A while back The Wall Street Journal published the article “Corporate Economists Are Hot Again“ that chronicles the resurgence of in-house economists in corporate America. The role of a corporate economist may bring about visuals of classic economist stereotypes (watch Ben Stein play to this stereotype as a teacher in the great 1986 movie Ferris Bueller's Day Off - search for "anyone, anyone" and the movie title for a good laugh). These types of prognosticators were popular in the 1970’s and 1980’s as companies attempted to turn the volatile macroeconomic environment into a competitive advantage. The subsequent near-twenty-year economic expansion and decreasingly volatile economy reduced the need for full-time economists, since the future continued to appear near-certain. Recently, economists are being hired again, but this time it is for a completely different reason, one that I have been evangelizing since my start at SAS. Economists are great source for analytical talent. They have all the necessary skills, which is why many companies are hiring them into these roles. Economists are poised to break in to data science roles for these five reasons:
- We understand objective functions: Economists love objective functions, since they dictate how the players in a system behave. This can be important in both predicting outcomes as well as in conducting analysis. If the objective is to understand how price affects quantity, variable selection mechanisms cannot be used because they would eliminate the price variable.
- Economists have a very strong linear regression toolkit: While economists often do not have the depth of statistical methods that a formally-trained statistician has (we miss out on clustering and variable reduction, to name a few), we know what we know with great depth. And fortunately, very few problems require more than linear regression. There is one subtle tweak to an economist’s regression toolkit, which is….
- We own observational data and causality: Economists never assume we have the luxury of experimental data. We always assume that the data are rife with issues such as measurement error, censoring and sample selection. For these reasons, economists have tweaked their regression training to address all these problems. Nearly all the corporate customers of SAS I have met model data generated outside a lab. The data are collected retroactively and have all the problems listed above and more.
- Articulating the problem and the solution: This reason is closely tied to the first point. Economists can talk about the problem and explain the solution. I have heard my fellow economists call this trait “storytelling (hat tip to John Moreau).” I think term that perfectly describes our skills here. SAS customers often tell me that they like the way economists conduct regression, because they look at the coefficients to verify they align with theory. Part of the storytelling proficiency is skill at explaining what incentives led to this response. Other disciplines tend to focus on statistical fit rather than explanation.
- We work with big data: While this might not be immediately obvious, economists are very skilled with dealing with data that are uncomfortably large. Nearly every labor or health economics course requires a data replication project involving multiple years of the US Census Bureau’s Current Population Survey or their 5-percent Public Use Microdata Sample (PUMS). These datasets easily are multiple gigabytes in size and require programming efficiency to process.
In fact, perhaps one of the most famous advocates of the “economist as data scientist” argument is Hal Varian. While his comment about statisticians being sexy is far better known, he is an economist himself, and the full quote sums it up best:
“I keep saying the sexy job in the next ten years will be statisticians. People think I’m joking, but who would’ve guessed that computer engineers would’ve been the sexy job of the 1990s? The ability to take data—to be able to understand it, to process it, to extract value from it, to visualize it, to communicate it—that’s going to be a hugely important skill in the next decades, not only at the professional level but even at the educational level for elementary school kids, for high school kids, for college kids. Because now we really do have essentially free and ubiquitous data. So the complimentary scarce factor is the ability to understand that data and extract value from it.
I think statisticians are part of it, but it’s just a part. You also want to be able to visualize the data, communicate the data, and utilize it effectively. But I do think those skills—of being able to access, understand, and communicate the insights you get from data analysis—are going to be extremely important. Managers need to be able to access and understand the data themselves.” –Hal Varian, Chief Economist, Google
Too bad he didn't call economists sexy.
So what holds economists back? I have my theories. I believe there are three key areas we must address: 1) terminology, 2) methodology and 3) technology. I will elaborate on these during my upcoming talk at the National Association for Business Economics Annual Meeting in Chicago September 27-30. If you find yourself in the area, I hope you can attend.