Thursday, February 28, 2008

Obama's Economic Team

Noam Scheiber
reports, among other things, that Obama is getting his advice on economics from academic economists at top departments. I am very un-enthusiastic about the economics profession in general, so, if that were the end of it, I would say "well beats getting economic advice from Arthur Laffer, Karl Rove, Richard Cheney or Ira Magaziner anyway," but there is so much more.

There are three things I don't like about policy advice from economists.
1) many economist do not care about distribution at all, or, rather, think other people hate inequality too much and thus push the other way.
2) Economists are fascinated by the implications that people are rational and that the world is in Nash equilibrium (a much stronger assumption called rationality by almost all economists). This is like trying to re-design brakes assuming friction away.
3) Economists have too much respect for economic theory which, behond point 2, consists of making assumptions which are known to be false and hoping that the conclusions are close enough to true to be useful. The really deadly problem is that, since the assumptions are known to be false, empirical rejection of economic theory does not always have any effect on it's standing or economists' willingness to use it to advise policy makers.

Unsurprisingly, criticism 1 is not relevant to Obama's economic team.

But wait ! It turns out that Obama's guru's guru is Richard Thaler, one of the founders of the school of behavioral economics in which I am enrolled (and the others are/were psychologists). So much for 2.

And finally, the economists in question are strongly empirical, basing their research on data and identifying assumptions in which they and basically everyone else really believe based on common sense.

Excellent. Not only does he consult academic economists, but he has found many of the few who are worth consulting.

Now, I knew that David Cutler was on the team, so this isn't completely a surprise.
Also the economics profession has become much much more empirical in the past 20 years or so.

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