Tag Archives: economics

Economics for the curious

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Each August there’s a meeting in Lindau of economics (and other) Nobel laureates.* I’ve never attended but have just been looking at the book of essays for young economists written by the participants in the conference, [amazon_link id=”1137383585″ target=”_blank” ]Economics for the Curious[/amazon_link] edited by Robert Solow with Janice Murray. There’s an obviously impressive list of contributors, whose talks cover subjects ranging from natural resource sustainability (Robert Solow) to structural change in the global economy (Mike Spence, who taught me a graduate micro course once upon a time) to the role of transactions costs in the social sciences (Oliver Williamson) and the character of economics (Vernon Smith).

[amazon_image id=”1137383585″ link=”true” target=”_blank” size=”medium” ]Economics for the Curious: Inside the Minds of 12 Nobel Laureates[/amazon_image]

The essays (the ones I’ve read) are very accessible and non-technical. Solow’s essay on applying economic principles to renewable and non-renewable resources is a model of clarity that could be set for undergraduates. Williamson’s essay on transactions cost economics is fascinating. He insists on the importance of interdisciplinarity – I hadn’t known he started out an engineer and came to economics via business. He usefully describes Coase’s famous 1960 paper, The Problem of Social Cost (pdf), the origin of modern institutional economics, as an exercise in reductio ad absurdum – what happens when you push the logic of zero transactions costs to its conclusion? He usefully captures Coase’s stricture against ‘blackboard economics’ by explaining the need for comparing any activity being analysed, not to an abstract ideal of efficiency, but to a realistic alternative. He ends with advice to students to take elective courses in any filed that interests them. “Try it. You may like it.”

I’ll now finish reading the essays, but my impression is that it’s a little book which is perfectly pitched for undergraduates or sixth formers, and is currently only just over £10 on Amazon.

 

 

 

* I know it isn’t a ‘real’ Nobel, ok?

What do economists know?

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Emran Mian, who runs the Social Market Foundation (and has written a brilliant novel, [amazon_link id=”1846556260″ target=”_blank” ]The Banker’s Daughter[/amazon_link]), has a terrific essay – Prediction and the Flagpole –  in 3am Magazine about the problem of knowledge in economics – what do we actually know about how the economy works, about causality? As he points out, either the mechanisms are highly contested among economists, or ignored by them. We don’t know very much at all.

There should be no shame in this, because we don’t know much about anything. This is why epistemology is so hard. However, as the article also says, “We live in a peculiarly economics-friendly public sphere.” Yet many economists over-claim their knowledge, especially when it comes to making predictions. Personally, I think economic forecasting is largely a hopeless task except for the limited task of using time series methods to predict a short period ahead. (I was a forecaster for several years, a long time ago, so I know whereof I speak.) Chris Dillow has recently blogged about the nonsense often associated with forecasts – unicorn farming is his term for it. Nate Silver’s [amazon_link id=”0141975652″ target=”_blank” ]The Signal and the Noise[/amazon_link] has a terrific chapter effectively demolishing most macroeconomic forecasts.

After the onset of the financial crisis, there were lots of calls for economists to be humbler. I don’t see a lot of humility, alas. Most f my colleagues have little interest in the philosophical questions, although of course my great hero David Hume was keen on epistemology. One terrific book about what economists can know is John Sutton’s [amazon_link id=”0262692791″ target=”_blank” ]Marshall’s Tendencies: What Can Economists Know?[/amazon_link]. I must read Mary Morgan’s [amazon_link id=”0521176190″ target=”_blank” ]The World in the Model: How Economists Work and Think[/amazon_link], and Nancy Cartwright’s recent [amazon_link id=”0199841624″ target=”_blank” ]Evidence-Based Policy[/amazon_link] – she has also written a lot about the causality question.

[amazon_image id=”0262692791″ link=”true” target=”_blank” size=”medium” ]Marshall’s Tendencies: What Can Economists Know? (Eyskens Lecture) (Gaston Eyskens Lectures)[/amazon_image]  [amazon_image id=”0521176190″ link=”true” target=”_blank” size=”medium” ]The World in the Model: How Economists Work and Think[/amazon_image]  [amazon_image id=”0199841624″ link=”true” target=”_blank” size=”medium” ]Evidence-Based Policy: A Practical Guide to Doing It Better[/amazon_image]

Walter Lipmann, public economist

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A new biography, [amazon_link id=”0674368134″ target=”_blank” ]Walter Lippmann: Public Economist[/amazon_link] by Craufurd Goodwin, is a very interesting portrait of someone not all that well known now. I ended it appreciating that Lippmann was a more important figure in early 20th century America than I’d realised, perhaps a Martin Wolf of his day. The mixture of intellectual rigour and status with an ability and urge to communicate with the wider public is relatively rare, and important in modern democracies, with all their political and economic complexities. Lippmann was probably the first ‘public economist’.

