How do the French think?

Well, we will find out tonight I suppose, with the exit polls from the first stage of the French presidential election. After Brexit and Trump, I’m bracing myself. It seemed a good week to read Sudhir Hazareesingh’s How The French Think, out now in paperback, and I’ve greatly enjoyed it. I was a teenage existentialist (just like Sarah Bakewell), deeply influenced by Simone de Beauvoir’s The Second Sex, and a Francophile since primary school. Who knows why? It might just have been the most exotic place I could imagine growing up in a small Lancashire mill town. So How The French Think has been just the ticket for my reading pleasure. The book has all kinds of nice details (like the fact that hedonist thinker Julien Offray de la Mettrie died form over-indulgent consumption of pheasant and truffle pate. Or that Jules Verne had an early work (not published until 1994, as his publisher turned it down), Paris au XXe Siecle, a grim dystopia dominanced by Finance and Machinery and featuring a Demon of Electricity.

One of the great puzzles about France for an economist, however, is how it combines being uniquely resistant to economic logic with being a rather successful economy. This

combination doesn’t always pay off. As Jean Tirole points out in his Economie du Bien Commun (out in English later this year), the absence of economic analysis as applied to the labour market explains the high unemployment rate, particularly for young people. However, the average level of productivity is higher than in the UK, there are many successful multinationals, and the quality of life (if you have a job) remains high. This doesn’t stop the French being consistently pessimistic – among the (self-reported) unhappiest in the world given their average level of income. And as the electoral polls – and no doubt results – will show, a large proportion of voters are attracted to candidates promising to defy conventional economic wisdom (not to mention economic reality) with greater protectionism and far less of the market.

The book concludes: “It would be wrong to give the impression that xenophobia and intellectual closure have become the exclusive traits of the French today ot that they will be dominant forever.” But …. there are immense contradictions. Strong believers in the State in the abstract, but now firmly of the belief that it is too distant from the citizens. Against the ‘Elite’ but still profoundly elitist by instinct, “decisive architects of an economically liberal Europe” and yet “profoundly contemptuous of capitalism”. No wonder this election feels so uncertain.

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The dialectic of fraud

Not only is it a holiday weekend, but our broadband has been down most of the time, so it’s been epic for reading. I polished off Fraud: An American History from Barnum to Madoff by Edward Balleisen.

This is a scoot through some of the more colourful chapters of US financial history, constructed around the line of argument that there has been a steady swing of the pendulum when it comes to official responses to fraud, or a kind of dialectic. A riproaring era of innovation – when inherent asymmetries of information are made greater by the newness of what the market has to offer – is characterised by a ‘caveat emptor’ approach. If it looks too good to be true, it is – and anyway, is a product that doesn’t work fraudulent or its era’s equivalent of vapourware? There’s a fuzzy boundary, an enduring “dilemma of how to distinguish unacceptable deception from the pardonable exaggerations and enthusiastic dissembling that so often characterized efforts by new firms to establish a commercial foothold.” Perhaps, if it succeeds, it’s enthusiasm, but if it fails, then it’s fraud. No innovation would get off the ground without potentially delusional belief in its prospects. Some people intend to be fraudsters, others have it thrust upon them by over-optimism and failure.

But as the scandals pile up, and particularly when great numbers of ordinary consumers or savers are affected, officialdom intervenes in some way. This can be government intervention, as in the US Post Office’s crackdown on mail fraud – which nearly strangled the famous Sears, Roebuck mail order catalogue in its infancy (purveying, as it did, quack medicines and dodgy ‘free gifts’  – or civil society as in the business-backed Better Business Bureaux.

The book ends by observing that the pendulum may be about to swing back to cracking down, as the multiple bedraggled chickens of the freewheeling global financial era flutter home; but who can say for sure, looking at the evergreen inclination to fleece retail savers and investors. For finance, of course, is the most fertile territory for fraud. The pickings are rich, the asymmetries of information are gargantuan, and the innovation is still plentiful. This is a story with many volumes still to come.61K5fXe2TML

Economics and its soul

I picked up Yuval Yonay’s The Struggle Over the Soul of Economics: Institutionalist and Neoclassical Economists in America Between the Wars in a 2nd hand bookshop, the wonderful Westwood Books in Sedbergh. How could I, the author of The Soulful Science, resist such a title? It’s quite interesting, although you do have to be pretty interested in the history of thought and methodology of economics to read it (cough). It was published in 1998, which I’d say was past the peak of the rational expectations/RBC takeover of economics. Still, there was still plenty of that kind of economic modelling around.

Yonay uses ‘Actor Network Analysis’ to describe the way that particular neoclassical mainstream – which started to take deep root with Samuelson after WW2 – had ousted the institutionalist school in the US. He argues that this latter had remained reasonably strong in the interwar period. (The actor network approach, which is obviously well-known in sociology although not well known to me, is a superior alternative to either Kuhnian or Lakatosian approaches to intellectual history he argues – I leave this to people better qualified than I am.)

I’m not completely convinced by the argument mainly because the book gathers so many people under the umbrella of ‘institutionalist’. Veblen, of course, John Commons and Wesley Mitchell his successors. Both of these were obviously highly influential. Yonay then lists a number of others around the same time whose names were new to me, such as Charles Cooley and Robert Hoxie. He also identifies a later wave of institutionalists, one branch pursuing issues of industrial organisation and labour relations, another the questions of measurement and business cycles: John Maurice Clark, Gardiner Means, Arthur Burns, Simon Kuznets. This category, it seems to me, could be labelled ‘anybody not solely theoretical’.

