Has economics run out of big new ideas?
At annual A meeting of the American Economic Association, held this year in New Orleans, discussed everything from inflation and technological progress to the economics of crime and the energy transition. But those looking for major breakthroughs would be left unsatisfied. Most new work focused on detailed data analysis or detailed theoretical modeling. As one attendee pointed out, such modeling often fails to produce surprising results, as it tends to reflect the assumptions that go into it.
The evidence for this reduction in ambition is not just anecdotal. A recent paper in Nature analyzes citation data from 1945 to 2010 to assess the prevalence of papers and patents. The authors believe that a new work is disruptive if a later work that cites it is less likely to refer to its predecessors. The paper concludes that the proportion of disruptive research in the social sciences has fallen rapidly, even more than in the sciences themselves. As Tyler Cowen of George Mason University says: “In the last 30 years the reliability of empirical work and estimates has increased dramatically. Which is good. But very few important new ideas were created. “
In New Orleans the biggest names in economics were offering ideas that were new and exciting, but hardly on the scale of, say, Nash’s equilibrium or the idea of non-information. regular. Gita Gopinath, the imfThe leading economist discussed research on how the economics of international finance has moved since the pioneering work of Robert Mundell and Marcus Fleming in the 1960s. In a conference on economic growth, Thomas Philippon of New York University argued that growth follows linear trends, rather than being an abstract process. Daron Acemoglu of the Massachusetts Institute of Technology presented work on “distributed innovation”, arguing against the idea that markets tend to get innovation right.
New theories without strong empirical support can be dangerous, as seen with the rise of central planning in the 20th century. And it’s easier to see great progress in hindsight. It may turn out that some were hidden among the displays in New Orleans. Some conference attendees were also more optimistic about the current situation. A professor noted that good questions in economics tend to come from real-world events – and the past few years have been tumultuous enough to raise many good questions. Erik Brynjolfsson of Stanford University claims that the use of large databases, machine learning and field experiments are all “game changers”. So maybe innovation is just transitioning from theory to practice. Indeed, the use of high-frequency data, a feature of a presentation by the Federal Reserve’s Lisa Cook, has given economists and central bankers a helpful new way of looking at the world in their fight against inflation.
But the strongest evidence on the impact of monetary policy on inflation came from Christina Romer of the University of California, Berkeley, who dismissed an outdated approach. In her speech, she argued that changes in monetary policy have a greater impact on unemployment than inflation, and that it sometimes takes a few years for their main effects to be felt. The method used by Ms. Romer and her husband and co-author, David Romer, was not a new statistical method or even more timely data, but a “narrative approach”. The Romers combed through transcripts and minutes from meetings held by the Federal Open Market Committee—just as they had when they developed the method in a paper published in 1989. ■
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