What’s the point of economists? Look to America’s tech giants to find out
Despite the dire predictions from the economics profession about Brexit, the UK economy is doing well.
Growth continues at a steady pace. An all-time record 32.4m people are in work. Unemployment has fallen to levels not seen since the mid-1970s.
In contrast, the Eurozone is on the brink of recession – and Italy is already in one.
Economists in the UK are overwhelmingly anti-Brexit. Yet the persistent failures of their forecasts do not seem to lead them to revise their views.
Of course, macro-forecasting is just one part of what economists do. Economics as a subject is fundamentally about the allocation of scarce resources. So economists clearly have a role to play in government, where politicians are constantly having to make trade-offs between what they would like to do and what funds are available.
Even so, we might reasonably wonder whether the massive expansion of the Government Economic Service (GES) under Gordon Brown has been worthwhile. Well over 1000 economists are now employed in the GES.
An altogether more positive view of the point of economists comes from across the Atlantic. The giant tech companies just can’t get enough of them.
Amazon, for example, has hired over 150 economists qualified to PhD level in the past five years. This makes Amazon’s economics team several times larger than the largest academic departments in America.
This phenomenon is the subject of a fascinating article in the latest Journal of Economic Perspectives by Susan Athey of Stanford and Michael Luca at Harvard. Athey was previously the consulting chief economist at Microsoft, and Luca works closely with companies such as Yelp and Facebook.
The close commercial links of the authors are typical of how tech companies are using economists.
Collaboration with the academic world is actively encouraged. But at the same time, as Athey and Luca point out: “the majority of economists in tech companies work on managerially relevant problems with data from the company, and many are in business roles”.
They work on a wide range of practical issues. For example, economists use both actual and experimental data to help decide whether to introduce new products and how to evaluate the impact of competitors.
There are important questions around evaluating not just advertising, but a whole range of marketing initiatives. The skills of economists are very useful in the design and analysis of randomised controlled experiments on these topics.
At the top level, economists get involved in the key strategic decisions of the business. At Microsoft, Athey herself worked on the strategy and empirical analysis of Microsoft’s investment in Facebook and the acquisition of Yahoo’s search business.
It is not all one way. At tech companies, economists have had to become familiar with modern analytical tools in machine learning and artificial intelligence. These are very powerful tools, but academic economists have tended to look down their noses at them.
In the UK, the government is the biggest employer of economists. In the US, it is the tech companies. The contrast shows that we have some way to go to catch up with the entrepreneurial spirit of America.