Monday, 15 February 2016

It's Always Exciting Times To Be An Economist

In one of my revision sessions for macro last year, I was watching a couple of lectures from UC Berkeley Economics professor Kenneth Train. God bless Youtube and all the countless of lectures from great universities around the world, not to mention things like Khan Academy or LibertyClassroom or or all the resources at 21centurySocialDemocracy if that's what floats your boat. Or, just the Econ Blogosphere at large. Anyway, Train finished one of his lectures by saying "It's always exciting times to be an economist", which I took as an encouragement for keep on studying and be exited about the discipline.
It struck me the other day, that this is as true now as it ever was. Let me list a few reasons why.
Complete turnover of Monetary Policy
Monetary policy a few decades back used to be quite uninteresting and summarised in a sentence; if inflation is too high - increase interest rate to cool the economy off, if unemployment is too high, reduce interest rates to kick-start spending and investments. Add some empirical and theoretical research on Phillips Curves and Taylor Rules and that's about it.

Since the Financial Crisis, however, the playing field is completely different; after 8-years of interest rate reductions and Central Banks around the world holding them down at or below zero and 
large-scale quantitative easing, we face an unprecedented future, vastly more volatile financial markets and regime uncertainty at unusually high levels. Will interest rates ever return to normal levels or are central banks sowing the seeds of the next crisis? Should ZIRP & NIRP be the new Central Banking or is a 1920-s hyperinflation inevitable?

Impact of Large-Scale Immigration The Economics of Immigration has been a hot topic in Political Economy for probably half a century if not ever. Although usually policies to account for, incentivise or prevent migration in or out of countries is made on ideological or moral rather than economic grounds, appeal to economic effects of said migration is often made – and so many economists have taken up the research of whether or not migration is beneficial to host countries, their public finances, their labour markets or incomes. On this, see for instance work by Brücker, Borjas, Peri, Kerr & Kerr or Powell.
Popular Magazines like Forbes, the Economist, Time Magazine and Wall Street Journal, especially in face of the so-called migration crisis in Europe and Donald Trump’s aggressive rhetoric against foreigners, followed suit and now publish articles and arguments pretty much daily on the economics of immigration, portraying a variety of answers to economic questions of migrations.
Future research in this area is unlikely to diminish, which means that for economists interested in these topics we have a lot to look forward to as integration, labour market effects, wage and growth statistics become available.
Fall of the New Neoclassical Synthesis and the Spread of Diversity 
Changes in the dominant paradigm in the economics profession, governing how economists think, what they believe, what reasoning is generally used and methods for reaching their conclusions, are extremely rare. Over the last three centuries it occured perhaps 4 times, depending on your definition; Adam Smith et al overthrowing Mercantilism; the marginalists of the late-19th century overthrowing classical economics, developing into the neoclassical teaching of Marshall, Pigou, Pareto, Fisher in the early 20th century; the Keynesian Revolution discrediting Neoclassical Economics during the first half of the 20th century, carried further with the (mis)interpretation by Hicks, Samuelson & Hansen before merging into the Neoclassical Synthesis in the 1950s and 1960s. The final standoff stood between the New-Classical school and the New-Keynesian School in the 1980s, gradually merging into the New Neoclassical Synthesis (NNS). These last three schools of thought are generally though of as "Mainstream Economics" and its grip on economic teaching and research over the last decades is quite severe. Diversity and plurality of thinking is simply not there.

The last few years, however, the interest in peripheral economic schools have literally exploded. Mainstream's embarrassing inability to foresee, let alone account for the financial crisis have prompted student groups all around the world to call for plurality and change. There's a good chance that these students go through PhDs, take up positions in Universities around the world and quite literally overhaul the discipline. Or it may die out like most student activism does. Anyway, we're in very exciting times!

Economic History is Back in Business

This is the best news for us Economists with a historical bend. Like distinguished Economic Historian Barry Eichengreen commented in 2011: "This has been a good crisis for Economic History" since so many people in media and academia drew parallells between history and the current crisis.

Additionally, Peter Temin published a widely-read account of the decline of Economic History as a discipline at MIT. Moreover, the most-talked of and most appreciated books in economics of the last few years (Piketty's Capital in the Twenty-First Century, Eichengreen's Hall of Mirrors and recently Robert Gordon's The Rise and Fall of American Growth) all deal with economic history. It does indeed look promising for those of us who applies their economic knowledge in historical research.
Overall, these are indeed exciting times to be an economist.

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