Saturday, April 30, 2011

Needed: A Clearer Crystal Ball

THERE were relatively few persuasive warnings during the 1920s that the Great Depression was on its way, and few argued convincingly during the last decade that the most recent economic crisis was near. So it’s easy to conclude that because we didn’t see these events coming, nothing could have been done to prevent them.

In fact, some people view the recent crisis as just another “black swan event,” one of those outliers, as popularized by Nassim Taleb, that come out of the blue. And it’s clear that a lot of smart people simply didn’t see the housing bubble, the instability of our financial sector or the shock that came in 2007 and 2008.

But the theory of outlier events doesn’t actually say that they cannot eventually be predicted. Many of them can be, if the right questions are asked and we use new and better data. Hurricanes, for example, were once black-swan events. Now we can forecast their likely formation and path pretty well, enough to significantly reduce the loss of life.

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Saturday, April 2, 2011

Economists as Worldly Philosophers

By Robert J. Shiller and Virginia M. Shiller

In his influential 1953 book The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers, Robert Heilbroner gave an inspirational account of what economists do, an account that was assigned as supplemental reading to countless beginning economics students over decades. Heilbroner wrote that he chose the term “worldly philosophers” because of the breadth and moral depth of economists’ inquiry. The appellation stuck, and for many years it was common to refer to economists as worldly philosophers. The inspiration of that book has contributed to the desire for many to go on to become economists, and to productive lives as researchers.

But, while the volume of research turned out by economists is most impressive, there are questions whether “worldly” and “philosophical” are represented as much as they should be in economic research. Has economics as a profession substantially lost sight of the idealism that existed in earlier decades? Has the strong impulse to pursue narrow specialization in order to propel research to the frontier led to some loss of moral perspective?

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