Practitioner of the dismal science? Who, me? Couldn't be!!(Column)

Why did I become a labor economist concerned with the institutions that affect the lives of workers and the organization of work when I could have been an investment banker, McKinsey consultant, used car salesman or even a theorist working out the truths of the Invisible Hand on a blackboard in some dark office?

When I was in grade school, I did not dream of becoming an economist. I doubt that any kid does. I was more enthralled with literature--ah to write the great American novel--or with managing a stable of villainous professional wrestlers ala the Grand Wizard, Lou Albano or Classie Freddie Blassie. Those would be fun careers. Economics? Didn't someone call that the dismal science? Who wants to be dismal?

There is an answer to the why economics question that would please the Invisible Hand. This is that at age seventeen I calculated the expected present value of lifetime earnings from economics and other plausible careers and, taking account of my preferences toward work activities, money, and risk, picked the career most likely to produce the highest utility. The Hand would be even happier if I told you that I had carefully weighed my abilities and interests--strong but not Putnam Prize level math abilities, strong but not Chekhov level writing abilities, strong but not Nelson Mandela level social concerns--against the payoffs to those abilities/ interests in different professions and determined that economics was the best fit.

At some level, Invisible Hand explanations of career choice work as a good first approximation for many of us. In a sample of thousands of young persons choosing careers, I almost surely would be in the set of those who fit economics and not in the set of those who fit pro wrestling (save as a manager or script writer). But I am also sure that many in the suitable-for-economics set chose other occupations--law, literature, investment banking, sociology, and so on. Economic models of individual outcomes invariably have huge residuals that tell us that they miss much about what determines individual choices and payoffs.

The economics of education, for example, lives on the fact that education raises earnings. But regressions of In earnings on formal education, however measured, explain less than 5% of the variance in In earnings. Within each education group, there is a huge dispersion of earnings among observationally equivalent people that dwarfs the variance across the groups. Economics majors from Harvard of the same age, gender and race and with similar grades, for instance, will have very different earnings ten or twenty years later. One may end up a six-digit earner while another struggles to keep up with the bills.

In physical science, it is irrelevant which rapidly moving atom interacts with neighboring atoms to equilibrate the level of heat in some closed space or which molecules interact with other molecules to form a chemical compound. The atoms and molecules are identical. But our genes and environment make humans heterogeneous, and we invariably ponder the unique factors or accidents that lead us down one path over another. Unless the cosmologists' hypothesized multiverse is true, there is no way to test any story of how idiosyncratic events affect long term outcomes, and even then it would require traveling to other universes, Dr. Who style. The most we can do is tell a consistent believable story about why we got to where we are.

What set me up to choose economics was Isaac Asimov's Foundation series of science fiction books (1). The 1st volume of the series laid out the key proposition that, Hari Seldon be praised, it was possible to construct a science of history. Equations based on verified knowledge could predict the flow of history--at least up to the point where uncertainty allowed the heroes of the series to gain better outcomes for humanity through their brave deeds. The 2nd volume of the series taught the reader that economics dominated military power in determining history. The Foundation expanded through its trading practices. Free trade helped it survive the efforts of the mighty Empire to crash it.