A rant about markets

Harvey Cox’s The Market As God, published in a couple of weeks, drove me nuts. I alternated between scribbling ‘X’s and ‘?!’s in the margin, and skipping over long chunks about Christian theology, in which I have zero interest. The book is built out from the notion of orthodoxy and heterodoxy in economics. Of course, ‘orthodox’ economists would use an adjective like ‘mainstream’ to describe themselves, which I guess (self-described) heterodox economists would say is the point. These debates always seem to me more relevant (or rather less irrelevant) to macro than to the empirical applied micro-economics so many of us do; I never know which label to wear myself.

Anyway, back to the book. The conclusion sums up the message: “First, the Godlike role The Market now exercises is misplaced, and the web of values, narratives and institutions it anchors needs to be critically re-examined. Second, precisely because The Market, despite its disavowals, does operate as a surrogate religion, the kind of rethinking that is needed has been deflected and discouraged.”

Many people will agree with this. I’d guess the ever-thoughtful Branko Milanovic would – he and I had a brief debate here, here and here on ‘commodification’ (ie the status of the market) recently. There are some truly interesting ethical questions in this territory.

Not in this book, however. One of my problems with Cox’s account is the assumption that there is substantial overlap between people who worship The Market and economists, because isn’t that what economics is all about? Given that I teach a whole course exploring the subtleties of the relationship between state and market in public policy, this is personally irritating. It’s also factually incorrect: many economists work on how government/collective intervention can fruitfully bring about higher economic welfare, including by influencing markets. Sure, economists are perhaps more likely than Ms Average to believe markets operate in beneficial ways (or than Mr Average when he is a businessman running a large, dominant company), but that’s far from religious faith in markets.

Market-worship was always more of a political than an economic project, although certainly there was a tide in economics of free-market rational expectations modelling – a tide at its height in the mid to late 1980s. Even the politics seems to be changing. This book comes just as here in the UK we’ve seen the new Conservative Prime Minister pronouncing the need for an industrial policy, while the system shock of the Brexit vote/Trump propularity has alerted the political classes in both the UK and US to the fact that we’re not in libertarian free market-land any more.

There were also minor irritations in the book. For instance, it paints Adam Smith as the ‘saint’ of modern economics, “the patron of the unfettered free market.” This overlooks a raft of recent work highlighting the importance of The Theory of Moral Sentiments to any interpretation of Smith – from Emma Rothschild’s Economic Sentiments, Nicholas Phillipson’s biography Adam Smith: An Enlightened Life, through Roger Backhouse’s history of economics to Russ Roberts’ [amazon_link id="1469029758" target="_blank" ]How Adam Smith Can Change Your Life[/amazon_link].

Anyway, it will be clear that The Market As God falls foul of my regular gripe that it would be great if critics of economics from outside the discipline had more of an idea of what economists actually do. It would have been far more interesting if Cox had addressed, say Al Roth‘s question about repugnant markets, kidney exchanges etc. Or maybe the questions raised by behavioural economics about when humans are more or less rational than pigeons or capucin monkeys. Still, if you enjoyed Michael Sandel’s What Money Can’t Buy: The Moral Limits of MarketsWhat Money Can’t Buy: The Moral Limits of Markets by Sandel, Michael on 26/04/2012 unknown edition (which also irritated me hugely), you might well like this book too.

On difference

Steve Silberman’s Neurotribes was the last of my holiday reading, just finished. It is as excellent as you’d expect from all the reviews and prizes. As well as being a fascinating account of the intellectual history of psychiatric/medical approaches to autism, including the dramatically changing approaches to diagnosis and treatment/support, it’s very well written. For instance, I liked the description of Leo Kanner, a central character, as having “the woebegone countenance of a sad beagle.” The book also has sections on the links between autism and the technology and sci-fi fan communities, dating back well before SIlicon Valley. The book quotes an expert on science fiction as describing the “subversive impulse at the heart of science fiction as an expression of ‘cognitive estrangement’ from the mainstream.

[amazon_image id="1760293288" link="true" target="_blank" size="medium" ]Neurotribes: The Legacy of Autism and How to Think Smarter About People Who Think Differently

I was frustrated to learn on page 375 that, throughout the disputes and discoveries in the US I’d been reading about so far, British researchers and doctors were “light years ahead of their American peers in their understanding of autism”; this is a highly US-centric book. British readers might also be surprised that Simon Baron-Cohen gets just two passing mentions. I’m certainly no expert but think he’s quite well known on this side of the Atlantic. The despicable Andrew Wakefield does get appropriately – ie. highly critically – described. My other frustration was that – given my lack of knowledge of the subject – there wasn’t more of a summary of the state of play at the end of the book. It’s clear enough that there is no ‘epidemic’, but rather a better understanding of the character of autism and much more diagnosis; and that the explanations are to be sought in genetics, not environmental factors. Still, I’d have liked a bit more.

Of course, wanting more of a 520 page book is a good sign. Interesting, compelling and important.

Summer murder

One of the joys of being on holiday is of course the extra reading time. Among the thrillers and novels, I read Jill Leovy’s Ghettoside: A True Story of Murder in America. It’s a brilliant piece of reportage about the many murders of young black men in southern Los Angeles, mainly killed by other young black men.

Ghettoside: Investigating a Homicide Epidemic

The book mixes in a gripping narrative a few individual cases – the dead youths and their families, the immediate events, the detectives working on the case – along with a wider analysis of both the sorry history of the high murder rate and the structures of society and policing that (she argues) largely account for it. Leovy’s fundamental point is that the apparent lawlessness of the ghetto is in fact the law of the streets filling the vacuum left by the absence of ‘normal’ law, and the state’s abdication of its monopoly of violence in such territories. She, like her few heroic detectives working hard to solve every case like any other murder, sees the absence of genuine law enforcement as the root problem.

