Tag Archives: political economy

Worldly Philosopher

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As I’ve already confessed, I’ve read very little by Albert Hirschman. By the time I was learning economics, he and the mainstream of the economics profession had moved quite far along divergent paths. The mainstream was embracing mathematical techniques for modeling and – more significantly – the reductive assumptions about human behaviour and social context that made this approach feasible. Hirschman became increasingly interested in the connection between economic policies and politics. The one book of his I had ever been introduced to was [amazon_link id=”0674276604″ target=”_blank” ]Exit, Voice and Loyalty[/amazon_link], and possibly as part of my politics reading rather than economics.

This means Jeremy Adelman’s superb biography, [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher: The Odyssey of Albert O Hirschman[/amazon_link], has been a real education. Its 600+ pages never flag; this is a very enjoyable book to read. It also means I’ve got some of Hirschman’s other books on the in-pile now, for the great lesson of recent years is that economists need to stay alert to the politics and the human behaviour that define the possibilities of economic choice; and that political scientists and other social scientists for their part need to pay more attention to economic incentives and to the domain of economic choice. Hirschman emerges as above all a careful observer of actual societies and economies, who therefore was multidisciplinary to the marrow.

[amazon_image id=”0691155674″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

The biography begins with his extraordinary early life in the tumultuous Europe of the 1930s and Second World War. A second chunk concerns his work in and on Latin America and economic development more generally, based in a variety of institutions. The final leg covers Hirschman’s more settled period, mainly at Princeton’s IAS, as a distinguished political economist and author of a number of classic books. The book covers in some detail The Passions and the Interests and also his last book, [amazon_link id=”067476868X” target=”_blank” ]The Rhetoric of Reaction[/amazon_link].

Hirschman’s conclusions about the nature of capitalism and economic growth have real resonance for the current situation. His reading of the classics, including Adam Smith, made him one of the first people to reclaim (from Milton Friedman and other economists) the wiser Smith who understood that “moral sentiments” as well as self-interest determine people’s behaviour. Adelman sums it up: “The rule of passions could lead, without checks, to horrible utopias; the rein of interests to soulless pragmatism.”

Hirschman argued against the kind of theorising that insisted on pre-determined outcomes from given pre-conditions, insisting instead on the number of possible paths depending on happenstance and unintended consequences. I suppose we would call it pervasive path-dependence; it contrasted greatly with both the mainstream and the alternative or heterodox approaches of the time. He also identified the way that beliefs or expectations constrain outcomes – in the context of developing economies, he thought that policymakers and economists fettered themselves by their own perceptions of insurmountable hurdles or cultural inferiority. Latin America in the 1980s, he thought, was imprisoned by clashing intellectual paradigms, the false dichotomy between free market ‘neoliberalism’ (as we call it now) and Marxist revolution. He wrote: “The obstacles to the perception of change thus turn into an important obstacle to change itself.” Many economists point out the importance of expectations for economic outcomes, but usually in a rather abstract way in a model; expectations are what people believe to lie in the realm of possibility, and are shaped by intellectuals and economists and policymakers, among a whole host of others. We live in a world shaped by ideas, both embedded in technologies and embedded in policies and beliefs.

As the years went by, Hirschman turned increasingly to reading the classics of economics and the Enlightenment. As Adelman writes: “The pathway to recasting self-interest in a way that did not make it incompatible with the public good required going back centuries to the founding of its modern meaning.” His final book, [amazon_link id=”067476868X” target=”_blank” ]The Rhetoric of Reaction[/amazon_link], is now at the top of my reading list. Although seen as a response to the politics of the Reagan era, Adelman argues that it should be read in a broader way as concerned with the kind of public discourse that sustains democracy. The rhetorical habits Hirschman describes in the book have not only become pretty pervasive, but are also amplified by online media. The state of civic discourse is a vital question in itself and because it shapes beliefs and therefore economic possibilities.

In these comments, I’ve picked up themes that interest me particularly, including the light cast on the state of economics. [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link] has a lot for readers with other interests too, particularly development economics (I touched on this in an earlier post). It’s also the well-told life story of a fascinating and obviously charming man. Half way through 2013, I’m sure it’s going to be one of my books of the year.

La trahison des clercs

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I’m about a third through Jeremy Adelman’s superb biography of Albert Hirschman, [amazon_link id=”0691155674″ target=”_blank” ]The Worldly Philosopher[/amazon_link], and thoroughly enjoying it. We’ve got to the end of the second World War, by which time the young Hirschman had already had a lot of History to contend with, in the shape of the rise of the Nazi party in Germany, the Spanish Civil War, running with Varian Fry an escape route for Jews through Marseilles, Spain and Lisbon, and his own flight to the US and re-enlistment in the US army – alongside learning economics, reading widely and speaking several languages fluently, and getting married to a Russian-French-Californian intellectual and beauty.

