Here's why economists need to step beyond the numbers

When economists are trying to understand the economics of growth, they usually go by the numbers. Yet, not only don’t the numbers always add up, they also lack the dimension and context needed to solve some of the world’s most perplexing problems. That is the view of Morton Schapiro, an economist who is also president of Northwestern University, and Gary Saul Morson, a professor of Slavic languages and literature there. In this interview, they make the case for a broader perspective as presented in their book, Cents and Sensibility: What Economics Can Learn From The Humanities. The authors argue that economists need to consider culture, art, history and a host of other disciplines when formulating economic policy, in this Knowledge@Wharton radio show interview on SiriusXM channel 111. (Listen to the full podcast using the player above.)

Following is an edited transcript of the conversation.

Knowledge@Wharton: What is the idea behind this book?

Morton Schapiro: Saul and I teach an undergraduate course on the different disciplines and what they can learn from each other. It really came out of this course we’ve now taught seven years in a row. We got this idea about what economics could learn from the humanities, specifically from literature, but even more broadly from other humanistic fields and even the qualitative social sciences: sociology, anthropology, history and the like.

Saul Morson: We had the idea that different disciplines don’t just deal with different subject matter, they see the world differently. Their whole vision of people is different. And very often, they don’t understand each other to the point where each one not only doesn’t accept the other one’s beliefs, but can’t really believe the other believes what they say they believe. I was amazed that economists actually think people always behave according to their best self-interests, that you can mathematicize human behavior, that culture is irrelevant. They can’t really believe this, can they? By the same token, economists have trouble believing what humanists sometimes believe. That gave a lot of energy to the class as we tried to discuss each other’s questions in our own framework.

Knowledge@Wharton: What has been the impact of not incorporating the humanities into economics?

Schapiro: I love teaching and publishing and economics. I have a day job in administration, but nothing makes me prouder than to be a professor of economics. I’ve been doing it almost four decades now. But our field, while we look outside of economics for topics, we don’t really engage with the literatures of other fields.

“We’re not comfortable with things that we can’t put into an equation, and I think we lose a lot because of that.”–Morton Schapiro

There was a recent survey of U.S. professors at different colleges and universities, and they broke them down by field and asked them the following simple question: Is it better to stay to your own field, or is a multidisciplinary approach potentially more productive? And 79% of psychology professors said it’s better to go outside your field. A total of 73% of sociology professors and 68% of history professors agreed. But only 42% of economics professors said that you should go outside your field.

We’ve come across other studies that looked at how often people in specific disciplines cite people outside their discipline and, no surprise once again, it was very rare for economists to cite anyone outside the field of economics. So, there’s a lot we leave on the table. It’s a great field, but it could be so much better if we were less insular.

Morson: You sometimes get the impression that economists think all these other fields are peopled by muddled-headed professors who can ask good questions but haven’t a clue what a rigorous, systemic answer is. So, let them provide the questions and we’ll provide all the answers. It’s a kind of idea that they have achieved a hard science modeled on Newtonian mechanics whereas everybody else is just sort of muddling along. But nothing in actual predictive behavior suggests that they have achieved such a hard science.

Knowledge@Wharton: Are economists just so focused on the numbers and data points that they don’t even consider going outside of that as an option?

Schapiro: That’s a very good point. I think they’re also geared to a mathematical approach. I do applied econometrics, so I have nothing against math and statistics, but it’s very hard to put in things like culture. How do you put that into a mathematical formula? You tend to come up with behavioral models that are quite often the foundation for predictive models, and they tend to be very naïve in terms of real true human behavior.

You would think that we would engage more with the field of psychology if you’re talking about behavioral models, but the literature is pretty clear about that. We don’t. A lot of economists work on the cycle of poverty, yet how often do they cite anyone in sociology or anthropology? I have friends who work on voting behavior, but are they really engaged with the literature and political science? A number of people work on the distant past, but do they truly try to integrate the understanding from historians? The answer tends to be no. I think it’s partly a focus on numbers. But part of it is, we’re not trained that way. We’re not comfortable with things that we can’t put into an equation, and I think we lose a lot because of that.

Knowledge@Wharton: What has a love for literature done for you as an economics professor?

Schapiro: Well, I think it’s made me a lot more humble. Saul and I both tell stories about how we began to think that we could have a productive dialogue, that maybe we could contribute, in a small way as we try to in this book, between the humanities and economics.

