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Economists, sociologists and the crisis

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Oh dear. Oh dear. I’m going to have to say unkind things about a book I’d been rather looking forward to reading. The book is [amazon_link id=”0199658412″ target=”_blank” ]Aftermath: The Cultures of the Economic Crisis[/amazon_link], edited by Manuel Castells, Joao Caraca and Gustavo Cardoso.

[amazon_image id=”0199658412″ link=”true” target=”_blank” size=”medium” ]Aftermath: The Cultures of the Economic Crisis[/amazon_image]

When they first came out, I read eagerly Castells’ three books in The Information Age trilogy and found them enlightening (if quite heavy-going)  – my copies still have lots of bookmarks sticking out of the pages. I’ve also been keen to find some good sociological analysis of the financial markets. Gillian Tett, an anthropologist by training, wrote the terrific [amazon_link id=”0349121893″ target=”_blank” ]Fool’s Gold[/amazon_link]. John Lanchester, a novelist, gave us [amazon_link id=”014104571X” target=”_blank” ]Whoops! [/amazon_link] But (like Aditya Chakrabortty in The Guardian) I’ve been wondering about the absence of careful sociological study of the markets (in fact, Mark Granovetter was asking long before the crisis why sociologists left important domains of study to economists).

[amazon_image id=”1405196866″ link=”true” target=”_blank” size=”medium” ]The Rise of the Network Society: Information Age: Economy, Society, and Culture v. 1 (Information Age Series): The Information Age: Economy, Society, and Culture Volume I[/amazon_image]

So, I was pleased when Aftermath arrived. But I’ve given up part way through. The introduction is just a summary of the main events since 2008. The first chapter is about budget cutting and protests at Berkeley, mildly interesting but a touch navel-gazing. Subsequent chapters are unexpectedly abstract. This is a typical passage:

“The key analytical observation is that the current crisis has produced strong resistance identities against not only the measures used to treat the crisis but more deeply against the development model that led to the crisis and from which the current attempts to rectify the situation derive. Therefore, there is an explicit tension between identity and the global network society as it is expressed in its currently dominating form. …. We can make a further argument: the root of the current crisis is the fact that the generally dominant model for development has been based on systematic debt-taking.” (p159)

In other words, a statement of the the unintelligible followed by a statement of the obvious. Now, I do know that every discipline has its own jargon so ‘resistance identities’ may well be a piece of it. But I don’t know what the first bit of the quotation means.

To be fair, a couple of later chapters (on Catalonia, on China) look more empirical so I’ll give them a go. But what I’d really hoped for was some insight into questions like: Why did it become normal for so many people to take on debts they would never repay to buy cars and clothes and houses? What was it about our societies and governments that mean the only way many people could find a home of acceptable standard by lying about their incomes to a dodgy mortgage broker? Why or how did people working in the financial markets lose all their sense of everyday ethics, their connections to the rest of society? Who are the people who went into flogging sub-prime mortgages?  How did it come about that regulators were content to take hundreds of pages of complicated and unread documentation as proof of adequate risk-management? And many more.

Now, I certainly am not going to get on my high horse about how wonderful economics is – having written so much about economists’ need to acknowledge its flaws and fix them (see eg [amazon_link id=”1907994041″ target=”_blank” ]What’s The Use of Economics[/amazon_link]) – and as sociology is not my discipline, maybe there are new pieces of research into such questions by sociologists and other social scientists, and I’d be grateful for the references. But I have a sneaking suspicion that it isn’t the kind of work sociologists have been doing.

The Enlightened Economist Prize, 2012

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It’s a month since I posted the shortlist for this entirely personal prize for the best economics book I’ve read in the previous 12 months. So the time has come to announce the winner. It has been a difficult choice – I was about to write that getting it down to a final four was relatively straightforward, but then I started arguing with myself about the titles I’d eliminated. Anyway, on the criteria of (a) contains serious economic argument, (b) accessible to a wider readership than professional economists, (c) I thoroughly enjoyed reading it, the winner is:

[amazon_link id=”1906924775″ target=”_blank” ]Economic Fables[/amazon_link] by Ariel Rubinstein

[amazon_image id=”1906924775″ link=”true” target=”_blank” size=”medium” ]Economic Fables[/amazon_image]

The prize is mainly the honour, of course – unlike the FT’s book prize, I don’t have the financial heft of Goldman Sachs backing this. However, I will be delighted to take Ariel and his publisher out for a celebratory meal if we can arrange all to be in the same city some time.

Fast or slow, rich or poor?

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As part of my thinking about a book I’m currently working on, I started to re-read a book by Jonathan Gershuny, [amazon_link id=”019926189X” target=”_blank” ]Changing Times: Work and Leisure in Post-Industrial Society[/amazon_link] (2000). He has led the way in work on time-use studies, as well as some key longitudinal data sets. It’s the first time I’ve read this book since it was published, and I’d forgotten how interesting it is. As he points out, “Change in time use patterns is not a mere indicator of social change; it is itself part of the essence of socio-economic development. A ‘poor’ society is one which must devote the bulk of its time to low value-added activities which go to satisfy basic wants or needs.” Low value added activities are those where the ratio of paid work per minute of consumption time is low – many hours are needed to deliver the consumption experience.

