Warwick economics event aims to learn lessons of history

Economists are finding new ways of learning about the past – and learning from the past

February 8, 2016
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Can economists extrapolate from one downturn to another – and use textual analysis to track people’s emotional response to them?

A student-run conference has brought together a dazzling range of international speakers, including Nobel laureate Sir James Mirrlees, former Italian prime minister Enrico Letta and the director general of the United Nations Geneva office, Michael Möller.

The 2002 Warwick Economics Summit was the first inter-university undergraduate economics event in the UK. The year’s summit, held on 5-7 February, saw a number of academics among the ministers, financiers and central bankers offering insights into where their discipline is going now.

Daniel Sgroi, associate professor of economics at Warwick, presented his pioneering research project to develop “a historical measure of happiness”. This relies on psychologists asking people about their emotional responses to thousands of words and then calculating their frequency in books digitised by Google.

This leads to what Professor Sgroi calls “an implicit measure of sentiment”, which seems to correlate well with data from happiness surveys over the past few decades, not to mention the expected responses to wars, depressions and even the 1978-79 “winter of discontent”.

In the longer term, he hopes that better information on what makes the greatest emotional impact on people may help governments decide where to spend their “marginal pounds” – if there are trade-offs between, say, health and defence. In the meantime, he was able to demonstrate to his audience just how far “big data” is now transforming economics.

Nicholas Crafts, professor of economics and economic history at Warwick, used “the Great Depression of the 1930s” to draw out “lessons for today”.

“Economic history can be useful,” he explained to Times Higher Education. “It’s not just a hobby subject, but can cast light on today.” Britain fared better than the US during the depression because fewer banks collapsed and because it got off the gold standard early. Yet now, Professor Crafts went on, “being in the eurozone is like being trapped in the gold standard, but almost impossible to escape without doing a massive amount of damage to yourself”.

While he accepts that recent history makes it “natural to hate bankers”, when push comes to shove “you do have to rescue the banking system”. But if the lessons were there to be learned, why had the economics profession failed to predict the crash?

“I think economists didn’t take financial stability seriously enough,” replied Professor Crafts. “I have long taught the Great Depression, which shows that stability really matters. Lessons were there to be observed. There was a nasty accident waiting to happen, and we economists weren’t paying enough attention.”


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