Economic wisdom at the CEA

Bush has just nominated Ed Lazear to replace Bernanke–who is about to take office at the Fed in lieu of Greenspan–at the Council of Economic Advisors.  You can say anything about dubya’s wisdom on other issues but as far as his CEA nominations go, his record is remarkable: Mankiw, Bernanke, and now Lazear–are all truly heavy-weights of our profession.  It is also interesting that Lazear, a microeconomist, takes the place of Mankiw and Bernanke, both macroeconomists. 

One favorite Lazear piece–which surely pisses off many of my non-economist colleagues–is “Economic Imperialism” (QJE, 2000).  Yes, it is a bit (a lot?) pedantic but that does not make it any less true.

“The power of economics lies in its rigor. Economics is scientific; it follows the scientific method of stating a formal refutable theory, testing the theory, and revising the theory based on the evidence. Economics succeeds where other social sciences fail because economists are willing to abstract. The old joke about a stranded, starving economist assuming a can opener to open a can of food pokes fun at our willingness to assume away what we believe to be unimportant or difficult details. Economists are used to posing the counterfactual question to do analysis. What would one expect in the absence of the hypothesized effect? What would be observed? Do the data allow us to choose between various hypotheses? Economists are not alone among social scientists in following this method, but this form of inquiry has become the standard for economic research.

It is the ability to abstract that allows us to answer questions about a complicated world. As economists, however, we believe in comparative advantage. I have argued elsewhere that the strength of economic theory is that it is rigorous and analytic. But the weakness of economics is that to be rigorous, simplifying assumptions must be made that constrain the analysis and narrow the focus of the researcher. It is for this reason that the broader thinking sociologists, anthropologist and perhaps psychologists may be better at identifying issues, but worse at providing answers. Our narrowness allows us to provide concrete solutions, but sometimes prevents us from thinking about the larger features of the problem. This specialization is not a flaw; much can be learned from other social scientists who observe phenomena that we often overlook. But the parsimony of our method and ability to provide specific, well-reasoned answers gives us a major advantage in analysis.”


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