5 signs you misunderstand what an economic expert is
You are about to read the second article of a posts series entitled “Are economists useless?”. To read the first post of the series and know why the hell I (a trained economist) am asking this question, simply click here and get on the ride.
Error n° 1: an economist is an accountant
Let’s start by putting a stop to the biggest misunderstanding about the economics profession: I am not an accountant. I am often unable to do what the latter does. Some of my peers have only a vague idea of the difference between a balance sheet and an income statement, and are mostly agnostic as to the allocation of expenditures.
In France (I’m French), and perhaps also in other Latin countries, but that is a personal guess, this myth probably originated in a common etymology between economics profession and the term “économiser” (which means “saving money”). If we want to illustrate this linguistic misunderstanding, one could therefore say that knowing economics means knowing “to save money”. In the same way, one could think that an economist knows how to reduce costs and optimize the health of a business. The truth is that this is rarely the case, or at least, if economists know how to provide advice to companies, it is not thanks to accounting tools.
Error n° 2: an economist is a financial expert
Second frequent misunderstanding, related to the first one: an economist isn’t — a priori — a financial expert. Unless one is to be a specialist on issues at the frontier between these two fields, an economist often has imprecise knowledge of corporate finance or market finance. Thus, most of the bank employees or investment funds employees are not (only) economists, but are (mostly) financial experts.
However, in the coming years, this finding might evolve rather quickly. Indeed, there is an increasing trend of economics opening itself to finance.
Error n° 3: everyone is a bit of an economist
An economist has an opinion about how the economy works. Okay. But you are going to tell me that your uncle and your aunt also have their views on the functioning of the economy. As the famous theatrical character, Mr. Jourdain in Molière, who would be a poet for “speaking prose without knowing it,” would every news commentator be a bit of an economist?
In a sense, I am tempted to say yes: every news commentator is an economist in the making. He is an aspiring economist. And that is what is exciting with this discipline. It affects us. All of us.
Nevertheless, the question of what makes someone a professional (economist) is not unique to economics. Am I an electrician if I replace my bulbs without help? Am I a physiotherapist if I massage my wife from time to time? Am I a philosopher if I question the meaning of my life with my best friend every time we have a coffee? An economist, like any other professional, has been trained to answer some specific questions more effectively than the man on the street.
In terms of education, a PhD in economics is often presented as the culminating point of training, perhaps rightly so. But must one necessarily have a PhD to be a qualified economist? Is a master degree enough? Or a bachelor degree? Again, no more and no less than in other sciences.
Should one then have a degree in economics at least? In most countries in the world, I would say, yes. However, there are without doubt exceptions. Here in France and until recently, the answer is no: a degree in economics was not needed. Most French economists come from business schools or engineering schools called “generalists schools” (where diverse courses are taken, ranging from mathematics, to physics, computer science, social sciences and languages). But, even in France, this situation is changing with the rise of powerful programs such as Toulouse School of Economics (where 2014 Nobel Prize in economics, Jean Tirole, teaches), Paris School of Economics (where best-seller author Thomas Piketty teaches), Sciences Po or even Dauphine among others.
In short, the economics discipline is increasingly being professionalized.
Error n° 4: an economist is an intellectual (in social sciences) like the others
Currently, in the public debate and when it comes to talking about social phenomena at the national or international level, you will probably hear more economists than sociologists, psychologists and anthropologists, to name only a few examples.
This certainly comes from the predominant position that economists have successfully acquired towards policy makers. However, this does not mean economists have a monopoly of thinking on these topics.
Economists, sociologists, anthropologists, philosophers and psychologists (among others) all have a relatively similar object of study: the functioning of society. The distinction between these professions comes from the method of work rather than from the topic itself.
In fact, in terms of working method, the unit of analysis of economists is individuals. The fact that economists decided to stick to individuals often attracted criticisms saying they neglected the social and cultural behavior of masses, while sociologists and anthropologists had made an important work at these levels. However, personally, I do not think the main difference in the method of work comes from the analysis unit itself. Indeed, the aggregated models in economics can also highlight collective preferences.
