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Economics and evolutionary science

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I recommend this Evonomics post about economics post-2008, and the kind of re-evaluation that’s been going on among economists, citing somewhat critically Noah Smith and also Dani Rodrik’s excellent [amazon_link id=”0393246418″ target=”_blank” ]Economics Rules[/amazon_link]. Author David Sloan Wilson complains: “All good, but there is something missing from the internet links that I just provided—any discussion of evolutionary theory.”

[amazon_image id=”0393246418″ link=”true” target=”_blank” size=”medium” ]Economics Rules: The Rights and Wrongs of the Dismal Science[/amazon_image]

I couldn’t resist preening a little, for my 2007/2010 book [amazon_link id=”B004XCFI2Q” target=”_blank” ]The Soulful Science: What Economists Really Do and Why It Matters[/amazon_link], has a whole chapter, Murderous Apes and Entrepreneurs, about the importance of the links between economics and evolutionary biology. This also forms one strand of my 2012 Tanner Lectures. In other words, I wholly agree with the argument of the Evonomics post, but thhink there has been a little bit more progress than it acknowledges.

Of course, formal evolutionary theorising is not part of the conventional economics mainstream, although it has some distinguished practitioners; but having said that informally it widely informs much business economics. There are also some leading economists who have been thinking about the overlap between economics and evolution. The ‘murderous apes’ of the chapter title was inspired by Paul Seabright’s brilliant [amazon_link id=”0691146462″ target=”_blank” ]The Company of Strangers: A Natural History of Economic Life[/amazon_link]; Wilson cites Robert Frank’s [amazon_link id=”0691156689″ target=”_blank” ]The Darwin Economy[/amazon_link]. There is also an active strand of research on complexity theory, which [amazon_link id=”0571197264″ target=”_blank” ]Paul Ormerod[/amazon_link] and [amazon_link id=”0415568552″ target=”_blank” ]Alan Kirman[/amazon_link] among others have written about.

[amazon_image id=”B004XCFI2Q” link=”true” target=”_blank” size=”medium” ]The Soulful Science: What Economists Really Do and Why It Matters[/amazon_image] [amazon_image id=”0691146462″ link=”true” target=”_blank” size=”medium” ]The Company of Strangers: A Natural History of Economic Life[/amazon_image] [amazon_image id=”B008W4ASGC” link=”true” target=”_blank” size=”medium” ]The Darwin Economy: Liberty, Competition, and the Common Good[/amazon_image]

Economics will have to be consistent with what we learn about human behaviour and decisions from other human sciences, not just the other social sciences, but also evolutionary biology, cognitive science and psychology.

Public vs private – not

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I’ve been looking at a very handy little book [amazon_link id=”1785890581″ target=”_blank” ]The Public Sector Fox: Twelve Ways to become a brilliant Public Sector Manager[/amazon_link] by Marcial Boo and Alexander Stevenson. It is exactly what the subtitle suggests, a book of advice for people running public sector organisations, much of which would also apply to non-profits. The book divides the necessary skills into the personal (eg commitment, resilience), the basic (being strategic, gathering information) and the practical (finance, communication etc). Each chapter gives tons of straightforward, practical advice. It is also of our times – for example, it urges readers to regard being open with data and information as a strength and to do so as much as possible. I thoroughly approve. I’m not usually keen on anything self-helpy, but this is a very practical, useful book.

[amazon_image id=”1785890581″ link=”true” target=”_blank” size=”medium” ]The Public Sector Fox[/amazon_image]  [amazon_image id=”1849549826″ link=”true” target=”_blank” size=”medium” ]How to Be a Civil Servant[/amazon_image]

It’s interesting to compare this book with a previous excellent manual of advice, [amazon_link id=”1849549826″ target=”_blank” ]How to Be A Civil Servant[/amazon_link] by Martin Stanley. There is of course a distinction between the Whitehall civil service and everyday public sector management, between the analysis and giving of advice to ministers through the implementation of policies to the everyday management of public services.

