Tag Archives: political economy

Integration of the social sciences

Posted on by

Yesterday I quoted the 1827 UCL prospectus definition of economics, with its emphasis on “accurate observation and precise language,” and capsule definition of ‘the science of political economy’ as, “the production, distribution and consumption of wealth, or the outward things obtained by labour, and needed or desired by man.”

I was mulling over the difference between this and Lionel Robbins’ famous 1932 definition of economics (in [amazon_link id=”B002ZZ0U8A” target=”_blank” ]An Essay on the Nature and Significance of Economic Science[/amazon_link]): “The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” The greater abstraction compared with the ‘political economy’ of a century earlier is all too apparent.

In his 1948 Newmarch Lectures, [amazon_link id=”1107673860″ target=”_blank” ]The Role of Measurement in Economics[/amazon_link], Richard Stone added this gloss to the Robbins definition:

“While many situations in actual life have an economic aspect, few if any can be analysed wholly in economic terms. Taken literally, however, it would bring the applied economist practically to a full stop since he cannot in general estimate the importance of economic factors unless he is prepared to make assumptions about…certain non-economic factors, such as changes in tastes. In fact he can frequently do this for himself in a rough and ready way, although undoubtedly it would be a gain if he could fall back on other branches of the social sciences for help in such matters. The moral of Robbins’ definition is that in applied work much more integration of the social sciences is needed.”

Hear, hear!

Future democracy

Posted on by

Later today I’m speaking at Nesta’s FutureFest about future economic institutions, in what looks to be a terrific session, compered by Mark Stevenson, author of the excellent [amazon_link id=”1846683572″ target=”_blank” ]An Optimist’s Tour of the Future[/amazon_link]. Yesterday I popped in and heard Cambridge political scientist David Runciman give a thought-provoking talk on the future of democracy. I heard him speak on democracy in the 2011 Princeton University Press lecture, and his book [amazon_link id=”0691148686″ target=”_blank” ]The Confidence Trap: A History of Democracy from World War I to the Present[/amazon_link] is out soon.

[amazon_image id=”0691148686″ link=”true” target=”_blank” size=”medium” ]The Confidence Trap: A History of Democracy in Crisis from World War I to the Present[/amazon_image]

The quick summary (based on my tweets of a 15 minute talk) is that political institutions have not kept pace with technological change – indeed, they’ve hardly moved at all in the 25 years of dramatic advance in information and communications technologies. (Indeed, the mismatch between the pace of technological and social change is a commonplace.) However, he continued by saying that technology has in fact become the way political change has happened, to the extent it has. This manifests itself as technocracy – either the Chinese type, run by engineers, or the western type, run by economists and financiers. Technocracy is unsustainable, however. Democracy needs a reboot, by changing its scale of application, to the city level and to the supra-national, continental level.

It sounds intriguing enough to make the book a wanna-read.

David Runciman at FutureFest

 

Economists, doctors and quacks

Posted on by

The news of the death of Ronald Coase sent me to his key papers, of course (all listed here), but also to a collection of essays I hadn’t read before, [amazon_link id=”0226111032″ target=”_blank” ]Essays on Economics and Economists[/amazon_link]. He makes some very interesting points about the role of economics in public policy, expanding on the question of how limited government intervention to correct market failures ought to be. Essentially, Coase argued that this is an empirical question. The existence of significant transactions costs means market arrangements can lead to inefficient outcomes, but government interventions are often flawed too. He approves of George Stigler’s work on the political ‘market’, with the firms affected by regulations likely to be the highest ‘bidders’, therefore able to shape regulation in their own interests. (If this seems cynical, think about banking regulation.)

[amazon_image id=”0226111032″ link=”true” target=”_blank” size=”medium” ]Essays on Economics and Economists[/amazon_image]

In ‘Economists and Public Policy’, Coase turns to economists: “The problem is that economists seem willing to give advice on questions about which we know very little and on which our judgements are likely to be fallible, while what we have to say that is important and true is quite simple – so simple that little or no economics is required to understand it.” However, the simple truths are highly unwelcome. The essay goes on to discuss the political and popular resistance to economic arguments against, say, price controls after a bad harvest. “History indicates that these are simple truths which people find it easy to reject or ignore.” The essay is not entirely pessimistic – Coase believed that when the counter-productive effects of policies became too large, the policies would be reversed.

