Too complicated for tragedy

George Demartino kicks off The Tragic Science: How economists cause harm (even as they aspire to do good) with the strong accusation that, “The economics profession is culpable in the contemporary backlash against democratic governance, civic obligation, and racial and other forms of equality. It is equally culpable in inducing the social conditions that promote the widespread rejection of expertise in policy-making.” He describes economists as ‘harm accountants’ while asserting that the profession ignores many of the harms caused by its advice. What to make of this set of charges?

Well, the blame game for contemporary ills is not a straightforward one. I’d share it around – with politicians, with financiers, with crooks – while agreeing that economics has significantly helped create the intellectual weather enabling others’ actions. I also agree with two key building blocks in Demartino’s argument. One is that economists are entirely wrong to insist that the positive and normative elements of their analysis are separable (see Cogs and Monsters): the concept of economic ‘efficiency’ is absolutely value-laden, and in an undesirable way. The other is that welfare economics needs rebooting (we will hopefully have a symposium out on this soon), and in particular to highlight the central dilemma of irreconcilably multiple dimensions (incomes and jobs but also community and culture) in evaluating policy choices at the same time that decisions are unidimensional (does the government sign the trade treaty or not?) Elizabeth Anderson is my go-to reference on this.

Having said that, I thought the book over-does the anti-econ rhetoric. Cost benefit analysis (CBA) is indeed highly flawed, and does indeed aim to come up with a single number weighing all costs and benefits against the same kind of metric, and with moral assumptions shovelled into its discount rate. But “morally reckless”? The limitations of CBA are well-rehearsed, especially by economists (including me but also titans like Nick Stern and Partha Dasgupta). The alternative to using CBA is – not using it. And then what? What decision making procedure is better? I was surprised the book didn’t make more of the arguments for participatory processes, for procedural justice, in trying to ease the many dimensions versus one dimension dilemma. Sen in particular emphasises this, and it’s a feature of public value approaches, which extend CBA to incorporate non-monetary dimensions of the choice, in a reasoned and evidenced framework.

I wasn’t particularly wowed either by the book’s alternative calculus of harms, a page-long list setting out a taxonomy in which economic harms form a minority group. The list seems to be top-down, and it isn’t clear what the principles of categorisation are. Nor does it help address fundamental questions. For instance, many of the examples of the harms done by economists consist of trade liberalisation treaties. There’s no doubt these harm certain groups of producers and workers, to which the standard economics response is compensation schemes – which never happen adequately. Many economists have rowed back from the view that trade liberalisation is always and everywhere a good thing. And yet increasing trade has – equally without doubt – underpinned post-war rises in living standards in many countries, and the Asian export-based miracle economies. Saying, ‘but the China shock in the Midwest, but Brazil,’ doesn’t imply trade liberalisation is always bad, which seems to be the assertion here.

(Personal gripe – the book also ignores Scitovszky’s 1941 refutation of the Hicks-Kaldor compensation argument. Which in my view restates the existence of fundamental dilemmas in policy choices…. the welfare evaluation all depends whose perspective you look at it from.)

So, is economics too reductionist? Yes. Are economists over-confident in their ability to solve problems? Often, yes. Is economics too paternalistic, assuming a god’s-eye view it cannot possibly have? Indeed. Was the shock therapy approach to post-1989 Russia a disaster? Yes! I agree with all of this. And yet I think it’s much more complicated than this book claims.¬†71vagYXe2KL._AC_UY436_QL65_

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The slouch of history

Like many people, I’ve been eagerly anticipating Brad Delong’s Slouching Towards Utopia: An Economic History of the 20th Century, and it doesn’t disappoint. Brad was a couple of years behind me in the Harvard graduate economics programme, was an early adopter of blogging, and has been a prominent online presence ever since. So his argument in one sense is no surprise, but it comes together as an unmissable book, even for a devoted reader of his tweets.

The book starts by framing the central point: the economy, and people’s lives, have been utterly transformed by the long 20th century of 1870ish to around 2010 in a continuous tide of change both ‘marvelous and terrible’. During that long 140 year century, the average economic growth rate (we are US/west focused here) was just over 2% a year, before and since, below 0.5% a year. Income levels doubled every 33 years during that period: “A revolutionized economy every generation cannot but revolutionize society and politics, and a government trying to cope with such repeated revolutions cannot but be stressed in its attempts to manage and provide for its people in the storms.” We’re now back down to doubling about every 150 years, which actually seems just as stressful for governments given the expectations of the previous four or five generations.

