Trends in economic thought

To get closer to the thought of the title of this article, I suggest typing in Google: The Nobel Prize 2021 and the trend of economic thought. Author: Peter G. Klein. Next, my approach to the subject.

The 2021 Nobel Prize in Economics was awarded to David Card of Berkeley, Josh Angrist of MIT, and Guido Imbens of Stanford for their work on “natural experiments,” an approach that is now in vogue for estimating the casual impact of a economic variable over another. For example, to find out if an increase in the variable x causes an increase or a decrease on the variable y.

Concrete example. Card became famous in 1994, in the company of the late Alan Kruger, when they claimed that an increase in the minimum wage did not lead to an increase in unemployment. They based their assertion by comparing the change in employment in fast food restaurants in New Jersey, where the state minimum wage did increase, with that of neighboring Pennsylvania, where it did not. Result: they did not find substantial differences between both areas through their empirical approach.

The key to “natural experiments” is being able to have groups of people treated differently. More examples. Study how migration affects wages and jobs in a country. Analyze the standard of living of a Colombian with a high education compared to another with a modest education.

Author Klein acknowledges that the details of the Card-Kruger study are widely disputed everywhere. But he does acknowledge, however, that his work helped the revolution between the traditional “model-focused” microeconomics —that is, in simplified representations between different variables to explain a particular phenomenon— and the new, “design-focused” microeconomics. ”—That is, in developing the capacities of governments and companies to respond to global economic changes. Angrist and Imbens developed econometric techniques to show that, by means of the cause relationship – education, for example – and its effect – the standard of living – precise conclusions could be drawn with this approach.

For Austrians, and for many other critics, this award-winning trend in economic thought is not without logical criticism, because its methods, both experimental and quasi-experimental, do not go beyond providing us with a limited, empirical, historical view lacking “validity. external ”, because you never know if the results will hold up in other settings.

And Mr. Klein concludes: “The declining popularity of this theory is due to the naive belief of science, as censured by Lord Kelvin, who did not accept that the credibility of the results had to do only with the measurement of the data and to believe that somehow their results “speak for themselves”, when, in reality, empirical data are useful only in the way as they are interpreted by the thought, choice and action of the human beings who analyze them “.

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Trends in economic thought

Hank Gilbert