Imagining the economy

This week I’ve been reading Uncertain Futures: Imaginaries, Narratives and Calculation in the Economy, edited by Jens Beckert and Richard Bronk. The editors are the authors respectively of Imagined Futures: Fictional Expectations and Capitalist Dynamics and The Romantic Economist: Imagination in Economics, so this essay collection builds on their interest in how the ideas people have about the economy shape the economy. This preoccupation touches on the performativity literature, best exemplified in economics by Donald Mackenzie’s An Engine, not a Camera (although it seems to me the case for performativity is far more compelling in the financial markets than in other domains). Also on some classic works about how we discuss the economy – Deirdre McCloskey’s The Rhetoric of Economics and Albert Hirschman’s The Rhetoric of Reaction.

The majority of contributors to Uncertain Futures are not economists, bringing to bear perspectives from sociology, anthropology, STS, psychology. The economists who contribute are known for their creative thinking – Andrew Haldane is one, with a chapter on agent based modeling at the Bank of England. I fear this means the book won’t get a wide readership among economists. This is a pity. Although the chapters are a mixed bag, I found the section on the role of imagination versus techniques such as net present value appraisals in innovation very interesting, for instance. Innovators and entrepreneurs are hardly homo economicus examplars.

There are signs of interest among more mainstream economists in this territory of ideas. In economic history one can think of the varying perspectives of McCloskey and Joel Mokyr. Narrative economics is becoming a thing, advocated by Robert Shiller and by George Akerlof and Dennis Snower, and there is Akerlof and Rachel Kranton‘s work on identity economics, and Morton and Schapiro’s recent plea to let the humanities inform economics, Cents and Sensibility. I would add also Kaushik Basu’s recent fabulous book The Republic of Beliefs. The eminent Paul Collier has described this emerging body of work as Behavioural Economics 2.0. Where version 1.0 explored fixed behavioural patterns, the frontier now is the social and personal dynamics of collective economic choices.

For Beckert and Bronk, the focus is on the future. In their introduction to the book they are interested in the future orientation of capitalism and how the relentless search for innovations, for new markets, requires an act of imagination. This may be based on evidence and reasoning, but – given the unavoidable uncertainty about the future – requires a mental leap simply not addressed in everyday macroeconomics and finance. “If the expectaions of those operating in innovative markets cannot be based on the rational calculation of probabilities based on past data, how do they form the expectations and beliefs on which their consequential decisions depend? And if we live in a world of radical uncertainty and hence are unable to gravitate to a uniquely rational set of expectations, how do we co-ordinate our actions with one another?”

One means of co-ordination, ironically, is the use of techniques such as NPV or CBA calculations, even though they are presented as ‘objective’. Another means, which some political leaders know instinctively, is the narrative – the moonshot, the glory of the nation or the city. And being future-oriented is fundamental to growth – there’s a very nice, lesser known Paul Krugman paper on the need for expectations about the future to weigh more heavily than habits from the past to deliver growth outcomes.

Anyway, I commend this perspective to economists. This is exciting intellectual territory and seems to me rather important at a time when uncertainty about the future seems more uncertain than ever.