Liberty and reality

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Five years ago, as the financial crisis looked like taking down the banking system, I took out as much money as my card was permitted to get from ATMs, and stashed it in various books on my shelves. Whenever I find myself short of cash I can still browse through a few titles on the off-chance of finding a couple of tenners.

So it was that this morning I picked up a 2008 reissue of Walter Lippmann’s classic 1920 essay [amazon_link id=”B007S7H448″ target=”_blank” ]Liberty and the News[/amazon_link].

[amazon_image id=”B007S7H448″ link=”true” target=”_blank” size=”medium” ](LIBERTY AND THE NEWS) BY Lippmann, Walter(Author)Paperback Oct-2007[/amazon_image]

There is great merit in reading old books because you find that current preoccupations are always echoes of past debates, although of course the context changes. Lippmann’s essay is full of insight and seems particularly timely again now. Here is one conclusion:

“The cardinal fact is always the loss of contact with objective information. Public as well as private reason depends on it. Not what somebody says, not what somebody wishes were true, but what is so beyond all our opining, constitutes the touchstone of our sanity. … Liberty is the name we give to measures by which we protect and increase the veracity of the information upon which we act.”

[amazon_link id=”1440047510″ target=”_blank” ]Liberty and the News[/amazon_link] – my edition has a foreword by Ronald Steel and an afterword by Sidney Blumnethal – is well worth a read. Members of the reality-based community will find it uplifting, although of course other copies will not have £20 stashed inside the front cover. (And if I’m meeting you today, I’ll now be able to pay for the coffee.)

Obsolete social capital

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In preparing for a workshop on trust and the economy early next week, I picked up Robert Puttnam’s famous [amazon_link id=”0743203046″ target=”_blank” ]Bowling Alone: The Collapse and Revival of American Community[/amazon_link], which I read in 2000 and not since. It isn’t too hard to supplement Puttnam’s tale of declining mutual cohesion and understanding with the additional evidence of executive/financial greed during the mid-2000s boom and its aftermath.

[amazon_image id=”0743203046″ link=”true” target=”_blank” size=”medium” ]Bowling Alone: The Collapse and Revival of American Community[/amazon_image]

Of course, social capital has an ugly side, as Dalibor Rohac points out in an article in The Umlaut (which seems a very promising new magazine). It depends on the scope and aims of the group of people among whom there is social cohesion. In the presence of a tightly cohesive ‘in’ group, such as a mafia family, or predatory political party, or circle of corporate executives rewarding each other generously, it is just as well not to be a member of the ‘out’ group.

Still, economic policy requires ample social capital to the extent that it requires trade-offs between groups or over time between generations. People in general need to believe that even if a policy does nothing for them – or harms their interests – now, it will be worthwhile in the end. Puttnam concluded: “Over the last three decades a variety of social, economic and technological changes have rendered obsolete a significant stock of America’s social capital.” We need, he said, a new era of civic investment.

This challenge of building new institutions is a bit of an obsession of mine – it was my theme at FutureFest recently. If our stock of social capital has become obsolete, there’s nothing for it but to invest in new kinds of social institution. On optimistic days, I think there’s plenty of that going on, but it isn’t clear.

Update: Moments after posting, I read this excellent Scotsman article by John McTernan about trust in politics (lack of) and the ‘small battalions’ of party workers.

Iconoclasm incoming

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A new book, [amazon_link id=”1118515668″ target=”_blank” ]The Road To Recovery: How and why economic policy must change[/amazon_link] by Andrew Smithers has just arrived – I’ll be reviewing it for the World Economic Forum blog in due course. It was well-reviewed earlier this week by John Authers in the FT, who wrote: “Long one of the best-known and most respected analysts in the City of London, in my experience he provokes anger and annoyance in the Square Mile like almost no other.” This reminded me of receiving from Mr Smithers in 2001, in my last days as Economics Editor of The Independent, a research report with the title ‘Britain: The World’s Biggest Hedge Fund’. It was intentionally provocative but that iconoclastic clarity of vision about the unfavourable gap between the UK’s overseas assets and liabilities was rare in those days at the tail end of the first dot com boom. I’m looking forward to reading the book.

