Larissa MacFarquahar’s profile of Paul Krugman is worth your attention. It’s a substantial tome, full of good stuff, from a portrait of the economist as a young smart guy to the sequence of what I wouldn’t call radicalization, but his conversion to the assumption of a kind of moral duty to speak.

But while the meat of the piece in many ways lies with this latter end of Krugman’s career, the bits where he tries to speak truth to power whilst educating the rest of us, the parts of the profile I like best are those that give insight into the practice and competences of economics as an aspiring science.

Krugman acknowledges what his “fresh-water” former friends (go to the piece if the term isn’t already known to you) mostly don’t: that much of what economics tells us is obvious, that economists know less that is true than people realize, and conversely, that much of what they do know isn’t true — and that’s a feature, not a bug. In discussing one of the key pieces of work that secures Krugman’s reputation as a top-flight economist, Macfarquahar write:

Again, as in his trade theory, it was not so much his idea that was significant as the translation of the idea into mathematical language. “I explained this basic idea”—of economic geography—“to a non-economist friend,” Krugman wrote, “who replied in some dismay, ‘Isn’t that pretty obvious?’ And of course it is.”

As an aside, I can affirm the more general truth of this anecdote. I had the chance to sit in on some of the promotion and hiring reviews pending at MIT’s economics department (coincidentally, Krugman’s former intellectual home) and while there were certain appointments in which the mathematical sophistication and abstraction from recognizable real-world issues was beyond not only me, but just about everyone in the room too, there were others in which the key ideas were rigorous and meticulous demonstrations of pretty obvious ideas.

The reason such work was seen as good was not because it presented a fundamental new insight, but because it presented that insight with a particular body of data and methodological rigor. (To add — there are other ways of demonstrating some of these facts; historians and anthropologists, for example, can and do observe the same phenomena as economists might. There data may overlap, but not be identical, and their interpretative tools may — often do — yield similar conclusions by their different routes…but all this is a digression.)

To get back on track: MacFarquahar then expands on why economists bother with formalizations of penetrating glimpses of the obvious — and or why other disciplines might know things that economists had forgotten. She writes:

Krugman began to realize that in the previous few decades economic knowledge that had not been translated into models had been effectively lost, because economists didn’t know what to do with it. His friend Craig Murphy, a political scientist at Wellesley, had a collection of antique maps of Africa, and he told Krugman that a similar thing had happened in cartography. Sixteenth-century maps of Africa were misleading in all kinds of ways, but they contained quite a bit of information about the continent’s interior—the River Niger, Timbuktu. Two centuries later, mapmaking had become much more accurate, but the interior of Africa had become a blank. As standards for what counted as a mappable fact rose, knowledge that didn’t meet those standards—secondhand travellers’ reports, guesses hazarded without compasses or sextants—was discarded and lost. Eventually, the higher standards paid off—by the nineteenth century the maps were filled in again—but for a while the sharpening of technique caused loss as well as gain.

The point being that economists, for good reasons, often need to rebuild a structure of known facts and ideas — not because they could not know these things by other means (like a good cartographic historian would) but because for economists to talk to each other, they need to express the objects of their curiosity in a form that their colleagues can understand. So far so good — but such mutual comprehensibility can come, as MacFarquahar documents Krugman discovering, at the expense of insights available for the taking. This is what I mean when I say, as I have on occasion that economics is an aspiring, or simply a young discipline

That is: economics as practiced in the academy is in possession, its practitioners believe (and I mostly do too, not that my opinion matters) of a body of methods and a growing number of results that suggest that it is a powerful way of analyzing certain kinds of human behavior, and for making useful predictions about some things. But it is far from as comprehensive in its explanatory power as some of its practitioners — and many more in the economic pundit class — would have one believe.

What’s more, it’s important to remember that there is a difference between a valid result and an empirically valuable one. More bluntly: it’s not just possible, but common to come up with something that is absolutely “right” within the framework of economic thinking that is simply false in the real world. MacFarquar writes:

The most successful paper Krugman ever wrote was about target zones, and it was completely wrong. In the years before Europe adopted the euro, it was thought that establishing something between floating exchange rates and fixed ones—a “target zone” within which a currency would be allowed to float—might reap some of the advantages of each. He estimates that by the time the paper was officially published, in 1991, some hundred and fifty derivative papers had already appeared. “Empirically, it doesn’t work at all,” Krugman says. “People loved it as an academic thing, but it had some very strong predictions about interest rates inside target zones. Those predictions all turned out to be wrong. But nobody attacked me for that. I was showing that if target zones worked the way that people say they’re supposed to work, then this is how it would play out.”

Economics — academic economics — “knows” much more than it knows…and that’s perfectly alright for the development of a body of thought. The problem only surfaces either when economics results are given more credence than they deserve in the making of public policy and/or opinion. I’d blurt “supply side” here, except that this was explicitly controversial within the profession, and so the history of supply side policy is not simply a story of a consensus too confidently achieved, but rather of the catastrophic process by which bad ideas are transformed into political certainties…which leads directly to the second half of my diagnosis of pathologies…

…and that would be when economists — or political/ideological allies — present as settled conclusions that are either uncertain or false.

You see that a lot these days with deficit hawks — those folks who know what ain’t so, which is that deficit spending in the context of below-capacity employment and production can’t spur growth. It’s a view associated with the freshwater school, and disputed hotly by the saltwater crowd, and by reality…and it is discussed amongst much else by Krugman himself within his now famous (or notorious) article “How Did Economists Get It So Wrong.”

All of which is to say: 1) Read the profile,

.and 2) remember: economists, especially those who tell that GOP tax and budget policies will get us out of a recession, match Martin Rees‘ definition of cosmologists:

Often (always?–ed.) in error … but never in doubt.

Image: Jan Vermeer, “The Geographer,” 1668-1669.

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This entry was posted on February 24, 2010 at 5:15 pm and is filed under Economic follies, economics, good writing. You can subscribe via RSS 2.0 feed to this post's comments.

Tags: economics, Krugman, The New Yorker

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