Coase is also trenchant on the character of economics. It is clear he disapproved of the ‘imperialism’ of economics, the Chicago-originated move into subject areas such as family life, previously the terrain of other social sciences. He cannot have been a fan of [amazon_link id=”0141019018″ target=”_blank” ]Freakonomics[/amazon_link]. However, he is pretty scathing, in the essay ‘Economics and Contiguous Disciplines’, about the failure of other social sciences to raise their game in their techniques and attention to evidence – he sees as particular strengths of economics the recognition of general equilibrium effects (everything is connected) and the relevance of economic incentives in other decisions, too often simply denied by other social scientists. Finally, the essay argues that economists need to study contiguous social sciences, “because it is necessary if they are to understand the working of the economic system itself.” He concluded: “We may expect the scope of economics to be permanently enlarged to include studies in other social sciences. But the purpose will be to enable us to understand better the working of the economic system.” His own work, of course, laid the foundations for institutional economics.

There are a couple of interesting essays on Marshall in the book too. Coase likes Marshall’s insistence on the need for both theory and evidence, deductive and inductive reasoning in economics. He obviously found modern economics far too much on the theoretical, deductive (or reductive) side.

I also happened to read this weekend Jamie Whyte’s pamphlet for the Institute of Economic Affairs, [amazon_link id=”0255366736″ target=”_blank” ]Quack Policy: Abusing Science in the Cause of Paternalism[/amazon_link]. There was a brief to-do online about this, with critics noting that it was hardly surprising the free-market IEA had published a pamphlet arguing against government interventions, and how could anyone argue against evidence-based policy? Whyte wrote some years ago an excellent and funny book, [amazon_link id=”0954325532″ target=”_blank” ]Bad Thoughts: A Guide to Clear Thinking[/amazon_link], about the absence of logic and sense in much public debate. The pamphlet looks at several different areas of policy and asks about the standards of evidence underpinning them. It’s obvious where it’s coming from, but it makes a number of sound points.

[amazon_image id=”0255366736″ link=”true” target=”_blank” size=”medium” ]QUACK SCIENCE & PUBLIC POLICY[/amazon_image]

The first two examples are health-related: proposals for minimum alcohol pricing and the ban on ‘passive’ smoking. Any health-related subjects are awash with political correctness and the abuse of statistics; medical people are strongly resistant to the relevance of any economic considerations at all, which one might take more seriously if they were more statistically-adept. In these two chapters Whyte argues that:

(a) a cost-benefit analysis must take account of the costs of outlawing something, and this is rarely done in health matters – NICE guidelines seemingly explicitly rule out consumer welfare considerations (p35);

(b) the incremental risks of the target behaviour are such that these costs can be very small (although he seems to me to underestimate them in the alcohol example); and

(c) the policies ought not to be economically perverse.

Actually, I think he misses the strongest case against a minimum alcohol price, which is that it increases the profits of big retailers by enforcing the kind of retail price maintenance long outlawed by competition authorities. If the government decides alcohol should be dearer, it should raise the rate of duty. This would not, however, be so pleasing to the sellers of alcohol as taxpayers would then benefit, not retailers – see Coase’s essay, above.

Whyte has a chapter on global warming that goes through the debate about how much we should weigh future against current welfare, including the likelihood that future generations will be richer, and that technological progress will occur, in trying to calculate the costs and benefits of action against global warming. (I think he’s sceptical about whether it’s occurring but that isn’t the main point here.) This is the same debate that occurred among economists like Partha Dasgupta, William Nordhaus and Nick Stern when the [amazon_link id=”0521700809″ target=”_blank” ]Stern Review[/amazon_link] was published. It’s a perfectly respectable argument to set out. Then he turns to what he describes as ‘happiness engineering’, where my sympathies are with him entirely. Government attempts to make people ‘happier’ are either obvious – ensure there are plenty of jobs, keep inflation modest – or intrusively paternalistic.

