Inside Economics

Charles Ferguson’s Inside Job forces us to fundamentally rethink the connections between economics and policy making. This entangled relation runs along a number of dimension. First there is the performativity of economics: in which ways do economic theories shape the ideas of policy makers and hence the policies they enact (i.e. the Donald MacKenzie story)? Are economists and their rational market hypothesis, CAPM models and what have you responsible for the deregulation that led to the recent financial turmoil? If so, how should economics and its relation to policy making be reorganized institutionally? Second, is it at all possible to be politically and ideologically value-free as an economist? If so, how do we distinguish a value-free economist or economic theory from value-laden ones? If not, should economists always state their ideological points of view in the first disclaimer-footnote of their papers? Are there other ways to sufficiently disentangle ideology from science? Third, should economists be allowed to be paid by the private sector for their academic work? Do we need an economic code of ethics or some other kind of formal arrangement to distinguish more clearly between academic credibility and financial gain?

Luckily, we economists need not figure this out all by ourselves. In fact, the last few years have seen a surge of books discussing the role of science in the contemporary for-profit world. Gaye Tuchman’s Wannabe U (2009) tells the story of the middle ranked university that aspires to become an elite university in an age of auditing and ranking in which universities are run by business men in business suits.  Yet, although the undertone is clearly critical, Wannabe U first of all is a careful and engaging ethnographic reconstruction of the archetypical Western university that had to transform itself in the 1990s from a public institution to a private enterprise. Moreover, it reads like a novel. 

The different contributions to Harold Kincaid, John Dupré and Alison Wylie’s Value-Free Science? (2007) discuss the topic from a philosophical and theoretical point of view. The basic message is that the old fact-value distinction cannot be maintained. To some extent, that is an almost trivial point. The more important argument, therefore, is that although at some level we all know that the fact-value distinction cannot be maintained, we constantly act as if it does. That, the authors argue, is a fault of contemporary society that needs to be cured. Scientists should make clear how facts and values mingle in their work, politicians should not be allowed to rely on “objective facts,” and moral convictions should never be argued to be based on values alone. Yet, convincing as the book is, it is somewhat unfortunate that the authors do not translate their calls for action into concrete measures.     

Theodore Brown’s Imperfect Oracle (2009) is the book of a distinguished chemist, successful university administrator, and well-informed reader of sociology and philosophy who towards the end of a long career reflects on the waning authority of science. The key premise is that with all the problems the world currently faces, there is so much science could offer. Yet public opinion accepts less and less of science and scientists. Thus, the central question Brown addresses is how to restore the authority of science. This book should perhaps be read not so much as a deep or new account of the place of science in contemporary society, but rather as a well-written intellectual autobiography of one of those scientists who ruled the universities in the post war decades.  

In contrast to these three general accounts, the different contributions to Hans Radder’s The Commodification of Academic Research (2010) seek to investigate the topic from the bottom up. The book provides detailed accounts of the politics and economics of patents on academic research, the management of data , and the different sources and consequences of financial interests in academic research. Sometimes, the authors force themselves somewhat unnecessarily to infer more general claims about science, private enterprise, or autonomy. But the chapters offer enough in simply describing the different elements of corporate science.  

To save the economic discipline it would certainly help when all economists would read Kincaid’s Value-Free Science?. But before answering the bigger questions of whether economics should have a code of ethics, and how universities and research should be funded and organized, we would perhaps do good to first understand the system itself. What would most help the discussion now are detailed sociological, economic and historical accounts of how the economic discipline, economic departments, and economists function and have functioned. Both in the bygone days of the public university and authoritative science, and in the contemporary era of auditing, ranking, financial interests and business suits. Much like Tuchman’s Wannabe U or Radder’s Commodification perhaps. By chance, that happens to be what I’m doing and I’m willing to offer my expertise. Who gives me grant? I’m (still) quite cheap.

@INET-BW: Upon leaving Mount Washington

Who goes with Fergus?

Who will go drive with Fergus now,
And pierce the deep wood’s woven shade,                    
And dance upon the level shore?                                         
Young man, lift up your russet brow,                                            
And lift your tender eyelids, maid,                      
And brood on hopes and fear no more.
 