While it’s certainly true that the status of theory (of a particular kind) in the economics profession grew and grew in the post-war decades, the empirical approaches informed by a deep knowledge of institutional reality were always there, even through the height of the rational expectations, real business cycle revolution. The proportion of top journal articles that were purely theoretical increased until probably around the time Yonay published this book, and has since declined considerably. Institutions now feature big time in economics, economic history and geography are expanding sub-fields, behavioural economics is altering the choice assumptions in economic models, information asymmetries and transactions costs are everywhere. These were the kinds of developments I described in The Soulful Science. Even economic measurement is baaaack now.

Perhaps it will turn out with hindsight 10 years from now that the period from about 1975-1995 was the aberration in economics. It had deeper roots of course – Lionel Robbins gave forceful expression to the ‘neoclassical’ individualist and reductionist approach in 1932 – and it lingers on too, in Chicago and elsewhere. But it would be interesting to see an update of the detailed sociological approach Yonay takes in The Struggle over the Soul of Economics  – as opposed to the usual mud-slinging by some sociology critics of economics who don’t read what most economists themselves do, but assume the bowdlerised version of 1980s and 90s economics still dominant in the policy world remains the intellectual mainstream. Anybody who doubts me should just look at the programmes for the Royal Economic Society or American Economic Association conferences this year. I still contend economics has (regained) its soul.

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The French and their money

The first chapter of The Wisdom of Money by Pascal Bruckner nearly put me off as it’s all theology, but I stuck with it and ended up really enjoying the book. It’s vairrrry French, which is a good thing in my eyes; I spent my teenage years planning to grow up to be a philsopher living in Paris and sitting in cafes all day. (And if only I’d written Sarah Bakewell’s wonderful At the Existentialist Cafe….)

But back to money. After the unpromising theological start, The Wisdom of Money picked up by pointing out what a commercially-minded entity the (Christian) Church has always been, from the Catholic sale of forgiveness or time off purgatory to the Calvinist thumbs up to the acquistion of riches through work. Then the rest of the book is a series of essays reflecting on different aspects of money and economics. There is a (to me) pleasing scepticism about varieties of idealism and unrealism concerning money: that happiness matters more, that degrowth is feasible etc. I liked the quotation from French presidential candidate Mélenchon on financiers: “Throw the bums out! I am calling for a citizens’ revolution in France to take power back from the oligarchy…” – next line: Mélenchon gets a salary of 350,000 Euros a year.

In fact, having started by saying this is a very French book, it’s very un-French in taking an utterly pragmatic approach to markets and capitalism, in contrast to the utter romanticism of so many French texts on matters economic. Bruckner is not in this long French tradition. (Although he’s not totally alone – here is Jean Tirole in the FT today offering some pragmatic thoughts about the economy in the context of the election.) He observes caustically: “Since a signiifcant number of our compatriots no longer have enough to live on decently, they will be told that prosperity is degrading, that true wealth is found in relationships not goods.”

There are quite interesting thoughts about the persistence of cash; the political vacuum at the heart of the Euro, the contrast between French and American attitudes to money, the strong support among economists for the abolition of slavery, the passive consumerism embedded in the idea of a Universal Basic Income, the scandal of superstratospheric executive pay and tax avoidance by the rich, and much more – appealing to all my prejudices at least. Very enjoyable, and the perfect length for a train ride or flight.

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The big picture – and it isn’t pretty

It’s no easy task to write a reasonably concise (about 200 pp), highly readable, well-informed synopsis of the big trends in global economic history, along with an assessment of how these are likely to play out in the near future. Stephen King, HSBC’s Senior Economic Adviser, has given us such a book in Grave New World: The End of Globalization and the Return of History. As the title indicates, it isn’t an optimistic book. But more of that in a moment.

The book starts with an extract from a speech by Joseph Chamberlain as Secretary of State for the Colonies in 1897. It was an ‘end of history’ speech: in ruling the Empire, he sdai, “[W]e are fulfilling what I believe to be our national mission, and we are finding scope for the exercise of those faculties and qualities which have made us a great governing race….” The Introduction segues into the inevitability that empires that rise subsequently fall. The Whig interpretation of history is still wrong.

The remainder of the book is similarly ambitious and wide-ranging, although consequently covering vast events in a page or two; this can inevitably feel breathless. But this is a worthwhile price to pay for the breadth of reference. For instance, few books by financial market economists about global trends manage to include reference to the work of development economist Arthur Lewis (although I’d like to mildly complain that he’s referred to here as the first black academic at the LSE; he was the first black professor appointed in the UK, and that was by the University of Manchester, where my office is in the Arthur Lewis Building).

The other merit of a wide-ranging book of course is that you learn some things you didn’t know. For me, it was the detail about China’s extension of its economic and political reach in Asia and beyond. For all that China’s path will be turbulent (see Martin Wolf in the FT today), there can be no doubt about where the centre of gravity of the world economy is moving.

The final part of Grave New World is titled ‘Globalization in Crisis’. It describes the multiple weaknesses of existing global institutions but concludes there’s nothing better around than sticking with, and improving, the WTO, the EU, NATO etc. I think one has to forgive the un-stirring conclusion – I certainly have no better ideas, although in glum moments (there are may, watching the news) I rather fear that events in the near future will destroy the existing institutional landscape leaving no option but to go back to the drawing board.

The book ends even more pessimistically than me, however, with an imagined Ivanka Trump Inauguration speech in 2044. Oh my, history is definitely baaack.71coBmyck4L