Ross Gittins, the economics editor of the Sydney Morning Herald, yesterday threw a fit; you can read it here. Basically arguing that economists are hopelessly committed to something he labels the “’neo-classical’ model”, he claims that
“This conventional economics reduces all economic activity to that which happens within markets. It further narrows the operation of markets to the setting of prices, assuming movements in relative prices are the primary thing influencing the behaviour of producers and consumers.
It thus abstracts from the role of ‘institutions’ – be they organisations, laws or conventions – in influencing market behaviour, so often leads economists to make policy recommendations that prove seriously misguided.”
These are astonishing claims; somehow Gittins seems to have missed the emergence of (non-cooperative) game theory of the eductive and evolutive kind, modern Industrial Organization (including organizational economics and contract theory as well as corporate finance as encoded in Tirole’s 2006 book), the law and economics movement, modern institutional economics, (market and mechanism) design economics, experimental economics, and behavioural economics. As a matter of fact, there are literally thousands of published articles, and consulting reports for governments and various government bodies, that have been written on various economic aspects of organizations, laws, regulations, and, yes, conventions. There are now even high-quality journals dedicated explicitly – qua title – to those areas of research. In fact, most of these topics are being taught at better Australian universities in their undergraduate program. That’s because the subtle influence of institutional details – for example in various matching mechanism and other market and mechanism design problems (e.g., here for an example of a prominent contributor and likely future Nobel Prize laureate and his work and here for an example of another prominent contributor who should, arguably, have received the Nobel Prize together with Smith and Kahneman a few years back already and still might) — is widely acknowledged.
That’s also why social, and anti-social, preferences have become a veritable cottage industry, as has a related literature on altruistic punishment (Google currently lists under “altruistic punishment” more than 3,500 scholarly articles.)
And, of course, economists have for a long time, and famously, been attacked for their “imperialism”, i.e., their attempts to analyze other than market phenomena. (“Economics imperialism” features 500 Google hits.)
The “’neo-classical’ model”, truth be told, has long been superseded by a wide and ever increasing variety, and diversity, of methods and models.
Yet, it does not mean that more standard game-theoretic models (probably to Gittins’s mind part of the neo-classical model world) are not useful. Somewhat ironically, his discussion of Ostroem’s work, and the claims that Gittins makes about the originality of her work, illustrates that point.
Says Gittins:
“For a good example of the way different analytical models can draw different conclusions about the same problem, consider an old economists’ favourite: the ’tragedy of the commons’.
…
Because no one owned the common area, no one had an economic incentive to look after it. Indeed, each individual had an incentive to get in and use as much of it as possible, as quickly as possible, before other individuals used it up. So what was everyone’s property was actually no one’s property – and that was the essence of the problem.
…
Many economists thought it obvious that the solution was to allocate private property rights over the commons.
…
Neat, eh? Of course, there were also some who saw the solution as having the government take over the common property, maintain it and allocate its use on some fair basis.”
Gittins then goes on saying that recent Nobel prize laureate Elinor Ostrom
“devoted much of her career to combing the world looking for examples where people had developed ways of regulating their use of common resources without resort to either private property rights or government intervention.”
Her excursions were indeed successful, something that would not even have surprised Adam Smith who wrote, after all, extensively about the emergence of languages, moral sentiments, and institutional regulations (and their abuse) .
Ostrom found, that “(i)n all these cases people drew up sensible rules for sharing the use of the resource and combined to perform regular repairs. People who broke the rules were fined or eventually excluded.”
Well, that is exactly what standard “neo-classical” game theory, with its heroic common knowledge and rationality assumptions, would suggest, no? The people living in mountain villages in Switzerland and Japan, and fisheries in Maine and Indonesia, and similar repeated-game situations might be able to reach other equilibria in social-dilemma situations than those in one-off situations exactly because they have punishment options of various kinds. That’s the kind of stuff – the issue of “reputational enforcement” (Google lists more than 1,500 scholarly articles on it) — now routinely taught in undergraduate courses. And, yes, Adam Smith understood reputational enforcement exceedingly well, too.
