The View | The Virtue of Economists
Part of the problem is a misunderstanding of academic study
With much of the usual hoo-ha that surrounds these things the winner of the 2015 Nobel Prize for economics was announced this week. He is Angus Deaton, who was recognised for his analysis of consumption, poverty and welfare.
This field of study is not likely to be greatly appreciated in the business world.
But then again other recent Nobel economics laureates have also been greeted by some scepticism in these quarters where anti-intellectualism is sometimes worn as a badge of pride. Indeed there is often intense scepticism over whether economists have any value at all, reflected in jokes such as, ‘if you were to place all the world’s economists in a long line they still wouldn’t ever get to their final destination’.
Economists can produce work that has immense practical application
Those who like to mock economists, and specifically to disparage the Nobel prize for economics, love to cite the example of the 1997 award, which went to Myron Scholes and Robert Merton for their work on understanding derivatives and producing a safe yet lucrative model for trading these products. They were among the founders of the Long Term Capital Management hedge fund that collapsed the following year with losses totaling US$4.2 billion. What a joke, eh? Give economists experience in the real world and see just how they manage.
Part of the problem here is a fundamental misunderstanding of the nature of academic study that rarely sets out to find a fix for specific problems but strives to provide a conceptual framework for better understanding.
This misunderstanding is compounded by many economists who insist on describing their discipline as a science, implying a level of precision in problem solving that simply does not exist. Maybe this is why Alfred Nobel had not intended economics to be in the rooster of prizes but a donation from Sweden’s central bank in 1969 added economics and described it as a science.
Whether or not it is a science, economists can produce work that has immense practical application. A case in point being the Nobel laureate Daniel Kahneman, who showed the importance of psychological factors in understanding business cycles and the way that markets operate.
Robert Shiller, the 2013 prize winner, was a pioneer in the field of predicting long term share price movements, an approach that has influenced and made a great deal of money for investors around the world.