On the other hand, I believe that the main difference between economists and other intellectuals of social sciences is in the modeling and demonstration of representative causal links (each word in my last sentence — “modeling”, “causal” and “representative” — is important). In contrast to other social sciences, economics, as a discipline, has a common and widely accepted theoretical framework, which homogenizes working methods, particularly on the three aspects introduced above.
First of all, economists love to make models, in order to make clear and explicit the assumptions which are used, even if it means simplifying reality.
Second, economists’ purpose is to demonstrate causal relationships and simultaneously dismiss any correlation which would be either pure coincidence or result of a third-party phenomenon (e.g. the price of apples and the toothpaste increase simultaneously, but one does not trigger the other. It is rather either a coincidence or the effect of a third-variable, such as an increase in national wage). This last aspect requires more statistical techniques than in other social sciences.
Finally, the economist refuses particular cases and refers only to sufficiently numerous phenomena to be “representative”.
Some see these characteristics positively, like the economist E. Lazear (see quote below).
“The ascension of economics results from the fact that our discipline has a rigorous language that allows complicated concepts to be written in relatively simple, abstract terms. The language permits economists to strip away complexity. Complexity may add to the richness of description, but it also prevents the analyst from seeing what is essential.” (Lazear (2000), “Economic Imperialism”, The Quarterly Journal of Economics also available as NBER Working paper).
Others, on the contrary, tend to see this methodological structure more negatively (see quote below).
“ You are only supposed to follow certain rules. If you don’t follow certain rules, you are not an economist. So that means you should derive the way people behave from strict maximization theory. … The opposite [to being axiomatic] would be arguing by example. You’re not allowed to do that. … There is a word for it. People say “that’s anecdotal.” That’s the end of you if people have said you’re anecdotal … [Another thing is] what modern people say … the modern thing is: “it’s not identified.” God, when your causality is not identified, that’s the end of you”. (Professor cited by Mrs Fourcade (2009) in “Economists and Societies: Discipline and Profession in the United States, Great Britain and France, 1890s to 1990s”, Princeton University Press.)
Error n° 5: The average economist understands all economic mechanisms
The economy is therefore a precise topic whose definition is relatively strict. Moreover, even within economics as a discipline, two major branches co-exist without so much cross over, unfortunately: microeconomics and macroeconomics.
While micro-economists cherish analysis at the individual level and are likely to look at you with big eyes of misunderstanding when you ask them to comment on the recent position taken by the FED (USA Central Bank) or the European Central Bank, macro-economists favor aggregated approaches and don’t have any strong point of view regarding the regulation of specific sectors (such as the energy industry or the taxi industry). In short, micro and macro might appear as two islands within the same archipelago, between which few intellectuals take the risk to build bridges.
A few rare exceptions nevertheless exist, with leading economists such as G. Akerlof, who began his career dealing with macroeconomic topics before producing pioneering thoughts on microeconomics such as asymmetry of information, work that earned him the Nobel Prize for Economics in 2001. These exceptional people are able to build bridges between the two sub-sectors of the economy, ranging from discussions about our most primitive motivations to the reasons for the ambient economic gloom. Editor’s note: For a brilliant illustration of the progress of the micro to the macro, I invite you to read the book “Animal Spirits,” co-written by G. Akerlof and R.Shiller (also Nobel Prize winner in economics in 2013).
However, I repeat, I think these are exceptional people. Like in medicine, where neurologists are not general practitioners, or like in physics where astronomers are not experts in quantum physics, micro-economists are often not macro-economists (and vice-versa).
So, what do economists know?
This therefore brings us to the 1-Million-dollar question: what do economists know? Or even worse, what do economists know how to do? Fortunately, the answer is “a lot of things”, but this is not always very clear to everyone. In order to debate about this, I invite you subscribe on www.researchgalaxxy.com and get notified when the upcoming article in the series are published.
And you, do you think there are other misunderstandings about economists?
Talk to you soon,
Quentin Roquigny
Founder of Research Galaxxy