It is simply nonsense to argue:
“Few economists had heard of [Ostrom], or her model-busting work.Why had this solution to the problem never been considered by economists? Because of their model’s implicit assumption that we only ever act as individuals, never collectively. We compete against each other, but we never co-operate to solve mutual problems.”
No, no, no. This is what game theory is all about: individual actors inter-acting (or, acting collectively). There are well defined conditions, well understood by most modern economists, under which interacting optimizing individual actors co-operate. There are also good reasons why proponents of the Nash program (which postulated, for the sake of robust implementation, that cooperative solutions be grounded in non-cooperative assumptions) have belaboured for the last five decades that very point, with considerable success since non-cooperative game theory today is the only game in town that matters and that, incidentally, is the heart and soul of theorizing about reputational enforcement. And has been that for at least three decades, as demonstrated by the classic work in the early 1980’s by people such as Klein and Leffler and Shapiro.
That the economics editor of one of Australia’s finer newspapers is that uninformed about modern economic theory is bad enough. That he has no qualms to regurgitate the same old tired misperceptions about economists, and the alleged false policy advice they give, is appalling. For all I can see, Gittins’s poorly informed opinion piece reflects more on his ignorance than the stupidity of economists currently working in Australia. At least not economists working in academia.
Core Economics 
Your hypothesis about what Australian Universities are and are not teaching is an empirical question. I assume your conjectures are based on your own experience plus conversations with some colleagues. I’m doubtful that all “good” (whatever that means?) Australian Universities expose their undergraduate to this material. To the contrary, you mention rather esoteric concepts from sub-fields that are not covered well in core subjects. What course do you suppose people learn of these things in, “divergences from mainstream dogma”? I’m skeptical that these topics are covered in the core and you won’t convince me otherwise without some Australian syllabi documenting this.
To settle the score, you could first tabulate data for the G8 economics departments (since these are the ‘good’ ones right?) and see what courses they are teaching. A more detailed account, however, would require looking at the individual syllabi to examine the reading lists and topics covered. In any event, these are all relatively new developments so people who graduated say, 10 years ago might be excused for not knowing?
Perhaps the Australian academics you mention who “know it all” share some blame for the supply of “ignorant” journalists and common folk. Your post is a small attempt to address that, and I applaud you in that respect. However, like most of the posts on this blog it’s narky and condescending. That fact will weaken any influence as most people don’t have the tolerance for this. As self-professed experts on anti-social preferences (and anything else one might care to have an opinion on), economists should know this. It’s the hubris that turns people off, not the fact that the discipline is being modest about its accomplishments.
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student,
I agree the fields Paul mention aren’t all covered in the core, but that’s the point, you can’t cover everything in the core. The core should cover the methodological framework that provides the foundation for the fields. In this way, I would consider micro and metrics core but macro a field.
Paul,
To be fair, I think Gittins conclusions are correct but the premise wrong. Contra Gittens, economists have relatively little influence, policy is determined by political competition between interest groups.
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Student, Paul? I’m getting confused here.
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Andreas, I think you might have missed a subtle point in what Gittins says. Gittins’ first line is “Many people don’t realise the economics we hear from politicians, business people, economists and the media… is just one way of analysing how the economy works.” I assume that Gittins knows his readers do not hear from economists in academia. And that contributes to the problem he is describing (and others he has described in the past). Maybe you should try to be read by a broader audience? The “economists” Gittins is referring to, from which we do hear alot, have mostly had nothing to do with academia. Many of them probably not even completing graduate-level study. Therefore most of what Gittins says does apply to them.
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Craig, I actually was wondering about that but he did not qualify what he meant by stupid and ignorant economists. And, to boot, what he said about economists ignoring institutions is simply not correct and has not been correct for a long time … . I assume you are right in your conjecture that Gittins’s readers do not hear from economists in academia. I submit that this is an excellent reason to paint the profession with a finer brush rather than to rehash the same old same old.
