“Ivory Tower Unswayed by Crashing Economy”

This news article by Patricia Cohen discusses how the recent economic crisis has had a huge effect on the views of policymakers but has not resulted in much change among academic economists:

Since [the stock market crash] the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks. A Newsweek cover last month declared, “We Are All Socialists Now.” And at the latest annual meeting of the American Economic Association, Janet Yellen, president of the Federal Reserve Bank of San Francisco, said, “The new enthusiasm for fiscal stimulus, and particularly government spending, represents a huge evolution in mainstream thinking.”

Yet prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. . . . The financial crash happened very quickly while “things in academia change very, very slowly,” said David Card, a leading labor economist at the University of California, Berkeley. . . . Given the short time span since the crisis began, no one expects large curriculum changes yet. But in addition to Berkeley and the University of Texas, professors at a number of departments including those at the University of Chicago, Harvard, Yale and Stanford, say they are unaware of any plans to reassess their curriculums and reading lists, or to rethink the way introductory courses are organized. . . .

I don’t know what’s going on in econ here at Columbia—that dept is on the 10th floor, and my office is far far away on the 7th floor—but I wonder whether some of this is simply that faculty major universities have not yet been hit hard by the recession. I’m sure it can happen and maybe will, but so far I’ve heard about some hiring freezes and pay freezes but not real hardship: Columbia and other places continue to pay full-time faculty, adjuncts, and grad students, continue with research projects, and so forth. I haven’t heard of a lot of classes being canceled anywhere. When I taught at Berkeley, they gave us all a 3% pay cut one year, and nobody seems to be talking about that.

Again, I’m sure there are some places that are struggling, and I don’t want to minimize the difficulty that many students have in paying tuition, but to return to the original point about the classes and doctrines taught by academic economists: maybe it’s only when these folks feel the pain themselves that they’ll really be motivated to change.

As the article pointed out, academic Marxism has lasted a long time in the face of what would (to a naive observer such as myself) appear to be countervailing evidence, so there’s no reason to think that other refuted doctrines would disappear, especially in an environment where the people teaching these classes continue to be paid well.

12 Responses to “Ivory Tower Unswayed by Crashing Economy”

  1. Daniel lakeland March 8, 2009 at 11:19 pm #

    I think many economists take the current crisis as evidence that their theories are basically correct. They just don’t realize how different economists views are from the everyman.

    The story goes something like this: The Federal Reserve holds interest rates low for many years following a series of economic problems (9/11 and dot-com bust). The government creates two pseudo-government backed lenders (Freddie and Fannie) which appears to provide a statistical arbitrage opportunity between government bonds and mortgages (sell govt bonds and buy mortgages, they’re both essentially risk free and backed by the government).

    The government then proceeds to spend a largish fraction of GDP on foreign wars, resulting in reduced overall productivity over a period of years.

    Eventually, what do you know… markets are skewed, confused, and collapse when the arbitrage opportunity turns out to be not so good.

    This isn’t evidence of failure of the “free market”. It’s evidence that governments that try to pump the economy by keeping interest rates low to increase presidential popularity will do bad things eventually.

  2. Dan March 9, 2009 at 12:20 am #

    In a broader sense, it always takes academic scholarship awhile to catch up with real world events. There’s been some interesting stuff written about the crisis so far, but the data generated by this crisis will take a long time for economists to work though, write carefully about, and incorporate into new theories. And I think that’s a good thing.

    What curriculum changes are econ departments supposed to make? Whoops, there’s a recession, let’s put Marx back on the reading list?

  3. Owe Jessen March 9, 2009 at 1:13 am #

    Just in case you are not aware of the article, Willem Buiter has written an angry article on the uselessness of current macroeconomics: http://blogs.ft.com/maverecon/2009/03/the-unfortunate-uselessness-of-most-state-of-the-art-academic-monetary-economics/

  4. Owe Jessen March 9, 2009 at 1:18 am #

    Just in case you are not aware of the article, Willem Buiter has written an angry article on the uselessness of current macroeconomics: http://blogs.ft.com/maverecon/2009/03/the-unfortunate-uselessness-of-most-state-of-the-art-academic-monetary-economics/

  5. BB March 9, 2009 at 7:24 am #

    As someone trying to break into academia this year (currently ABD)… I would say that the economy is bad for academics. In the 5 years since I started my PhD program, every student graduating had a job by the end of January for the following Fall. This year we’ve got 5 or so PhD graduates and only one currently has a job (unfortunately for me, I’m not the one with the job). Probably 1/3 of the jobs I’ve applied to have been frozen/withdrawn because of budget cuts… and there are probably about 1/3 fewer postings this year. On top of that there has been quite a bit of movement between disciplines…where political science, public health, public policy, economics, and public administration (my discipline) PhDs are all vying for the same jobs… leaving fewer jobs in my discipline that are available. I have a non-academic job that I don’t want, but will probably have to keep it for another year because academia is in recession this year, like the rest of the economy.

