One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.--Robert J. Shiller [HT Jeff Bell]
Is the younger generation of economists like Raj skipping some of the big questions of economics because some smaller questions are easier to answer? If so, is that optimal from the standpoint of society as a whole?--Greg Mankiw.
The character of cutting-edge, academic economics has changed during the last few decades. It is not entirely easy to characterize these changes in part because economics is a very large, fast-moving field (and, of course, I pay more attention to philosophers than economists). Even so there can be merit in this simplification: (i) between 1947 and 1970, there was a formal revolution in economics (associated with names like Samuelson, Arrow, Debreu, etc.); this revolution occurred more or less simultaneously with (ii) the development of econometrics (associated with names like Tinbergen, Koopmans, etc.)--many of the people involved interacted with each other at the Cowles Commission. Of these two developments, the first had a more theoretical ethos and the second a more policy oriented focus. (Of course, lots of fields in economics -- development, labor, forestry, agriculture, etc. -- have always been very focused on policy.) With the break-down of the Keynesian consensus in the mid-1970s, policy, "big questions of economics" returned to the center of the discipline's attention.* In the quoted passage above, Shiller's "necessarily" takes the centrality of policy for granted...so much so that most of what is published as "theory" by theoreticians in economics these days has some such policy orientation.**
The contrast between [A] & [B] is non-trivial. As I have argued [B] has an inherent and non-transparent status-quo bias (here, and here). It also means that as Mankiw indicates, training in economics will become less relevant for the management of social institutions that engage with the whole economy (Mankiw is more hopeful than I that this can be avoided). We should not exaggerate the contrast between [A] & [B] because in both cases Shiller's comparison with engineering is apt. Folks that do [A] are social engineers, whereas folk that do [B] are social mechanism engineers (obviously there can be blends). In some (mostly Latin-ate) countries economics has always been an engineering science.
With these distinctions in mind we can return to and better understand Shiller's claim that in economics there is little interest in "discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy." Without discovery of fundamentals (about human nature, social institutions, robust empirical invariants) the background theory that policy economists [A&B] rely on remains relatively weak (say, in contrast, to engineering sciences that can rely on theory from physics, chemistry, metals, etc.)--a point I grasped back in 2005 when I knew much less about what economists do. But the problem is far more acute for the folks that do and rely on [A] than the folk engaged in and rely on [B]. For in order to do [B], knowledge about fundamental parameters is not really necessary--one simply assumes that they remain stable. So, the shift from [A] to [B], lamented by Mankiw (and I), coincides with a more realistic, even if narrower, sense of what kind of knowledge can be achieved by economists in practice given current lack of understanding of fundamentals. To claim this is not to deny the ways in which even [B], with its focus on crunching big data, can have non-trivial and non-transparent normative commitments (recall).
Recognition of the social mechanism character of much contemporary economics should allow development of better understanding of what criteria to apply to it. It would be nice if economists also adopted some of the many best practices common in the engineering sciences (recall, for example, my posts on learning from systems failure: here, here, and here).
One wonders, of course, where knowledge about economic fundamentals will come from now that the economists seem to have given up on trying. For a long time economists were driven by images of physics to help them think about fundamental inquiry. In many ways it's good that these (flawed) images fail to seduce anymore. Even so, in recent years, the philosopher-engineer, George E. Smith (my undergrad guru) has made seminal, enduring contributions to thinking about the complicated, evidential practices that can generate high quality evidence for fundamental theories. His work is now starting to be common knowledge among Newton scholars; it has found no audience in the human sciences, yet.
* Mankiw's work on growth, capital mobility, consumption, and interest rates (etc.) offers a nice illustration of what he has in mind.
**Within contemporary economic theory, we can (following M.A. Khan's adaptation of Oakeshott) distinguish between policy oriented "theoreticians" and autonomous "theorists," (recall and here, here). The "theorists" have been in full-scale retreat sociologically for a few decades now. Interestingly enough, the theoreticians are data-sensitive, while the theorists tend to do mathematical economics.