Economists research on postive economics but columns are based on normative economics

Edward Glaeser bids adieu to NYT Economix Blog and writes a terrific post. This blog would sorely miss Glaeser’s posts on cities, urban development and general economics issues. A real loss.

But then he ends with a superb post touching on how the blog and his posts started and how Economix Blog was designed differently. The crisis changed it all:

Economix began during a period of great popular interest in economics, spurred on, in part, by the tremendous success of Freakonomics, by Steven Levitt and Stephen Dubner. Initially, many of us thought the blog would be quirky and fun and would focus on the application of economics to the issues of everyday life.

But with the recession, the blog, like the economics profession as a whole, had to focus more on the basics, like unemployment and housing prices and the stimulus plan. While interest in economics remains high, the popular view of economists now seems to be shaped more by “Inside Job” than by the sparkling brilliance of Professor Levitt, and I think that makes the value of Economix greater than ever.

Another victim of the crisis.

Anyways, he points to an interesting point which I did not really notice:

Positive economics attempts to understand the world as it is; normative economics describes how the world should be. Most economists spend most of their time doing positive economics, but most economics columns advocate particular policies, which is implicitly normative economics.

This is quite true. Just takes you to one of the first lessons of microeconomics textbook. Just that it was never really explained this way.

He says he liked economix as it stressed on positive economics:

One reason that I’ve enjoyed writing and reading Economix is its emphasis on the positive economics that is the real heart of the discipline, rather than the policy prescriptions that are the more usual fare of the blogosphere and the media.

Positive economics, as usually practiced today, combines formal, mathematical models and lots of quantitative, statistical work. That’s not what economists did before World War II; Keynes’s General Theory is short on both formal models and statistics. But formal theory and statistics have triumphed, and that’s a good thing.

In the wake of the recent crash and recession, it has become fashionable to deride the quants, whether on Wall Street or in the academy. After all, few of them saw it coming. The critics may be right to criticize excessive overconfidence, but they are wrong to suggest that the fault lies in either formal models or statistical work.

Hubris has been part of the human condition, with or without math, long before the Black-Scholes asset-pricing formula. Mathematical models create discipline. They ensure that we specify our assumption and that our conclusions then follow from our assumptions. Statistics then provide us with indispensable tests of our theories.

But we need to always remember that data and statistical tests never prove a theory. Typically, many different theories can explain almost any observed phenomenon. Data  allows us only to reject a theory. The theories that survive are those that haven’t been rejected yet, and that’s a good reason for humility.

Normative takes many ideas from positive:

Normative economics also has a distinctive approach that deserves to be part of the electronic agora. At its best, normative economics draws heavily on positive economics: scores of studies have shown the ways in which rent control can screw up a housing market, with too little supply and misallocation of housing units, and that helps formulate policy prescriptions.

Yet the economic approach to public policy is distinguished by attributes beyond an attention to evidence.

There is a strong predisposition within economics to emphasize individual freedom. Our theories start with the assumption that giving individuals more choices is a good thing — and that assumption leads to the view that people benefit from having more money or lower prices for the goods that they buy.

That assumption doesn’t mean that all regulation is bad or even that, in some cases, people are better off facing fewer soups on a supermarket shelf. Even though people value more choices, they also value information, and an overload of choices can make it hard to figure out which soup is really best. But our assumptions do put freedom first, and that’s an important perspective.

Superb stuff. What a post to end his contribution to the blog….

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