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How the field of economics has changed

Posted by Richard on July 30, 2008

When I was working on my Econ degree in the 70s, the field was full of contending schools, and the dominant ones seemed to be the Keynesians and the socialists. Occasionally, I encountered a neo-classical professor who conceded that monetarism (the Chicago School) deserved to be taken seriously.

A grad student friend told me about a faculty member who spoke approvingly of Hayek, but she moved on before I could take one of her classes. The professors I had mostly sneered at Friedman and Hayek. When I cited von Mises' argument for why socialism cannot calculate, I was informed that he was theoretically discredited in the 20s, and the Soviet Union's decades of great economic growth proved empirically how wrong he was. When I brought up the Austrian School to another professor, his rejoinder was, "That's not a school, it's a cult."

The field has changed a lot, according to Guy Sorman, writing in the Summer 2008 City Journal:

When the Soviet Union crumbled, the socialist model that it embodied imploded, too—or, more precisely, the Soviet Union fell because the socialist economic system proved unworkable. Now only one economic system exists: market capitalism. Virtually everywhere, the public sector has given ground to privatization; currency has escaped state control, to be governed by independent central banks; competition has taken wing, thanks to the deregulation of markets and the opening of borders; taxation has become less progressive, so as to encourage entrepreneurs and create jobs.

The results have been breathtaking. Opening economies and promoting trade have helped reconstruct Eastern Europe after 1990 and lifted 800 million people, many of them in China, Brazil, and a now-license-free India, out of poverty. Even in Africa and the Arab Middle East, nations that have embraced capitalism have begun to escape from the terrible underdevelopment that has long plagued them.

Behind all this unprecedented growth is not only the collapse of state socialism but also a scientific revolution in economics, as yet dimly understood by the public but increasingly embraced by policymakers around the globe. The revolution began during the sixties and has finally brought economists to a broad, well-founded consensus about what constitutes good policy. …

If economics is finally a science, what, exactly, does it teach? With the help of Columbia University economist Pierre-André Chiappori, I have synthesized its findings into ten propositions. Almost all top economists—those who are recognized as such by their peers and who publish in the leading scientific journals—would endorse them (the exceptions are those like Joseph Stiglitz and Jeffrey Sachs, whose public pronouncements are more political than scientific). The more the public understands and embraces these propositions, the more prosperous the world will become.

The overwhelming majority of the academic economists I encountered during my long tenure as a professional student would have rejected more than half of Sorman's ten propositions. It is, as he says, a very good thing that that has changed.

If you're at all interested in or curious about economics, read the whole thing. If you're of the Austrian persuasion, don't let the reference to algorithms and mathematical models at the start turn you off. No, we Austrians haven't won the day, and there is plenty to quibble with in Sorman's propositions. But the state of the profession has certainly changed for the better.  

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