As she writes: “Gangs could seem pointlessly self destructive, but the reason they existed was no mystery. Boys and men always tend to group together for protection. They seek advantage in numbers. Unchecked by a state monopoly on violence, such groupings fight, commit crimes, and ascend to factional dominance as conditions permit. Fundamentally, gangs are a consequence of lawlessness, not a cause.”

One of the eye-opening aspects of the book lies in its descriptions of how little resource the homicide divisions in the south of LA have been allocated, compared to policing fads such as visibly patrolling streets, or preventive schemes. This extended to under-manning, overtime bans (on murder cases!), not allowing detectives to take their cars home, and even stationery shortages.

Interestingly, the epilogue describes a recent steep reduction in the murder rate, albeit remaining many times higher than other parts of the city and state. Leovy argues that there have been a number of contributory factors including demographic change (fewer blacks and more Hispanics in the city itself) but highlights in particular a significant increase in social security payments to poor black people, specially men, and especially to people coming out of prison. Supplemental Security Income payments give individuals a crucially different set of incentives: “Money translates to autonomy. Economic autonomy is like legal autonomy. It helps break apart homicidal enclaves by reducing interdependence and lowering the stakes in conflicts.” It is easier to walk away from the calling in of tit for tat favours by other gang members. Leovy suggests the Affordable Care Act will reinforce this autonomy. The section briefly notes the high rate of imprisonment too – David Skarbek’s The Social Order of the Underworld is a great complement to this book, looking specifically at the interactions between gangs and the US penal system.

Still, Leovy concludes, it is important not to lose sight of the key lesson that too little policing and enforcement of the law is corrosive. Every desperately sad story in this book underlines the message.

Money and civilization: it’s complicated

William Goetzmann’s Money Changes Everything: How Finance Made Civilization Possible is exactly the kind of book I find relaxing to read before going to sleep. Apart from the fact that it’s too chunky to carry around, it is a panoramic historical sweep packed with interesting nuggets.

Money is hardly my Mastermind special subject, and I certainly don’t get emotional about it as so many commentators do. So I have no view about the criticism of the book by people like this reviewer, whose point seems to be that Goetzmann doesn’t agree with every word of David Graeber’s Debt . I’m certainly not going to opine about pre-history. However, Goetzmann is making a far more general argument, rather than a specific case about the role of debt in ancient society (& anyway I think that particular dyspeptic reviewer significantly misrepresents the book’s argument).

Goetzmann’s point is that there is an intimate inter-relationship between financial arrangements and instruments and other economic and social institutions. Indeed, he argues that this is causal and financial innovations made ‘civilisation’ (in the sense of social and political changes observed through history) possible. Intellectual innovations like writing or probability theory, and social innovations like the intermediation of individual savings into investment at scale, were driven by finance. Of course, the causality runs the other way round too: certain economic and social institutions were necessary for financial innovations to occur. “The joint development of financial tools and complex society was a process of give and take on many levels.” It’s complicated, folks! Simple accounts are probably wrong.

Goetzmann is certainly not a financial determinist. He writes: “Necessity is the mother of invention. … Financial technology is redundant, adaptive, and sometimes mercurial. The institutions we take to be sacrosanct, inevitable and indispensable probably are not. Given the random outcome of historical events, another set of institutions might have emerged to serve the same financial problems. Financial innovation is thus a series of accidents of history – the caprice of time, location and opportunity.” This seems absolutely convincing to me, rather than any Graeber-like projection of ideology onto the past. And – as Goetzmann notes – “In times of financial crises, society has tended to express a collective nostalgia for a pre-financial world.”

The book is broadly chronological, starting in ancient Mesopotamia, visiting China, mediaeval Europe, 18th century France and western Europe, back via Marx to China, then the 1920s, Keynes and the war, and a final short section on modern finance. There are all kinds of examples I didn’t know about – the Templars as bankers, the early example of corporate structure in the shape of Toulouse’s Honor del Bazacle. Like Jared Diamond through a different lens, Goetzmann sees the fragmentation and political competition of western Europe in mediaeval and early modern times as an important contribution to its subsequent reliance on capital markets. All very enjoyable, and I’d say essential for anyone interested in financial history.

Different and alone

Courtesy of striking French air traffic controllers, I had a longer journey back from Toulouse than I’d expected today, and managed to read the whole of Olivia Laing’s thought-provoking book The Lonely City: Adventures in the Art of Being Alone.

It wasn’t what I’d expected from the reviews, which made it seem like a kind of travelogue about her having some time alone in New York and reflecting on modern urban life; I’m a sucker for books about sitting in foreign cafes feeling a sense of anomie while writing in one’s notebook. Instead, The Lonely City is more a sort of successor to Susan Sontag’s Illness as Metaphor with a soupcon of Patti Smith’s Just Kids. Through her research into the work and lives of four artists who engaged with and battled with loneliness, but also with poverty, rejection, AIDS, Laing actually gives us a profound discussion of society’s inability to tolerate difference.

She also reflects on the role of our use of digital contact through social media and always being online – using it as a shield against human contact and at the same time a means of human contact. Laing notes the trajectory of Sherry Turkle’s assessment of digital tech through her trilogy, The Second Self (1984), Life on the Screen (1995) and the far more pessimistic Alone Together (2011).

Andy Warhol, one of the artists discussed by Laing, predates Twitter and Facebook. What would he have done with them, I wonder?