would devote more attention to fewer and better papers actually published, and more journals might be more discriminating.
In the context of the world of academic economics which I am accustomed to I can see most of the issues the authors point. Especially, I would point towards the pressure to produce which is extensive in the context of economics. However, I am not sure about the point that a large bulk of research is bad because it, in itself, takes a lot of time to digest. I like to think that a study which might not be deemed relevant today may find its day in the sun in the future if the consensus and discourse changes.
[Update: Aleph Blog also fisks Mr. Athreya and I agree with just about everything he says. Especially the reference to Kuhn indicatest to me that he understands exactly what the issue here is.
The economics guild protects its own in much the same way as described in Thomas Kuhn’s The Structure of Scientific Revolutions. Bad paradigms survive until a significant number of young scientists displace the paradigm, and replace it with a new one that explains things better. Economics needs a better paradigm, and I do not mean better mathematical formulas. For decades economists have been playing sterile math games assuming what they define as rational behavior which is not rational.]
Economist Kartik Athreya from the Richmond Fed (Virginia) is not too fond about econbloggers voicing their opinions on macroeconomic because, as he says, it is a topic much too complicated for econbloggers to understand (the original link to the essay is gone, but FT Alphaville and Scott Sumner provide good coverage and quotes). Now, I don't even know where to begin here but as both an econblogger and a semi-academic economist I naturally ought to be able to muster some opinion. But really, where do you start here? Well, I especially noted this;
So far, I’ve claimed something a bit obnoxious-sounding: that writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy. Taken literally, I am almost certainly wrong. Some of them have great ideas, for sure. But this is irrelevant. The real issue is that there is extremely low likelihood that the speculations of the untrained, on a topic almost pathologically riddled by dynamic considerations and feedback effects, will offer anything new. Moreover, there is a substantial likelihood that it will instead offer something incoherent or misleading.
Let me be very, very clear here. The ability to solve dynamic optimization problems, to solve complex differential equations, to derive, on paper, various statistical estimators do not make a good economist. You do all this in order to become a part of the initiated crowd and in order to speak a language which dazzles colleagues and the greater public by its complexity and, crucially, is the main reason why economists today still form a gated community. This is natural since it takes half a mathematics degree to say anything which your fellow colleagues will accept as a real economic argument.
But I digress (and rant too). Math is not the problem as such but a symptom of some of the problems with modern economics. In general though, Math makes you smart and helps to build rigorous arguments which helps in any scientific context. As such, I will reciprocate Mr. Athreya's point; just as the econbloggers are not stupid neither are academic economists (they are devilshy smart for the most part). Yet, the latter have remained stuck too long and too far up the ivory tower to see that the econbloggers are not leeches who prey on the public through simplification of a complex topic, but in fact helps to bring an otherwise unworldly macroeconomic discourse down to earth.
We as economists should encourage this, not move further up the ivory tower.