In the epilogue of their blockbuster book Mostly Harmless Econometrics (2009), Josh Angrist and Steve Pischke write, “If applied econometrics were easy, theorists would do it.” As academic jokes go, this one is reasonably funny. But coming at the end of a book that didn’t display the slightest interest in economic theory (and why would it?), the joke feels gratuitous. It prompts the reader to look for some hidden resentment behind the joke.
Such resentment against economic theory and economic theorists is something the authors could have picked up during their formative years as graduate students. The late 1980s were peak years in terms of the status of economic theory within the broader economics profession. The field had gone through the so-called game theory revolution and was busy rewriting graduate-level economics textbooks. Graduate programs put a large premium on abstract formal modeling and accompanying mathematical techniques. This created dismay among students, who had other reasons for pursuing an academic career in economics.
David Colander and Arjo Klamer captured this mood in a Journal of Economic Perspectives article, “The Making of an Economist,” which they later expanded into a book. During interviews with students in top graduate programs, they observed that their interlocutors didn’t like the outsize role of economic theory and mathematical technique in their curriculum:
As to the things they liked least, the majority of comments focused on the heavy load of mathematics and theory and a lack of relevance of the material they were learning.
Still, the students understood the culture they were immersed in:
They are convinced that formal modeling is important to success, but are not convinced that the formal models provide deep insight into or reflect a solid understanding of the economic institutions being modeled. Believing this, they want to be trained in what the profession values. Thus we find that students who believe they are not being taught the most complicated theory feel deprived and unhappy because they worry about the ability to compete.
The sense that “real economists” are being oppressed by a subculture that fetishizes formal modeling and mathematical pizzazz keeps resurfacing from time to time. Here is Thomas Piketty’s memorable quote:
The discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences.
Occasionally, the expression of this sentiment carries political overtones. Paul Krugman’s famous 2009 New York Times article “How Did Economists Get It So Wrong?” associated it with political conservatism and a strong belief in the postulates of rational choice and competitive markets:
The economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. ... [A]s memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations. ... [T]he central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.
Krugman’s beef was with macroeconomic rather than microeconomic theory (which is what most academic economists associate with the term “economic theory”), but the resentment is similar: a culture in love with “fancy equations” derails the discipline from its right path. It is significant that Krugman lumps theory loving with belief in rationality and markets (and implicitly, with right-wing politics). He’s not the only one performing this trick, and I’m not the only one who noticed.
These gripes about the unwarranted dominance of theory in economics have become less frequent over the years. Once the game theory revolution was complete and the textbooks were rewritten, economic theory reached a stage of consolidation and gradually reassumed its traditionally marginal position in the professional landscape. At the same time, the status of empirical work in economics has risen dramatically. Increased computing power, proliferating data sets, and greater confidence in their methods have made empirical economists happier about the state of affairs. They have developed a sense that the discipline is moving in the right direction and becoming more scientific. When David Colander wrote a sequel to The Making of an Economist, he was pleased to report that 20 years after the original Colander-Klamer interviews, the students at top graduate programs were at ease with the more modest role of theory in their education.
Indeed, the balance of power between theorists and “real economists” has shifted. A popular narrative has emerged: Once upon a time, data was scarce, and so we had to base economic analysis on theoretical arguments, but now there is plenty of data and we know how to deal with it, and so the theorists can return to the back seat, where they belong; the inmates no longer need to run the asylum.
A parallel trend, which may or may not be related, is the increasing career premium for publishing papers in the discipline’s “top five” journals (The Quarterly Journal of Economics, Journal of Political Economy, American Economic Review, Econometrica, The Review of Economic Studies). This trend has become so strong that people now refer to it as the “curse” or “tyranny” of the top five. Since members of this mighty fist orient themselves as “general readership” journals, authors are expected to address the “general reader,” who is — needless to say — not a theorist. This further shifts the balance of power. Theorists can no longer settle for satisfying each other; they are busy pleasing members of other fields.
This attitude is a one-way street: Labor economists probably don’t have theorists in mind when submitting their work to the top-five journals, whereas theorists are expected to put themselves in the labor economists’ shoes. The eminent theorist Debraj Ray, until recently a co-editor at the American Economic Review, once told me that his editorial decisions on theory papers are guided by what he called the “Mark Gertler test” — namely, whether he can successfully pitch the paper to his New York University colleague, the leading macroeconomist Mark Gertler. I replied that I wonder whether Gertler would apply a “Debraj Ray test” if he handled a macroeconomics paper as an AER editor.
Theorists’ anxiety about their place in the broader economics community is nothing new. I remember that, in 2000, my longtime collaborator Kfir Eliaz and I went to Bilbao for the first World Congress of the Game Theory Society. I had recently finished my Ph.D.; Kfir was about to finish his. We surveyed the colleagues who swarmed the large conference halls and played the silly game “economist or modeler”: The task was to classify every senior theorist we saw into one of the two categories, “real economist” or “mere modeler” (the two of us clearly belonged to the latter).