When I think about it, I’ve never really been primarily an economist who works in the developing world, although I did some of this particularly early in my career. I tell this story of working in Africa as a consultant for the World Bank and what I missed by not truly understanding the countries in which I worked.

There’s enormous literature about the good things and bad things from the International Monetary Fund, the World Bank and the like. In certain continents, development economics has a pretty good story. But where I was working in sub-Saharan Africa, the story isn’t all that good. I think if we really engaged with an understanding of the history, the politics, the religion, the sociology of the family, rather than just tried to get the prices right and applied the same sort of basic economic model towards successful development, the policies would have been a lot more effective.

Morson: You need to be able to put yourself in the position of the people you’re trying to help. They’re not all the same. Culture, values will differ. They won’t respond to same way to the same measures. What great literature is really best at, the great realist novels in particular, is teaching empathy. To read one of these works page by page, you see the world from inside the perspective of a person unlike yourself, with a different gender, values, culture, period, norms. You get a lot of practice in empathy.

“I was amazed that economists actually think people always behave according to their best self-interests, that you can mathematicize human behavior, that culture is irrelevant.”–Gary Saul Morson

Other disciplines tell you that you should empathize, but just to read a great novel you get a lot of practice in it. And once you start thinking that way, it becomes natural for you to ask, “What is it going to feel like to the people I’m trying to help? How might they respond?” You might not have the answer, but to ask the question becomes second nature.

Knowledge@Wharton: Just being able to ask the question, that’s taking one step in the right direction in this process, correct?

Morson: Yes, that’s right. You want it to be a sort of question you always ask for effectiveness, but also there’s an ethical dimension here, seeing it from other people’s points of view. What you think helps them, they may not regard as helpful. What you think as good, they may not regard as good. What does it look like to them? One would think that would be a crucial thing. And empathy, intellectual as well as emotional, is what you need for that.

Knowledge@Wharton: You bring up ethics in the book. You say there is a divide between what economists believe and the genre of ethics, that economists are not trained to think a lot about ethics.

Morson: Yes. You might try to translate ethical questions into some form that you could mathematicize, but that gives you a very pale image of the complexity of ethical questions. In fact, that’s what an ethical question is. It’s one where it’s very hard to say what the right answer is. It’s different from a question of whether to be ethical. An ethical question is one that reflects the complexity of ethical situations where you need judgment. And judgment, by its very nature, is something you can’t write a formula for.

Schapiro: I couldn’t agree more. I think that if we really engage more with philosophy, not only could our policies be more effective, they could be more just. The book is full of examples of that, from development economics to health economics to economics of the family and on and on to my specific field, which is economics at higher education. Getting back to the course we teach, most people take it for credit in ethics and values because with every single topic, we say, “This is what an economist might say and this is what other fields might contribute to that dialogue. But is it fair? Is it the right thing to do?”

Knowledge@Wharton: The costs of higher education and health care are two very important areas when you think about American culture right now. How has your understanding for the humanities affected your teaching of these topics?

Schapiro: There are a lot of people who say not-for-profit colleges and universities should be more like businesses. One thing that came out of that in recent decades is the concept of enrollment management, where historically admissions was very separated from financial aid. But if you’re going to be more like a business, you’re going to take advantage and try to estimate that demand curve and figure out what the price elasticity of demand really is. For example, if you have someone who’s going to buy your product, if it’s undergraduate education in this context and they’re going to buy it anyway at a very high price, you’re not going to discount off the sticker price. Yet if you look at the millions of students at not-for-profit private colleges and universities in this country, only 14% pay the sticker price. The other 86% get a discount off that sticker price, in many cases a very substantial one.

The temptation is to try to use your data to figure out what that reservation price is for a student and his or her family. It’s remarkably easy to come up with a prediction of whether someone who applies to your college or university would accept an offer of admission. You look at all kinds of things: what their test scores are, do they come from a feeder high school, a parent went there, their major. They very significantly tip their hand about their interests. They come on the tour. If you send a college counselor to their high school, they sign up and they give their name and attend a session and come onto the campus and sign up for the tour. That’s the sort of thing that, if we were selling automobiles, we would love to have consumers tip their hand. Somebody who goes on the tour and writes letters and attends the college preview day and all of that is like somebody coming to a BMW dealer and saying, “Hey, I only drive beamers and this is my sixth in a row. I just love this car. I couldn’t see myself anywhere else. I see it’s listed at $45,000. What are you going to charge me?” And they’re going to say, “$45,000.”

