Is economics leaving Wonderland?

Posted on by
1

Bill Easterly’s The Tyranny of Experts and The Idealist, Nina Munk’s book about Jeff Sachs’s Millennium Villages project in Africa, The Idealist, were reviewed in an interesting article by Andrew Jack in the Financial Times yesterday. The books – neither of which I’ve yet read – seem to be part of the big shift that has occurred in development economics in recent years. That shift reflects a welcome shedding of the belief, at least on the part of many economists, that a single conceptual approach will deliver a ‘silver bullet’ solution or method that can be applied everywhere.

  

This is obviously far from a universal view, or Easterly and Munk would not have written their books. However, a number of the OECD economists I was lunching with on Friday were discussing exactly this subject. One said that he thought the RCTs approached, as so brilliantly described in Duflo and Bannerjee’s Poor Economics, would turn out to have transformed the field when we look back in a few years’ time. He was keen to see the developed economies scrutinise their own policies as rigorously as some aid interventions are scrutinised now.

As well as the methodology question, though, there is the tendency so widespread among economists to assume away the importance of historical and geographic specificities. One of the reasons I so loved Jeremy Adelman’s biography of Albert Hirschman, Worldly Philosopher, was its emphasis on this aspect of Hirschman’s development work, the crucial importance of the specific context.

The reductive turn in economics that dominated our subject from the 1970s to the 2000s is tenacious, but it seems to be on the retreat. Development economics is one of the straws in the wind. Perhaps I’m overoptimistic, but I do think economics is returning to the real world from its surreal Wonderland.

Economists out to lunch?

Share/Save

Freedom and virtue

Posted on by
Reply

On the Eurostar to and from the OECD yesterday, I read The Needs of Strangers by Michael Ignatieff, an old book first published in 1984, with my 2nd hand paperback even more mauled by the fact that the dog got to the post before I did that day.

I wish I’d read it before attending the recent Christ Church, Oxford symposium on How Much Is Enough? by Edward and Robert Skidelsky. It’s on the same territory. Ignatieff makes very clear the possibly irreconcilable tension between freedom to choose and a shared agreement on the constituents of ‘the good life’. The book starts with a reflection on the welfare state. It assumes everyone is equal, and reasonably so, but in uniformity of treatment is unable to respond to individuals’ specific needs. Hence the seeming lack of care in the way welfare is sometimes delivered to people. He writes: “We think of ourselves not as human beings first, but as sons and daughters, fathers and mothers, tribesmen and neighbours. It is this dense web of relations and the meanings which they give to life that satisfies the needs which really matter to us.” Hence the utopian aspect of Rousseau’s writing or Marx’s – freedom and happiness have to be reconciled by everybody making choices anchored in equality and fraternity.

The book goes on to explore the tension between communitarian visions of moral agreement about necessities of the good life and the restlessness of commercial society, as reflected by Smith and Hume. “How is moral virtue possible in a society which is constantly pushing back the limits of need?” The Skidelskys claim that needs were satisfied by 1974, but that seems absurd to me. Since then we’ve had everything digital, vastly improved medical treatments, longer life expectancy, lower infant mortality, central heating in most homes in the UK, and so on. Rousseau would have been happy to ban machines and trade – virtuous stasis came above freedom in his eyes.

Ignatieff doesn’t answer the dilemma of course, but the book is a very interesting exploration of how it continues to be relevant to modern societies.

Austerity, algebra and theology

Posted on by
2

Florian Schui’s Austerity: The Great Failure is a readable book, which has seen me through my Tube journeys this week, but an odd one. He presents thinking about austerity through the ages as seen through two prisms: the religious and moral strand of thought in western tradition about the inherent virtue of modest living and thrift; and the sensible economic perspective, reaching its pinnacle in Keynesian thought, that analyses consumer spending and fiscal expansion as the source of prosperity. Modern austerity, from Thatcherism and its Hayekian emphasis on the small state, to the post-crisis argument for austerity, is therefore described as essentially theological.