[amazon_image id=”0691155674″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

Needless to say, I’m particularly interested in reading about Hirschman’s reading. He was a fan of Camus, but not Sartre – definitely the right preference ordering. When fleeing Vichy France as the authorities closed in on his escape route, and able to take only one book with him, he chose Montaigne’s [amazon_link id=”B0081LMNKA” target=”_blank” ]Essais[/amazon_link].

[amazon_image id=”B0081LMNKA” link=”true” target=”_blank” size=”medium” ]Montaigne – Les Essais (French Edition)[/amazon_image]

There is an interesting passage about Julian Benda’s attack on the abandonment of Enlightenment reason for nationalism by European intellectuals, [amazon_link id=”224601915X” target=”_blank” ]La Trahison des Clercs[/amazon_link].

[amazon_image id=”3640206096″ link=”true” target=”_blank” size=”medium” ]Julien Benda – La Trahison Des Clercs[/amazon_image]

Reacting to the argument, Hirschman wrote of the “hybrid position of intellectuals in the modern world: neither masters, nor prosecuted, but technicians.” Most saw their role as working out the most effective means for politicians to achieve the ends they selected, but this meant intellectuals had abdicated the responsibility to study “the thirst for power and domination.” There is no possibility of pure technocracy, he argued – that in itself is a political choice. An interesting reflection given the return of technocracy in Europe post-crisis.

I’ll do a proper review when I’ve finished the book, which is going slowly because it’s too big to carry around. There have been other excellent reviews, such as this by Justin Fox and this by Cass Sunstein.

Meanwhile, I want to honour the name of Hiram Bingham IV. I’d never heard of this State Department official. This rich and well-connected diplomat, based in Marseilles from 1939, had become disillusioned with the Department’s policy of doing little to nothing to help refugees from Europe reach the US, and so embarked on his own freelance mission to issue thousands of US visas, both legal and illegal, to help the Varian Fry and Albert Hirschman rescue operation. The beneficiaries included Hannah Arendt and Marc Chagall as well as hundreds of people lacking the protection of fame. The State Department retaliated by posting Bingham to Argentina, where he turned his attention to tracking Nazis. He resigned from the foreign service in 1945 and didn’t speak of his wartime work again.

Political bubbles

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The Adelman biography of Albert Hirschman, [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link], is great but too big to carry around so I’m reading it at home, and on the tube I’m reading [amazon_link id=”0691145016″ target=”_blank” ]Political Bubbles[/amazon_link] by Nolan McCarty, Keith Poole and Howard Rosenthal, & have almost finished.

[amazon_image id=”0691145016″ link=”true” target=”_blank” size=”medium” ]Political Bubbles: Financial Crises and the Failure of American Democracy[/amazon_image]

It’s long been my view that history is over-determined, looked at from today (under-determined of course, if you’re trying to predict events.) These three political scientists have another causal explanation to add to the list of explanatory factors for the Great Crash of 2008. As well as greed and fraud, toxic financial innovation, global imbalances, fiscal irresponsibility, gigantism in banking and all the other contributors, there is the political dimension.

The charge is that a combination of three political factors created the conditions for all those other contributors to financial meltdown to develop. The first is ideology, the pure belief that markets are good and government regulation bad; the second is the array of special interests hoping for an endless boom, especially in housing – the lenders, the realtors, the people getting cheap loans; the third is the American institutional framework, expressly designed to stop things happening rapidly, in the context of ultra-rapid developments in financial markets. The three interact in a pro-cyclical way, the book argues, hence the terminology of the ‘political bubble’.

Nobody in the political elite, on the executive or the legislative side, comes out of this book well. The authors even trace some of the rot as far back as the now-saintly-seeming Jimmy Carter – after all, the savings and loan debacle of the early 1980s had its root in his presidency. The book is equally scathing about the ideologically free market Republicans, Reagan and the two Bushes, and the differently ideologically free market economics team of the Bill Clinton years.

The focus is solely on the United States. This means there is more political detail than many non-American readers will either want or be fully able to interpret.

With that caveat, I found the argument persuasive. After all, there are plenty of other mature democracies that have experienced that combination of housing bubbles, Franken-finance, and political incapacity. The US financial markets have also hugely influenced global markets. It would be interesting to work through the same kind of argument in other countries. One might even add another layer of political sclerosis in the international context, adding a fourth ‘i’ for ‘international incompetence’ to the three ‘i’s making up the book’s hypothesis.