  6. Joe Stalin March 9, 2009 at 11:41 am #

    As the article pointed out, academic Marxism has lasted a long time in the face of what would (to a naive observer such as myself) appear to be countervailing evidence,



  7. christine March 9, 2009 at 2:05 pm #

    The tricky thing you have to know here – and if you’re an economics outsider, you just won’t, and there’s no reason you should – is that the academic curriculum on macroeconomics is very different between undergrad and grad. Willem Buiter’s rant is about the graduate macroeconomics curriculum. The undergrad macroeconomics curriculum, which tends to be based on more Keynesian analysis, is actually not so bad for the current environment. Buiter (and the many other critics of current grad macro) are pretty much saying they’d prefer a return to something more like the undergrad approach in the grad curriculum. Almost the last relevant course you’d want to change in response to this crisis is intro macro (though lots of us teaching it are talking rather a lot about current economic conditions, which is fun).

  8. DRDR March 9, 2009 at 3:56 pm #

    Andrew — why do you think feeling the pain of recession will help economists develop better models? Does being victimized by election outcomes really help you do better red state / blue state research?

    I’m a student on the 10th floor. It’s wrong to say we’re not affected by the recession. GSAS stipends are frozen this year. Job opportunities are much bleaker than they were a year ago. There’s a possibility that GSAS will stop funding/housing 6th/7th year students. Believe me, people are affected.

    Most of the concerns expressed in the article regard macroeconomics. The majority of economists are not macroeconomists. Being academics, we’re studying things that are both interesting to us and helpful for forwarding our careers, and just because there’s a financial crisis that relates closely to some portion of our profession doesn’t mean we should all drop everything and devote everything to studying it. Surely there are non-economic implications for the crisis as well — should all such academics, yourself included, drop everything and start studying it as well? Look up Al Roth’s blog — he had a great post defending the profession against devoting too much energy to current events.

  9. Andrew March 9, 2009 at 4:03 pm #

    BB, DRDR: I’m well aware that many people in academia (including in economics) are being effected by the economy. My point was that the faculty–that is, the people who pretty much decide the curriculum–have not really been affected.

    DRDR: In response to your other comments:

    – Yes, I think political scientists are highly motivated to study things based on current events. For example, I think that much of the early-2000s research on political polarization was motivated by liberal researchers who felt frustrated by, and wanted to better understand, the political successes of George W. Bush and the Republicans.

    – If you read my entry above, nowhere will you find a statement that economists should drop everything and devote everything to studying the economic crisis. The questions I raised were descriptive, not directly normative.

    Beyond this, it’s not always clear how to “drop everything” and work on a real-world problem. After the World Trade Center attacks a few years ago, I definitely wanted to drop everything and work on problems of international conflict, but it wasn’t clear to me exactly how to do so.

  10. TGGP March 9, 2009 at 7:07 pm #

    Robin Hanson is puzzled that policy-makers think the crash is such a huge piece of evidence:

  11. Andrew March 9, 2009 at 7:18 pm #


    Hanson writes: “Economists don’t think this crisis has added that much to our total dataset; Obama’s economists may think his new proposals are good ideas, but they almost all thought so a year ago as well.”

    Hanson is in a better position than I to know what economists do or do not think, but certainly my impression from reading the newspaper over the past couple of years is that many economists, from Alan Greenspan on down, have changed their views during this crisis.

    Beyond that, his point about what people thought a year ago doesn’t seem so relevant. As of a year ago, many economists thought that something should be done different from the Bush administration policies, but they had to wait awhile for the change in administration. I don’t see this as evidence that events didn’t change economists’ views on different competing policies.

  12. Anonymous Coward March 11, 2009 at 11:13 am #

    I’m late to the party, but was reminded of this post by Paul Krugman:

    The important question is whether it will remain hazardous for your career as an economist to suggest that the market doesn’t always get it right.