Three Big Changes in the World of Economics -- Noah Smith

”[…]some big things have changed in the field of economics, and America should know about them. Three big changes stand out in particular: Econ today is more data-driven, far less politically conservative, and in general much more like engineering than it used to be.”

From theory to data

As of 2011, only 30% of papers published are theoretical works. The usual form is a sort of “structural estimation”, a blend of theory and empirical work. People are demanding proofs now, ideas backed up with hard evidence. With the information available today, it’s difficult to avoid using it.

From laissez-faire to liberal

People have come to realize that markets aren’t perfect and that no government intervention isn’t viable. Markets fail. People aren’t always rational. There is a tendency of economists to favour, to some degree, government intervention.

From policy to engineering

“The rise of auction theory has resulted in a boom in private-sector hiring of economists by technology companies (including startups). Auctions are one of those situations in which the “agents” are close to perfectly rational–just the type of case that the theorists of decades past liked to sit around and theorize about. This theory worked. And what works, makes money.” See Google as an example of this. Theory has taken to prediction beyond policy making.

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I am annoyed when writers accuse Silicon Valley (by which they mean the entire tech industry) of not solving big problems. Presumably, these tech critics want venture capitalists and entrepreneurs to take us into space, solve the global energy crunch or invent new labor-saving devices. And presumably they aren’t satisfied that SpaceX, Tesla, SolarCity, and the Google Self-Driving Car project, among others, are working on all these things as we speak…

What critics of Silicon Valley’s vision fail to realize, though, is that the really big problems aren’t the hard ones or the spectacular ones. The really big problems are things that affect the quality of human life…

The problems of this higher rung of Maslow’s ladder are exactly the ones that tech companies like Facebook and have begun to crack. Consider the impact of dating sites on the lives of divorced people. For a young person, dating sites - OKCupid or Tinder - are a marginal improvement over the old singles scene of parties, bars and friends-of-friends. But for divorced middle-aged people, who are often socially isolated and occupied with work, meeting people is a much more daunting task. For these people, dating sites are a godsend. If you don’;t believe me, just ask your friends from Korea or China about their divorced parents. In those countries, online dating is still heavily stigmatized and generally feared - and the outcome is a lifetime of extreme loneliness for legions of older people…

I believe that the advent of social technology is a huge step toward solving the really big, really tough problems of humanity. The ability to connect with old friends and meet romantic partners late in life isn’t as spectacular as the ability to fly to Mars, but if you think about it, Mars is just a ball of rock and ice. Here on Earth, there are much vaster worlds to explore: the worlds in other people’s minds.

- Noah Smith

So is there a policy that would combine the economic efficiency of the EITC with the popularity of the minimum wage? I believe that there is. It’s called a wage subsidy. This means paying companies to offer their employees higher wages. Jim Pethokoukis of the AEI has recently endorsed this idea (I think I managed to convince him in our recent podcast interview, if he wasn’t convinced already). It’s a good one.

Noahpinion: Wage subsidies

See also:

As for us technocratic-minded liberals, of course we should not let the better be the enemy of the good - we should still keep campaigning for a minimum wage hike, if for no other reason than to force Republicans to offer wage subsidies as an alternative. But if Republicans ever do get behind wage subsidies, we should join them, instead of sticking to the minimum wage out of pure traditionalism.