On Maps and Economics

This post and the following two are primarily aimed at non-economists.

…In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast map was Useless, and not without some Pitilessness was it, that they delivered it up to the Incumbencies of Sun and Winters.
This short story ‘On Exactitude in Science’, by Jorge Luis Borges may be helpful in conveying to non-economists what economists do — which is what this and a few follow-up posts are aimed at. In short, economists build maps.

But let me take a few steps back first. Publishing articles full of economics-bashing appears to be a profitable or otherwise satisfying business, at least judging by the plethora of pieces of this kind in the Guardian. Thus, “[neoclassical] economics has become an unquestioned belief system and treats anybody who challenges the creed of self-righting markets and rational consumers as dangerous heretics,” claims its economics editor Larry Elliot in the most instance which ticks pretty much all the boxes of Chris Auld‘s list of “18 signs you’re reading bad criticism of economics’ (for balance, here’s a reply to Auld).

Others are better placed to provide a defence of economics or to provide a cogent assessment of the ‘state of economics’ — for some efforts in this direction see e.g. pieces by Noah Smith or Ricardo Reis (to mention but a few) and in response to this particular piece in the Guardian this excellent response from Attanasio et al in Prospect Magazine (also see Frances Coppola’s somewhat more direct response). However, having the privilege of interacting with fellow postgrad students from a range of disciplines might help me appreciate what the stumbling blocks are for non-economists in understand what economists do. Hence, here are three pieces addressed to non-economists that try to shed some light on this question. The first one discusses at a mostly abstract level “what economists do” — or perhaps more accurately, what their models are supposed to do (i thus omit a large part of economists’ work such as spending months collecting data or long nights cleaning data). The second and third will illustrate this discussion by zooming in on three absurd-sounding assumptions frequently made in macroeconomics and explains why they can nevertheless serve as useful starting points for a cogent analysis of an economic question.

I reckon many people’s sense of what economists do is shaped by business and City economists, making statements like “we forecast the US economy to grow by 3% next year” (Another misconception is to confound economists with business people or accountants who try to figure out how to get the most money out of a business).  In reality, however, forecasting is only a very small part of the economist’s goal or toolbox. Their actual focus is on understanding what the basic mechanisms are that shape economic interactions. Furthermore, macroeconomics — the branch of economics focused on the aggregate economy,  — is not all of economics, although it’s getting the most public attention. There’s a lot of other stuff out there that’s also being studied by economists. As Attanasio et al write: “We analyse [data] to understand how people make choices, because that determines how they respond to policies and how they interact. You can ask us about taxes, social mobility, inequality, crime, poverty alleviation, pensions, roads, sanitation, public safety, and, obviously, wine, beer and cider prices.”

The second, and perhaps more interesting stumbling block is that to many external observers, including the media commentariat, economists appear to create parallel worlds in their models by making absurd assumptions, add a layer of maths over such a parallel world, and then draw conclusions from this black box that has significant implications for public policy. Certainly, there’s some truth to that. However, to properly assess which assumptions are absurd or not in what context, the necessary first step is to appreciate what economic models are supposed to do. To me, the short story “On Exactitude in Science” by Borges, which I introduced at the outset, is still the best analogy I know to convey the answer to this question.

Stating that “all models are simplifications”, which is often taken to be the four-word essence of the story in discussions about methodology, is not a sufficient response to criticisms of the methodology of economics. But it’s nevertheless an essential point to grasp when trying to understand what (many) economists are actually doing. The next step, which is not revealed by the story, is to appreciate the difficult tradeoffs to make, the fine line to walk when choosing between which assumptions to make in what context — the decisions involved when designing a new map or choosing a particular type of map off the shelf, so to speak. To extend the analogy somewhat further, different types of maps are used for different purposes. Thus, political maps don’t show topographic features like mountains but they do show state and national boundaries. Meanwhile, climate maps show information about the climate of an area, while road maps show major lines of transport etc. Some maps have high resolutions, others have low resolutions — and each map may be useful for a different purpose. Deciding which features are worthwhile to highlight and, crucially, which map to use for what purpose, that’s the ‘art’ part in Keynes’ description of economics as “the science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.” (Dani Rodrik’s Economics Rules is excellent on the latter point in particular, if you’re eager for more details). In other words, the goal of economists’ mathematical models is to zoom in on particular aspects of reality (create a particular kind of map) without getting confused by the near-infinite complexity that characterises the world around us and human interactions in particular.

To get a more practical sense of #WhatEconomistsReallyDo, take a look at Quartz’s piece “13 economists on the research that shaped our world in 2017”. And to see some examples of why economists make crazy-sounding assumptions when designing their maps: my next post should be out soon.

P.s.: For the reader well-versed in economics, I apologise in advance for the pain they might experience when reading some of the simplifications I use, or things I omit. That said, I’m pretty sure it’d be more painful if I didn’t make them and forced a non-economist to read this nonetheless.
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