NYT – Let’s Shake Up the Social Sciences

And now for something completely different!  Nikolas Cristakis has a fascinating opinion piece in the New York Times advocating a fundamental restructuring of the social sciences. His proposal involves jettisoning the Standard Social Science Model (SSSM), in which people are assumed to be infinitely malleable computing machines limited only by their environment. Instead he proposes that the social sciences take seriously the links to the natural sciences in areas such as brain chemistry and evolutionary biology. In financial economics there have been some moves in this direction, notably at MIT and Cal Tech.  It would be much to the credit of Irish universities if they could be on the forefront of this new approach.

The boom, not the slump, is the right time for austerity

Alan Taylor has a piece on Vox today that is a nice contribution to the debate on the output effects of austerity. That debate has largely been about the endogeneity of fiscal policy: the more you take this into account, the more contractionary austerity becomes. He and Oscar Jorda show that if you give less weight to episodes where the austerity/no austerity policy choice was more predictable (i.e. more endogenous) and more weight to episodes where the policy choice was less predictable (i.e. more exogenous) then you find that austerity was extremely contractionary in slumps. This does not mean that fiscal consolidation is never necessary, but that the time for consolidation is when times are good, not when times are bad. It would be nice if Austerians could display a similar recognition that context matters.

Ireland: Fiscal Transparency Assessment

IMF report here.

Irish Times on Mortgage Arrears Deals

An interesting article on property debt restructuring deals by Mark Hilliard in today’s Irish Times, “Secret Deals on Mortgage Arrears Raise Concerns.” For many of us it will bring back our graduate school days studying Stiglitz, Rothschild, Ackerlof, Spence et alia on information revelation and efficient contracts. The laudable goal of the Irish mortgage debt arrears policy is to ensure that almost all householders who cannot pay their mortgages can keep their family homes. The difficulty is that it is virtually impossible to distinguish can’t-pays from won’t-pays except at untenable cost and personal privacy intrusion. So the unwritten “policy” is to restrict the flow of information to consumers regarding restructuring terms and conditions. This is intended to limit the flow of potential won’t –pays into the system. In the article, Noeline Blackwell of FLAC is quoted lamenting the lack of a clear detailed list available to consumers in terms of debt restructuring options. She is correct, but this lack of information is not a bug, it is a feature of the evolving Irish system.

Behavioural Economics and Public Policy

I have posted a few times on the implications of the emerging literature on behavioural economics and public policy for Irish policy. Some readings from a previous post are available here and three others posts with links are available here. For those interested in this area, the following links may be of interest:

(i) Cass Sunstein, who is one of the main figures in this area, recently released a new book called “Simpler: The Future of Government“. It outlines an approach to government that emphasises making regulations, laws and taxes less confusing and more robust. It is partly based on academic work and partly on his time as a senior regulator in the Obama administration. It follows on from some of the ideas in the work Nudge that he co-authored with Richard Thaler. I recommend this book to anyone involved in designing regulation, taxation and policy. It is short and written clearly by someone with experience both as a high-profile academic and a senior policy-maker.

(ii) The US have now set up a version of the UK Behavioural Insights team. Details of that are here.

(iii) One of the researchers in our group has put together a data-base of studies employing what can loosely be called “Nudges” in various areas of policy. He has currently summarised 80 studies and adds to them every week or so. There are some very interesting examples across many areas of policy.

(iv) It is in the list in one of the previous links but the book I most recommend for a wide overview on behavioural science perspectives on policy is Shafir’s “Behavioural Foundations of Public Policy“. A bit heavy (in both senses of the word) if you are looking for beach-reading but I can’t recommend it more highly to people wanting a grounding in this area.

(v) I have also put together a fairly detailed reading list on behavioural economics and public policy, including legal and ethical issues.

(vi) Apologies for blatant plug but we have started our own graduate programme in this area. Queries welcome.

(vii) Added from the comments, Kevin Denny has a list of behavioural economics resources

Finally, would be interested in people’s thoughts on this agenda in the area of Irish public policy. Are there areas where changing of default options could bring defined improvements in public services? Are there environmental changes in areas like taxation, education, health, waste management that could be enacted to improve outcomes in these areas? What areas of public policy would most benefit from reducing complexity of rules and regulations? And on the other hand, are these types of policies a distraction from real macroeconomic and social issues? How much should economics education take on board new models emerging from behavioural economics?