How to think like an economist?

Nice interview of Bill Dudley, outgoing President of NY Fed:

He speaks on what it means to think like an econ and how econs differ in Wall Street and Policy:


Q: Lawyers sometimes refer to ‘thinking like a lawyer.’ How would you describe what it means to ‘think like an economist?’
The classic joke is that economists are ‘on the one hand…on the other hand.’ Lawyers are advocates for a given point of view and prosecute under a well-defined set of rules of law. I think of lawyers as advocates and economists as almost like a justice balance—where they’re trying to weigh the evidence very carefully to see where the preponderance of the evidence lies.

So economists may be a little bit more open-minded to the facts—not to say that lawyers aren’t, but a lawyer’s job is to do something, to advocate a position, to protect a positon. So they’re starting with a very strong
a priori view. I think economists start with a priori views, in the form of a hypothesis, but if the evidence is inconsistent then they start to change the theory and hypothesis, as opposed to arguing that the evidence is obviously not applicable.

Q: You were an economist on Wall Street before joining the Fed. What differences have you noticed between Wall Street economists and the research-oriented economists here on Liberty Street?
A big difference is that Wall Street economists cover a broad range of topics. When I was at Goldman Sachs we had four people covering the U.S. economy—they covered pretty much the gamut of all the policy issues that might have some economic content. Wall Street economists try to synthesize an abundance of information into material that’s useful for the person who’s trying to figure out the world that we live in. A research economist is trying to push the frontier of knowledge outward, so that’s a very different goal.

At the New York Fed, research economists play a hybrid role. They’re doing research that’s trying to push out that knowledge frontier. But they’re also taking all of their knowledge and analytical ability and applying it to real-world policy problems. In my mind, a good research department in a Federal Reserve Bank consists of people who are top-notch in terms of their academic qualifications and ability, and who are interested in real-world policy problems—which creates a tremendous value for the Bank.

He also discusses about how culture matters so much in finance.


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