Economists? Hubris? Surely not?

The title of Meghnad Desai’s new book, Hubris, had led me to expect a jeremiad about the failings of economics, with a faint feeling of resignation. Not that the charges are (all) undeserved, just that it’s become rather familiar. However, my expectations were confounded. The book is a very accessible and clear history of macroeconomic thought, seen from the perspective of what economists have done over the decades – what ideas, what models they have used. It makes an excellent follow-on companion to Tim Harford’s The Undercover Economist Strikes Back, being a bit less general, and introducing more economic terminology and verbal (largely) descriptions of models.

Hubris: Why Economists Failed to Predict the Crisis and How to Avoid the Next One

A lot of the material covers territory that will be familiar to professional economists, but it is set in the context of how macroeconomics got itself into the position of being not only unsuccessful at predicting the financial crisis but literally unable to do so. Macro models excluded the logical possibility of sustained and serious disequilibrium. Desai also includes some economists who are not part of the usual story, for reasons that become apparent in the final section of the book. Marx and Hayek of course, but also Kondratiev, Wicksell, Richard Goodwin. (I’d never heard of Goodwin – he provided a mathematical, ecology-inspired model of the wage share.)The book explains how alternative views came to be not even attacked, simply ignored, in modern macro. It includes a section on Keynes and the reinterpretation and reinvention and finally co-opting of ‘Keynes’ over the years

The final section sets out briefly Lord Desai’s own framework for macroeconomics. He sees the evolution of the economy in the aggregate as the outcome of a disequilibrium process, with Kondratiev cycles driven by demography and technology and shorter “class struggle” cycles of changing labour and profit shares superimposed, in the context of a globalised economy. This is clearly more realistic than some of the DSGE macro models that are clinging on to life, albeit less useful for forecasting.

The long wave perspective is quite interesting and plausible. One other point that I wholly agree with is the narrowness of traditional macro models in their nation by nation focus: “National income data began to be estimated and published in a small way in the 1930s. After the war and thanks to the Keynesian revolution, national income measurement became a pivotal tool of policy making … This has shaped the themes and strategies of research in macroeconomics. New classical macroeconomics has been very much concerned with analyzing US time series. … The older tradition had less accurate data but it’s vision was systematically global rather than inter-country.”

The book also, rather gloomily, sees the world as being at the start of a long wave downturn, in for a structural version of secular stagnation, with decades of falling prices ahead. “Could the global economy  repeat the 19th century’s experience of the Great Depression of 1873-96.”

I’m not so gloomy but this might be possible. It would anyway make enormous sense for macroeconomists to link their work with growth theory and thinking about innovation, including work on long cycles such as Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlotta Perez. Mind you there are lots of things it would be sensible for macroeconomists to do, but the hubris lingers on.


The man of the system

I’ve started reading Hubris: Why economists failed to predict the crisis and how to avoid the next one, by Meghnad Desai. It has this great quotation I’d forgotten (some time since I read it) from Adam Smith’s Theory of Moral Sentiments:

“The man of the system …. seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess-board. He does not consider that the pieces upon the chess-board have no other principle of motion besides that which the hand impresses upon them; but that, in the great chess-board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it.”

Echoes, too, of the fabulous Seeing Like A State by James Scott.



Not-so-green economics

I’ve been mulling over some statements in The Container Principle by Alexander Klose. He says logistics has become the “third largest sector of the economy”. That in Germany 10% of energy use is accounted for by data centres – and that there are more than 5 million worldwide, whose CO2 emissions (from their production and use) is approaching those of global air traffic.

A modest amount of rooting around online hasn’t enabled me to verify these rather eye-opening facts, if they’re correct. Does anybody know of sources for such figures? (This Scientific American article reports some signs of decoupling of CO2 emissions from growth in the aggregate; prior to 2000, the energy-intensity of GDP growth had apparently been declining.)


Shipping containers redux

Regular readers will know of my interest in shipping containers. It pre-dated Marc Levinson’s excellent The Box.In fact it must date back a long way – one of my favourite TV series when young was The Onedin Line.

Recently I’ve been following these Postcards from a Supply Chain, and also read Rose George’s Deep Sea and Foreign Going (which I reviewed here). The latest in this genre is The Container Principle: How a Box Changes the Way We Think by Alexander Klose.

A collection of essays, this touches on the history of the industry and the economics of transportation and trade. But it is more concerned with the wider question of the cultural impact of containerisation. “Containers play as decisive a role in the organization of people, programs, and information as they do in that of goods,” writes Klose. “They not only physically appear in every imaginable place in the city (such as subway stops and airports) and in rural areas, they also appear in such cultural domains as architecture and urban planning, psychology, philosophy, pedagogy, business administration, communications and information, film, television, theatre and art.”

And cliches. Thinking outside the box, anyone?

There are chapters that riff on various aspects of containers, of which my favourite was the one about logistics, which is largely historical. Klose argues that modernity has a logistical logical structure, making the shipping container its “most successful material object to date…. Containerization is a prevailing cultural technology of the 20th and early 21st century.” I think I buy that argument. The book has lots of fantastic illustrations. It suffers a little from critical/media studies-speak but only a little, and more than makes up for it by bringing a different lens to this very familiar object.

Economics and humankind

Sitting in my colleague Terry Peach‘s office, I picked up Alfred Marshall’s Economics of Industry. I knew the phrase ‘the ordinary business of life’ of course, not least because Roger Backhouse used it as the title of his book on the history of economic thought. What I’d never realised was just how good the whole intro of Marshall’s book is:

“Political economy, or economics, is a study of man’s actions in the ordinary business of life; it inquires how he gets his income and how he uses it. It follows the actions of individuals and of nations as they seek, by separate or collective endeavour, to increase the material means of their well-being and to turn their resources to the best account. Thus it is on the one side a study of wealth, and on the other and more important side, a part of the study of man.”

In fact, it was hard to put it down once I’d started. It turns out to be a cracking read. I like the sentiment (making due allowance for the archaic use of ‘man’) and the way it’s expressed. I certainly see economics as part of the study of humankind, sitting alongside other human sciences – not only the social sciences but psychology and relevant parts of biology too.