This stuff matters

22/08/2012 § 11 Comments

I’ve been turning over in my head a recent comment from James Zuccollo about the discussion on this blog, TVHE, and Offsetting. Regarding the tone some of us economists have taken with physical scientists, he asked, does this have to be a gladiatorial encounter?

My answer is, this stuff matters.

First, this stuff matters in a narrow sense. We have competitive funding for research in New Zealand. Economists try to get funding — oh, let’s own this, I try to get funding — and we find ourselves having to explain economics to engineers, psychologists, sociologists, geographers, etc. And time and again, economics research isn’t quite important enough to be funded. Since it is a zero-sum game — if you get funded then I don’t — it is a fight.

Secondly, this stuff matters in a much broader sense. An important reason for doing economics is to understand how to maximise welfare. We can argue about efficiency versus equity, individualism versus collectivism, narrow versus broad definitions of welfare, the role of externalities, and the impact of cognitive heuristics and biases. But still, we are trying to make the world a better place.

The role of applied microeconomics — my little corner of the world — is even more focused on this goal than other areas, such as econometrics or theoretical economics. We are looking at how people and businesses are directly and indirectly affected by policies and decisions. One of the things I keep finding is how little we really know. We keep making policies and decisions and hope they are the right ones, but we don’t really know.

Let’s take a clear example, one of Eric Crampton’s bugbears: alcohol policy. The Government is discussing instituting a minimum price regime in order to curb harm from drinking. Importantly, a minimum price will make it more expensive for anyone who wants to buy cheaper alcohol. Why might people want cheap alcohol? Well, maybe they drink a lot of it, ‘too much’ by some standard. Maybe they have decided that a little ethanol is nice, but don’t want to spend too much on it. But maybe, just maybe, they are poor. They like a drink or two at the end of the day, just like richer people. Wine at $15 a bottle doesn’t fit the budget, but chateau cardboard tastes just fine and does the trick.

What we know from economic theory is that putting up the price of cask wine has both a price and an income effect. The price effect means that people buy less of it. The income effect means that they buy less of everything else, including heating, medicine, fruit, and all those things that are considered ‘healthy’.

To continue in catechism form:

Q: How much less healthy stuff do people buy?
A: We don’t know.

Q: What’s the net impact on health?
A: We don’t know.

Q: Why don’t we know?
A: The research hasn’t been done.

Q: Why hasn’t the research been done?
A: Because no one has funded it.

Q: Why hasn’t anyone funded it?
A: Because it lost the competition for scarce research funding.

So, to recap: real people are going to have their health and wellbeing directly affected by policy, but we don’t know how much and haven’t bothered to find out. We will possibly make the world worse, all because the social science research — the economic research — hasn’t been funded.

So yeah, it is a fight. Because this stuff really does matter.

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§ 11 Responses to This stuff matters

  • detmackey says:

    I think there are other aspects to the conflict too. I’m going to clumsily word this, but scientists seem interested in costs and benefits that many economists would consider not policy-relevant.

    This conflict isn’t important until both groups start injecting themselves into policy discussions.

  • Paul Walker says:

    But there is research and there is “research”. On the topic of “research” on alcohol policy the worst bit of applied microeconomics on the subject came from some of your fellow economic consultants at BERL. So there is some “research” that its better off not being done. So underfunding my have its positive side.

  • Matt Nolan says:

    I believe James’s point was more that, rather than yelling at people to “get off the economics yard”, it would be more constructive to build bridges and try to set up an interdisciplinary approach to public research issues.

    Personally I think it takes two to tango, and social science research doesn’t get a fair rap from natural scientists in this country when it comes to looking at issues of social science. But nothing that you’ve popped down or I’ve written invalidates James’s point methinks.

    I’d summarise it as follows:

    James: We all bring different perspectives to studying issues of allocation, and can shed light to the issue if we work together.

    Bill (and I’d jump in here too): A lot of the non-economist work trying to do economics issues ignores too much of the already established economic literature – which is insulting, demeaning to our discipline, and will lead to bad policy.

  • jamesz says:

    Like Matt, I don’t think you’re disagreeing with what I said. Of course I agree it’s important to fund research in economics; I just don’t think that requires us to be rude to everyone else who ventures onto ‘our’ turf. If economic analysis is so useful then we should be able to demonstrate that without denigrating others.

  • I’ll follow on briefly from what Paul suggested: what gets funded, at least on the alcohol question you’re citing, often is a sciency veneer for pre-determined conclusions. It’s policy-justifying work rather than genuine enquiry. If I were in the bench sciences and what I saw of econ were mostly that kind of crud, accompanied by bank economists on tele, I’d probably be pretty dismissive too. Hence the need for outreach, now starting up…

  • Bill says:

    I’d agree with most of this. Eric’s and Paul’s points about sciency economics are well taken, and I probably underestimate the effects on perceptions of the discipline.
    My complaint is a variation of Eric’s complaint about sciency economics — where are the repercussions? Because this stuff does really matter to the welfare of real people, shouldn’t the people who cause the harm have to pay a price?
    And finally, I guess I’m also less sanguine than James about the potential for outreach and dialogue to change the dynamics. It’s great that we are seeing more, and the new blog feed has potential. But, the major funding decisions — the decisions that determine whether the research can really happen on any useful scale — are still being made behind closed doors by non-economists who are unaccountable to anyone.

    • I try to impose such costs. Would that others did the same. I have proposed, a few times, that we set up an awards ceremony for the NZAEs for the single worst consulting report in economics undertaken in the prior year. Let people put up nominees. A judging panel assesses what’s just bad and what’s truly awful. Shaming people for very bad work and further shaming the people who deliberately seek out very bad work seems about the most we can do. Like what StatsChat is doing to shame journos for shonky use of stats. Except annually. With a big award. A trophy. Doubt the recipient would show up to get it, but the nominator could accept on their behalf perhaps.

  • Paul Walker says:

    Bill’s point about the new blog feed, The Dismal Science, having potential is right. (Well done Crampo!) May be some non-economists will get a better picture of the subject after they have read it. At least I hope they will.

    The point about research funding has two dimensions: the first is about the level of funding and the second about what gets funded. A lot of funding going to crap “research” may do more harm than good. So we have to argue not just for more funding but more funding for serious research.

    Bill is also right about the decision making on funding. A more open and obvious decision making process would help. Getting economists into leadership positions in organisations like the Royal Society would also increase our input to decision making.

  • detmackey says:

    It’s like a who’s who of NZ econommic blogs in here (and one who’s that?).

  • As one of the protagonists in the post that seems to have sparked this discussion, it might not surprise you that I think the gladiatorial approach is not the right option ;)

    If you do want to have an influence on policy, people outside of your discipline will need to understand and be able to use your work properly. I would expect that this to be especially true in the economics, meaning that you are going to have to spend a good deal of time engaging constructively with people from other disciplines.

    Luckily one of the great things about crossing disciplinary boundaries is that you get to learn new things all the time, not least about your own discipline. Explaining a new piece of research or even one of your field’s core concepts to someone from outside your speciality is a great test of your own grasp of your subject matter.

    In the end, the discussion I had with Bill in his comment section has been very constructive and I applaud him for putting the time in to that.

    So I am really glad you guys are going to be syndicating things to sciblogs – you guys have some interesting things to say and your voices will really add to the discussion there.

  • […] the sheer importance of thinking in terms of evidence based policy!  And I would note that Bill Kaye-Blake has been making noises about this for some […]

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