Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
The standard advice from economists about concentrated market power is that it is inefficient, unfair and should be broken up or regulated. The standard retort from concentrated industries is that they are merely super-efficient at the business they do.
But what if the concentrated business is economists themselves? A study documents a “high and rising” concentration of Nobel Prize winners in a handful of top US universities: more than half their combined career time has been spent at just eight economics departments. Equivalent measures for other disciplines, from natural sciences to the humanities, are going the other way.
There are other signs of economics turning into an elite closed shop: the handful of journals acting as gatekeepers to career advancement are largely controlled by economists from the same top departments, who also disproportionately pass through the revolving doors into policymaking jobs.
This cartelisation may have similar causes to concentration elsewhere, from “superstar” dynamics enabled by information technology to the tendency of financial advantage to compound. But does it lead to wasted resources and inferior output, as in other markets?
There are many things economics does well. Over the past century it has vastly improved governments’ ability to manage the business cycle and limit rises in unemployment. Its insistence on logical argument and careful use of (albeit often imperfect) data can hold public policy to account in a way no other social science can.
Yet there is no shortage of criticisms to lay at the profession’s door: from its infamous collective failure to spot a global financial crisis in the making and too-slow alarm at inequality or rent-seeking, to its excessive confidence that people act in their informed interest and a huge disconnect between how economists and the general public think about the economy. The question is to what extent such shortcomings are caused by institutional concentration.
There is certainly a case to be made that narrow gatekeeping and a steep hierarchy of prestige foster groupthink overseen by a self-perpetuating priesthood. After all, economics itself has models — from informational cascades to herding behaviour — explaining how the pivotal influence of a few can entrench inferior outcomes. When career incentives and social pressures concentrate influence in a small group, neither big policy mistakes nor petty personal abuse should surprise anyone.
Of course, elite institutions have their dissenters: a Dani Rodrik (Harvard) on trade and financial liberalisation, a Raghuram Rajan (Chicago) on financial deregulation, or a Richard Thaler (Chicago) on how people do not behave as economists traditionally model them.
Yet these exceptions do much to prove the rule: their insights were largely dismissed by their peers until the evidence was overwhelming. As for broader disagreements — such as the “saltwater-freshwater” divide on macroeconomic policy — they are tightly confined within admitted methodologies.
Geographic dominance matters too. When the route to influence even for non-US economists passes through top US departments, some opportunity for competing intellectual traditions is surely missed.
It is said that success has many parents, while failure has none. The opposite is the case for the economics profession: its shortcomings are what economists would call “causally overdetermined” — many factors could be to blame. A less concentrated economics could just mean more dispersed failure. Still, the principle that more pluralist systems are better and faster at self-correcting is worth holding on to, in business and knowledge production alike.
Read the full article here