I was aware of Lippmann only through his 1920 book [amazon_link id=”0691134804″ target=”_blank” ]Liberty and the News[/amazon_link], which for some random reason sits on my shelves, and [amazon_link id=”1484150295″ target=”_blank” ]Public Opinion[/amazon_link], published in 1922. The biography concentrates instead on his books and columns on economics and political economy, tracing the development of his thought as he watched the Depression and war unfold, and engaged with both Keynes’s and Hayek’s work. Throughout the decades, however, in an era when the old order was dying, Lippmann challenged the attractive certainties of the extremes, observing that ‘free’ markets had never existed, and that collectivism relied on censorship, spying and terror. This search for a way to manage the modern economy, and deliver to voters in democracies the economic well-being or assurance they demanded, while safeguarding liberty, remained his theme throughout, above all in [amazon_link id=”1178812782″ target=”_blank” ]The Good Society[/amazon_link].

Lippmann sounded (in [amazon_link id=”1560005599″ target=”_blank” ]The Method of Freedom[/amazon_link]) rather like a modern behavioural economist: “The classical economists over-estimated the enlightenment which is based on self-interest and the fortitude based on self-reliance. … Imitation, the herd instinct, the contagion of numbers, fashions, moods, rather than enlightened self-interest, have tended to govern the economy.” And elsewhere, he emphasised the importance of institutions, regretting the fact that economists had not combined their powerful analysis with a ‘humanly satisfactory’ social philosophy. Economics needed to show concern not only with liberty, but with a ‘concern always for those who could not cope with modernity,’ as Goodwin puts it.

Lippmann, always interested in education and closely involved in the economics department at Harvard, was unable, though, to resist the tide of increasing specialization, to stop the schism between the humanities and social sciences, or the isolation of economics from politics, philosophy, psychology and history. What a shame.

This is a timely biography. Lippmann’s concern to navigate through the real complexities and uncertainties of a transitional, even revolutionary, economic era while avoiding the appealing, easy answers was admirable. So was his determination to explain to fellow citizens the economic debates of the day. Not surprisingly, I find the idea of a public economist very attractive. As a character, Lippmann seems slightly unappealing – brilliantly successful from his undergraduate days on and wholly plugged in to the establishment, he comes across as rather smug, although this is no doubt partly because of my anachronistic reading of his letters as quoted here. There is also perhaps a bit too much detail in the book for the mildly interested reader, although having said that it is well-written and not at all too long. Lippmann is well worth re-discovering as we continue through our own period of economic and political upheaval, and this book sheds light on what made him an important figure who deserves to be better known.

[amazon_image id=”0674368134″ link=”true” target=”_blank” size=”medium” ]Walter Lippmann: Public Economist[/amazon_image]

[amazon_image id=”1178812782″ link=”true” target=”_blank” size=”medium” ]The Good Society[/amazon_image]  [amazon_image id=”1484150295″ link=”true” target=”_blank” size=”medium” ]Public Opinion[/amazon_image]

Teaching economics

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Good news from the land of the soulful science: a number of economics departments – including my own at the University of Manchester – are reviewing their undergraduate curriculum.

As someone who has been involved in the CORE project, which is being piloted in the UK by UCL this academic year, I naturally think it has a lot of appeal. It:

“Begins with ‘the capitalist revolution,’ introducing the student to what the economy is (rather than, as is more common, what economics is, generally depicted as simply the study of markets, or of constrained optimization). Our starting point focuses their attention on a series of pressing problems today – including economic prosperity, environmental challenges and inequality.  And it underlines the fact that the economy is embedded in its social and environmental context. Knowledge that comes from other disciplines – from history, political science, climate science, demography, and psychology – is part of the formation of an economist …. [The concepts included] passed two tests:  are they important in equipping students to address the major economic challenges faced by society today? And can the concepts be used in complementary ways, so that the student learns a unified, connected and multi-faceted way of understanding our economies, including their histories and the varieties of possible future economic systems that we might wish to consider?”

However, there are other alternatives beginning to emerge. Recently I’ve been looking at Peter Dorman’s two volumes, [amazon_link id=”3642374336″ target=”_blank” ]Microeconomics: A Fresh Start[/amazon_link] and [amazon_link id=”3642374409″ target=”_blank” ]Macroeconomics: A Fresh Start[/amazon_link]. In very many ways they are vastly better than many conventional textbooks such as [amazon_link id=”184480870X” target=”_blank” ]Mankiw[/amazon_link]. They refer to the real world and recent events.

