We can question whether the economics profession adequately rewards speaking to the public but that public communication will be most valuable if it reflects recent advances in economic theory and quantitative analysis.Economics - Study and teaching ; Economics

John A. Weinberg

English

Research Papers in Economics

48 Region Focus • Spring/Summer 2008
T
his issue of Region Focus features a special section
on the “state of modern economics.” Some of the
articles report on debates regarding the direction
of the discipline. Are economists asking the right 
questions? Are they employing the right methods? Is their
work relevant to the general public? In short, has the 
economics profession lost its way?
These are all healthy questions to ask. Economists
shouldn’t blindly proceed, simply assuming that they are
heading in the right direction. Occasionally, a little self-
reflection is necessary.
But, I think, the hand-wringing that some economists
have been doing is overwrought. I am sympathetic to 
the argument that much economic
research should ultimately have policy
relevance. After all, I work as an econ-
omist in the Federal Reserve System.
That doesn’t mean, however, that this
research must eschew formal, mathe-
matical modeling. Quite the opposite. 
Economics has a long and storied
past. The classical economists of the
18th and 19th centuries had valuable
insights, many of which remain rele-
vant today. Those insights, however,
can be made more precise by the use of
contemporary formal methods. Such
methods also permit us to find new
implications or limitations to the classical economists’ ideas.
Indeed, the formal methods of modern economic theory
are essential to policymaking. To take just one example, let’s
consider central bank lending. In the wake of the credit 
market turmoil that began in 2007, the Fed and other central
banks expanded their provision of credit to the financial sys-
tem. It is impossible to understand the arguments for or
against such actions without reference to a theory of how
financial markets function and under which conditions they
may malfunction. Moreover, without the tools of formal
analysis we cannot determine whether the theory on which
we are basing our policy choices “makes sense,” or exactly
what assumptions are needed to make its logic correct.
Of course, the relevance of a theory relies on its ability to
explain some observable facts — that is to say, data. This
requires the use and refinement of formal quantitative tools.
For policymakers, the desirability of various choices often
comes down to questions of magnitude. How big of a change
will a certain policy choice produce? 
Consider the issues of subsidies and taxes. Economists
know that when you subsidize something, you are likely to
get more of it, and when you tax something, you are likely to
get less of it. That’s helpful to know, but it often isn’t suffi-
cient. For instance, you might wish to subsidize a certain
activity — say, education — if you believe it yields positive
externalities. But, first, you want to know how large those
externalities will be — and if there would be a more efficient
way to achieve them. To determine this, we must turn to
contemporary tools of data analysis. 
For macroeconomists, the “New Keynesian” framework
has become a workhorse model for policy analysis. It is rich
enough to generate quantitative predications about how key
macroeconomic indicators are likely to perform under alter-
native settings. This, of course, is key to central bankers and
other policymakers. But even as this framework is used
extensively, researchers are studying its
limitations. This will ultimately lead to
even better models and better policy.
In the introductory article to the
special section, the question is asked:
“Why isn’t there a Milton Friedman
today?” While this question might
seem to suggest that modern econo-
mists have gotten bogged down in
mathematical minutiae to the detri-
ment of speaking to the public, I think
the answer actually lends support to my
argument. It’s true that most people
know Friedman from his Newsweek
columns, his books Capitalism and
Freedom and Free to Choose, and his television appearances.
He wanted to directly address the public, and he did so elo-
quently. But you can’t divorce his popular work from his
academic work. Friedman was first and foremost a great
economist. It was his technical, scientific contributions that
informed his policy views and popular writings, not the
other way around. Without Friedman the mathematically
inclined economist, there likely would not have been
Friedman the influential policy analyst. 
We can question whether the economics profession ade-
quately rewards speaking to the public — there is, in my
opinion, an important role for economic education — but
that public communication will be most valuable if it reflects
recent advances in economic theory and quantitative 
analysis. The discipline is making significant strides in
understanding a wide range of economic phenomena. 
We should not abandon that work. Rather, the trick is to
effectively communicate it to a broad audience. It’s not an
easy task, but one well worth pursuing. RF
John A. Weinberg is senior vice president and director of
research at the Federal Reserve Bank of Richmond.
BY JOHN A. WEINBERG
OPINION
More Theory, Please
We can question whether
the economics profession
adequately rewards speaking
to the public but that public
communication will be most 
valuable if it reflects 
recent advances in economic
theory and 
quantitative analysis.
T
RF_SUM_08  9/11/08  11:51 AM  Page 48
                  

Opinion : More theory, please

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