And so economics began...

Economist's view links to videos of the Nobel Prize lectures in Economics. Here's how Roger Myerson started his:

The scope of economics has changed. Economics began with Xenophon's paper Oeconomicus more than two thousand years ago, in which a model citizen of ancient Athens goes out to the countryside, to his farm, to monitor and motivate the workers he has there to make sure they are working. Then he comes back into the city to participate in various political institutions that are necessary to maintain his political status so that he can keep owning his farm.

Agents' incentives and political institutions are central concerns of economics today as they were then; they weren't always. Sixty years ago or so Schumpeter saw Xenophon as somewhat marginal or outside the scope of economic inquiry.

Here's the full text by Xenophon in English (tranlated as 'The Economist') from Project Gutenberg. Here is a previous Bluematter. post on Xenophon's work.

I wholeheartedly agree with Myerson. But we have only scratched the surface so far: despite the recent focus on the importance of institutions, 'government' (and for that matter morality) remains an exogenous influence in the vast majority of economic models, which is a shame given we can potentially model the behaviour of the various political actors almost as well as that of market participants. This ommission wouldn't account for much if as a profession we were content with only commenting on small, closed systems ('this is how you should design your auction', 'this is how you can allocate hamburgers efficiently'). But we aren't, so academic economics' 'won't bother with politics' attitude is one of the main taboos we ought to overcome.

In other words, we are never lucky enough to be advising a benevolent dictator. We should finally stop pretending this is the case and approach the issue in the systematic way that is the hallmark and great pride of the profession.

Our second failing is more fundamental, and it relates to our inability - so far - to make information a more tangible, and better measurable, quantity. Related to this is our failure to view homo economicus as rational across all possible models of reality (rather than just the 'correct one'), and to develop a general theory of 'biases' (no, atheoretical statistics are not enough). This probably deserves a post of its own; stay tuned.

And another aside: I was struck to see how many empty seats there were at the lecture theater. No, I didn't expect tickets to be selling for thousands of Kronas at the black market, but I didn't expect this either.