Last week I received some sad news: the Swedish economist Axel Leijonhufvud had died at the age of 88. His name will not invoke much recognition among non-economists, but Leijonhufvud has always been an intellectual hero of mine. I believe that in an uncertain economy, where the Federal Reserve (among others) seems badly wrongfooted by inflation, his ideas have a newfound relevance.
That is not so much because of the contributions that Leijonhufvud, a professor emeritus at UCLA, made to formal economics. For me, his real gem is “Life among the Econ”, a comic essay written with wry affection, but serious intent, 50 years ago.
As I noted in a column last year, Leijonhufvud wrote it soon after joining UCLA because, while he loved economics, he was disconcerted and baffled by how professional economists tended to behave. They were not only clubby, status-driven and scornful towards outsiders, he lamented, but also obsessed with abstract, maths-driven models divorced from real life. Worse still, they lacked introspection and, thus, were unable to see these flaws.
Leijonhufvud could have expressed his criticisms in a formal academic paper. Instead, he chose the dry tone of a 19th-century anthropologist who had stumbled on a remote tribe and was documenting their strange rituals. These included an obsession with “modls” (economic models) and “ceremonial” initiation rites (publishing papers).
“The Econ tribe occupies a vast territory in the far North. Their land appears bleak and dismal to the outsider,” Leijonhufvud wrote. “[But] their young are brought up to feel contempt for the softer living in the warmer lands of their neighbours, such as the Polscis [political scientists] and the Sociogs [sociologists]… the extreme clannishness, not to say xenophobia, of the Econ makes life among them difficult.”
And, as he noted later on: “The status of the adult male [of the tribe] is determined by his skill at making the ‘modl’ of his ‘field’. The fact… that most of these ‘modls’ seem to be of little or no practical use, probably accounts for the backwardness and abject cultural poverty of the tribe.” When the essay was published in 1973, it provoked irritation among some economists, while many non-economists loved it.
In subsequent decades, it has slipped from view. Some of the parodies no longer seem quite as relevant. In the past half century, so many women have entered the profession that it sounds odd to describe a tribe of “adult males”.
And since the 2008 financial crisis, some economists have clearly acknowledged the dangers of relying too heavily on their beloved “modls” and are collaborating with the once-scorned tribes of “Sociogs”, “Polscis” and psychologists. The work of behavioural economists such as Robert Shiller, Esther Duflo and Richard Thaler illustrates this.
But the essential message of “Life among the Econ”, that economists can sometimes be prone to tunnel vision and abstraction, is still relevant. These failings were one reason why so few foresaw that 2008 crisis. In the years leading up to it, most economists had little contact with either the weeds of the financial system (where credit bubbles were developing) or subprime mortgage borrowers (where consumers were not behaving as economists’ models predicted).
Similar problems appear to have skewed policymaking more recently. Most notably, the economists studying the macroeconomic data (which, until recently, seemed to indicate that inflation was low) generally do not investigate the bedrock of finance (where asset price inflation has been rife). Siloed thinking continues to proliferate.
The economists at the Fed, who last year were proclaiming that inflation pressures were “transitory”, generally do not usually spend much time on the ground in warehouses or talking to people involved in physical labour. If they had, they might never have uttered that misguided “t” word.
What the profession still struggles with, in other words, is finding ways to supplement top-down quantitative models with bottom-up qualitative observations (“ethnography”, in anthropology speak). This particularly matters now that Covid-19 lockdowns have changed the culture of everyday life in ways that could alter the trajectory of the economy. These are changes that cannot be captured in backward-looking models.
Of course, the “Econ tribe” is far from the only discipline prone to tunnel vision, rigid status hierarchies and so on. Other disciplines, including anthropologists, can be just as bad, if not worse. But economists are uniquely influential in terms of how they shape public policymaking. This means there is now a need for them to do what economists rarely do: analyse the structures and incentives of their profession, in the affectionate, but wry, manner of Leijonhufvud.
Follow @FTMag on Twitter to find out about our latest stories first