There’s a final chapter, which is too cursory, about the problem of using ‘scientific authority’ as the basis for public policy. “Experts are natural supporters of policies that draw on their expertise and thus naturally inclined to overstate the credibility and importance of their ideas,” he writes. Of course. But is not using expertise really better? Of course we would like policy to be genuinely evidence-based, and it is difficult to assess the epistemological status of proclaimed expertise. However, Coase’s pragmatism is more attractive than Whyte’s all-out scepticism, for all that Quack Policy flags up some good reasons for concern about how ‘evidence’ is used in actual policy-making.

This was a theme of another book I read recently, [amazon_link id=”0815793898″ target=”_blank” ]Government Failure versus Market Failure[/amazon_link] by Clifford Winston, which in this post I compared and contrasted with Hirschman’s writing on [amazon_link id=”067476868X” target=”_blank” ]The Rhetoric of Reaction[/amazon_link]. How you devise and implement welfare-enhancing, effective government policies in complex societies with a wide range of interests bearing on politicians – it’s what we’re all about as economists (and other social scientists).

A new book reviewed by Peter Wilby in The Guardian this weekend looks highly relevant too: [amazon_link id=”1780742665″ target=”_blank” ]The Blunders of Our Governments[/amazon_link] by Anthony King and Ivor Crewe.

[amazon_image id=”1780742665″ link=”true” target=”_blank” size=”medium” ]The Blunders of Our Governments[/amazon_image]

I’m sceptical about a lot of government interventions and also sceptical about leaving everything to the mythical market; it seems the only evidence-based possibility. We should demonstrate due humility by avoiding overclaiming either way.

 

 

What works?

Posted on by

Towards the end of a holiday I always try to read something a bit more work-related to get myself ready for the return to normality. This year I ended with a pair of books which, by coincidence, shed great light on each other. One was Albert Hirschman’s [amazon_link id=”067476868X” target=”_blank” ]Rhetoric of Reaction[/amazon_link], prompted by reading the wonderful biography of him by Jerry Adelman, [amazon_link id=”0691155674″ target=”_blank” ]Worldly Philosopher[/amazon_link].

[amazon_image id=”067476868X” link=”true” target=”_blank” size=”medium” ]The Rhetoric of Reaction: Perversity, Futility, Jeopardy[/amazon_image]

In it Hirschman describes three types of argument deployed by those who want to debunk ‘progressive’ or interventionist policies. He calls them the perversity thesis (interventions backfire, they turn out to have perverse effects, often the exact opposite of what was desired); the futility thesis (any attempt at change will fail because it is too hard to accomplish – plus ça change, plus c’est la même chose); and the jeopardy thesis (change is desirable but to achieve it will endanger other things that are highly valued, change is too destructive). He notes that the futility thesis does not sit comfortably with the others and tends to be made by different people. But all three are somewhat plausible as soon as you acknowledge, as an honest person must, that the world is a complex place with cause and effect hardly ever clear. So all three rhetorical strategies have great success.

Straight after this I turned to [amazon_link id=”0815793898″ target=”_blank” ]Government Failure versus Market Failure: Microeconomic Policy Research and Government Performance[/amazon_link] by Clifford Winston. This is an interesting survey of the empirical evidence on several areas of government policy in the US, including competition policy. To my surprise, the book cannot find empirical evidence that the consumer benefit of anti-trust enforcement outweighs the enforcement costs – the book’s overall conclusion is that “the welfare cost of government failure may be considerably greater than that of market failure,” and it concludes this is so even for competition policy aimed at enhancing the functioning of markets. I didn’t find this persuasive because I don’t believe comparative statics – the Harberger triangles –  capture the dynamic effects, which can be very much larger. An analogy would be with Robert Vogel’s famous conclusion that the railroads didn’t do much for the US economy if you look at the incremental GDP growth. On other areas of policy such as agricultural support, Winston is very convincing, however.

What particularly struck me though was that the book is a good example of the kind of rhetoric or framing that Hirschman described as the perversity thesis. Winston writes:

“Government failures appear to be explained by the self-correcting nature of some market failures, which makes government intervention unnecessary; by the short-sightedness, inflexibility and conflicting policies of government agencies; and by political forces that allow well-defined interest groups to influence elected and unelected officials to initiate and maintain inefficient policies that enable the interest groups to accrue economic rents.”

