Tag Archives: economics

All-powerful economists?

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There are really two separate books rubbing shoulders in [amazon_link id=”0857284592″ target=”_blank” ]Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards[/amazon_link] by Norbert Häring and Niall Douglas.

One of them is a clear and well-made case that modern economics has been in error in ignoring the part played by institutions, politics and power relations in actual economies. It has chapters covering the acquisition and abuse of power by the financial services industry, the distortion of business in the interests of executives rather than customers, employees or shareholders, and the increasing concentration of the US economy through merger waves. Although many or most professional economists who work in business or regulators or consultancy have always been well aware of institutional detail, I think it is fair comment that academic economics overlooked the reality of markets and economies for too long. I’d also add that this has been changing quickly, with the rise over 20 years of institutional economics, behavioural economics etc (see [amazon_link id=”0691143161″ target=”_blank” ]The Soulful Science[/amazon_link]) – but there is further to go.

The second book within this set of covers is more tendentious. It is a history of economic methodology in the first chapter (I must say, I’d have put this at the end if I’d been the author). While the authors land some punches, and make some good points about the way theory shapes reality (see my Tanner Lectures on this question of performativity), they are too conspiracy theorist about it. The original spin-meister Edward Bernays is wheeled out, along with the Inside Job accusations that the financial crisis came about because some economists were paid to write a report by the Icelandic government. Although many economists in universities do paid consulting work – and should certainly declare it when they publish their work – I don’t believe there is signficant distortion of what gets published as there seems to be in the case of pharma companies and medical research. The economists simply have a much wider choice of options, and are not beholden to one set of powerful business interests. There would be something interesting to say, nevertheless, about the narrowing of economic research as published in mainstream journals – I just don’t believe it’s as crudely marxist as suggested here. Similarly, the way economic theory and practice developed from the 1940s to 1980s was certainly bound up with the wider ideological/political climate (like any social science discipline is sure to be), but not in such a purposive way. I think the messy sociological reality of the profession would be far more interesting to understand than the ideological, top-down assertions presented in this book.

Still, it’s an interesting read. The argument that marginalism, the refusal to compare individuals’ utility and rational choice added up to the inevitable demotion of interest in economic institutions is quite interesting. Besides, I’m all in favour of economists continuing to introspect for at least as long as the world economy remains in such a fragile state.

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

Reality versus belief about corporate success

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Frank Koller, the author of [amazon_link id=”1610390539″ target=”_blank” ]Spark: How Old Fashioned Values Drive a Twenty-First Century Corporation[/amazon_link], emailed me this week in response to reading (on VoxEU) about the book I edited on the teaching of economics, [amazon_link id=”1907994041″ target=”_blank” ]What’s The Use of Economics? Teaching the Dismal Science After the Crisis[/amazon_link].

Frank’s book is about businesses with no-layoff employment policies, and particularly about a company called Lincoln Electric – I’d never heard of it but it’s the global number one in arc welding. Lincoln has a formal guaranteed employment programme as well as rewarding employees with bonuses and incentives. The company history sets out its longstanding (since 1895) commitment to employees and customers as well as shareholders. According to its latest results, published last week, employees got an average bonus of $33,915, the 79th annual bonus in a row, a bonus pool of $99.3m (the pool normally represents 32% of pre-tax profits).

[amazon_image id=”1610390539″ link=”true” target=”_blank” size=”medium” ]Spark[/amazon_image]

Spark has sold very well but the depressing news is that Lincoln’s CEO John Stropki told Frank that not a single other senior US executive has asked him the secret of the firm’s combination of phenomenal financial success with employment practices so good they sound like something out of a fairy tale. Why the lack of interest? Maybe – and this is where economics comes in – it’s because the reality demonstrated by Lincoln and the handful of other companies with such a strong commitment to what by now seem to be extraordinarily good employment practices is inconsistent with the belief system so many people hold about the way business works and the imperative of free markets. If so, the charge sheet against the narrow version of economics grows even longer.

[amazon_image id=”1907994041″ link=”true” target=”_blank” size=”medium” ]What’s the Use of Economics?: Teaching the Dismal Science After the Crisis[/amazon_image]

Festival of Economics

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It’s an exciting day – the kick-off of what I think is the UK’s first Festival of Economics, taking place in Bristol tonight and tomorrow. There’s a fantastic line-up, including a number of authors of excellent books. So here’s the Festival bibliography:

David Smith [amazon_link id=”1781250111″ target=”_blank” ]Free Lunch: Easily Digestible Economics[/amazon_link]

John Kay [amazon_link id=”1846682886″ target=”_blank” ]Obliquity[/amazon_link]

Larry Elliott and Dan Atkinson [amazon_link id=”0230392547″ target=”_blank” ]Going South: Why Britain Will Have A 3rd World Economy by 2014[/amazon_link]