The structure of the book is then (unsurprisingly) chronological. It begins with the first era of globalization, between 1870 and 1914, when the key global flow was people: a hundred million people migrated across national borders. Governments embraced openness of all kinds, though, and there were revolutionary declines in transport costs. The 1870 launch of RMS Oceanic, an iron-hulled steam-powered passenger ship, cut travel time across the atlantic from a month to nine days and 3rd class fares opened the journey to all but the very poorest Europeans. The vast waves of migration helped make the US the dominant economic power of the 20th century.

The book moves on to the economy of empires in the first part of the 20th century. The mechanization of industry in the imperial North turned the colonized South into an economic periphery, exporting raw commodities and importing manufactures. These were, “Unable to build communities of engineering practice that might provide a path to greater, industrial, riches.” Their labour force was not literate in sufficient numbers, there wasn’t enough financial capital to invest in factories.

World War I and the Depression follow, and the narrative traces two currents of thought shaping post-1918 outcomes. During this period there was no hegemon – only the US could have been, given the weakness of post-war Britain, and it rejected that role as provider of global public goods such as financial stability for all. So the ideas of a return to an 1870-1914 liberal market order competed with ideas focused on social rights and relationships. Economists broadly fell into camps – this was the era of the socialist calculation debate – but policy elites in the West doubled down on austerity.

On we go to Russia and socialism in practice, and the brutality of Leninist and Stalinist economics: “Of the 1800 delegates to the 17th Congress in 1934, fewer than one in 10 went on to be delegates to the 18th Congress in 1939.” The rest were dead or in Siberia, while forced collectivization spread famine and death. Fascism and Nazism deformed much of the rest of Europe in the 1930s, and then came the catclysm of the second world war and Holocaust. As the chapter points out, not everyone shed their opposition to the bundle of policies that could be characterized as fascist. Some Hayekians in the 1980s, such as supporters of Pinochet, found their contrast with socialism appealing. (Mrs Thatcher gets a favourable passing mention as a firm opponent of the methods, even as she approved of the libertarian economics.)

World War II gives way to the Cold War in this sobering march of 20th century history, while the spillovers from Cold War led to many false developmental starts in the Global South – alongside the amazing successes of development in some East Asian countries. The book sees the contrast as one between the aim of self-sufficiency in Latin America and countries in the Soviet orbit versus the assumption of the need to survive in export markets in East Asia – the latter had no great powers pouring in resources, or interfering and advising.

The only bright spot in this long century appears to be les trentes glorieuses, the three post-war decades of social democracy. What was their magic? A high rate of investment. Full employment but no upward wage pressure as there remained (in most of Europe) and under-employed agricultural labour force to pull in. Steady growth in industries that reached their technological maturity in that era, enabling the location of industrial production to spread to more places.

But it didn’t last. The redistribution of social democracies came into increasing tension with the conditions for innovation and growth. The logic of how governments operate differs from the logic of efficient production, so nationalized industries became wasteful and ineffective. Sometimes only moderate efficiency is fine, or indeed welcome, but there are limits. In 1979 we saw the neoliberal turn. Why so? “In my view the greatest cause was the extraordinary pace of rising prosperity during the Thiry Glorious Years, which raised the bar that a political-economic order had to surpass in order to generate broad acceptance.” people had come to expect rapidly rising incomes and broad equality of outcome, and high employment and low inflation. If this stability stumbled, the order had to change.

So the book ends with the political success of the neoliberal order – winning the Cold War – and its economic failure. And here we are. We haven’t reached utopia but living standards are massively higher than in 1870. It hasn’t been a smooth course – far from it – a slouch rather than a march. But people are so much better off than the mass of humanity before the long 20th century.

The strength of the book – as well as its immense scope and depth (more than 500 pages) is that it’s a work of political economy, braiding the different strands of ideas, Hayek, Polanyi and Keynes. Although what it ignores (and fair enough) is the series of technologica revolutions. In addition, there are plenty of pleasing asides and details. Humans love narratives, so, “The secret weapon of the economist is the ability to count.” Or, “Contests and gift exchanges have more psychological resonance. It is more satisfying to receive (or give) a present or to win a prize than to buy the exact same thing…. By ignoring and trying to suppress these dimensions – to require that everything pass through a cash nexus – the market society dehumanizes much of life.” I like that it doesn’t claim there are easy lessons from the history, but insists that there are indeed subtler lessons. Definitely one to read – or pre-order: out on 15 September.

