Economist Edward Leamer Says to Read the Message in the Model News Feed

May 18, 2015—Economics should concern itself with questions of public policy, and the usefulness of economic models determines their value, said economist and author Edward E. Leamer. What makes an economist great, he told an audience at Nathan Associates, is the ability to pick the right model for the task at hand. And choosing the task means asking the right question and possessing intuition.

Leamer, professor of economics and statistics at the UCLA Anderson School of Management, discussed economics as it should be practiced and taught for the Nathan speaker series, “Economists Present.” He approached the topic as a scholar and student of the Heckscher-Ohlin theory of international trade, professor, and provider of economic advice on the local, state, national, and international levels. The discussion was particularly valuable to Nathan Associates, which specializes in applying economics internationally and domestically.

Edward Leamer speaking at Nathan Associates Inc.
Edward Leamer Speaking 
at Nathan Associates

The questions in economics are public policy questions,” such as when the government should intervene in the market, Leamer said. “We’re about public-policymaking and the usefulness of our frameworks.”

Formal and Informal Thinking

The starting point for Leamer’s talk and prepared remarks was the Heckscher-Ohlin framework for global competition, developed in the 1920s. According to this framework, countries specialize in producing goods using the most abundant factor of production—capital, labor, or land—and trade boosts the standard of living for countries that specialize. The framework started a “conversation among economists” about the theory. That ongoing conversation illustrates the merits and shortcomings of math-heavy and prose-heavy analysis, of “formal and informal thinking.”

Leamer, who majored in mathematics as an undergraduate, nonetheless says the pendulum has swung too far since the 1940s in favor of math. The “mathematization of economics has improved the conversation but has gone too far,” he said. What happened with the Heckscher-Ohlin framework is that too many economists have tried to translate Bertil Ohlin’s ideas into “formal mathematical theorems.” What gets lost, he said, is the “message in the model.”

Vague But Useful

“Ohlin offered us something useful though vague and not necessarily valid, while the mathematizers who came after him offered us something precise and valid but not necessarily useful,” he said. Heckscher-Ohlin is a broad framework, “so it has a broad range of usefulness.” For instance, wages in a country can suffer in a country under liberalized trade. But policymakers using a Heckscher-Ohlin framework can encourage investment that will attract a preferred mix of products.

“If the [U.S.] investments successfully support a product mix that includes few or no products emanating from China, then trade is turned into a win-win situation,” he said in his prepared comments, derived from his 2012 book, The Craft of Economics: Lessons from the Heckscher-Ohlin Framework (MIT Press). Some worthwhile U.S. investments, according to Leamer: education and infrastructure.

A historical note: Robert R. Nathan, founder of Nathan Associates, told the American Economic Association in 1964 he was distressed to see the profession tilting too far toward mathematics and becoming disengaged from public policy. Nathan believed economists “were hiding behind their advanced mathematics” when they were duty bound to be become involved, Nathan biographer Kenneth D. Durr wrote in 2013

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