Enlightenment values

I’ve been slowly reading The Shape of the New: Four Big Ideas and How They Made the Modern World by Scott Montgomery and Daniel Chirot. Slowly because it’s too big to carry in my bag on the tube. It’s an intriguing history of the modern world as shaped by – yes – Big Ideas. The authors’ argument is that: “Ideas have been among the primary forces behind modern history during the past three centuries.”

This isn’t a new argument in itself. In the context of economic history, Joel Mokyr’s The Gifts of Athena and his The Enlightened Economy give pride of place to ideas, then embodied in innovations.

 

And as Keynes famously said at the close of The General Theory:

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.” (The quotation is usually shortened but it’s better in full.)

The Shape of The New does though have a distinctive version of the ideas that created our world. The first four chapters cover Adam Smith (morality and self-interest in political economy), Karl Marx (the desire for revolutionary redemption), Charles Darwin (embedding humanity in nature, the scientific method turned on ourselves) and the Jefferson-Hamilton debates (the nature and meaning of democracy). I knew the least about the last of these, so found it particularly interesting. The second half turns to the backlashes: the counter-Enlightenment all the way through to Fascism; and Christian and Muslim counter-reactions to modernity.

As the book concludes, the debates are still live, although of course taking new forms constantly. Those of us who hold Enlightenment values dear have to fight for them.

However, it ends with a bit of a damp squib, the conclusion being that the humanities are essential in higher education, and one of the most important aspects of study should be the history of ideas. I do happen to agree (even in economics), but it’s a rather low key ending to an ambitious and interesting book.

 

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Economics of empire – then and now

I’ve enjoyed reading Tristram Hunt’s Ten Cities that made an Empire, out now in paperback. It’s a clever prism on British imperialism, taking a tour of major colonial cities and using a period in their history to explore the wider politics and economics of colonialism, and the cultural relations between the “mother country” and her colonies as expressed in architecture and urban design in particular.

The geographic and historical tour starts in Boston in the late 18th century (the Revolutionary War), then Bridgetown, Barbados (looking at slavery and the triangular Atlantic trade), Dublin (and the painful relationship between the two countries), Cape Town (as the base for the extension of Empire), Calcutta (early Indian adventurism by the East India Company), Hong Kong (the opium wars), Bombay (the apogee of Victorian Empire), Melbourne (and the distinctive characteristics of an Anglo-Saxon colony), New Delhi (and the independence movement) and Liverpool (where Empire ended on 22 April 1981 when Tate & Lyle closed its refinery and the docks stood empty, Tate & Lyle blaming EU membership and the change in trading patterns that involved).

The wide perspective makes very clear the commercial interests driving the politics of imperialism, from the slave trade to the exploitation of Indian cotton supplies and the market it provided for cheap Lancashire textiles, and the eastern triangular trade of Indian opium to China, Chinese luxuries to Britain and British manufactures to India. I can’t read anough about the Lancashire cotton industry for obvious reasons & have The Empire of Cotton: A New History of Global Capitalism on my wish-list.

There was also a *fabulous* In Our Time recently about the Lancashire weavers standing (at great cost to themselves) with the Union and the slaves during the American Civil War – Abraham Lincoln presented a statue to Manchester afterwards, in recognition of the support.

Lincoln in Manchester

Lincoln in Manchester

Modern globalization is driven just as much by drugs, arms and slavery, or people trafficking as we now call it; but these are veiled and never discussed in policy conversations, although of course the financial and professional support these trades require is big business. Nor do economists analyse it much; after all, you can’t download the data from the internet and run it through Stata. I often think we should take this illicit global economy far more seriously.

Economics meets physics – literally

By chance, two books about the intersection of economics and the physical world have landed recently here at Enlightenment Towers recently, The Remaking of the Mining Industry by David Humphreys and Power Density: A key to understanding energy sources and uses by Vaclav Smil.

I love business histories, with all their detail about how decisions get made with no reference at all to marginal cost=marginal revenue, and David Humphreys used to be chief economist of Rio Tinto and then Norislk Nickel in Russia. He knows more than probably anyone about the economics of the mining industry, so this book promises to be full of interesting nuggets (so to speak). Paging through, one of his main themes looks to be the importance of geopolitics for the industry, and the role of government in creating a stable legal framework that will enable investment with a decades-long payoff to occur. He concludes: “The world does not have a resource problem. It cannot be ruled out, however, that it may face an investment problem.”

I also like Vaclav Smil’s previous books, Made in the USA: the rise and retreat of American manufacturing and Making the Modern World: Materials and Dematerialization (well of course I’d like that one!), packed full of engineering insight. This one tells me that power density is “the rate of energy flux per unit of area” – huh? – and that moving to low power density renewable fuels will require “a profound spatial restructuring of the energy system.” My guess is that it means new transmission and distribution grids, but I’ll have to read it to be sure. The final sentence, in bold italics reads: “New energy arrangements are both inevitable and desirable, but without any doubt, if they are to be based on large scale conversions of renewable energy resources, then the societies dominated by megacities and concentrated industrial production will require a profound spatial restructuring of the energy system, a process with many major environmental and socioeconomic consequences.”