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What is the free market?

There are a couple of important books out in September that I’ve had to restrain myself from writing about too far ahead of publication. Brad Delong’s Slouching Towards Utopia: An Economic History of the 20th Century will be published mid-month. A week or so later – and it can also be pre-ordered now – is Jacob Soll’s Free Market: The History of an Idea. So I’ll write about the latter first.

The premise of the book is that, “We are in an essentially abusive relationship with free market thought,” which has had adverse consequences that finance and big business have stacked the economic system in their favour while the little people take on high debt burdens and pay taxes, in the pretence that ‘the market’ must prevail. To recover from this dysfunctional relationship requires a task of intellectual history. What is this ‘free market’ idea and how has it come to veil a state and regulatory structure favouring the rich over the rest?

The book takes this task seriously: “To understand the origins of free market thought, it is first necessary to understand Cicero’s philosophy.” So, not Adam Smith then. Successive chapters go on to the conceptualisation of markets and what we would now call ‘the economy’ in the late Roman period, the Middle Ages, Renaissance Italy, early modern Britain, Colbertist France, the Dutch Republic, and on through the Enlightenment, French Revolution, Adam Smith, Industrial Revolution and age of Empire.

The book identifies a sort of historical pendulum: “When there is political stability and a developed economic system, it can seem as if markets just emerge on their own and sustain themselves. The fall of Rome, however, showed that when society collapses, strong and sustained state intervention may be necessary to build back the market.” The Mediaeval period was one of these. Another was the Netherlands after the Dutch War of Independence: “Windmills were the product of Dutch traditions of communcal investment dating from privately-funded medieval public works…. Citizen investors worked together to create public infrastructure. This long tradition of private-public partnership laid many of the commercial foundations of the Republic.”

The post-Adam Smith version of free market thinking is traced here to paradoxical roots in Colbert, usually thought of as the architecht of mercantilist state management. The seeming endless violence and suffering experienced by the mass of 17th century French people led Colbert’s sucessors – children and nephews – to turn back to Cicero’s vision of voluntaty exchange among Rome’s aristocracy. Add in Christian ethics and here are the foundations of rational self-interest and ordered exchange. As is now better appreciated, Adam Smith’s free market vision was founded on the ethical system he had written about in his Moral Sentiments before The Wealth of Nations. The free market was built not on greed but on social responsibility.

The book then canters toward the post-1980 bowdlerisation of this free market ideal, via ever faster swings of the pendulum for and against state activity. Soll concludes that much free market thinking is simply utopian, markets as magic. “This model, however, no longer seems realistic or relevant. After decades of deregulation and expanding free trade, the world has experienced regular cycles of economic crashes and government bailouts, along with burgeoning wealth inequality, wars, and climate and health disasters. Equilibrium eludes us.” And indeed the state remains a major economic actor, in the US as well as China, albeit in different guises.

So the dilemma remains: the ‘free market’ is a fiction and we get closest to it in historical periods of stability. But governments can be at best inefficient and at worst corrupt and authoritarian. “But the historical record shows that, as economies grow in complexity, so governments grow in response, for better or worse.” The free market? It would be a good idea. But more important than how the economy is organised is the social and moral context in which we carry out our investments and exchanges. The final word: “Faith in the market alone will not save us but hewing to those old virtues might.”

So, a very interesting read – I really learned a lot from the long historical perspective on the origins of what became the modern version of free market thought. Some of it was a bit surprising & perhaps historians of thought will contest it. I’d have liked more on the post-world war two aspects but that’s probably a different book (and indeed Delong covers that period).¬† I fundamentally agree with the conclusion, though: economies exist in and as part of societies, so the social and moral relations are fundamental. And – for economists – ideas about the right way to behave really matter, not just as innovation or endogenous growth, but (as Deirdre McCloskey has pointed out in her major trilogy) as the enabling or limiting environment for both markets and state to function.

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Whose brain is it?

This weekend – despite having a small and demanding visitor – I polished off The Idea of the Brain: A History by Matthew Cobb. It has nothing to do with economics of course, but there are a number of things that resonated with me.