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t,
as a matter of principle I do not respond to anonymous posters especially if they engage in judgemental comments. I’m fine with such comments but not when they come from cowards. In this particular case I know, in addition, that your opinion is one of several public and private ones (one of the private ones asking me for permission to reprint and all of them applauding me). The preceding statement probably sounds condescending to you, so I apologize in advance. U seem to be an easily irascible character.
Cheers,
AO
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CraigM has nailed it.
I’ve spent the week at the Australian Conference of Economists, mixing with hundreds of academic, public and private sector economists, and can attest to the general soundness of Gittins’ argument.
There is a saying that those who talk most have the least to say, and the same applies with the economics professions. The economists who talk the most generally have some very basic education in the neo-classical model, probably from over two decades ago, and that’s it, yet they dominate the public debate.
Very few younger economists with a broad knowledge of recent developments in the discipline get any airtime in public debates. In fact, I can’t think of any. Who would a journalist call if they wanted an opinion from an economist who understood these broad fields? And how relevant are these mostly micro-economic fields to the most critical current policy issues?
For example, what sort of policy recommendations would these economic fields prescribe for the situation in Europe? To improve the US economy and employment? To cope with expected volatility in the domestic economy through increased reliance on narrow export base (iron ore and coal)? How would you communicate any of this to the regular newspaper reader?
These are genuine questions, and probably shed some light on the source of Gittins’ frustrations.
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Cameron, thanks for your comment.
Here is an episode. A couple of months ago when uncertainty wss headed once again for a spike in Europe just before the weekend, I got a call from some dingbat at The Australian. She wanted to confirm with me that those people that were going out of certain assets before the weekend were acting irrationally. I begged her to differ.
Explained by way of a simple coordination game that indeed it might be quite rational to do so. After about twenty minutes, she said: “So people are irrational … .” At which point I gave up, iterated that I thought we just established that, no, that might well have been rational behavior, insisted that she verify the quotations she wanted to use (she used two lines out of 20 minutes of conversation), and wished her a good weekend.
Now, there is the possibility that I did a miserable job in explaining what the strategic issue was (unanchored beliefs and all) and why her assumption was wrong.
But I do have some experience, and the teaching evaluations to show it, and the overwhelming fraction of my (undergraduate) students takes at most 5 minutes to understand coordination problems. Which leaves me to believe that in this case it was The Australian dingbat that did not get it.
Which is fine. I do not expect a journalist working for someone — Murdoch — that has been found “unfit” to run a newspaper by the Levinson inquiry -, to be up to the task.
I was surprised though how spectacularly The Australian hired hand failed the test. She would have failed every class I teach, I conjecture. What’s depressing is that someone who is clueless — like Gittins about modern economic theory — is allowed to shout off in a newspaper that I actually do value. You would think Fairfax can do better. At least without Rinehart.
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The problem is a long time ago some economists decided to call a mathematical model rational choice theory and ever since economists have been fighting a losing battle against the world that economic/mathematical rationality is not everyday rationality …
But I agree with CraigM and Cameron and my original comment was addressed to Andreas, not Paul.
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Andreas,
I would argue that the ‘dingbat’ at The Australian should not need to do any economics training. She is writing precisely for people who have not done any (as is Gittens). In general, in a process of influencing debate among non-economists, it seems like a mistake to compare the performance of non-economists against economics students. The process might simply be a challenging, and often frustrating, endeavour. And perhaps more so Australia where authority/qualifications mean less in cultural terms. But I note that lawyers submit their reasoning for testing by non-lawyers. I wonder if economists should be similarly prepared to submit, particularly if the quality of debate is low.
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Craig,
I would hope that everyone writing for a national newspaper has a) some appropriate training in the relevant subject matter and b) tries to stay on top of the academic side of the subject matter. Especially when it comes to areas like business, finance, and economics. Politics/political science, too. That said, I completely agree that many of us academics would benefit from trying to communicate academic insights to a non-academic audience. I understand the purpose of CET, The Conversation, and similar endeavors to be exactly that and that’s a good thing in my book. Not to say that these translation attempts are not sometimes far from perfect. That certainly is true, occasionally, for my own attempts. Dah.