Daniel Stedman-Jones [amazon_link id=”0691151571″ target=”_blank” ]Masters of the Universe: Hayek, Friedman and the Birth of Neoliberal Politics[/amazon_link]

Geoff Andrews [amazon_link id=”0745327443″ target=”_blank” ]The Slow Food Story: Politics and Pleasure[/amazon_link]

Lynsey Hanley [amazon_link id=”1847087027″ target=”_blank” ]Estates: An Intimate History[/amazon_link]

Vicky Pryce [amazon_link id=”184954400X” target=”_blank” ]Greekonomics: The Euro Crisis and Why Politicians Don’t Get It[/amazon_link]

Peter Marsh [amazon_link id=”0300117779″ target=”_blank” ]The New Industrial Revolution[/amazon_link]

Diane Coyle [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough: How to Run the Economy as if the Future Matters [/amazon_link]and [amazon_link id=”1907994041″ target=”_blank” ]What’s The Use of Economics: Teaching the Dismal Science After the Crisis?[/amazon_link]

The hashtag for the events is #economicsfest and the podcasts will be online in a few days’ time.

 

Do economists dream of electric people?

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With apologies to [amazon_link id=”0575079932″ target=”_blank” ]Philip K Dick[/amazon_link], the title for this post is inspired by turning back to a book I read some years ago, Philip Mirowski’s [amazon_link id=”0521775264″ target=”_blank” ]Machine Dreams: Economics Becomes A Cyborg Science[/amazon_link]. This in turn was prompted by reading Mary Poovey’s [amazon_link id=”0226675335″ target=”_blank” ]Genres of the Credit Economy[/amazon_link]. She traces the turn to (excessive) abstraction and rationalism in economics to the marginal revolution of the late 19th century onward, much earlier than in Mirowski’s account. For he, by contrast, blames the development of computers and the Bourbaki mathematicians in the mid-20th century.

I remembered not liking Machine Dreams when I read it. It’s heavy-going, and for my tastes too conspiracy-theorist. Still, I semi-agreed with this point in the conclusion:

“As a historian I think it would be unconscionable not to point out that every single school of economics that has ever mustered even a sparse modicum of support and something beyond a tiny coterie of developers has done so by accessing direct inspiration from the natural sciences of their own era and, in particular, from machines. The challenge for those possessing the courage to face up to that fact is to understand the specific ways in which fastening on the computer instead of the steam engine or the mechanical clock or the telephone has reconfigured our options for the development of social theory.”

Semi-agreed because I don’t think the source of inspiration needs to be physics. Biology has been a strong inspiration for certain economists – notably Malthus and Marx – and is proving so again with the interest in epidemiology and network models. Biology returns the favour, too. Darwin was famously inspired in turn by Malthus, John Maynard Smith by game theory – and, as I wrote up here, an economic model of constrained optimisation would seem the ideal model for which neurons in our brains bring what perceptual signals to our conscious attention. In fact, the interest in behavioural psychology means there is a lot of exchange between the cognitive sciences and economics right now. As for Mirowski’s basic point, that economics will always be inspired by natural science, that for me is inherently true in the claim to be scientific, and the closer economics gets to all of the natural sciences, the stronger it will be.

[amazon_image id=”0521775264″ link=”true” target=”_blank” size=”medium” ]Machine Dreams: Economics Becomes a Cyborg Science[/amazon_image]

More on women and economics

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Recently I posted (Do Women and Economics Mix?) about a new initiative to mentor young women in the world of academic economics. This week Karen Schucan-Bird wrote about her research into women in the social sciences, including economics, on the LSE Impact Blog. She found that in the ‘masculine’ social sciences including economics, women published articles relevant to the REF less than in proportion to their representation:

“Whilst women made up 24 per cent of political scientists in the UK, they only contributed 8 per cent of the articles sampled. In economics women constituted 22 per cent of academics whilst writing 13 per cent of the sampled articles.”

She adds that the gap in economics was not statistically significant, but I assume this reflects the small sample size – as [amazon_link id=”0472067443″ target=”_blank” ]Deirdre McCloskey says[/amazon_link], there’s statistical significance and real significance.

The pattern did not hold in psychology and social policy, where more than 40% of the academics are female, and around the same proportion of the papers in the sample were female-authored.

The fact that there are pronounced differences between different social sciences in this respect suggests that the explanation cannot lie in general academic structures but in features specific to economics and political science. The possible explanations for a lower proportion of women in those fields in the first place seem to be either the intellectual character of the subject, and/or the sociology of the subject and in particular peer effects and promotion channels; while the under-achievement of women in terms of publication surely is the result of the specifics of the REF for those subjects and the way the featured journals are edited? Peer review seems to me as an outsider a seriously flawed process.

Having said all this, I’ve not worked in academia and would be interested in better informed perspectives.