“Today, there is general agreement that growing consumption is a pre-condition for economic growth and the satisfaction of potentially unlimited material wants is accepted as one of the principal objectives of economic activity,” Schui writes. The environmental movement is portrayed as a quasi-religious movement descended from the 19th century Romantics. Yet the final chapter of the book is an assessment of the ‘good life’, in much the same vein as in How Much is Enough? by Edward and Robert Skidelsky. It’s a pretty sudden corner turn right at the end.

Another oddity is that the book hardly mentions debt (as I noted on glancing through the index). Given that today’s case for austerity – and indeed previous versions – rest heavily on debt-related arguments, this is a glaring omission. I think it makes David Graeber’s Debt: The First 5000 Years, for all that it is a flawed book, a far more credible critique of austerity measures.

A third strange bit of the argument here comes in the discussion of why Keynesianism fell out of favour because of stagflation in the 1970s, to be succeeded by Thatcherism. Schui argues that the true cure for stagflation was not the Hayek-inspired effort to shrink the state that we got (and that had great popular support, given the massively disruptive public sector strikes as unions tried to win higher pay rises), but instead more government spending and indeed an extension of central planning as practiced in the Soviet bloc. This is a boldly contrarian argument to say the least.

A final complaint is that the book claims economics can explain how to maximise growth but can not answer the question, do we need more growth? I think it’s exactly the other way round. Economics says, yes we need more growth – very few of the world’s people enjoy the good life of a distinguished western European academic; and as many economists – including for example Joel Mokyr in The Gifts of Athena (and me too in GDP: A Brief but Affectionate History) – point out, growth is the name we give to the constant process of innovation that has improved our health, life expectancy, and quality of life so massively.

What we don’t know is how to increase growth, the elusive gold of our kind of alchemy. If we did, nobody would see austerity as a dilemma. Faster growth would remove any need to worry about debt. Without it, rescheduling/default or inflation are the more troubling options. This is algebra, not theology.

 

An austere week

Posted on by
1

Another hectic week looms – I’m doing book-related interviews and events including this at the CSFI in London tomorrow – and at the moment feel like climbing back under the duvet to read. So to steel myself, I’ve packed Florian Schui’s Austerity: The Great Failure into my bag. It will be interesting to see how it compares/contrasts with Mark Blyth’s Austerity: The History of A Dangerous Idea. The summary and subtitle make it clear it comes to the same conclusion. And the index makes equally little reference to debt, which seems to me an important variable when comparing austerity episodes, and indeed in concluding as the back cover does: “There are no convincing economic arguments for austerity policies in their current form and there is no compelling moral or political case for them either.” So there must as a matter of logic be some explicit or implicit moral and economic arguments here about alternative means of decreasing debt burdens.

 

 

Welcoming the overlords

Posted on by
3

Smart Machines: IBM’s Watson and the Era of Cognitive Computing is by a couple of IBM-ers, Director of Research John Kelly, and Steve Hamm. It shows. This short book is all about the promise of current massive increases in computers’ abilities rather than the disruption it will cause. It mentions Brynjolfsson and McAfee’s Race Against the Machine, but it would be good to read this book alongside their new one, The Second Machine Age. With that caveat, it’s interesting to read this short book about what the insiders think is likely to happen.

The book starts with the famous victory by IBM’s Watson over two humans in the TV game show Jeopardy. One of the defeated men, Ken Jennings, famously said afterwards: “I for one welcome our new computer overlords.” The introductory section explains the key difference with the next generation of very powerful computers, the move away from the Von Neumann architecture – with its key bottleneck of moving data to and fro between CPU and memory – and instead having more parallel calculations with memory and processing more closely integrated. This will increase the machines’ capacity and enable them to go beyond specific programmes for specific tasks. They will be able to learn. Having just read Gerd Gigerenzer’s Gut Feelings, though, I now feel a bit more optimistic about the complementarity between humans and robots – it’s hard to see how even smart machines can be taught or can acquire intuition given the way logic is integral to their structure and programming.

Later chapters of the book look at big data, at the new physics of computing – what future microchips could be like – and specifically at cities and the potential for cognitive computers to make them better places for their inhabitants. A key issue, given both the tendency for political power to shift from nation state to city level and the continuing move by humanity into cities. I suspect computer experts will be familiar with the material in this book, but I didn’t and it was an enjoyable travel read.