Yet, the pressure on theorists to define themselves vis-à-vis applied economists and seek their affirmation has only grown stronger over the last two decades. For a recent demonstration, we need look no further than the 2020 Nobel in economic sciences that went to Paul Milgrom and Robert Wilson. As any theorist would agree, these are two highly deserving laureates who made several landmark contributions to economic theory. And yet, a huge portion of the background information provided by the prize committee was devoted to the laureates’ practical work on auction design at the service of governments or private companies. The message was not lost on commentators. Tyler Cowen wrote in his blog:
The bottom line? If you are a theorist, Stockholm is telling you to build up some practical applications. ... The selections themselves are clearly deserving and have been “in play” for many years in the Nobel discussions. But again, we see the committee drawing clear and distinct lines.
The pressure to be practically useful is arguably the most powerful force that acts on contemporary economic theorists.
Another dimension represents a view of economic theory that emphasizes “artistic” or “aesthetic” values — particularly the tickle that we get when encountering a good story, dressed in the language of a formal economic model. Here is what the macroeconomist Robert Lucas had to say in 1988, in a beautiful commencement address to University of Chicago students, later published under the title “What Economists Do” (and it is significant for our story that Lucas was a chief villain in the narrative that Krugman’s 2009 journalistic piece concocted):
Economists have an image of practicality and worldliness not shared by physicists and poets. Some economists have earned this image. Others — myself and many of my colleagues here at Chicago — have not. I’m not sure whether you will take this as a confession or a boast, but we are basically storytellers, creators of make-believe economic systems. ... In any case, that is what economists do. We are storytellers, operating much of the time in worlds of make believe. We do not find that the realm of imagination and ideas is an alternative to, or a retreat from, practical reality. On the contrary, it is the only way we have found to think seriously about reality.
I don’t know if Lucas felt this way later in his life, but I know that Ariel Rubinstein does. In various lectures and essays, such as his Econometric Society presidential address or his 2012 popular-science-ish book, appropriately titled Economic Fables, Rubinstein presented the unadulterated view of economic models as stories. According to him, our response to a successful economic model is like the response to a good fable. It is not a scientific response but an “artistic” one. It is a recognition that the model offers an abstract representation of reality that we find edifying in a way that we cannot or will not subject to a properly scientific test.
Theorists’ sense of mathematical superiority offers partial compensation for their sense of inferiority on the “usefulness” dimension.
The culture of economic theory can be viewed as an intricate maneuver between the applied and the aesthetic, the “scientific” and the “artistic.” A theorist’s professional identity has a lot to do with how she locates herself in the space defined by the applied and aesthetic dimensions.
Of course, the theorists’ value system is not two-dimensional; they use additional criteria to guide their own work and evaluate the work of their peers. One criterion is technical brilliance. Above-average aptitude for math is a key part of many theorists’ self-worth: Krugman got that one right! Theorists’ sense of mathematical superiority offers partial compensation for their sense of inferiority on the “usefulness” dimension. As the latter became more acute, theorists felt a need to double down on the former. Over the last two decades, economic theory has become outwardly more technically demanding.
Another criterion is conceptual innovation, the mission of broadening the scope of what formal models can say about economic behavior. In the revolutionary 1970s and 1980s, when economic theory exerted its “oppressive” power over the rest of the economics profession, expanding the language of economics was a shared core mission among theorists. Even in today’s post-revolutionary phase, our culture still rewards theorists for pushing economics’ conceptual envelope (although demand for this kind of work appears to be weaker now).
These four coordinates — the applied, the aesthetic, the technical, and the conceptual — have always shaped the professional culture of economic theory. Changes in our culture amount to changes in the relative weights that we assign to them, but also in our expectations as to how many of these dimensions a single piece of economic theory should occupy. My impression is that, over the years, this number has gone up, especially when it comes to top-five publications. Yet, ticking multiple boxes with a single paper — offering a conceptual innovation and demonstrating it with a convincing “economic application,” or writing a thought-provoking story that also shines with flashy mathematical technique — is a devilishly difficult feat. It may be a fool’s errand, but many theorists still try, fueled by the increasing pressure to score top-five publications. This tendency is another key factor that defines the contemporary culture of economic theory.
Economic theory’s elusive mixture of “scientific” and “artistic” elements is probably what attracted me to it in the first place. I don’t think I would have been drawn to the field if it had been too far on either side of the art-science spectrum. Maybe the mixture will change in the future, in which case it is likely to attract a different type of scholar. Maybe it is already changing.
This essay is adapted from The Curious Culture of Economic Theory, just out from the MIT Press.