[amazon_image id=”1118515668″ link=”true” target=”_blank” size=”medium” ]The Road to Recovery: How and Why Economic Policy Must Change[/amazon_image]

Integration of the social sciences

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Yesterday I quoted the 1827 UCL prospectus definition of economics, with its emphasis on “accurate observation and precise language,” and capsule definition of ‘the science of political economy’ as, “the production, distribution and consumption of wealth, or the outward things obtained by labour, and needed or desired by man.”

I was mulling over the difference between this and Lionel Robbins’ famous 1932 definition of economics (in [amazon_link id=”B002ZZ0U8A” target=”_blank” ]An Essay on the Nature and Significance of Economic Science[/amazon_link]): “The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” The greater abstraction compared with the ‘political economy’ of a century earlier is all too apparent.

In his 1948 Newmarch Lectures, [amazon_link id=”1107673860″ target=”_blank” ]The Role of Measurement in Economics[/amazon_link], Richard Stone added this gloss to the Robbins definition:

“While many situations in actual life have an economic aspect, few if any can be analysed wholly in economic terms. Taken literally, however, it would bring the applied economist practically to a full stop since he cannot in general estimate the importance of economic factors unless he is prepared to make assumptions about…certain non-economic factors, such as changes in tastes. In fact he can frequently do this for himself in a rough and ready way, although undoubtedly it would be a gain if he could fall back on other branches of the social sciences for help in such matters. The moral of Robbins’ definition is that in applied work much more integration of the social sciences is needed.”

Hear, hear!

The science of political economy

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My thanks to Professor Ian Preston of University College London for the earliest definition (in England) of the subject of economics – it’s from the 1827  Statement by the Council of the University of London Explanatory of the Nature and Objects of the Institution:

The object of the science of Political Economy is to ascertain the laws which regulate the production, distribution and consumption of wealth, or the outward things obtained by labour, and needed or desired by man. It is now too justly valued to require any other remark, than the occasional difficulty of applying its principles, and the differences of opinion to which that difficulty has given rise, form new reasons for the diligent cultivation of a science which is so indispensable to the well-being of communities, and of which, as it depends wholly on facts, all the perplexities must finally be removed by accurate observation and precise language.

The wonderfully Victorian optimism contrasts with Nassim Taleb’s disdain for economists, which bellows from every other page of [amazon_link id=”0141038225″ target=”_blank” ]Antifragile[/amazon_link]. I’m rather enjoying it so far, but he has a very low opinion of economists, especially those of us who are Harvard-trained (he always refers to it as ‘Stalin-Harvard’). He has it in for nail polish too, and as I occasionally wear it, that’s another strike against me. However, he does like Ariel Rubinstein’s [amazon_link id=”1906924775″ target=”_blank” ]Economic Fables[/amazon_link], an excellent book (and winner of the 2012 Enlightened Economist Prize).

[amazon_image id=”0141038225″ link=”true” target=”_blank” size=”medium” ]Antifragile: Things that Gain from Disorder[/amazon_image]

I met Taleb once –  it was in late 2001 at the launch in London of my book [amazon_link id=”1587991454″ target=”_blank” ]Paradoxes of Prosperity,[/amazon_link] around the same time as [amazon_link id=”0141031484″ target=”_blank” ]Fooled by Randomness[/amazon_link] was published and about to make him massively famous. He had shaved his beard and was travelling as ‘Nicholas’ not ‘Nassim’ at the time, I recall him telling me. He was charming and polite, far from the aggressive and slightly deranged – although hugely interesting – persona that comes across in his books. [amazon_link id=”0141034599″ target=”_blank” ]The Black Swan[/amazon_link] and [amazon_link id=”0141031484″ target=”_blank” ]Fooled by Randomness[/amazon_link] are both great reads containing much sense, so I’m looking forward to the rest of [amazon_link id=”0141038225″ target=”_blank” ]Antifragile[/amazon_link]. And I don’t believe economics to be wholly incompatible with Taleb’s worldview – just look at that 1827 definition.