Technocracy vs democracy

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Ever since I read Daniel Bell’s [amazon_link id=”0465097138″ target=”_blank” ]The Coming of Post-Industrial Society[/amazon_link], I’ve been struck by how prescient it was about the tension between technocracy and democracy. Bell argued that as societies become more complex and require technical expertise in areas ranging from healthcare and engineering to economics, there will be increasing conflict with the populism engendered by democracy. What would he make of Twitter-based political dynamics?! The technocratic government in Italy, post-crisis, was a vivid illustration of Bell’s dilemma in action.I spoke recently about the trade-off again in my recent Pro Bono Economics lecture, the likely conflicts between the “what works” agenda in public policy and political populism. Crises or slow growth make the trade-off worse because they encourage populism and because there is no additional output to compensate losers – it’s zero sum.

[amazon_image id=”0465097138″ link=”true” target=”_blank” size=”medium” ]The Coming Of Post-industrial Society (Harper Colophon Books)[/amazon_image]

In the fascinating Mark Mazower book I’ve now almost finished, [amazon_link id=”0141011939″ target=”_blank” ]Governing the World: The History of an Idea[/amazon_link], he cites Hans Morgenthau’s 1946 [amazon_link id=”B0007DKTKQ” target=”_blank” ]Scientific Man versus Power Politics[/amazon_link], which from the title touches on the same theme. Mazower says the book attacks the naivety of technocrats and the Saint Simonian tradition of belief in rational universalism. So it seems like this is a constant theme, played out in every era.

As a footnote, the Mazower book has given me another technocratic hero, the Australian Robert Jackson who ran the logistics for the Allies in the Middle East during World War II, having first helped organise the defence of Malta while in his 20s, then helped run UNRRA after the war. There is a biography by James Gibson, [amazon_link id=”0955396808″ target=”_blank” ]Jacko, Where Are You Now?[/amazon_link]

Positive, normative and provocative economics

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Last night it was my privilege to give the annual Pro Bono Economics lecture. I’d be delighted to hear people’s comments on it. (It would be even more pleasing if you’d look at the website and consider making a donation to their work.)

Many people in the audience have been enthusiastic, but one macroeconomist has taken great offence at my criticism of macro. I daresay I was too provocative – Dave Ramsden of the Treasury, chairing the evening, diplomatically described it as ‘challenging’ – but it does simply amaze me that so many (but not all) macroeconomists don’t think anything much needs to change in their area. Anyway, views welcome.

In the chat afterwards, somebody recommended to me [amazon_link id=”0521033888″ target=”_blank” ]Rational Economic Man[/amazon_link] by Martin Hollis and Edward Nell. The blurb says:

“Economics is probably the most subtle, precise and powerful of the social sciences and its theories have deep philosophical import. Yet the dominant alliance between economics and philosophy has long been cheerfully simple. This is the textbook alliance of neo-Classicism and Positivism, so crucial to the defence of orthodox economics against by now familiar objections. This is an unusual book and a deliberately controversial one. The authors cast doubt on assumptions which neo-Classicists often find too obvious to defend or, indeed, to mention. They set out to disturb an influential consensus and to champion an unpopular cause. Although they go deeper into both philosophy and economics than is usual in interdisciplinary works, they start from first principles and the text is provokingly clear. This will be a stimulating book for all economic theorists and philosophers interested in the philosophy of science and social science.”

[amazon_image id=”0521033888″ link=”true” target=”_blank” size=”medium” ]Rational Economic Man[/amazon_image]

I’d like it to have been a bit more specific about the authors’ doubts, but it sounds intriguing.

Richard Davies of The Economist (@RD_Economist on Twitter) has recommended [amazon_link id=”0631194355″ target=”_blank” ]Three Methods of Ethics[/amazon_link] by Marcia Baron et al.

[amazon_image id=”0631194355″ link=”true” target=”_blank” size=”medium” ]Three Methods of Ethics: A Debate (Great Debates in Philosophy)[/amazon_image]

I can see I’m going to have to improve my philosophy to continue in the vein of the Pro Bono lecture.

UPDATE: Paul Kelleher (@kelleher_) recommends [amazon_link id=”041588117X” target=”_blank” ]Philosophy of Economics[/amazon_link] by Julian Reiss

[amazon_image id=”041588117X” link=”true” target=”_blank” size=”medium” ]Philosophy of Economics: A Contemporary Introduction (Routledge Contemporary Introductions to Philosophy)[/amazon_image]