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What economists really do

More than just Wall Street types or stock market prognosticators, Johns Hopkins economics faculty and students apply their tools to address the world's most important issues

This article originally appeared in Arts and Sciences Magazine.

Early in the pandemic, Johns Hopkins economics professor Nicholas Papageorge published a paper exploring the link between people's income and their compliance with measures like social distancing. He and his co-authors found that it was harder for people with lower incomes to adopt such recommended practices. Partly because their jobs often couldn't be done remotely.

The point of the paper was to show the flaws in public health policies that assume everyone is equally able to comply.

"You can talk about why people should stay at home as much as you like. But this is the reality. And if you fail to acknowledge that reality, then any policy you're making is going to fail," says Papageorge, who is the Broadus Mitchell Associate Professor of Economics.

When we are trying to address the social issues of the day, economics is not the field most of us look to first. We think of economists as Wall Street types or inflation prognosticators. Not as the ones whose work will improve public health, or reduce inequality, or increase rates of high school and college completion.

But the truth is, economics deals with all of those areas and many more. Whether the issue is government spending, inequities in the labor market, or why people join gangs, the common denominator for economists is meticulous analysis.

"Economists study a broad range of topics. Issues that anyone who cares about how human societies work should care about," says Filipe Campante, a Bloomberg Distinguished Associate Professor in the Department of Economics and the Johns Hopkins School of Advanced International Studies.

"But economists study [these topics] in a particular way. We think really carefully about how people are making choices—or the assumptions we make about how people are making choices—in markets but also in politics, or in their daily lives. And more and more we have been thinking really carefully about data, and how we can use it to figure out what's going on in the world around us, and what we could do to achieve social goals."

Given the wide gap between what economics does and what we think it does, it's fair to say the field has a bit of an identity crisis. There's even a hashtag: #WhatEconomistsReallyDo. Many faculty in the economics department are acutely aware of this gap, and want to set the record straight. It's easy to skip over another news story about interest rates. Just like it's easy for undergrads to skip over that Econ listing in the course catalog. In both cases, department members say people are missing out on a unique approach to economic and social problems. And, a valuable set of tools to help spur progress.

From linear regression to game theory

Talk to enough faculty and students about what sets economics apart, and you'll start to hear the same answer. It's a way of looking at the world that's unique within the world of academia. At its heart, economics is about the allocation of limited resources—whether on a personal, national, or global scale. It involves figuring out how people make choices in conditions of scarcity when they must weigh competing priorities, consciously or not. Enroll in college, or take a blue-collar job? Raise interest rates, or lower inflation? Every decision involves tradeoffs; every tradeoff has an impact.

"If there were some genie who could produce whatever anybody ever wanted, that would be fatal to the field of economics; people would just sit around asking for a sports car," says Laurence Ball, professor in the economics department.

But absent the genie, governments enact policies they think will benefit people or nudge them toward more socially beneficial behaviors; like wearing masks or completing high school. People make choices that make sense in their own lives. Economists are left to analyze the disconnect between the two and propose more realistic policies. Their tools include statistical approaches like linear regression, and mathematical ones like modeling.

Regression analysis enables economists to analyze cause and effect by isolating the impact of one variable (age, for example) on another (let's say earnings), while controlling for other variables such as education, gender, and race. Economists use models to put costs and benefits into mathematical terms to help them determine where the sweet spot is. Whether deciding when and how much to raise interest rates, or where to set the liquor tax to help reduce alcohol dependence, or how to incentivize people to enroll in college.

"Models are really just narratives, stories about how people are making choices," Papageorge says. "We have narratives about behavior and then we have data about behavior, and we want to put these things together in a useful way to try to make good policy recommendations."

Similarly, game theory offers a systematic and vigorous framework to think about strategic interactions, says Ying Chen, an associate professor who uses game theory as her main analytical tool. She researches political issues ranging from the practice of sequentially transferring benefits to legislators in exchange for their votes to the political constraints around climate change policy.

"Strategic interactions—situations in which involved parties' decisions affect each other's welfare—abound in our lives," Chen says. "Learning about game theory makes us more thoughtful about the complex world around us and perhaps a bit more skeptical of conventional wisdom. For example, we may start to see that a 'lowest-price guarantee' offered by some stores actually does not benefit consumers because it acts as an implicit collusion device. As another example, if you want to convince a venture capitalist that you do have a brilliant idea, it does not hurt to put up your house as collateral."

Where the field of economics used to traffic heavily in pure mathematical modeling to describe human behavior, it has been shifting. It's moving toward a blend of theory and empirics. That means discerning patterns in data and applying that knowledge to real-world issues such as the evaluation of government policies, Campante says.