But there are common threads as well. The thing that stands out is the emphasis in both books on commitment to the ideal of public service. “You care deeply about what you do, and about the people your work will help,” write Boo and Stevenson, describing their ideal public sector ‘fox’ (referring of course to Isaiah Berlin’s 1953 The Hedgehog and the Fox – “The fox knows many things…”).

For 25 years or more there has been a habit of looking down on civil servants and public sector managers, in contrast to the supposed efficiency of the private sector. But of course the contrast is a false one. There is lots of bad management in the private sector, lots of it  – in fact, many private sector folks would also benefit from reading these books. And managing in the public sector is far, far more complex than many private sector contexts, in a far, far less forgiving environment. So the jobs are more different than often supposed, and the level of performance more similar.

Mainstream macro and Minsky the maverick

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I was one of the many economists who had barely heard of Hyman Minsky, still less read any of his work, before the financial crisis. One of the many who, seeking to understand, quickly devoured his [amazon_link id=”0071592997″ target=”_blank” ]Stabilizing an Unstable Economy[/amazon_link]. And found it pretty sensible. Macro isn’t my field, but there didn’t seem to be anything in that book a sensible mainstream macro person should have objected to. Should being the operative word. Because of course everyday, mainstream DSGE models in use in 2008 ruled out the very possibility of a crisis, whereas Minsky believed in their inevitability in some shape.

[amazon_image id=”0071592997″ link=”true” target=”_blank” size=”medium” ]Stabilizing an Unstable Economy[/amazon_image]

This week I’ve been reading Randall Wray’s [amazon_link id=”0691159122″ target=”_blank” ]Why Minsky Matters[/amazon_link], which is a useful and accessible overview of both what Minsky said and – as the title puts it – why it matters. I recommend the book (perhaps particularly to mainstream macro people!).

[amazon_image id=”0691159122″ link=”true” target=”_blank” size=”medium” ]Why Minsky Matters: An Introduction to the Work of a Maverick Economist[/amazon_image]

The first chapter gives an overview of Minsky’s arguments. The second chapter was to me the most interesting. It’s called ‘The Road Not taken’ and sets out the broad mainstream approach against which Minsky developed his arguments. This is the neoclassical synthesis, whose foundations were laid by John Hicks and Alvin ‘Secular Stagnation’ Hansen in the early years after Keynes’s death, then by both ‘Keynesians’ like Patinkin and Tobin and ‘Monetarists’ such as Friedman. Wray argues that these camps disagreed largely over parameter values, and that they essentially bowdlerised Keynes by ignoring his emphasis on investment, finance and uncertainty.

Debates about what Keynes ‘really’ meant in [amazon_link id=”1502423588″ target=”_blank” ]The General Theory[/amazon_link] are not all that interesting – and by the by a good reason for emphasising the importance of maths as well as words in economics. The mathematical notation is a way of enforcing logical consistency and expressing arguments with precision; the words can then explain more clearly, and introduce reality while keeping it rooted in logica and clarity. Anyway, what’s interesting about the chapter is its brief account of how finance vanished from macro, to our great cost.

[amazon_image id=”1502423588″ link=”true” target=”_blank” size=”medium” ]The General Theory of Employment, Interest, and Money (Classic John Maynard Keynes)[/amazon_image]

The later chapters of Wray’s primer set out Minsky’s views on specific issues, starting with his now-famous financial instability hypothesis: that market forces must be constrained in finance to prevent instability, but the consequent stability is itself destabilizing. The final chapter ends with some thoughts about how to proceed in the face of this paradox – in Wray’s view, tougher regulation especially of the shadow banking sector, and a smaller financial sector overall focusing on industrial investment. I agree, not least because the [amazon_link id=”0691169853″ target=”_blank” ]contribution of the sector to GDP is overstated[/amazon_link] (as Sir Charles Bean also pointed out in his recent interim report on economic statistics), and its contribution to economic welfare might well be a net negative.

