The convergence of economics and politics.
The theme of this blog was supposed to be about the intersection of economics and finance, but I recently had an opportunity to discuss another intersection that I believe is increasingly relevant—or at least, increasingly prominent. So this post is about the convergence of economics and politics.
I was in Durham earlier this week, speaking to some of the MSc Global Politics students at Durham University’s School of Government & International Affairs. In a talk titled “Life After Brexit”, I presented the UK-based financial and related professional services industry’s views of Brexit through the lens of TheCityUK’s economic research, sharing highlights of some of our recent reports. But I also shared my perspective on careers—and in particular, why I feel strongly that cross-disciplinary work is essential to good economic research.
In particular, I encouraged students thinking about working in the non-academic private sector to understand how politics and economics are fundamentally complementary fields—even though they remain separate academic disciplines with (often) very different teaching methods. In applied rather than pure theoretical work, macroeconomic issues cannot be tackled without understanding the political forces that enable and encourage policy decisions, which in turn facilitate certain economic outcomes. (Equally, structural economic issues underlie many—if not most—political trends.)
An article in a recent issue of The Economist made the point that economics is not a truly independent discipline. The column cites the observation made by Joseph Stiglitz—a former chief economist at the World Bank and winner of the 2001 Nobel Prize in economics—that economists must focus not just on what is “theoretically feasible” but also to “’what is likely to happen given how the political system works’”.
The economics profession has come under intense criticism in recent years for its lack of prescience (or, more aggressively, for its supposed lack of utility!)—perhaps most famously, for economists’ supposed failure to predict the 2008-09 crisis. This claim is debatable—and in any case raises the question of how much of the discipline’s value stems from forecasting.
Nevertheless, one possible reason for the ostensibly widening gap between much economic analysis and observable economic outcomes is the embrace in recent decades of a heavily quantitative approach to the field. The Economist’s piece alludes to this, accepting that “political and social institutions are much harder to model and quantify than commodity or labour markets” and also noting that many economists seem “happy to treat politics, like physics, as something that is of economic importance but fundamentally the business of other fields.” The question, then, is about how to strike a balance between theoretically ‘pure’ work that clarifies fundamental concepts—often through use of quantitative models—and adds depth to qualitative work, and ‘fuzzier’, cross-disciplinary work that does not lend itself well to clear-cut explanations, but that better explains the real world with all its many compromises and imperfections.