Applied Economics - Critique

Critique

Backhouse and Biddle argues that the mainstream view, that there is an accepted "theoretical core" and that this can be applied in a range of areas, relies on this core having specific characteristics. That is that it has a wide scope and can be developed independently of individual applications. But they note that as with the definition of applied economics itself, there is within the economics profession, differing views as to what belongs in the core. Where one draws the line between research that is contributing to the core and research that is applying the core, and the relative importance or significance of research on topics in the core versus applied economics research.

Some examples of the problems of applied economics from various fields and issues:

• Examples of problems of applied economics: Macroeconomics

One example of this is macroeconomics. In the 1960s and 1970s, macroeconomics was a part of the core of the subject. Why? Because macroeconomics was not only sufficiently important to part of any economist's training, but also embodied a set of concepts and principles not found in microeconomic theory. However the replacement of Keynesian approach to macroeconomics with new classical macroeconomics and its successors, macroeconomics might now be regarded by the main stream as merely an application of microeconomic theory.

• Examples of problems of applied economics: Development Economics

Another example is the situation within Development Economics. Throughout the 1950s and 1960s most development economist regarded the application of standard "core" microeconomic theory to their area as being entirely inappropriate. An alternative set of models provided their core. This might be best described as the structuralist approach. More recently development economics texts have provided applications of mainstream core theory.

• Examples of problems of applied economics: Economic Growth Theory

Comim uses the history of the economics of growth in order to illustrate the historical nature of the concept of applied economics. He first discusses the perspective of the theorists’ views of the applied dimension of their work and examines each from the perspective of the work carried out at the Department of Applied Economics (DAE) at Cambridge University. He emphasizes the divergences concerning economists’ understanding of the proper use of economic theory, divergences that might ultimately reveal the influence of distinct practices as fas as applied economics is concerned and the role of institutional environments.

• Examples of problems of applied economics: the Minimum-wage controversy

Leonard notes one area of disagreement amongst applied economists which became famous in the US. That was the minimum-wage controversy. He notes that the fierceness of this controversy was odd because the likely effects were small and that several seemingly more important policy issues such as (entitlement reform, health insurance, CPI calculation) generated nothing like the storm. His explanation is that while this controversy was not especially important to the economy, it was very important to economics and economics as a policy science. His explanation for this is that minimum wage research came to be seen as a test of the usefulness of applying neoclassical price theory to the wages and employment. In other words it was not just a technical quarrel over such things as the sign and size of wage-elasticity but rather an installment in a long running methodological dispute over whether neoclassical price theory is in reality of any use.

• A critique of the dominance of econometrics

Swann (2006) queries the dominance of such econometric techniques within Applied Economics and suggests what he describes as the "vernacular of the everyday practice of economics" should be taken seriously. Swann points out that econometrics's privileged position has not been supported by its disappointing results and rather suggests other applied techniques, the vernacular, are also worthy of consideration. These approaches to applied economics, include simulation, engineering economics, case studies and common sense.