[amazon_image id=”0815793898″ link=”true” target=”_blank” size=”medium” ]Government Failure Vs. Market Failure: Microeconomic Policy Research and Government Performance (AEI-Brookings Joint Center for Regulatory Studies)[/amazon_image]

My final read, on the plane, was [amazon_link id=”1849904936″ target=”_blank” ]Parade’s End [/amazon_link]by Ford Madox Ford, a brilliant, epic novel on the way the First World War changed everything. The protagonist, Christopher Tietjens, is a government statistician. He makes the mistake of telling his superiors what he can prove to be true about government policies and actions – an early example of the evidence-based or “what works” approach to policy. Not surprisingly, they take a great dislike to him. An early example of what politicians will make of being told “what works” by experts?

[amazon_image id=”1849904936″ link=”true” target=”_blank” size=”medium” ]Parade’s End[/amazon_image]

Economics and authoritarianism

Posted on by

After a two-week reading fest on holiday in the Italian countryside, I’m back with a fistful of reviews. As it was a holiday, the books I took with me were not as directly economics-related as my everyday reading, but of course there’s economics in everything.

The first two I happened to read were [amazon_link id=”0713998687″ target=”_blank” ]Iron Curtain: The Crushing of Eastern Europe 1944-56[/amazon_link] by Anne Applebaum and [amazon_link id=”0857208861″ target=”_blank” ]The Arab Uprisings: The People Want the Fall of the Regime[/amazon_link] by Jeremy Bowen.

[amazon_image id=”0713998687″ link=”true” target=”_blank” size=”medium” ]Iron Curtain: The Crushing of Eastern Europe 1944-56[/amazon_image]

[amazon_image id=”0857208861″ link=”true” target=”_blank” size=”medium” ]The Arab Uprisings: The People Want the Fall of the Regime[/amazon_image]

The latter is reportage by the BBC’s distinguished Middle East editor, and it combines his clearly extensive knowledge of the region with the edge-of-seat quality of reportage from the extraordinary events that started in Tunisia – it already seems a long time ago. The subtitle is a slogan that has appeared frequently in the countries where uprisings have occurred. However, the hope of the early ‘Arab Spring’ has given way to the horror of civil war in Syria and increasing violence in Egypt; of course, no book can keep up to the minute. I can’t say it left me feeling optimistic.

On the face of it, Anne Applebaum’s detailed and authoritative work on the descent of the Iron Curtain on Europe in the post-World War 2 years is entirely different. But one commonality struck me between the two books, namely the way that apparently endless and powerful authoritarian regimes are hollowed out by economic stagnation, no matter how violent they are. One day, it seems nothing can ever change, and the next day the whole edifice has collapsed. Sometimes, when it’s the secret police versus the economy, the economic forces win. This brought to mind Ben Friedman’s powerful arguments in [amazon_link id=”1400095719″ target=”_blank” ]The Moral Consequences of Economic Growth[/amazon_link].

The main part of Applebaum’s superb book is not, though, the collapse of Soviet-dominated Communism but rather its construction in the first place. It is going to be a standard reference on this time and place in history, a companion volume to Tony Judt’s [amazon_link id=”009954203X” target=”_blank” ]Postwar: A History of Europe Since 1945[/amazon_link]. She details the methods by which communist parties –  assisted by Soviet military dominion in the post-war years, and by the collapse of order after the Nazi defeat – systematically destroyed all institutions and aspects of society that were not part of the state apparatus, even extending into family life as the years went by.

The violence and inhumanity documented are simply horrifying. So is the ‘total’ in totalitarianism: “No-one could be apolitical: the system demanded that all citizens sing its praises, however reluctantly. And so the vast majority of East Europeans did not make a pact with the devil or sell their souls to become informers, but rather succumbed to constant, all-encompassing everyday psychological and economic pressure. The Stalinist system excelled at creating large groups of people who felt nevertheless compelled by circumstances to go along with it.” The idea of there being no private space even inside one’s own mind is intolerable.

If I have one complaint about the book, it is that there isn’t more of it: Applebaum has spent years interviewing people around Eastern Europe and I would have liked to hear more from those interviews. Although the book does not cover the post-1956 or post-1989 periods, it is an essential read for anybody interested in the shadows East European history continue to cast.