Why is there no creative destruction in economic ideas and economists’ ranking?

Federico Fubini (a financial columnist) hits out at the murky world of economists (read economists based at US Ivy league).

He starts with this idea that say you sleep in 2006 and wake up in 2016, you see a very different world. Based on how much economic world has changed, one would imagine status of economists changing as well. But nothing happens here. People who called shots in 2006 remain as powerful in 2016 as well:

Imagine that you fell asleep in 2006 and woke up today. The world economy would be barely recognizable. While you were dreaming of real-estate riches, the United States and Europe were hit by the most crippling financial crisis in almost 80 years, and China’s statist economy swiftly overtook Germany and Japan to become the world’s second largest (and, despite its recent slowdown, is poised to surpass the US).

Given such massive, unexpected shifts, you might be even more surprised by what didn’t change: the way economists think about themselves and their discipline.

To see this, one need look no further than the Ideas.RePEc.org website. RePEc (Research Papers in Economics) arguably provides the closest thing to a credible hierarchy of economists, not unlike the ATP’s rankings of professional tennis players. The site, entirely open and free (thanks to hundreds of volunteers in 82 countries), maintains a decentralized online database of around two million items of economic research, including working papers, journal articles, books, and software. Its index of influence assesses the number of citations for each author, weighted by impact and discounted by citation age (otherwise, Adam Smith and Karl Marx would likely still top the list).

Because the ranking is updated every month, RePEc enables one to track which economists are viewed by their peers as the most influential over time. So I compared the rankings from December 2006 and September 2015 to see whether the RePEc index had evolved along with economic reality.

It had not. Despite the profound – and largely unpredicted – financial and economic turmoil of the intervening decade, the intellectual influence of those whose theories suffered the most evidently remains undented.

🙂

A similar point was made by Prof Philip Mirowski in his post-crisis book as well.

He says entry barriers are far lower in top 10 companies ranking:

What is remarkable about this is the difference between the pace of change in the ranking of economists and in the economy itself. Entry barriers among the world’s ten richest people and ten most valuable companies seem to be far lower than among the top ten economists. According to Forbes, only two of the ten wealthiest individuals in 2015 (Bill Gates and Warren Buffett) were in the top ten in 2006. And just three companies – ExxonMobil, General Electric, and Microsoft – made the top ten in terms of market capitalization in both 2006 and 2015.

In the rankings of economists, by contrast, criteria such as gender or geographic origin confirm the overall inertia. Only four women made the RePEc top 200 in September 2015, compared to three in December 2006, and two were included on both lists. Likewise, emerging countries – which represent more than 90% of the world’s population, three-quarters of global GDP growth over the last decade, and nearly half of total income in current dollar terms – supplied just 11 of the top 200 economists in September 2015, up from ten in December 2006. And ten of those 11 – three Iranians, four Indians, two Turks, and one Chinese – have lived and worked in the US or the United Kingdom since their student days.

The rest of the RePEC top 200 tend to be Caucasian men in their 60s and older – roughly three decades past the age when an economic or scientific author is generally most innovative, according to research by the economist Benjamin Jones. No black person, American or otherwise, is in the top 200.

They are the ones who created the crisis and all kinds of problems and are providing the solutions as well..

He says why is there no creative destruction here?

How surprised should we be that, even after the Great Recession cast grave doubt on the rational-market theories so dominant a decade ago, the top tier of academic economics remains largely unchanged? After all, many of these scholars have made tremendous, lasting contributions to understanding how markets and societies work. And ideas tend to advance and retreat slowly, like glaciers, not precipitously, like armies.

But replace the names of the leading economists with products in any other market – cars, for example, or semi-conductors – and most people probably would agree that the RePEc ranking looks like a closed, inefficient market with high entry barriers. Might the world’s leading economists be so keen to protect their own ideas that they ignore (or, worse, stifle) innovation from unexpected quarters?

For a group of people so committed to free markets and so enamored of “creative destruction,” that is a question that urgently needs to be addressed. The answer may hold enormous implications not only for intellectual growth, but also for human welfare.

Double standards of plenty.

Post-crisis all these ranked economists tried to make a case that they predicted the crisis. It was interesting to trace the research of all such Nostradamuses. Barring their one lucky paper which talked of a crisis, most of their previous research was pushing things which created the crisis (open finance, open capital account and so on). And then none could predict the severity of the crisis and how it would spread so much to all parts of the world. The policymakers  who were blamed for the crisis were basically doing whatever all these experts were saying in their several research papers.

Such a crisis in any other discipline would have created huge changes but nothing much has happened in the world of economists. They just move on and continue to be celebrated..

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