[amazon_image id=”019926189X” link=”true” target=”_blank” size=”medium” ]Changing Times: Work and Leisure in Postindustrial Society[/amazon_image]

All eras of technological progress have brought complaints about things speeding up and being short of time. I was reflecting on how the recent ‘[amazon_link id=”0847829456″ target=”_blank” ]slow food[/amazon_link]’ movement fits into Gershuny’s framework. It seems to be a regression in economic development yet its advocates see ‘slow’ as the most sustainable future for the economy. They are also quite likely to be high- rather than low-income members of the community (as are the buyers of organic foods). Maybe these slow fooders are sufficiently affluent that their time spent providing for the basic need of eating is effectively leisure rather than work, a hobby not a necessity. Anyway, I shall carry on reading and see if I’m further enlightened on this question.

[amazon_image id=”0847829456″ link=”true” target=”_blank” size=”medium” ]Slow Food Nation: Why Our Food Should Be Good, Clean, and Fair[/amazon_image]

What’s The Use of Economics?

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Today – the fourth anniversary of the Lehman’s collapse and the fifth of the run on Northern Rock – is the official publication date of [amazon_link id=”1907994041″ target=”_blank” ]What’s The Use of Economics? Teaching the Dismal Science after the Crisis.[/amazon_link] The idea behind the conference and essays was to get a start on reforming economics by going straight to the way future generations of economists are taught.

There are lots of good contributions in the book, including from Andrew Lo, Andy Haldane, John Kay, Alan Kirman, Bridget Osborne, Paul Seabright, Ben Friedman…. (I wrote the intro). There are links to reviews and also a comment I wrote in Research Fortnight on the book’s web page. The common underlying theme from a wide range of contributors (based in the US, UK and France) is that the crisis will not and cannot leave economics itself unchanged – although there are obviously quite a few economists, especially in the academic world, still heavily in denial about this.

[amazon_image id=”1907994041″ link=”true” target=”_blank” size=”medium” ]What’s the Use of Economics?: Teaching the Dismal Science After the Crisis[/amazon_image]

If readers of this blog do read the book, I would love to get feedback, and suggestions for next steps, as we have a working group aiming to report next year.

How to become a master of the universe

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Surely one firm prediction we can make about the aftermath of the financial crisis is that the idea of the unimprovability of free market outcomes has been thoroughly overturned. Neoliberalism (meaning the political movement which brought about deregulatory, market-based policies)  is, like Shelley’s Ozymandias, a “colossal wreck, boundless and bare”. From this perspective, a new book by Daniel Stedman Jones, [amazon_link id=”0691151571″ target=”_blank” ]Masters of the Universe: Hayek, Friedman and the Birth of Neoliberal Politics[/amazon_link], is a fascinating study in how a political philosophy that now looks so wrong headed came to be so absolutely dominant in the first place.

It is a tale of building up the intellectual story, creating the personal alliances and the political organisation to deliver the project. This took place over many decades, from the post-war publication of key texts such as Hayek’s [amazon_link id=”0415253896″ target=”_blank” ]The Road to Serfdom[/amazon_link] and Popper’s [amazon_link id=”0415610214″ target=”_blank” ]The Open Society and Its Enemies[/amazon_link], through the impact of Milton Friedman and the Chicago School on economics, the work of free market think tanks on both sides of the Atlantic and ultimately, the governments of Margaret Thatcher and Ronald Reagan. It is an extraordinary success given the collectivist flavour of the public mood after the Great Depression and World War 2.

Of course, the Cold War helped the neoliberal cause. The key turning point in its success, however, came in the 1970s, thanks to the economic collapse, which made it clear the post-war Keynesian demand management approach had stopped working. The ostentatious abuse of economic power by some elements in the unions contributed as well to the readiness for an economic and political alternative. By the late 1970s, the centre of gravity of political thinking had already moved far towards the neoliberal position – the emphasis on sound macroeconomic fundamentals and union reform had become uncontroversial, thanks to events. After Reagan and Thatcher, the fundamentals of market-thinking were so embedded that all their successors – until this crisis at least – were unable to think outside that framework; Stedman Jones sees Clinton and Blair as holding the same philosophy, and many people would surely agree.

Stedman Jones sums up: “The market as neoliberalism matured was presented as clear common sense, whose basic logic was inescapable. Of course, this presentation was fantasy. Some markets succeeded and others failed. The ideological case for the superiority of the market in all areas of economic and social life amounted to a political faith as utopian as any other. … The most striking thing … is how much of [Hayek’s] pure ideological vision did come to pass in Britain and the United States after 1980.” (p82)

I should add that he is carefully unjudgemental about the ideology – the book aims to describe how it came about rather than pass a verdict on it, and is all the more illuminating for that. There are clearly some attractive aspects to the creed. Who could argue with macroeconomic stability (if only we could be sure how to achieve it)? And there is an attractive cosmopolitanism about neoliberalsim too, which the book traces to its origins in pre-war Vienna.

Still, I suspect that the next decade will see a big shift in the mental landscape, the spirit of the age, and many people will echo the question: how did this marketised perspective become so utterly dominant? For its legacy is the crisis and its aftermath. The answer I took from the book is that ideas do matter, but they do not trump the importance of good old fashioned organisation. Those who want a different view to prevail need to talk about it – and set about delivering it.

[amazon_image id=”0691151571″ link=”true” target=”_blank” size=”medium” ]Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics[/amazon_image]