One was the way the Nobel-winning Cambridge brain scientist Edgar Adrian brought wartime experience of radio technology to thinking about how neurons respond to stimulus – and also how his commitment to public communication led him to “think about what nerves do in a rather different way from that expressed in his scientific papers. In hunting for terms that would help non-experts understand, “These concepts – messages, codes and information – now form the basis of our fundamental scientific ideas about how the brain works.” I’ve always been deeply committed to (a) explaining things clearly and in ways people can understand and (b) that you can’t explain something like this if you don’t properly understand it yourself.

There’s an interesting but brief discussion of the contrast between reductionist approaches to understanding the brain (which seems dominant) and others pointing to the emergence of complex phenomena from a few simple neural networks. I don’t know what to think of it in this context, but the path of reductionism hasn’t served economics all that well.

Then there’s an extraordinary story about an Australian patient who had an electrode implanted in her brain to manage her severe epilepsy. When she grew used to the device, it transformed her life: “With the device I felt like I could do anything …. nothing could stop me.” But the manufacturer went bust and the device had to be removed. The woman said: “I lost myself.” Horrific. How can the law and economic arrangements enable such a thing to happen? Cobb writes: “In a future world where companies are funding interfaces with our brains, we may lose control over our identity.” This goes to the heart of debates about health data as well, and the legal construct that allows data to be alienated as a piece of economic property. How can an electrode in a woman’s brain be corporate property? Well, in the way General Motors claims it still owns the car you bought because your car sends data back to GM. Watch out for ‘smart’ hip replacements or pacemakers….

Finally, another section that spoke to me points out that ‘The Brain Has a Body’ (the title of a 1997 article) and the body has an environment – “but neither the body nor the environment feature in modelling approaches that seek to understand the brain.” The input from the world is part of the system in which brains operate.

The book‘s history of thought approach is terrific, as is its linkage of technological¬† innovations (watches, computers, radio ….) with how scientists have thought about brains – I found this a really gripping and informative read.

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Women and our economics problem

The Committee on the Status of Women in the Economics Profession was established by the American Economic Association in 1971. Its first survey found that just 6.7% of faculty in US universities were women and more than two thirds of them were on the lowest rung of the profession. Gender and the Dismal Science: Women in the Early Years of the Economics Profession by Ann Mari May documents the route to that shameful situation. It is not surprising that in the late 19th and early 20th century women struggled to access higher education and academic jobs, but economics was distinctively sexist in sustaining 19th century practices into the 1970s.

The book uses archival material to document how this came about. Some of the factors were indeed common across disciplines, such as unwillingness to grant women access to PhD studies, or to hire or retain female members of staff who got married. As US universities professionalised, professional associations determined the boundaries of the discipline and regulated access to PhD programmes and the network of contacts these grew. Two aspects of economics seem distinctive, however.

One is the early dominance of professional journals by what are still referred to as the ‘top 5’, which were run by a remarkably concentrated group of men – in two cases, by individual top departments (Harvard and Chicago). This facilitated the rise to status of an old boys network – it still operates as reflected in long-serving editors disproportionately publishing papers by those they know – and the journals still have outsize influence on professional advancement.

The other is the fact that many early female members of the American Economic Association were associated with social reform movements. And of course the subject matter of economics has significant implications for job markets, monopoly power, migration and other politically-contentious issues. But the resolution of early intellectual conflicts within the AEA went against advocacy and in favour of “disciplinary boundaries that made clear the scientific nature of economics.” Campaigning was for sociology, or theology; economics would deal in facts. Female membership of the AEA didn’t climb above 5% from 1890 until 1928.

The situation has improved in the US – or rather, it did in the 1980s and 1990s – but economics remains a male-dominated field. Cognitive narrowness and a narrow range of experience matter for any subject but particularly for a social science with policy influence. May reports on a survey she and co-authors conducted finding that male and female economists in the US and Europe have systematically different views on some issues. It isn’t obvious, ahem, that male views are more correct. At least now both the AEA and the Royal Economic Society are self-aware, and some male colleagues are truly concerned about the continuing evidence of systematic bias. And of course it extends far beyond women to the even lesser representation of people of colour and people from low-income backgrounds.

The historical perspective in this book is an interesting supplement to the recent literature on this structural deformation of the economics profession – both the new empirical documentation of the scale and scope of the problem, and the history of thought approaches that emphasise the desire to be ‘scientific’ (often linked to logical positivism but evidently with roots back in the early days of universities and the emergence of disciplinary boundaries). The data May has assembled on the history of the US profession is a real trove. And the individual stories of injustice make one’s blood boil…

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