An illustration of people working around a table with a circular track of cars, buildings, and children's toys surrounding them

Image credit: Sam Falconer

Campante studies political economy, or the interaction between politics and economics. His research examines the impact of informal constraints, such as cultural norms and institutions, on politicians and policymakers. Most recently, he's looked at why the rise of social media hasn't necessarily caused a similar rise in citizen participation and politician accountability, as was expected.

The combination of solid empirical evidence and rigorous analytical frameworks to make sense of it can be seen as the field of economics' trademark, says Jonathan Wright, professor in the department. Wright arrived at the Johns Hopkins economics department in 2008 after nine years at the Federal Reserve. He researches econometrics: using statistical models to test hypotheses about the economic world. He also researches monetary policy, modeling inflation and looking at what the central bank can do to support the economy.

It was a blend of economic theory and evidence from previous recessions that guided the Fed's policy decisions when COVID-19 struck. This resulted in stimulus packages like direct payments, small business loans, and interest rate cuts. The jury is still out on long-term impact, but short-term results indicate that the Fed's more aggressive response this time around helped to stave off economic collapse.

Social issues in the spotlight

In the 1960s, economist Gary Becker broke new ground by studying the long-term impact of attending preschool on those individuals' eventual earning power. What made his work revolutionary was its broadening of the concept of investment, framing education as an economic investment in human capital. Economists to this day have followed suit, applying that framework to issues ranging from poverty and public health to international development.

"Investment can be building factories. It can also mean building the minds of 4-year-olds," says Ball, a macroeconomist. His 2018 book, The Fed and Lehman Brothers, slams the Federal Reserve for buckling under political pressures and failing to take action that might have dulled the blow of the 2008 Great Recession.

Economists have always applied their tools to social issues, but more of them are doing it in recent years, says Robert Moffitt, Krieger-Eisenhower Professor of Economics. Moffitt is a labor economist who cut his teeth on one of the first social experiments to test the effects of guaranteed annual income on future employment, poverty, and education rates in 1970s Gary, Indiana. Since he arrived at Hopkins in 1995, he has focused on the interplay of the U.S. welfare system and the decisions made by low-income female heads of households. He teaches courses in labor economics, poverty, and inequality.

"Investment can be building factories. It can also mean building the minds of 4-year-olds."
Laurence Ball

Today, while many economists still run social experiments, they also combine regression analysis and other statistical tools with what they call "natural experiments." These examine the effects of guaranteed annual income and other policies—an approach that began in the 1990s. "There's a wave of new ways to use statistical methods in a much more rigorous way. People think the '70s and '80s were the Dark Ages because they didn't understand how to do causal inference with statistics, and now we do," Moffitt says.

Sometimes, all that rigor turns economists into the bearers of unwanted news. For example, it's a pretty common belief that we need job training programs to prepare people without higher education for jobs in IT, engineering, and technology. "Unfortunately, we haven't found any programs which, when rigorously evaluated, have much impact on disadvantaged workers and future earnings," Moffitt says. As a result, Congress has been reluctant to invest significantly in such programs.

A rainbow of opportunities

Economics at the Krieger School is a close-knit, collegial, even fun department. Faculty routinely write papers together and consult with one another on research questions. They genuinely enjoy one another's company enough to kibitz in the hallways after departmental meetings before returning to their offices. Graduate students—from last year, last decade, last century—stay connected with regular updates in the annual newsletter. Before the pandemic, the department even fielded a successful intramural basketball team. They've won the Hopkins 3-on-3 championship in two of the last four seasons.

It's also a renowned department, associated with three Nobel laureates and early luminaries including Francis A. Walker, regarded as the "dean" of American economics. But members also see room for improvement and are in the process of making some changes.

In 2019, Papageorge and senior lecturer Barbara Morgan held a focus group with about 50 juniors and seniors. The students fretted that introductory courses were limited and didn't show them how much economics can do. Johns Hopkins alum and lecturer Robert Barbera, who teaches the Intro Macro course, responded by interviewing nine faculty members about their research. He also screened 20-minute videos for his students, giving them an immediate window into the wider world of economics.

"All of a sudden, they saw Barbara Morgan talking about labor market discrimination, they saw Jonathan Wright talking about econometrics, they saw Ying Chen talking about game theory, and so they walked out of class with a much more rainbow sense of what economics could be," Barbera says.