Economists behaving badly

I woke up this morning to find Roger Farmer and Noah Smith had been discussing my review of Richard Thaler’s excellent new book Misbehaving. Roger and Noah are presumably asleep now, giving me the opportunity to chip in again.

To recap, I expressed some unease about the eagerness with which economics is embracing behavioural psychology. Roger agreed, tweeting:

farmerrf
My new post on Behavioural Economics: The Economics of George Orwell http://t.co/mkCiZUmzGe @dine1859 @MarkThoma @Noahpinion
29/06/2015 05:10

Here is his follow-up post on the subject. Noah replied:

Noahpinion
@farmerrf @diane1859 @MarkThoma I already smashed the argument that behaviorism = oppression!
29/06/2015 05:20

His Bloomberg column argues that we economists need to accept whatever the empirical evidence tells us about how people behave and using it to improve our models. The fear of Big Brother government is overdone, he argues.

My anxiety is not really about the paternalism involved in using nudges, because to govern is to be paternalistic which is why elections are vital; and of course it’s preferable to have better than worse outcomes. I’m more worried by the habit almost all economists have of thinking about policy as if society is our play pen and we are benign, omniscient deities, outside society. My sense is that the enthusiasm for behavioural “anomalies” is that it gives us new toys to play with. There is a characteristically striking Adam Curtis blog post on this tendency, which I suggest my students look at when I do the behavioural policies lecture in my course.

So my conclusion is not that we reject behavioural insights, but that we develop a more becoming humility. We pay far more attention to how the data we use are created and what they mean. We remind ourselves that “rational” is not the benchmark from which human behaviour diverges in anomalous way (cf Gerd Gigerenzer). We recall that not everyone is like us (especially as most of ‘us’ dominating economic thinking are male, white, western). We note that people change their behaviour in response to policies (as @billwells_1 pointed out in the Twitter debate, arguing it is better to inform people about the consequences of their ‘non-rational’ choices).

billwells_1
@farmerrf @diane1859 If don’t just provide info, unstable over time as people realise they are being conned. https://t.co/kmZhSVZhHy
29/06/2015 07:32

In short, we recognise that economics is a social science characterised by performativity, reflexivity, and great uncertainty. That’s all. (I’ve gone on about this before – anyone interested might like to look at my Tanner Lectures (pdf) and Pro Bono Economics lecture.)

(Ain’t) Misbehaving

Despite having read plenty of the behavioural economics books, of course I had to read Misbehaving: The Making of Behavioural Economics by Richard Thaler, one of the first people to introduce and then popularise (through Nudge in particular) the introduction of psychological empiricism into economics. Nor do I regret it. It is a very good read. Although it goes over much familiar territory, it’s very interesting to read Thaler’s account of how a highly resistant discipline became accepting and then positively enthusiastic about behavioural models. Too enthusiastic – but more on that later.

Misbehaving combines a broadly chronological account of Thaler’s career and work with a highly accessible explanation of what behavioural economics is, how it differs from the previously conventional kind, and the evidence from psychology about how people make decisions. The book starts by explaining why economists had adopted an unrealistic model of rational choice, and why it made economics so powerful: “That power derives from the fact that economics has a unified, core theory from which nearly everything follows.” Certainly early resistance to ‘behavioural’ assumptions tended to be that these derived from an ad hoc list of patterns of choice with no theory behind them, never mind that rational choice is ad hoc with respect to the facts. This seems to be hard for some economists still to accept perhaps because – as Thaler recounts – economists make choices far more often in conformity with their own models than do other groups of people. Misbehaving tells of a survey conducted among wine connoisseurs designed to explore how people regard sunk costs and opportunity costs, in which the people who gave the ‘correct’ answer were economists.

The book has lots of examples that will be useful to people teaching behavioural economics, including classroom experiments. I also very much enjoyed all the anecdotes, like the story of a vigorous debate with Richard Posner at a conference on law and economics, or a session on behavioural finance that had smoke coming out of Merton Miller’s ears. Resistance among distinguished economics professors who had built their glittering careers on rational choice models is, of course, entirely rational. Less rational, more human, was the behaviour of a group of University of Chicago economics faculty in selecting their offices in a brand new building.

Behavioural economics is now one of the most popular areas of the subject, and seminars on behavioural papers are packed. Sometimes it seems pretty much everyone I know has a new paper applying behavioural insights to their own sub-field. Perhaps this is just me being contrarian, but the new embrace by economists makes me uneasy. This is not just because of the well-known debate about paternalism (as discussed by Gilles St Paul in The Tyranny of Utility or Julian LeGrand and Bill New in Government Paternalism: Nanny State of helpful Friend?) It is because the sight of economists delighting in a new tool to engineer society is alarming – it’s the same old reductionism in more fashionable clothes. I happened to read this morning this essay by historian Ian Beacock on Arnold Toynbee. This quotation jumped out: “We’ve begun to treat vexing social and political dilemmas as simple design flaws, mistakes to be rectified through a technocratic combination of data science and gadgetry.”

I’m 100% in favour of empiricism. Why would you not do ‘what works’? But the behavioural rules of thumb are in danger of being seen as a new policy gadget.