Monthly Archives: July 2013

Brave and humble economists

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Someone on Twitter (@kestontnt) sent me a link to an article on The Economics of Courage by INET’s Robert Johnson in a recent issue of the OECD Observer. The courage it calls for is that required to stand out against the conventional wisdom, which is what INET is all about of course. I’m optimistic that the conventional wisdom in economics is shifting significantly, although maybe that’s because last week was such an encouraging one, with a workshop led by Wendy Carlin on INET’s new CORE curriculum programme, and a fabulous session at the Rethinking Economics conference.

Robert Johnson’s article cites HL Mencken’s well-known essay on ‘The Dismal Science’ (in [amazon_link id=”1440083754″ target=”_blank” ]Prejudices, 3rd series[/amazon_link]) on a brave Professor Nearing who was kicked out of the University of Pennsylvania for daring to challenge the status quo; and also a book I don’t know, by Norbert Häring and Niall Douglas, [amazon_link id=”0857284592″ target=”_blank” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards[/amazon_link].

[amazon_image id=”0857284592″ link=”true” target=”_blank” size=”medium” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards (Anthem Other Canon Economics)[/amazon_image]

The sociology of any academic discipline involves insiders, successful in a discipline in its current form, who are resistant to outsiders suggesting that they’ve got it all wrong. There are also incentives against change in any existing system – promotion and success depend on publishing in the top journals, which want small advances on the existing body of knowledge; there is little reward for changing course materials and teaching methods whereas the time cost is large; for any individual caution is a better bet than radicalism; and so on. Against that, there is the intrinsic reward of intellectual discovery, the humility that really ought to arise from both the recent track record of economic forecasts and an appreciation of the consequences of simplistic ‘market knows best’ thinking – and a bit of courage. But refusniks opposed to the status quo have more company now than at any time in the past 50 years.

 

Forward thinking

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I’ve started reading Mark Mazower’s [amazon_link id=”0141011939″ target=”_blank” ]Governing the World: The History of an Idea[/amazon_link]. It traces the idea of international governance back to its origins in the early 19th century. Two chapters in, I’ve already learned a lot. One striking point is that a kind of ‘future mentality’ emerged in the mid-years of the 19th century, and helps explain the acceleration of economic and political change:

“Historians of overseas European settlement have recently begun to argue that what was once written off as a boom/bust mentality of the colonial frontier needs to be taken more seriously as a kind of bet on the future that emerged quite suddenly in the 19th century in response to the shrinkage of time and space, a moment when the pace of change seemed to be accelerating. This ‘future thinking’ drove both capitalism and colonialism. It expressed itself in speculative fevers and land grabs, survived the inevitable crashes, failures and disappointments, and found confirmation in rapidly growing cities, new transcontinental communications, and a succession of technological marvels.”

Economists pay so much attention to modelling expectations, but don’t think enough beyond the mathematical formalities about how the way people think about both the future and the past determines the decisions and choices they make today. The only place I’ve come across this kind of thinking modelled is an old (1991) Paul Krugman QJE paper, History versus Expectations.

I like Mark Mazower’s books, having read both his [amazon_link id=”0140241590″ target=”_blank” ]Dark Continent: Europe’s Twentieth Century[/amazon_link] and[amazon_link id=”0007120222″ target=”_blank” ] Salonica, City of Ghosts[/amazon_link]. More on this one when I’ve got my head around his thesis.

[amazon_image id=”0141011939″ link=”true” target=”_blank” size=”medium” ]Governing the World: The History of an Idea[/amazon_image]

The importance of knowing what you think

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Thomas Sowell’s [amazon_link id=”0300126069″ target=”_blank” ]On Classical Economics[/amazon_link] ends with a chapter called ‘Thoughts on the History of Economics’. He writes: “What does classical economics have to say to us today? … Certainly one need not have read a word of Smith or Ricardo in order to get an economics degree, tenure, or an appointment to the Council of Economic Advisers. But if one is still old-fashioned enough to want to be an educated individual, then an understanding of how ideas evolve and how the dynamics of polemics can drive both parties to untenable positions should be part of that education.”

[amazon_image id=”0300126069″ link=”true” target=”_blank” size=”medium” ]On Classical Economics[/amazon_image]

He continues: “While free market economics is regarded by many today as an old conservative idea, it was in fact one of the most revolutionary concepts to emerge in the long history of ideas…. The idea of a spontaneously self-equilibrating system – the market economy – first developed by the physiocrats and later made part of the tradition of classical economics by Adam Smith, represented a radical departure, not only in analysis of causation but also in seeing a reduced role for political, intellectual or other leaders as guides or controllers for the masses.”

I recently reviewed David Simpson’s new book, [amazon_link id=”1781951969″ target=”_blank” ]The Rediscovery of Classical Economics[/amazon_link], which puts recent thinking about the economy as an emergent, self-organising system in the context of the classical tradition – although he emphasises the dynamics and the presence of continual disequilibrium, unlike Sowell, who sees the system as tending towards equilibrium.

As Sowell says, many practising economists have no clue about classical economics. One of the distinguishing – and regrettable –  features of economics is its lack of interest in how the prevailing ideas came about. Thinking back to yesterday’s post on introductory economics books, students should all read a book like Heilbronner’s famous [amazon_link id=”068486214X” target=”_blank” ]The Worldly Philosophers[/amazon_link], or – a bit less accessible – Sandmo’s [amazon_link id=”0691148422″ target=”_blank” ]Economics Evolving: A History of Economic Thought[/amazon_link]. (There was also a recent episode of In Our Time about the physiocrats, which was very good.)

[amazon_image id=”068486214X” link=”true” target=”_blank” size=”medium” ]The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers[/amazon_image]

I was very struck by Daniel Stedman-Jones’s history of the rise of neo-liberal economics, [amazon_link id=”0691151571″ target=”_blank” ]Masters of the Universe[/amazon_link], which explained both the consciousness of themselves as developing a new world view, and the long practical campaign to get politicians to adopt their ideas. The current consensus in economics is the end-product of the history of thought in the subject  – and you need to know what you think to start with before you can change.