Practicing economics without a licence
17/07/2012 § 21 Comments
In the June issue of AgScience, Prof Shaun Hendy has an article entitled, ‘New Zealand’s voyage of economic self-discovery’. He also has a post with the same title over a Sciblogs. Before I get too wound up, I should give Prof Hendy his dues. He does do fieldwork amongst economists in their native habitat. But in the end, it is dilettantism.
The article sounds impressive — we have a new approach! we have pretty pictures! Nokia! But really, what he is able to tell us is:
- New Zealand is small and distant
- its economy is based on what has worked in the past
- scale is important
- we should be more productive.
He isn’t telling us anything new. No, really, there is nothing new there. And what is there is either useless or confused.
Let’s start with useless. A large part of the article is about connections, about the networks that drive patenting and thus invention and innovation. The article points to several firms and countries where we see economic performance, innovation, and networks. Okay, great. Now, can you tell us why it worked in those places? Is there some description of how our situation is different? What can we generalise from these findings?
But that’s not what we get. Instead, we hear that networks are important and drive scale, so we should have networks. This sounds like the Underpants Gnomes theory of economic development:
- Build networks
But even worse than useless is confused. See, Prof Hendy argues both sides, and doesn’t even realise it. First, he states:
Economic development is path-dependent. The investment decisions we make now will lead to specialisations that determine the types of products we can invent and produce later.
Then, he goes on to maintain that, rather than picking winners, we need to fund all science:
Because of the variety and unpredictable nature of the science we will need, we must subsidise the generation of new knowledge across the board and not pick winners.
The problem is that path dependence and product space analysis point in exactly the other direction. Roger Procter has done the heavy lifting to explain the economics. The logical conclusion is that certain innovations are more likely to be successful, only certain types of science should be funded, and focusing efforts on those areas is more likely to produce economic returns.
I’m a knowledge fanboy. Let’s have more, let’s make as much as we can. But let’s not fool ourselves that activity = productivity. If the point of science is knowledge, then yay! let’s have as much as our budget constraint will allow. If the point is economic growth, well, that’s different. Then we need to think about playing the odds that are in our favour.
But then I’m just an economist. Maybe Prof Hendy would like to hear my thoughts on the Higgs boson. After all, I’ve been watching The Big Bang Theory.