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I’m someone who did their formal study a long time ago and has never been involved in undergraduate teaching since, so I’m just like Gittins. I too get frustrated with public economics commentators who just have not been paying attention since their youth but Gittins is far from the worst of these.
The worst are the people who dominate public commentary on matters economic because it is in their interest to so dominate. Good examples are bank economists talking their book and paid shills from business-funded think tanks. Neither group will put a high priority on public understanding of the policy implications of recent developments in economics where such understanding might cloud their story.
As an aside for old economists like me who never did nearly enough game theory I do recommend Herb Gintis’ rigorous yet entertaining “Game Theory Evolving”.
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Andreas – I enjoy this discussion and have empathy for both sides – it is possible to agree with differing opinions.
As to you last post, I agree, however –
On the one hand – it is pretty difficult for people outside of academia or currently studying to keep abreast of current developments and literature.
On the other hand, it does dismay me when I read or listen to economic commentaters in the media how very shallow they seem to be. I have a passing respect for say Terry McCrann of the News stable, but phew – he graduated with Hons in Eco about in the year dot. Maybe he does try, however he is a journalist first and economist second and knows his audience.
As to communication – I know that the audience isn’t stupid and would be pleased to learn about the nuances, however in general I have found that those most qualified to do so explain it rather poorly for the general audience, who want to understand it in an intuitive sense – not with technical speak (jargon). I recall an interview with Noam Chomsky, and I am buggered if I could understand what he was talking about to my dismay.
As to the point about economists being subjected to review by non-economists – that is not uncommon especially in judicial proceedings which a contributer here will confirm from first hand experience.
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DD –
Agree that Gittins is not one of the worst offenders but there were just so many things wrong and offensive in this particular opinion piece (to start with, title of it), that I felt challenged enough to bother. I normally don’t .
An alternative to Gintis’s book I would recommend Binmore’s wonderful (and eminently readable) “Playing for Real. A Text on Game Theory.” Another quite wonderful book in this area is Kreps’s “Game Theory and Economic Modelling”. I guess I have just revealed what an old geezer I am ?
Lloyd,
Agree that it is possible to agree with differing opinions. I also agree that it is difficult for people outside of academia or currently studying to keep abreast of current developments and literature. But I would argue that a journalist does have some obligation to do so. Or to just shut up if they are clueless.
As to your point about those best qualified being often poor communicators, I also agree. The good news is that some increasingly try (e.g., through various blogs, some of them being quite influential in this way. I think, for example, of Quiggin here). I think we are going to see more of it. Certainly in Australia there seems to some such trend …
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The talent and skill set of a good communicator and a good analyst are quite different and very few have both. Sad, but a fact of life.
I’d be even stronger than you are on the obligation of those speaking up on technical issues to ensure they keep themselves up to date. What would we think (say) a genetics correspondent who ignored developments of the last forty years?
This example hits home to me because I did population genetics in a degree 40 years ago and my daughter is now studying it. Dynamic game theory has changed it beyond recognition.
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It’s worth understanding this about Gittins.
He’ll write with some moderate degree of sophistication about — and sympathy for! -economics and economists when it suits him. If there’s someone ELSE saying something silly that he can debunk with some economics, that’s what he’ll do and his rhetoric will shift.
But when he wants to push something that is ever so slightly on the fringe of “conventional economics” (rational actor equilibrium theorising, or some such) he’ll sharpen his rhetoric and talk about “the” mainstream economics model, as though there’s only one and we’re all in agreement.
This is deliberate quasi-heterodox product differentiation, as conducted by (for example) the Political Economy Dept at Sydney who spend a lot of time positioning themselves as anything that isn’t “mainstream” economics, where mainstream economics is necessarily reduced to a straw-man version.
