What's Wrong With 'Mathiness' in Economics?
What's Wrong With 'Mathiness' in Economics?
Once upon a time economists made their arguments in long, discursive, often contradictory books about pin factories and newspaper beauty contests. Verbally oriented people like me tend to extol those days, but to most modern economists they were the dark ages.
In the 1940s Paul Samuelson of the Massachusetts Institute of Technology brought enlightenment, in the form of elegant mathematical treatments of the major concepts in economics. 1 Most of these ideas were inherently mathematical anyway, he argued in the introduction to his “Foundations of Economic Analysis,” first published in 1947, which meant that trying to express them in narrative form involved “mental gymnastics of a peculiarly depraved type.”
Samuelson’s approach gave the discipline a, well, discipline that it had previously lacked, and enabled economics to make great leaps in coherence and rigor. It also made the field incomprehensible to laypeople, but that turned out to be more a feature than a bug. Economists were seen as possessing unique scientific knowledge, and came to play increasingly prominent roles in public life in the U.S. and elsewhere. 2 Samuelson’s economics-professor nephew even became Treasury secretary.
There are some obvious limits to this approach. In his entertaining and enlightening 3 new book, “Misbehaving,” University of Chicago behavioral economist Richard Thaler documents case after case of “theory-induced blindness” 4 in which economists ignored interesting and important real-world phenomena because they didn’t accord with the dominant mathematical models. Since the financial crisis, the conviction that macroeconomics in particular has reached a sort of theoretical dead-end has gained ground even among mainstream economists.
That’s not what Paul Romer is arguing, though. In a provocative paper presented in January at the annual meeting of the American Economic Association and just published in the American Economic Review, plus a series of combative blog posts, the New York University professor and famed economic theorist complains that some of his fellow economists have been resorting to what he calls “mathiness.” This is a variant of comedian Stephen Colbert’s “truthiness,” and means that they are using mathematical models not to elucidate or investigate but basically just to assert. Samuelson and others of his generation believed that mathematical reasoning would clarify economists’ arguments. Romer claims we’ve reached the point where:
Presenting a model is like doing a card trick. Everybody knows that there will be some sleight of hand. There is no intent to deceive because no one takes it seriously. Perhaps our norms will soon be like those in professional magic; it will be impolite, perhaps even an ethical breach, to reveal how someone’s trick works.
Two very smart people with economics doctorates, my Bloomberg View colleague Noah Smith and Joshua Gans of the University of Toronto’s Rotman School of Management, have already weighed in with assessments of Romer’s argument. Noah’s take, on his personal blog, was basically, So what’s new? Theories in macroeconomics have always been mainly a form of storytelling. Romer, in response, called Noah “jaded.” Noah, who got his Ph.D. just three years ago, allowed that this was true. Gans basically agreed with Romer, but said he would like to see a more systematic examination of whether this is really a “pervasive problem.”
Systematic isn't a word one can use to describe Romer’s mathiness paper. He only cites a handful of examples, and his main complaints seem to be with two economists, Edward Prescott and Robert Lucas. But for someone like me who cares more about stories than theories (even theories that are apparently just stories), that’s where things start to get interesting.
Prescott, who teaches at Arizona State University, and Lucas, of the University of Chicago, aren’t just any economists. They’ve both won Nobels, Lucas in 1995 and Prescott in 2004. They are leading figures in the rational-expectations movement in macroeconomics that some criticize for having led the field into a cul-de-sac. Most important to this tale, they were both key intellectual influences on Romer as he formulated the theory of growth that will almost certainly someday get him a Nobel too.
Lucas was on Romer’s dissertation committee at the University of Chicago in the early 1980s. And a 1971 Lucas-Prescott paper on “Investment Under Uncertainty” provided some of the mathematical techniques Romer used to build his growth model, according to David Warsh’s history of growth theory, “Knowledge and the Wealth of Nations.” Crucially, they allowed Romer to build a model of how economies grew that incorporated technological innovation but also assumed perfect competition.
That last part was important at the University of Chicago in those days -- economic models that didn’t start with perfect competition were deemed suspect. 5 Romer, though, became more interested in solving policy problems than staying faithful to a particular methodological approach. He went on to teach at the University of Rochester, Chicago, Berkeley and then Stanford before briefly quitting academia in 2008 to promote the idea of “charter cities” that could pursue economic growth unburdened by counterproductive national laws. And he became convinced that "monopolistic competition is a better way to model innovation than price-taking competition."
Lucas and Prescott have resisted this approach and that's OK, Romer says -- disagreement is part of the scientific process. But in their recent work on growth, he alleges, Lucas, Prescott and their co-authors have also relied on misleading mathiness to make their points and sometimes committed outright mathematical errors. I am not equipped to judge whether Romer is right about this. I do believe that Lucas and Prescott are set in their ways and dismissive of the new directions economics has taken during the past couple of decades.
One way to look at this -- Romer's way -- is that they have stooped to violating the rules of scientific discourse. Another is that Lucas is 77, Prescott 74. They’ve both got Nobel prizes and prestigious professorships. Whaddya expect?
Stanford's Kenneth Arrow, now 93, is the great counterexample of a towering and aging economic scholar who stayed interested in what the kids were up to. Samuelson, who died in 2009, wasn’t bad on this front either. But I think Milton Friedman, who remained quite well-informed on current affairs up to his death in 2006 but was neither aware of nor interested in developments in academic economics after about 1980, may have been more representative of the norm.
Then again, Friedman mostly gave up writing for academic economics journals after the early 1970s. Lucas and Prescott are still at it. Perhaps part of what the 59-year-old Romer is saying is just, “Get off my lawn, old men.”
Yes, this is an extreme oversimplification. There were lots of other people involved. But if you’re going to pick one, it’s Samuelson.
Noah Smith has credibly argued that the biggest reason for economists’ jump in status was that they also learned statistics. Still, I think theory played an essential role.
Also discursive and possibly, in a place or two, contradictory. But not all that long.
Thaler credits psychologist Daniel Kahneman with coining the phrase.
Brad DeLong blames all this on George Stigler, along with Milton Friedman the leading figure in the Chicago economics department of the 1950s and 1960s. Romer discusses this background, too. But there’s only so much intellectual history a guy can fit into one column, so I’m not going there today.
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