Young economists talk about the future of economics at Sintra 2018

Young economists talk about the future of economics at Sintra 2018


I don’t know what Freddos are! What? You grew up in the UK. I did, I did. I don’t eat sweets! I’m here in Sintra, Portugal, at the invitation
of the European Central Bank and they’ve invited me to come here to make a video about
economics, which is a subject that I know absolutely nothing about. But fortunately, there are some people here
who I’ve been able to ask for some help with at least the basics. It’s a great question. What is economics? That’s a very difficult question, I would
say. You know, I think the first thing to bear
in mind is there isn’t one answer, and economics is appealing because it’s sort of, in some
broad sense, it’s the study of how humans make decisions. I mean the definition is something to do with
the management of limited resources. Why do I get the impression that I am in over
my head here. We are here in Sintra because there is a conference
happening about central banking and so there is a bunch of incredibly important economists
here: people who head up central banks from all over the world. But I’m not here to talk to them. I’ve been brought here by the ECB to talk
to some PhD students, who are here presenting their research to these economists. So I was brought here to have a chat with
them about their theses. My name is Karin Kinnerud and my research
is in subsidies in the housing market. So my name is Jonathon, sometimes I go by
Joe. I am interested in wage-setting. My name is Rong Fu and my PhD focuses on financial
economics and macroeconomics. You are from Ukraine, you’re studying the
US economy in the UK: so, I am the definition, maybe. My name is Mishel, I am a PhD student at the
University of Oxford and my research is in macroeconomics, supply chains and monetary
policy. Now if you’re anything like me before I
came here, you might think of economics as something that is practised by banks, rather
than something that is researched like a science. There is the question, “Is economics a science?”,
which I asked the PhD students, and these were their responses. The obvious answer is “What is a science?”,
and that’s not a helpful answer. Macroeconomics is, the macro-economy isn’t,
probably. Yes. Is that enough of an answer? No. No. So to give you some background on what a PhD
in economics is like – what you research – I wanted to give to these students a platform
on my channel just to very briefly in this video talk about what their PhDs are about. So let’s take the beginning of the financial
crisis, the Great Recession, in the US, UK, Europe. Suddenly unemployment goes, you know, from
5% to 10% in a few months, maybe a year. Why does that happen? I thought this would be something that macroeconomists
understood really well, but one of the exciting things about the research I do is that we
don’t yet fully understand. My first chapter is about stock return prediction
using flexible models so that one is econometrics. I study mortgage interest deductibility, which
is a subsidy on mortgages and borrowing, and I study what happens when that subsidy is
removed. For example, what happens with house prices? What happens with the level of debt in the
economy? And ultimately, are households better or worse
off if this subsidy is removed? My second paper, which I am going to present
here, is about financial integration in a changing world: about measuring financial
integration, how to predict it and whether it increases – or not – over time. The basic question I am trying to answer is
the following: standard models assume that if you want to produce a car, you just bring
people in to produce a car. I would alter this assumption and say: “If
you want to produce a car you need to produce tyres, you need to produce the metal from
which the car is made, you need to produce the glass for the car as well.” And I am trying to incorporate these features
into macroeconomic models and I assure you that incorporating that is very important
for understanding monetary policy. I think that my research matters a lot for
the average household. Purchasing a house is probably the biggest
financial decision or investment you make in your life. So how this mortgage market is set up and
how much debt you can use to finance your house purchase is important for most people. The question I want to answer is: “Why does
unemployment rise so far and so fast as recessions happen?”. And if we want to stop this phenomenon with
enormous social consequences, we need to understand why it happens. What I am doing when I am looking at large
online datasets – job postings with wages – is helping to reach the root cause of
why unemployment rises so much, which is something that we don’t yet fully understand, even
in 2018. So there is your background. All these guys are studying very different
projects and so they’re going to have very different responses to the big question – the
reason you are watching this video – “How is the world going to change? What is coming that is going to change the
world economy?” Well, that’s such an easy question. If I already knew that would be great. The media narrative is that artificial intelligence
is super important, but in practice we haven’t yet measured it carefully enough to know for
sure and this is something I’m trying to do. Let me say two things. If you start with cryptocurrencies, I think
it’s also a big thing. Why? Because we are moving from cryptocurrencies,
such as bitcoin or some other similar cryptocurrencies, to this whole conversation about cryptocurrencies
issued by a central bank. You know, ten years ago an investment professional
would be extremely valuable, but today they might not be because you could train an algorithm
to do many of the same tasks. This narrative is popular, but quite hard
to test. One of the things I’m doing is trying to
get data that can let us test this. The second big topic is fiscal policy. Why? Because economists often talk about monetary
policy as being the science of our discipline and fiscal policy as the alchemy. There’s still very limited understanding
of exactly how action taken by the government, either spending on goods and services or the
government doing some taxation… what is the optimal way of doing that? I think we shouldn’t worry too much about
this because just like 100 years ago when we went through the industrial reforms, we
also had machines replacing all the horses. And technology is the key for economic growth. I’ll be honest: I feel like I’ve left
this conference with more questions than answers. It feels like very, very little is certain
in economics. If anything, as a result of this trip I now
think of economics more and more like climate science: there is this vastly complicated
system that you’re trying to model. You have different models for it, and depending
on the assumptions that go into those models, you get really different outcomes. They’re really quite similar fields – but
not just that. Talking to the PhDs has really made it clear
to me that we are more alike than we are different. We all have a lot in common. I mean it’s been tough – a lot of work
– but it’s also been fun and it’s an amazing freedom to be able to do whatever
you want and to study exactly what you’re interested in. It’s really hard to be original; especially
just as a PhD student at the start. It’s kind of impossible for you to come
up with a totally new idea and then you think you will change the whole world with this
idea. That’s because you haven’t read enough
literature! Whenever they tell you, “Okay the next time
we’ll check up on you is in about 18 months’ time”, you suddenly get a lot of temptation
to start doing very casual, recreational thinking and pondering about macroeconomics instead
of producing results. Of course, I hope that my PhD has social utility,
but I do it on some level – most of all – because I love doing it. And so I don’t have to justify it to anyone
because when people say, “Why are you doing that?”, I say, “I do it because it’s
my passion”. And in my experience, I think to really get
a lot out of a PhD, you need to want to do it for the pure joy of it, irrespective of
how much it might improve the world – because that’s a very hard thing to do. And you know it’s a very lofty and, perhaps,
unattainable goal for research. See! It’s not just me. Thanks to the ECB for inviting me to come
and make this video. I would encourage you to follow them on Twitter
and check out their website because before I came here I didn’t know anything about
the ECB – what it was, or what it did – and it’s this really important institution for
Europe. I think it’s worth learning about. So, go to those links: they’ll be in the
description. But also come back next week because I’m
going to be posting a vlog about my time here in Sintra and all the landscapes you see behind
and that amazing palace down there. This has been the venue for the conference
and I’m going to be doing this vlog about my couple of days here, about meeting the
students, about making this video and hopefully more than that – getting answers to questions
that you posted on social media about economics. I’m going to do my very best tomorrow to
get answers to those. So make sure you subscribe to the channel
so you don’t miss that and if you enjoyed this video make sure you give it a “like”
and thank you very much for watching. I really hope you learned something like I
have in the process of making it. Thank you for watching and I’ll see you
in the next one.

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