Perhaps not surprisingly, Ross tends to recruit young staff out of the PE program rather than those from a conventional economics program. To their credit, and despite their rhetoric, the PE program seems to contain enough useful conventional economics that it’s better graduates are quite well-trained. (Perhaps not in high powered game theory, but that could be true of BEc grads too.)
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As said, I agree that G is not the worst offender. The simple point was that this particular opinion piece contained a number of factual mistakes and untenable statements.
I felt they had to be addressed.
For those interested in seeing a real giant of design economics: stop by the Australian School of Business where Professor Charlie Plott of Cal Tech will give a talk this coming Friday in the afternoon. For details, write me a private message: [email protected]
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I guess my point really is that complaining about Gittins being “ignorant” of modern economics is kind of missing the point.
Firstly, like most economics journalists, he’s much more interested in policy debates than the finer technical points of theory. This in itself is not inappropriate. He doesn’t need to know a whole lot about subgame perfection or solving Hamiltonian functions. Where he’d have an interest is how theory is applied to tackle policy problems. One might expect him to be fair and judicious here, and that might be where you have a legitimate complaint, because he isn’t always. But …
Secondly, he’s a kind of public intellectuals, who tend to belong to camps — that is, they engage in an extreme version of the pattern Alan Blinder noted regarding Presidential Addresses: givers of such addresses tend to either celebrate their profession/discipline, or chide it. “Public intellectuals” commenting on economics often do this binary thing in an exaggerated fashion — they are often either extreme cheerleaders (economics is wonderful and contains all the answers, or at least the potential for same) or critics (economics is misguided and economists are idiots or insane ideologues or both).
Gittins is interesting (frustrating?) in that he will adopt whichever role suits his argument of the moment. When he has a particular piece of policy relevant research done by a mainstream economist, he takes it seriously and plays it straight (like this one for example.
On the other hand when he has scope to put the boot into the economics profession, he doesn’t show a lot of nuance. Maybe it’s a word limit thing. But his point that a lot of quite simplistic economics has been applied to policy problems and tasks is not entirely unfair, and in that, he probably doesn’t sound too dissimilar to someone like Joe Stiglitz.
Sometimes, I think academic economists err by going a little too far in regarding themselves as part of a broad-church profession of reasonable people holding diverse views who engage in reasoned and critical enquiry, and express dissent and disagreement in detached and reasonable tones. (I’ve certainly been guilty of this.) That’s not always how economics makes its way into the public sphere, including in the policy discourse that economists contribute to.
Just my $0.02 and whatnot.
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I meant to post this link: http://www.smh.com.au/business/propping-up-the-weak-a-spanner-in-productivity-works-20120713-22133.html
(Where I said: “When he has a particular piece of policy relevant research done by a mainstream economist, he takes it seriously and plays it straight.”)
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Well, I disagree. Two cents or not. If someone makes obviously untenable statements, and that as a prominent economics editor, he needs to be called on it.
Again, I know that he is not the worst of the offenders from the journaille. But this particular opinion piece was extraordinarily uninformed and it was time to say publicly that the emperor has no clothes.
I don’t care, really, whether Gittins is much more interested in policy debates than the finer technical points of theory. He did comment on the state of economic theorizing and he got the very basics wrong. As Bob Dylan said, and Wittgenstein before him, that what you don’t understand, don’t talk about.
My $0.02 ;-).
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I agree with the criticism of Gittins. It’s disappointing that Ross should be so ignorant of what is regarded as pretty mainstream economics. Instead he attacks a straw man characterization of NC economics. Mike Harris might be right that Ross picks his arguments to suit his purpose. I don’t endorse that strategy. It might sell papers, but it adds nothing to public understanding of contemporary issues. Ross should know better.. Years ago he was journalist in residence at Melb Uni Econ faculty. He should have taken the opportunity to educate himself about the extent to which economic theory has moved beyond atomistic, perfect competition and maximizing agents.
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I seem to recall Mark Crosby on this very blog advocating austerity poicies for European nations which would lead to economic expansion.
When asked why he did so when the IMF had demolished such beliefs he replied he hadn’t read the paper nor should he be expected to.
People in glass houses!!
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