Economists generally agree that competition is good, and that markets with only a few dominant players are inefficient. We may need to take a hard look in the mirror. According to a new working paper, the recipients of major economics prizes, including the Nobel, have collectively spent half their career at just eight universities: Harvard (where I teach), Yale, Princeton, Stanford, MIT, the University of Chicago, Columbia, and Berkeley. Award-winning scientists in fields such as chemistry, engineering, and medicine, by contrast, represent a much more diverse range of institutions. By applying a metric commonly used in antitrust cases, the authors—the economists Richard B. Freeman, Danxia Xie, Hanzhe Zhang, and Hanzhang Zhou—showed that Nobel Prizes in economics are nearly five times more concentrated than in chemistry, physics, and medicine. Even more alarming, economics is the only one of the 18 fields studied in which concentration is increasing.
By our own metrics, the marketplace of ideas in economics is becoming less efficient and fair. The level of monopolization reflected in these data is both a cause and an effect of the field’s shortcomings. Our profession has become insular and status-obsessed, and not focused enough on making a positive impact on the world. Regular people think we economists are out of touch. Unfortunately, they have a point.
Why are economics prizes so much more heavily clustered among a tiny number of elite institutions than prizes in other fields? Academic output in the hard sciences consists of experimental results that can be objectively evaluated. In those fields, an idea’s merit is tied much more to its practical implications than to the perceived brilliance of the author. For example, the 2019 Nobel Prize in chemistry was awarded for the development of lithium-ion batteries, which enabled the widespread usage of mobile phones and laptops and may one day help free humanity from our dependence on fossil fuels. The prize was shared by three scientists affiliated with the University of Texas at Austin, SUNY Binghamton, and Meijo University, in Japan (ranked Japan’s 108th best by U.S. News & World Report).
The allocation of prestige in economics, by contrast, has more in common with the humanities, which were left out of the recent study. The winners of major prizes in the humanities, such as the Kluge Prize, the Holberg Prize, and the Rolf Schock Prize in philosophy, have also been disproportionately affiliated throughout their career with the same eight elite institutions mentioned above, though the pattern appears to be less egregious than in economics. Unlike the sciences, the humanities are primarily interpretive, meaning they seek to understand and explain aspects of the human experience. This work is valuable, but it is much harder to judge objectively. Its subjective nature creates a halo effect whereby work written by a well-regarded scholar is widely assumed to be brilliant by default. (The judgment of this scholarship is also more easily influenced by political and ideological considerations. No one cares whether a battery is liberal or conservative; it just has to work.) The subjectivity of greatness in interpretive academic fields, combined with the halo effect, explains why they tend toward snobbishness and insularity.
[Rogé Karma: A baffling academic feud over inequality]
Economics has long chafed at its association with “soft” fields such as philosophy and history and thus spent most of the 20th century trying to imitate the hard sciences by becoming more mathematically rigorous. But this attempt didn’t work, because trying to explain the world via mathematical models is still fundamentally interpretive, requiring crucial assumptions about which factors belong in one’s formula at all. The shift instead plunged economics even deeper into esoteric theorizing and insider jargon.
The problem isn’t the use of math itself. Abstruse mathematics can lead to immense real-world benefits; the theoretical improvements in auction design by the Nobel laureates Paul Milgrom and Robert Wilson, for example, ended up saving the Federal Communications Commission and taxpayers billions of dollars. The problem is that examples like that one are not as common as they ought to be. In economics, professional incentives too often reward theoretical elegance over solving real-world problems.
The good news is that in recent years, the field has gradually become more empirical and data-driven. The development economists Abhijit Banerjee, Esther Duflo, and Michael Kremer, for example, shared the 2019 Nobel Prize in economics “for their experimental approach to alleviating global poverty.” Their preferred tool is the randomized controlled trial, which provides clear and sometimes surprising answers about the most effective ways to improve people’s lives. Treating the intestinal worms that afflict many schoolchildren in Kenya is a fantastic public investment, boosting adult earnings and self-sufficiency so much that the rate of return on taxpayer investment was estimated at 37 percent. Conversely, popular and seemingly sensible initiatives are sometimes a complete flop, such as a $400 million United Nations program to reduce indoor air pollution by providing the poor with more efficient cooking stoves. (Several practical problems limited the stoves’ usefulness.) In these and many other cases, economists can make a positive impact through hands-on design and evaluation, helping to improve what Duflo calls the “plumbing” of the economy.
The bad news is that the empirical turn in economics may have made our concentration problem even worse. Empirical research is expensive. Ambitious new assistant professors now require hundreds of thousands of dollars in start-up funding to hire research assistants, run experiments, and produce and analyze data. But whereas science and engineering faculty are expected to eventually become self-sufficient by obtaining research money from other sources, especially the federal government, very little public money is available to economists. The discipline’s biggest federal funding source is the National Science Foundation, yet less than 1 percent of all NSF money goes to economists. Without public funding to balance the scales as it does in science and engineering fields, empirical economics research becomes clustered among the handful of universities rich enough to pay for it.
When only a few economics departments can afford to fund empirical research, it’s “publish or perish.” Some scholars who want to do cutting-edge empirical work end up succeeding despite the odds, but many more follow the well-worn path of writing mathematically sophisticated papers that get them tenure but have little effect on the real world.
[Adam Ozimek: The simple mistake that almost triggered a recession]
Three changes would make the economics profession more democratized and more useful. First, departments should reward research with practical value when hiring and promoting faculty. Second, we should create more prizes for public impact. The American Economic Association gives out more than a dozen awards each year, but none of them directly rewards economists for their contributions to society at large. A good but unusual model is the Edward Lazear Prize, awarded by the Society of Labor Economists. The inaugural winner of the prize was John Abowd, a distinguished labor economist who was also chief scientist at the U.S. Census Bureau and helped lead the effort to administer the census during the coronavirus pandemic.
Third, and most important, the federal government needs to increase its funding for economics research and change the way it’s allocated. The most prominent NSF programs for economists are the Career Award, a prestigious prize for younger scholars, and the Graduate Research Fellowship Program, which funds doctoral studies. An astounding 76 percent of the economists awarded the Career in the past decade were affiliated with one of the top eight elite institutions. GRFP awards are similarly concentrated. Congress should establish a new funding stream for economics research where demonstrated real-world consequences are the most important criteria.
With more funding and more public-focused priorities, the economics profession could come closer to fulfilling its potential to improve the functioning of markets, governments, and society. Maybe then it would no longer be called the “dismal science.”