Economists have been arguing that the creation of knowledge responds to the inputs going into it. And there is no question that the number of people engaged in knowledge professions today is greater than ever before in human history. Information technology has added strength to this pursuit, amplifying what a puny unaided human mind could do on its own. Earlier, the West dominated the production of knowledge; now we have phenomena like R&D labs in India giving a new kind of low cost production of knowledge, and increased opportunities for risk-taking in research. These factors should increase the pace of progress in creating knowledge. It should take us closer to the scenario where the 21st century will be even more exciting than its predecessor in terms of creating new knowledge.
But I find myself in 2010, nervously looking around, and wondering if we are actually doing better.
From 1900 to 1910, here are a few of the great things that happened:
- In 1900, Max Planck proposed quantum theory, Hilbert posed his 23 problems, and Louis Bachelier was the first financial economist.
- In 1901, Marconi did the first wireless trans-atlantic transmission.
- In 1902, the first car ride from San Francisco to New York took place, and the Wright brothers flew the first plane.
- In 1903, construction of the Panama canal began.
- In 1905, Einstein wrote four papers.
- In 1906, Mahatma Gandhi coined the phrase satyagraha, and the first `vitamins' were discovered.
- In 1908, the first oil was extracted from the Middle East, and Henry Ford sold the first Model T.
Or is that all sorts of wonderful things have been going on and it is my lack of knowledge? E.g. if I had lived in 1905, I might not have heard about Einstein's four papers.
If it's not just me, and the pace of progress has slackened: Why did we not get amazing progress from 2000 to 2010, despite the expansion of inputs into the systematic quest for new knowledge? Are we hitting diminishing returns; are we in the sad stage of adding decimal places to fundamental constants? Is our production function faulty?
In economics, we seem to be finished with a first cut of a conceptual framework, and now the real challenge lies in how the rubber hits the road, in taking the framework to the messy reality and seeing what works and what doesn't. Nobody believes a theory paper, except the guy who did it; Everyone believes an empirical paper, except the guy who did it. Today, when I face a paper, I first jump ahead to the empirical stuff to see whether the data and the estimation strategy persuades me, and then if it makes sense, I curiously look at the conceptual framework and theory. It is a time to work in the trenches, dealing with messy reality, and not a time for elegant conceptual frameworks.
I remember noticing the May-June 1973 issue of Journal of Political Economy, where there is a pair of papers which appear back to back: Risk, Return, and Equilibrium: Empirical Tests by Fama and MacBeth, followed by The Pricing of Options and Corporate Liabilities by Black and Scholes. One has already got a Nobel prize and I suppose the other will get one too. JPE today does not seem so grand.