He joined the economics faculty in 2012 as a lecturer after 30 years as a Wall Street economist and macroeconomist. His current interest is in tackling the formidable issue of how to create politically feasible policy to make a dent in climate change.

As director of the department's Center for Financial Economics, Barbera hosts the biweekly Reality Roundtable for undergraduate students to interact with faculty and graduate students. The roundtable addresses both national and global concerns. It moves beyond a narrow economic view to take account of the fact that decisions are made within an ever-changing political framework. Viewpoints are diverse and the discussion is animated. Recent topics of debate have included evaluating the changing role of the Federal Reserve, forecasting the post-pandemic economy, and analyzing the global economic impact of Putin's invasion of Ukraine.

Senior lecturer Somasree Dasgupta, director of undergraduate studies, and senior lecturer Muhammad Husain, co-director of undergraduate studies, had begun hearing from students that they wanted a wider range of courses. They also wanted more frequent offerings of existing courses, and more role models for women. The department responded by hiring two female lecturers and a female assistant professor. They now offer required courses every semester instead of once a year. They also added courses such as Gender Economics and Economics of the Black Community to attract a wider swath of undergraduates. More hires are on the horizon.

The major is now bursting at the seams with 365 students, up from 275 a decade ago. Almost 40% of them are now women. This places Hopkins ahead of many of its peers in what is still a male-dominated field.

"I was amazed to see that students have so many new, innovative questions. They are not only concerned about their grades; they also want to learn about what is happening to the world right now."
Sohani Fatehin
Applied microeconomist

Two of the new lecturers are women of color. They say they came to the Johns Hopkins economics department partly for the quality of their new colleagues and the department itself. And partly for the caliber of the students they would teach. They're not disappointed.

"I was amazed to see that students have so many new, innovative questions. They are not only concerned about their grades; they also want to learn about what is happening to the world right now," says lecturer Sohani Fatehin. Fatehin is an applied microeconomist, studying public finance, development, and health economics. She is currently working with the economists at the Centers for Disease Control and Prevention on issues of non-communicable diseases in developing countries and tobacco use.

Outside of the classroom, students have additional opportunities to explore the field. Dasgupta oversees the Economics Club, which is led by undergraduates. It holds networking and social events to promote interaction among undergrads, graduate students, faculty, alumni, and professionals in the field.

And in 2017, Morgan and four sophomores created the Economic Policy Issues Colloquium, or EPIC, an undergraduate seminar series. It aims to attract more diverse students to the field by exploring economic issues applicable to their own lives. Morgan's own work focuses on inequalities in the labor market like wage gaps. She also looks at differences in working conditions such as benefits, turnover, and flexible hours.

"As economists, we are concerned about efficiency—the optimal allocation of resources," she says. "But distribution was a key focus of the classical economists—and it happens to be one of the central economic problems of our time. With EPIC, we've tried to reach out and show that we are tackling this and other policy questions that are relevant to all students, wherever they end up."

After Johns Hopkins economics

The department's engagement with real-world applications of theory means that its graduates enter the work force not only with strong analytical skills, but also grounded in the everyday practicalities necessary to read trends and make policy recommendations. They excel in job interviews at the International Monetary Fund, Ball points out, because they bring more to the table than a set of esoteric mathematical tools.

During winter intersession, Johns Hopkins economics offers Wall Street Today. It's an opportunity for students, alumni, and other members of the Hopkins finance community to hear from industry leaders and to connect in small groups. Recent speakers have included alum Jeff Raider, cofounder of Warby Parker; J.P. Morgan executive Carlos Hernandez; and hedge fund manager Philippe Laffont. Virtual for the last two years, the popular event is typically held in New York.

Last year, alum Sean McGrath led a big initiative to enhance her firm's ESG program. These increasingly popular environmental, social, and governance criteria are used to make greener, more socially responsible investments. The approach can be a hard sell because it often involves upfront costs. But, McGrath uses her modeling skills to demonstrate the longer-term benefits.

"I think there is a real understanding, especially today, that for a business to be enduring, it needs to appropriately consider and act upon the best interests of all of its stakeholders, not just its shareholders," she says.

After double-majoring in economics and public health, recent graduate Jeremy Costin is completing a master's degree in health science in global health economics at the Johns Hopkins Bloomberg School of Public Health. Without his econ background, he says he likely would have missed important angles in his public health work. For example, he might have thought banning cigarettes would be an effective solution to an issue like smoking.

"Now, with my economics brain, I know that what's much more feasible and will actually work are things like increasing taxes and creating more incentives to quit," he says. "If you do any type of public health project, you need the economist there to figure out how people are going to react."

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