Economics Advances One Iconoclast at a Time

Orthodoxy between the covers.

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 In recent years, a number of economic ideas once considered unassailable have been called into question. The financial crisis and Great Recession threw much of macroeconomic and financial wisdom out the window, and now new evidence is challenging orthodoxy in a variety of areas. For example, recent studies suggests that labor markets don’t work the way economists traditionally believed, and that advanced economies are far less competitive than had been thought.

It will be a while yet before economics textbooks throw decades of orthodoxy out the window — as a general rule, economists are not quick to embrace change. But already, there is a sense that attitudes toward policies like minimum wages and antitrust are starting to shift within the profession. And since those are big, important policies that affect the livelihoods of millions, even a slow shift in the professional consensus can have big consequences.

What forces allowed this change to happen? Many will say that it’s a result of the empirical revolution in economics. As information technology has made it possible to process oceans of high-quality data, economists are able to directly observe the way the world works instead of simply intuiting how they think it ought to work. As a result, empirical research is taking over from theory.


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