Economists generally share the ruling values of their societies, but their professional competence does not consist in translating popular wishes into an awe-inspiring professional language. Their competence consists in understanding how an economic system works under alternative institutional frameworks. If they have anything of their own to contribute to the popular discussion of economic policy, it is some special understanding of the relationship between policies and the results of policies. The basic role of the scientist, therefore, is that of establishing the costs and benefits of alternative institutional arrangements. (Stigler, Presidential Address at the AEA, The American Economic Review, 1-2)
George J. Stigler was a Chicago-economist who won the Nobel prize (1982) "for his seminal studies of industrial structures, functioning of markets and causes and effects of public regulation." But this citation does not quite capture what he become known for in the economics profession. In addition to an acerbic wit and a very robust defense of markets, he "deserves a great deal of the credit for getting economists to look at data and evidence." (The Concise Encyclopedia of Economics) Moreover, the entry on Stigler continues,"one could examine the actual effects of regulation, and not just theorize about them. Stigler devoted his entire 1964 presidential address to the American Economic Association to making this point. He argued that economists should study the effects of regulation and not just assume them."*
Yesterday, I noted the significant afterlife for the idea that "economists generally share the ruling values of their societies," which is a core assumption for the technocratic political ideal. Here I focus on the fact that that Stigler really is one of the economists that turned economics from relying on "the telling anecdote," (Stigler, 12) into a data-driven discipline (although his presidential address notes non-trivial predecessors on this score).** While Stigler may not have been able to foresee the extent to which economics would become data-mining, Stigler himself declared that "it is a scientific revolution of the very first magnitude-indeed I consider the so-called theoretical revolutions of a Ricardo, a Jevons, or a Keynes to have been minor revisions compared to the vast implications of the growing insistence upon quantification." (Stigler 17; the Kuhnian language is no accident--in fact, Stigler had theorized about scientific revolutions before Kuhn, and warmly welcomed Kuhn's Structure.) This declaration, he claims, "is prophecy, not preaching." (Stigler 17)
Now, in his address, Stigler assumes that one can study not just policy impacts, but different institutional structures empirically. He could do so given the rather huge variety of political regimes that existed in 1964; one could always aim to do a comparative analysis into different institutional structures. But while we are living in a great age of data-driven natural experiment(s) in economics, it is actually quite clear that much of the empirical work in economics has a tacit status-quo bias because it studies the (very fine-grained) impact of policy within given institutions (recall this post, and this one); that is, micro-policy that leave the basic institutional structure in tact. (An important possible exception is the study of economic history.)
Economists are literally drowning in data; have amazing statistical technologies to extract information from it; and have access to huge cheap computer power. However, economics lacks adequate theory, which could sustain the relevant counterfactuals, in order to make Stigler's fundamental vision a reality. A half century later, Stigler's revolution, then, did occur at the level of method -- quantification is everywhere --, but it failed to deliver the goods he promised.*** Along the way, economists have, in fact, become less ambitious than their predecessors.
*Stigler was also a very fine historian of economics.
**He is especially aware that American economists trained in the German historical school were focused on empirical matters (but, sadly, does not mention W.E. Du Bois).
So, for example, in the midst of the great moderation, economists were unable to establish empirically its fragility.