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Why economics gets a bad rap
Point your pitchforks at someone else, thanks
 
Sure, Friedman's work is "glamorous," but microeconomists bat around some ideas, too.
Sure, Friedman's work is "glamorous," but microeconomists bat around some ideas, too. (Roger Ressmeyer/CORBIS)

To put it mildly, economists have fallen out of favor with the public since 2008. First they failed to predict the crisis, or even to acknowledge that such crises were possible. Then they failed to agree on a solution to the recession, leaving us floundering. No wonder there has been a steady flow of anti-economics articles (for example, this, this, and this). The rakes and pitchforks are out, and the mob is ready to assault the mansion of these social-science Frankensteins.

But before you start throwing the torches, there is something I must tell you: The people you are mad at are only a small fraction of the economics profession. When people in the media say "economists," what they usually mean is "macroeconomists." Macroeconomists are the economists whose job is to study business cycles — booms and busts, unemployment, etc. "Macro," as we know it in the profession, is sort of the glamor division of econ — everyone wants to know whether the economy is going to do well or poorly. Macro was what Keynes wrote about, as did Milton Friedman and Friedrich Hayek.

The problem is that it's hard to get any usable results from macroeconomics. You can't put the macroeconomy in a laboratory and test it. You can't go back and run history again. You can try to compare different countries, but there are so many differences that it's hard to know which one matters. Because it's so hard to test out their theories, macroeconomists usually end up arguing back and forth and never reaching agreement.

Meanwhile, there are many other branches of economics, doing many vital things. These other fields — sometimes dismissively referred to as "microeconomics" — actually employ many more economists than macro. Many of these quiet, unglamorous researchers turn out a steady stream of useful insights and new technologies. While their headline-grabbing macro cousins duke it out in the press, the silent majority of "microeconomists" is plugging away at improving various pieces of the economy. Let's take a look at a few:

Game Theory

For example, a big branch of economics is called "game theory." Game theorists have gotten very good at predicting how people will bid in auctions; they can use their insights to design auctions that will leave all parties better off. In fact, Google's highly innovative system for selling ads is based on the research of auction theorists. EBay and Amazon hire lots of economists to design their bidding systems too. Game theory has become so useful to industry that some tech startups are now hiring economists even in their early stages. But it's not just industry that benefits. Lloyd Shapley and Al Roth received the 2012 Nobel Prize for creating a model to optimally match liver donors with transplant recipients. Because of their work, hospitals are much better at finding organs for those in need.

Closely related to game theorists are "decision theorists," who are similarly hard at work figuring out how people make decisions in economic settings. This can involve a lot of math, but also a lot of psychology. Nowadays, decision theorists often do laboratory experiments as well. This is deep, pure research into a difficult and thorny problem.

Statistics

Many economists are also very good at statistics (they have to be, since they usually can't do experiments). This skill makes them very valuable to a huge variety of industries. Consulting firms, for example, hire economists to use statistics to figure out how companies can improve profitability. Demand for financial economists is high in the banking sector. And the emerging field of "big data" often makes use of statistical methods developed by economists.

Financial

My own field of "financial economics" was embarrassed by the failure of financial firms in 1999, 2000, and especially 2008. But those blow-ups have distracted from the real progress we are making. Financial economists have made progress in understanding how trading works, generating ideas about how to curb waste in the industry. "Behavioral finance" has made many discoveries about why normal people make bad investors. Behavioral finance theorists have allied with the much-maligned "efficient markets" theorists to push normal people toward low-cost "passive investing," leading to the rise of index funds and ETFs.

Policy

Finally, lots of economists are working on giving policy advice in fields not directly related to the ups and downs of the business cycle. "Tax economists" help design tax policies that will raise revenue without hurting the economy. "Labor economists" use statistics to discover what will make our workforce productive and healthy. "Development economists" do expensive experiments to help very poor countries figure out how to improve their schools, health systems, etc. There are also "health economists," "agricultural economists," "environmental economists," "urban economists," and more.

All of these subsets of economics — from Game Theory to agricultural economics — have received an enormous boost from the digital revolution. The flood of new data and the development of new statistical and computational techniques have vastly increased economists' ability to understand the world. The days when economists sat around spinning theories are on the way out — the percent of top-rank econ papers that are mainly theoretical has declined from about two thirds in the 1980s to less than one third in 2011.

In the policy world too, economists' statistical skills, combined with their ability to model the decision-making of individuals, make them uniquely useful. This has been true at least since the 1970s, when Berkeley economist Dan McFadden famously predicted the number of people who would use the Bay Area's new BART train system to within a couple of percentage points. In other words, the people who claim that "economists can't predict anything" are just flat-out wrong.

Of course, all of these fields have their own problems and issues; all sciences do. But they generally tend to have much more and higher-quality data than macroeconomics, and so it's a lot easier for them to make real, measurable progress.

So if you really feel you must get out your rake or pitchfork and storm the gates of the economists who fiddled while our economy burned, go ahead. Just make sure that the people's whose heads you are calling for are not in that vast silent majority who are working diligently on the small but solvable problems of "microeconomics." The people at whom you are angry are called "macroeconomists."

 
Noah Smith
Noah Smith is an assistant professor of finance at Stony Brook University. He blogs at Noahpinion.

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