The micro volume, for example, starts by discussing economics in the context of intellectual history and also some of the building blocks: the psychology of decision-making, rationality and uncertainty, and the concept of equilibrium. It discusses values and well-being. It then looks at the range of economic  institutions, markets, firms and civil society as well. There is a more conventional section on demand and supply. Then a final chunky section on microeconomic challenges – financial markets, inequality, poverty, ecology. I would be very happy to teach from this.

[amazon_image id=”3642374336″ link=”true” target=”_blank” size=”medium” ]Microeconomics: A Fresh Start (Springer Texts in Business and Economics)[/amazon_image]

I’m less well-placed to comment on the macro volume, except to say it also looks a lot better to me than the alternatives. For example, it starts with measurement of national accounts aggregates and includes institutional issues. It then proceeds by presenting different macro theories or approaches in their historical context – Keynesianism in the 60s and 70s, the turn to free marketeering, the ‘Great Moderation’ and the crisis. This is far more honest than pretending to present a settled body of knowledge.

My gripe – and it’s a big one – is that each volume is just under £50. One of the U of M students recently blogged about the price of textbooks. I don’t blame her for the complaint. No doubt there are other new textbooks on the way but I wonder if any of the publishers will opt to test the price elasticity of demand? The CORE modules are available online for free as a public good, with the effort donated by a large group of academics from around the world. Free is quite a big advantage.

The Worldly Philosophers – the better half

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Yesterday’s post on the women problem in economics prompted a comment asking who would be included in a female version of Robert Heilbroner’s classic [amazon_link id=”0140290060″ target=”_blank” ]The Worldly Philosophers[/amazon_link]. A Twitter conversation later, here is my curated version of the suggestions.

Harriet Martineau

[amazon_image id=”0875802923″ link=”true” target=”_blank” size=”medium” ]Writings on Slavery and the American Civil War[/amazon_image]

[amazon_link id=”0253340713″ target=”_blank” ]Harriet Taylor[/amazon_link]

[amazon_image id=”0253333938″ link=”true” target=”_blank” size=”medium” ]The Complete Works of Harriet Taylor Mill[/amazon_image]

Clara Collet

[amazon_image id=”1103312634″ link=”true” target=”_blank” size=”medium” ]Educated Working Women: Essays on the Economic Position of Women Workers in the Middle Classes[/amazon_image]

[amazon_link id=”0245545395″ target=”_blank” ]Rosa Luxembourg[/amazon_link]

[amazon_image id=”1931859361″ link=”true” target=”_blank” size=”medium” ]The Essential Rosa Luxemburg: Reform or Revolution and the Mass Strike[/amazon_image]

[amazon_link id=”0044408722″ target=”_blank” ]Beatrice Webb[/amazon_link]

[amazon_image id=”0521297311″ link=”true” target=”_blank” size=”medium” ]My Apprenticeship[/amazon_image]

[amazon_link id=”1849664684″ target=”_blank” ]Barbara Wootton[/amazon_link]

[amazon_image id=”B002B5X2MK” link=”true” target=”_blank” size=”medium” ]Social Science and Social Pathology [By] Barbara Wootton, Assisted by Vera G. Seal and Rosalind Chambers[/amazon_image]

Joan Robinson

[amazon_image id=”B00I70KLUY” link=”true” target=”_blank” size=”medium” ]The Accumulation of Capital (Palgrave Classics in Economics)[/amazon_image]

Phyllis Deane

[amazon_image id=”B00425W4WG” link=”true” target=”_blank” size=”medium” ]The First Industrial Revolution. Second Edition.[/amazon_image]

Anna Schwartz

[amazon_image id=”0691137943″ link=”true” target=”_blank” size=”medium” ]The Great Contraction, 1929-1933 (Princeton Classic Editions)[/amazon_image]

Elinor Ostrom

[amazon_image id=”0521405998″ link=”true” target=”_blank” size=”medium” ]Governing the Commons: The Evolution of Institutions for Collective Action (Political Economy of Institutions and Decisions)[/amazon_image]

There were also Twitter suggestions about women economists living and working now, including: Anne Kruger, Dambisa Moyo, Ngozi Okonjo-Iweala, Emily Oster, Esther Duflo, Helene Rey, Deirdre McCloskey. But I can think of many others and I think a Worldly Philosophers-type collection would need to stop short of modern times. One needs a bit of hindsight to judge lasting influence, although I’m sure many of those on the list will qualify in time.