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October20,2013
Yes,EconomicsIsaScience
ByRAJCHETTY
CAMBRIDGE,Mass.THERESanoldlamentaboutmyprofession:ifyouaskthree economistsaquestion,youllgetthreedifferentanswers. Thissayingcametomindlastweek,whentheNobelMemorialPrizeinEconomicSciencewas awardedtothreeeconomists,twoofwhom,RobertJ.ShillerofYaleandEugeneF.Famaof theUniversityofChicago,mightbeseenashavingconflictingviewsabouttheworkingsof financialmarkets.Atfirstblush,Mr.Shillersthinkingabouttheroleofirrational exuberanceinstockmarketsandhousingmarketsappearstocontradictMr.Famaswork showingthatsuchmarketsefficientlyincorporatenewsintoprices. Whatkindofscience,peoplewondered,bestowsitsmostdistinguishedhonoronscholarswith opposingideas?Theyshouldmakethesepoliticallybalancedawardsinphysics,chemistry andmedicine,too,theDukesociologistKieranHealywrotesardonicallyonTwitter. ButtheheadlinegrabbingdifferencesbetweenthefindingsoftheseNobellaureatesareless significantthantheprofoundagreementintheirscientificapproachtoeconomicquestions, whichischaracterizedbyformulatingandtestingprecisehypotheses.Imtroubledbythe senseamongskepticsthatdisagreementsabouttheanswerstocertainquestionssuggestthat economicsisaconfuseddiscipline,afakesciencewhosefindingscannotbeausefulbasisfor makingpolicydecisions. Thatviewisunfairanduninformed.Itmakesdemandsoneconomicsthatarenotmadeof otherempiricaldisciplines,likemedicine,anditignoresanemergingbodyofwork,building onthescientificapproachoflastweekswinners,thatistransformingeconomicsintoafield firmlygroundedinfact. Itistruethattheanswerstomanybigpicturemacroeconomicquestionslikethecausesof recessionsorthedeterminantsofgrowthremainelusive.Butinthisrespect,thechallenges
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medicineshouldnotbeapproachedasascienceorthatdoctorsshouldnotmakedecisions basedonthebestavailableevidence. Asisthecasewithepidemiologists,thefundamentalchallengefacedbyeconomistsanda rootcauseofmanydisagreementsinthefieldisourlimitedabilitytorunexperiments.If wecouldrandomizepolicydecisionsandthenobservewhathappenstotheeconomyand peopleslives,wewouldbeabletogetapreciseunderstandingofhowtheeconomyworksand howtoimprovepolicy.Butthepracticalandethicalcostsofsuchexperimentsprecludethis sortofapproach.(Surelywedontwanttocreatemorefinancialcrisesjusttounderstandhow theywork.) Nonetheless,economistshaverecentlybeguntoovercomethesechallengesbydeveloping toolsthatapproximatescientificexperimentstoobtaincompellinganswerstospecificpolicy questions.Inpreviousdecadesthemostprominenteconomistsweretypicallytheoristslike PaulKrugmanandJanetL.Yellen,whosemodelscontinuetoguideeconomicthinking.Today, themostprominenteconomistsareoftenempiricistslikeDavidCardoftheUniversityof California,Berkeley,andEstherDuflooftheMassachusettsInstituteofTechnology,whofocus ontestingoldtheoriesandformulatingnewonesthatfittheevidence. Thiskindofempiricalworkineconomicsmightbecomparedtothemicroadvancesin medicine(likeresearchontherapiesforheartdisease)thathavecontributedenormouslyto increasinglongevityandqualityoflife,evenasthemacroquestionsofthedeterminantsof healthremaincontested. Considerthepoliticallychargedquestionofwhetherextendingunemploymentbenefits increasesunemploymentratesbyreducingworkersincentivestoreturntowork.Nearlya dozeneconomicstudieshaveanalyzedthisquestionbycomparingunemploymentratesin statesthathaveextendedunemploymentbenefitswiththoseinstatesthatdonot.These studiesapproximatemedicalexperimentsinwhichsomegroupsreceiveatreatmentinthis case,extendedunemploymentbenefitswhilecontrolgroupsdont. Thesestudieshaveuniformlyfoundthata10weekextensioninunemploymentbenefitsraises theaverageamountoftimepeoplespendoutofworkbyatmostoneweek.Thissimple, unassailablefindingimpliesthatpolicymakerscanextendunemploymentbenefitstoprovide assistancetothoseoutofworkwithoutsubstantiallyincreasingunemploymentrates. Othereconomicstudieshavetakenadvantageoftheconstraintsinherentinaparticularpolicy toobtainscientificevidence.Anexcellentrecentexampleconcernedhealthinsurancein Oregon.In2008,thestateofOregondecidedtoexpanditsstatehealthinsuranceprogramto coveradditionallowincomeindividuals,butithadfundingtocoveronlyasmallfractionof
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theeligiblefamilies.Incollaborationwitheconomicsresearchers,thestatedesignedalottery procedurebywhichindividualswhoreceivedtheinsurancecouldbecomparedwiththosewho didnot,creatingineffectafirstraterandomizedexperiment. Thestudyfoundthatgettinginsurancecoverageincreasedtheuseofhealthcare,reduced financialstrainandimprovedwellbeingresultsthatnowprovideinvaluableguidancein understandingwhatweshouldexpectfromtheAffordableCareAct. Evenwhensuchexperimentsareunfeasible,therearewaystousebigdatatohelpanswer policyquestions.InastudythatIconductedwithtwocolleagues,weanalyzedtheimpactsof highqualityelementaryschoolteachersontheirstudentsoutcomesasadults.Youmight thinkthatitwouldbenearlyimpossibletoisolatethecausaleffectofathirdgradeteacher whileaccountingforalltheotherfactorsthataffectachildslifeoutcomes.Yetwewereableto developmethodstoidentifythecausaleffectofteachersbycomparingstudentsinconsecutive cohortswithinaschool.Suppose,forexample,thatanexcellentteachertaughtthirdgradeina givenschoolin1995butthenwentonmaternityleavein1996.Sincetheteachersmaternity leaveisessentiallyarandomevent,bycomparingtheoutcomesofstudentswhohappenedto reachthirdgradein1995versus1996,weareabletoisolatethecausaleffectofteacherquality onstudentsoutcomes. Usingadatasetwithanonymousrecordson2.5millionstudents,wefoundthathighquality teacherssignificantlyimprovedtheirstudentsperformanceonstandardizedtestsand,more important,increasedtheirearningsandcollegeattendancerates,andreducedtheirriskof teenagepregnancy.Thesefindingswhichhavesincebeenreplicatedinotherschooldistricts providepolicymakerswithguidanceonhowtomeasureandimproveteacherquality. Theseexamplesarenotanomalous.Andastheavailabilityofdataincreases,economicswill continuetobecomeamoreempirical,scientificfield.Inthemeantime,itissimplisticand irresponsibletousedisagreementsamongeconomistsonahandfulofdifficultquestionsasan excusetoignorethefieldsmanytopicsofconsensusanditsabilitytoinformpolicydecisions onthebasisofevidenceinsteadofideology.
RajChettyisaprofessorofeconomicsatHarvard.
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