Tuesday, August 19, 2008

Career Advice for Young Economists

I discovered this article in the New York Times about Nouriel Roubini, the economist who predicted the current recession in the United States. He did it by identifying the problems of reckless debt growth in emerging economies over the 1990s that led to their economic collapse (Thailand, South Korea, Russia, Brazil, Argentina), and seeing where those traits were in other countries. The one with the clearest indicators of impending collapse was the United States. Read the article I linked at his name for a much better articulation of this economic process than I could give you.

A curious point. In Roubini's interview, he points out what he sees to be a flaw in the way economists work, which I think has its roots in the way economists are educated. The models that economists create to predict future events are based on a very common presumption: that the future will be basically similar to the past, that trends which have begun will continue. But this isn't necessarily the case. We know that there have been severe financial crises, so such crises are possible. And a severe financial crisis is not a continuation of past trends and patterns, but a catastrophic rupture of those patterns, the breakdown of all previously ongoing movements.

For any philosophers reading, this sounds pretty familiar. It's David Hume's skeptical critique of knowledge from book one of the Treatise on Human Nature. We think we understand what will happen in the future, and that our statements of scientific law are universal across all time, because we presume that the future will generally be the same as the past. But the future hasn't happened yet, so it's completely indeterminate, a venue where anything is possible.

Returning to economics specifically, Roubini pointed out here that economists often focus on evolution of existing movements, and the continuity of those movements. So the financial panic, the severe break with the past, the economic catastrophe, is not usually studied. Any realm of a discipline that is not usually studied is a niche that an enterprising young thinker could fill. An economist who specializes in financial panics and crises will find themselves publishing original, groundbreaking research, simply because they are in an area where so little work has been done anyway.

Such studies are important not just for the growing public profile of a young economist, but are critical for humanity as a whole. Not only will a young economist specializing in crisis studies gain a reputation as an original thinker, but he will also be doing a great service for humanity by using his science to help guide us through financial disasters, and prevent the conditions for those disasters from arising in the first place.

1 comment:

Anonymous said...

Hey Adam, I found your blog via Facebook.

What little economics I claim to know, I learned from a "heterodox" (ie., not mainstream but not crackpot) school of economics called the Austrian school. Their major claim to fame was, in the '20s and '30s, developing a microeconomic theory of the business cycle (the boom/bust cycle) that located the cause in a rapidly expanding money supply.

-- Jeremy L.