A Political Scientist wins the Nobel Prize in Economics

I promised to write about Elinor Ostrom and the significance of the Nobel Prize in Economics, which she shares this year with U.C. Berkeley economist Oliver Williamson. As a political economist myself - and a political economist whose Ph.D. is in Political Science rather than Economics - Ostrom’s selection provides both personal satisfaction and professional validation.

I referenced Ostrom’s work in writing my own dissertation, which focused on how political regimes and processes affected the valuation of environmental goods and services. Her work on common pool resources was key to identifying a middle-ground between the “privatize everything,” and “regulate everything,” solutions to common-pool and environmental issues.

Environmental policy work is one where the lines between economists and policy analysts are often blurred, and one’s disciplinary background might affect some of the approaches used, but it is still necessary for economists to understand the influence of political institutions and for policy analysts to know economics. Yet somehow, when it came time to compete for job assignments, the economists often seem to have had the upper hand.

I once had a client come in screaming at me saying “I thought you were an economist!,” (to which my immediate, but non-verbalized reaction was, “and I thought you could read!”) as if the problems we were tackling were things that a well-trained policy analyst could not handle. It turned out that he was concerned that I might not understand is that project investments should go to projects with the highest marginal profitability, as if this simple concept were unattainable by someone who had not invented a new econometric technique en route to a Ph.D. in economics.

There is a popular illusion that political science is not as rigorous as economics, driven to a large extent by the fact that economics employs more obviously mathematical techniques, and the mathematics makes economics seem more scientific, because the equations make it resemble the hard sciences. But equations do not make something scientific; rather, it is the validation of knowledge through logic, prediction, and experimentation that makes knowledge scientific. Mathematization of economics does help to generate clearer predictions and improve falsifiability, but it tends to create the illusion of a precision which economists do not presently possess.

With respect to political science, there are two misperceptions that appear to handicap us in the public mind. The first is the general perception that political scientists are not quantitative at all. This is simply false, although there are a number of political scientists who are not quantitatively inclined. Votes, budgets, populations, economic data, levels of violence, numbers of conflicts, taxes collected, etc. are all quantifiable and good political scientists know how to handle that data and will use it when applicable.

The second misperception is that because there are many aspects of political behavior and power dynamics that are not quantifiable, political science is therefore less rigorous than fields like physics or chemistry, or even economics. It may be that college graduates in political science may have gravitated to the field because of a desire to escape the quantitative demands of more strictly quantitative fields, but it does not mean that they can escape thinking logically and rigorously, and it certainly does not mean that graduate level students can slide on those issues.

There are two advantages to political science training. One advantage, by comparison with traditional economics, is that political science is encouraged to consider all aspects of a political dynamic, whether they can be quantified or not. I am overgeneralizing a bit here, but traditional quantitative economics, by contrast, will tend to ignore or cast as “exogenous” those things which do not fit neatly into a quantitative model. At any one instance, this may be inconsequential, but successive models may then start to form a beautiful logical coherent whole that describes a world in which there are no things that cannot be quantified, and that world is most certainly not our own.

The second advantage is that good political science training will teach specifically how to evaluate non-quantitative data. To the untrained, it may seem that qualitative work is nothing more than a collection of anecdotes with some subjective spin attached to them, but the fact is that there is logic to the comparative method and how comparisons of even non-quantifiable factors are structured. Some day, I would like to produce a post describing some of these techniques and how they might be applied to the investment process.

So the awarding of the Nobel Prize to a political scientist is satisfying in that it recognizes that economic knowledge does not necessarily reside only in economics Ph.D.s or in maximally quantitative work. Qualitative factors such as institutional design and structure can be important, and - more importantly - their study can be done with both impact and rigor.

This is all the more important these days because the financial crisis has meant that politics is back in markets - in a big way. For nearly 30 years, the main drumbeat in political economy has been to get the state out of economic policy; now, the crisis has made the economy to some extent dependent on state actions, and this is likely to continue. After so much time demonizing state intervention, it is increasingly important to believe that the state *can* have a positive effect on the economy, because if one does not believe this, then there will be no way to separate good economic policy from bad policy in the post-crisis world. And that would be a dangerous thing.

As an addendum, I should add that I know and respect many of my colleagues who are economists. This post is not intended as an attack on economists themselves, but more on the popular perceptions about economists and their value vis-a-vis other highly trained social scientists.