Economics Rules

Ten Commandments for Economists

1. Economics is a collection of models; cherish their diversity.

2. It’s a model, not the model.

3. Make your model simple enough to isolate specific causes and how they work, but not so simple that it leaves out key interactions among causes.

4. Unrealistic assumptions are OK; unrealistic critical assumptions are not OK.

5. The world is (almost) always second best.

6. To map a model to the real world you need explicit empirical diagnostics, which is more craft than science.

7. Do not confuse agreement among economists for certainty about how the world works.

8. It’s OK to say “I don’t know” when asked about the economy or policy.

9. Efficiency is not everything.

10. Substituting your values for the public’s is an abuse of your expertise.

Ten Commandments for Noneconomists

1. Economics is a collection of models with no predetermined conclusions; reject any arguments otherwise.

2. Do not criticize an economist’s model because of its assumptions; ask how the results would change if certain problematic assumptions were more realistic.

3. Analysis requires simplicity; beware of incoherence that passes itself off as complexity.

4. Do not let math scare you; economists use math not because they’re smart, but because they’re not smart enough.

5. When an economist makes a recommendation, ask what makes him/her sure the underlying model applies to the case at hand.

6. When an economist uses the term “economic welfare,” ask what he/she means by it.

7. Beware that an economist may speak differently in public than in the seminar room.

8. Economists don’t (all) worship markets, but they know better how they work than you do.

9. If you think all economists think alike, attend one of their seminars.

10. If you think economists are especially rude to noneconomists, attend one of their seminars.

Economics provides many of the stepping-stones and analytic tools to address the big public issues of our time. What it doesn’t provide is definitive, universal answers. Results taken from economics proper must be combined with values, judgments, and evaluations of an ethical, political, or practical nature. These last have very little to do with the discipline of economics, but everything to do with reality.

Economists who remain true to their discipline, like Tirole, are necessarily humble. Their discipline teaches them that on only very few matters can they express categorical views. Their responses to most questions necessarily take the form of “It depends,” “I don’t know,” “Give me several years (and research funds) to study the problem,” “There are three views on this . . . ,” or perhaps, “Assume we have n goods and k consumers . . .”

The trouble from the students’ perspective is that much of what goes on in an introductory course in economics is a paean to markets. It gives little sense of the diversity of conclusions in economics, to which the student is unlikely to be exposed unless she goes on to take many more economics courses. Economics professors are charged with being narrow and ideological because they are their own worst enemy when it comes to communicating their discipline to outsiders. Instead of presenting a taste of the full panoply of perspectives that their discipline offers, they focus on benchmark models that stress one set of conclusions. This is particularly so in introductory courses, where the professor is keen to demonstrate how markets work. As the Oxford economist Simon Wren-Lewis points out, “One of the sad things about the way economics is often taught is that students do not see much of the interesting stuff that is going on [in the discipline].”10

Is efficiency a good thing? Yes it is, taken on its own. We can say without hesitation that efficiency is a consideration—a value—worth taking into account when we compare alternative social states. But it is certainly not the only one. Equity would be another contending value, as would be the intrinsic moral value of other-regarding and socially responsible behaviors. Sometimes these considerations push us in the same direction as efficiency, and therefore reinforce the case for markets. At other times there may be tensions and trade-offs to consider. What should and should not be sold on markets is ultimately a question decided by evaluating trade-offs in many different dimensions. Different communities are likely to arrive at different answers. And the answers may change over time even within the same community. Once again, the economist has no special expertise in making those trade-offs. At best, economists can provide useful input.

An economist might respond that they look at objectives like emission control not as moral matters, but as questions of effectiveness. Moral exhortation is fine, but incentives work. If they get more pushback, economists are likely to appeal to empiricism. Fine, they will say, we can show you hundreds of studies indicating that firms reduce their use of, say, oil when its price goes up; show us the evidence that moral exhortation achieves a reduction in carbon emissions.

From society’s standpoint, the antidote to the pursuit of material advantage by some is the pursuit of material advantage by many others.

However, no social science should claim to make predictions and be judged on that basis. The direction of social life cannot be predicted. There are too many drivers at work. To put it in the language of models, there are numerous models of the future, including those that have yet to be formulated! At best, we can expect economics and other social sciences to make conditional predictions: to tell us the likely outcomes of individual changes, taken one at a time, while other factors remain constant. That is what good models do. They can provide a guide to the consequences of certain large-scale changes or to the effects when some causes swamp others.

Economics is a collection of models that admits a wide diversity of possibilities, rather than a set of prepackaged conclusions.