This seems like common sense. I don’t entirely understand the unwillingness of the political classes to address the finance problem (despite the lobbying and campaign contributions)  – will it really take another crisis? The reluctance of people who did pre-2008 macro to ditch their human capital is entirely understandable, and I’m constantly told that anyway there has nevertheless been a lot of change in macroeconomics. Still (and to repeat, this is not my field) I’d be interested to know what proper macroeconomists think about Minsky now. If Minsky is still, as the book jacket claims, a maverick shunned by the mainstream – why?

Non-rational economic man

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This past couple of days I’ve been attending the IDEI/Toulouse School of Economics digital economics conference, where the Suzanne Scotchmer Memorial Lecture was given by Joshua Gans.

Josh has a new book out soon (March), definitely one to look forward to, The Disruption Dilemma. The blurb says: “Almost twenty years ago Clayton Christensen popularized the term in his book [amazon_link id=”142219602X” target=”_blank” ]The Innovator’s Dilemma[/amazon_link], writing of disruption as a set of risks that established firms face. Since then, few have closely examined his account. Gans does so in this book. He looks at companies that have proven resilient and those that have fallen, and explains why some companies have successfully managed disruption — Fujifilm and Canon, for example — and why some like Blockbuster and Encyclopedia Britannica have not. Departing from the conventional wisdom, Gans identifies two kinds of disruption: demand-side, when successful firms focus on their main customers and underestimate market entrants with innovations that target niche demands; and supply-side, when firms focused on developing existing competencies become incapable of developing new ones.”

[amazon_image id=”0262034484″ link=”true” target=”_blank” size=”medium” ]The Disruption Dilemma[/amazon_image]

However, his lecture was on his paper on the market for scholarly attribution, which interprets the assignment of co-authorship between senior and junior scientific researchers in terms of a signalling model. It was very interesting and perhaps sheds some light on the growing trend toward larger numbers of co-authors on science papers. The day afterwards, Justin Wolfers wrote in the New York Times about a new paper by Heather Sarsons showing among other results that women get zero credit for papers on which they are listed by co-authors (unless the others are also women). While this is a finding that will not surprise any female academics, it’s also kind of shocking to see the empirical results so starkly. No doubt Josh will blog about the gap between the rational world of his model and the non-rationality of male economists.

Thinking outside the ???

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I’ve read Kyna Leski’s [amazon_link id=”0262029944″ target=”_blank” ]The Storm of Creativity[/amazon_link] on my travels this past couple of days. Although the author is an architect, and normally I’d have filed this mentally as one for arty people, my attention was caught on flicking through it by the fact that the book uses Darwin as one of its prominent examples – his papers are all accessible online, which makes him a great candidate for studying the thought processes of a creative genius). The aim in the book is to describe the process of creative discovery in general, so there are also examples from medicine as technology as well as the arts.

[amazon_image id=”0262029944″ link=”true” target=”_blank” size=”medium” ]The Storm of Creativity (Simplicity: Design, Technology, Business, Life)[/amazon_image]

It is by no means a ‘how to’ book. Still, the description of the stages of being creative range true with me (not that I’m claiming any great creative kudos for myself). There is ‘unlearning’ to start with (not even ‘thinking outside the box’, but not starting with a box at all; reframing, perhaps, avoiding the usual tramlines). This heading also emphasised ‘attentiveness’ and I wholly agree that the most interesting people I meet or hear are superb at listening, paying attention to detail etc. “Attentiveness in the creative process de-emphasizes information that already exists, and what you and others may have done before.”

Next is problem making (asking new questions, where nobody else had seen anything to question in the first place); gathering (accumulating ideas, information, bits and pieces, in an unformed way); propelling (using the relevant professional language to get going: “Drawing is taking a line for a walk,” said Paul Klee), perceiving (having a sensibility about some emerging new thing/idea), seeing ahead (starting to shape an outcome), connecting (“Darwin is one of the most creative connectors of all time.” I think this means ability to synthesize separate elements into a new picture); pausing (a break in the momentum – a time to let the mind wander, daydream etc); and continuing (persistence, even in the face of failure).

This all makes sense to me, although having followed the Darwin trail I did conclude that the book will make more sense to people in the arts and design.