Rather naively, students and their families tip their hands as well. We describe in the book, based on an article that I did a while ago, that you could easily predict the yield or the likelihood someone is going to come. If you predict someone is out at 90%, what’s the real economic reason to cut the price? They’re going to come anyway. But if it’s need-based aid, if it’s merit aid, which by definition is reducing the price below what the family can afford to pay, then it’s one thing. Even then, Saul would probably argue you shouldn’t use such a yield formula. Even in allocation of merit aid, I disagree but I can see why. It’s misleading. It’s not transparent.

Morson: If you say you’re going to do it, it’s OK. But it’s the misleading part that bothers me.

Schapiro: If you say you’re going to do it, people aren’t going to tip their hand? But certainly for the need-based aid, you’re saying, “OK, out of the $65,000 in tuition, room and board, you can pay $40,000. But we’re going to charge you $50,000 because we know you’re going to come anyway.” That might be good business, but it makes somebody take out a larger loan then they have the capacity to pay off. I think that’s sleazy and unfair. That’s just one of many examples in the book of where good economics isn’t good policy.

Knowledge@Wharton: Saul, what about the health care side of things?

Morson: One of the examples we talk about in the book is Nobel prize-winning economist Gary Becker’s article on whether there should be a market for kidneys. He thinks it’s perfectly obvious that there should be and that some day people will look back and be amazed that anyone ever thought differently. After all, there are a lot of people who die from lack of a kidney transplant, and there are many people who’d be willing to sell it. Why not just have a market? Everyone is better off.

From that perspective, it’s a strong argument. But there are other questions that don’t come up there. What happens when you treat the human body as so much matter, when you think of people as not being themselves but owning themselves? What kind of morals does that encourage?

“It’s a great field, but it could be so much better if we were less insular.”–Morton Schapiro

Does it encourage, let’s say, government policy that might harvest organs of criminals? You can see that it changes your view of people. Does that mean we shouldn’t do it? Adding the humanist perspective there doesn’t say that, it just says the question is quite complicated. The real objection that I would have is Becker’s notion that it’s a simple question, not necessarily that his answer is wrong. But the question is complicated. If you start thinking in ethical terms that economists have trouble with, you see that a simple question is not so simple.

Knowledge@Wharton: But if you’re bringing the humanist viewpoint to that particular issue, you’re bringing information to the table that, in many cases, hasn’t been considered and could change the thought process, change the policy. If we were to do that more often, what would the impact be?

Morson: I think the first impact would be that the advice that economists offer would be stated less categorically and more humbly. It would be like, insofar as this is the consideration, this would be the best answer. But what else is there? Insofar as the world looks like the way our models say, this is probably the result. That’s very different from the kind of categorical answers that you do get. The claims you make for a recommendation are as important as the recommendation itself, how sure you are that there’s nothing else to consider. That would make a big difference in changing the hubris of bureaucrats or economists who actually set policy.

Schapiro: The book is full of examples of how we would do things somewhat differently. I tell the story of the infamous World Bank memo. It was about 25 years ago. Unfortunately, it was associated with Larry Summers, who was chief economist for the World Bank at the time. He signed it, but he didn’t write it. The memo was a perfect example of the kind of economics that over a lot of my career I would teach. The topic was a simple one: Where in the world do you best relocate toxic waste? It’s natural that economists would think, if there’s an area with high morbidity and mortality and low wages, that’s a minimal economic cost. If people are dying anyway, that might be the efficient place to put it. This memo talks specifically about Central Africa because people had very high morbidity, high mortality and not a lot of education. Hence, a low opportunity cost of their time.

We quote the secretary of environment in Brazil, and I think this really captures even today a little bit about how economics can be improved. He wrote, “Your reasoning is perfectly logical, but it’s totally insane. Your thoughts provide a concrete example of the unbelievable alienation, reductionist thinking, social ruthlessness and the arrogant ignorance of many conventional economists concerning the nature of the world in which we live.”

I think that’s still true. If it were only a so-called narrowly defined academic exercise and you’re just doing it for an economics course, and you might argue as an economist that it’s fine. But people actually listen to economists. We have an outsized impact on policy in our countries and throughout the world, and that means a greater responsibility. That means a responsibility not just to apply our simple behavioral and mathematical models, but to get it right if we’re really trying to make the world a better place. It’s just what we’re trying to do.