And no more turn aside and brood,
Upon love’s bitter mystery;                                                        
for Fergus rules the brazen cars,                   
And rules the shadows of the wood,                 
And the white breast of the dim sea                         
And all the dishevelled wandering stars. 

The place invites poetry. By the way, all sessions can be viewed from the webiste – check out in particular the last session featuring Gillian Tett of the Financial Times moderating a disucssion between Paul Volcker and George Soros.

Here’s what it all looked like through an amateur lens.

@INET-BW: Anglo-Saxons versus the Germans

For one and a half days we had Anglo-Saxons talking finance and financial crisis: Keynesian stimuli, surplus countries bashing, drawing China in, and bullying of the Euro area and in particular Germany’s role in it. If there was one message, it was that it is all about (the politics) of money. So I was curious to hear what the first German speaker, Dalia Marin from the University of Munich would argue: would she defend Germany against the Anglo-Saxon condescencion? Would she defend the cause of the surplus countries? No, she talked about firms, trade and increasing firm production (example: cars). Will the twain ever meet?

@INET-BW: What’s history?

History keeps appearing and reappearing in the different discussions and presentations. But there’s history and history. One reference to history, as Tiago observed in front of the hearth last night, is history as nostaligia: imagine Keynes walking around in this very room!, picture the Americans thrashing the Russians in a agme of softball during BW  ’44!, “as a graduate student, I learned a lor from….” Second, there is the implicit no-history argument, in which ecoomics is one big pile of research from which one may take different sources depending on the issue at hand. Much like philosophy, in which one can as easily apply Aristotle, Hobbes, or Sloterdijk to contemporary issues. History as history is yet to appear.

The Age of In-Between Economists

A weakness of our profession – and perhaps of humans generally –  is that we want to classify. Thus we categorized ourselves and each other as neoclassical, institutional, Keynesian, Marxist and Chicago economists. To some extent, these labels have always been problematic. Where to put John Kenneth Gailbraith, Albert Rees, or Herbert Simon for instance? Moreover, classifications always seem to fall apart when you look too closely.

Over the past years, however, things have become more complicated still with a new generation of economists who, consciously or not, constantly position themselves in between whatever labels and domains are out there. Herbert Gintis is a Marxist, game theorist, behavioral economist, and institutional economist depending on the occasion. Robert Shiller is anything in between traditional finance, behavioral finance, and an applied type of finance research that is more concerned with solving problems in the here and now than advancing a new theory. And then there is someone like Benjamin Friedman. As an economist, I never know where to situate Benjamin Friedman for my students.

Postmodernism may be long gone, but this is the age of the in-between economist. We, the economists, do a paper that may be classified as belonging to this category, but tomorrow we’ll do a paper that may be put into that category. And we don’t really care what these categories are, as long as you classify us and our work in their totalities as in-between.

Interestingly enough, though, we definitely are economists, not sociologists, politicians, writers, or whatever. We’re very much in-between, but we’re also very much economists.

What would Ysidro do?

 

In a 1950 paper, Paul Samuelson wrote:

The most rational man I ever met, whom I shall call Ysidro [when] told that he did not satisfy all of the v. Neumann-Morgenstern axioms, [..] replied that he thought it more rational to satisfy his preferences and let the axioms satisfy themselves.

This introduced in the extensive correspondence between Samuelson, Savage, Marschak, Baumol, and Friedman the idea of the “Ysidro Man” or “Ysidro functions.” In the letters (but not in published print) Samuelson also introduced his mother – as the non-economist acting on her  common sense. Thus, for instance, Marschak would discuss with Baumol how best to axiomatize the behavior of Samuelson’s mother.

These archetypes are more commonly labelled homo economicus and homo sapiens – very dull terms indeed (and why the Latin anyway?). So, from now on, when we talk about the homo economicus let’s instead ask: What would Ysidro do? And when criticizing that economic conception as unrealistic, let’s do that by referring to what Samuelson’s mother would do.

American economics coming of age

Coming of age refers to a young person becoming an adult, and is one of those universal and timeless themes in art. It is associated with uncertainty about one’s identity and requires experimentation. But it also involves an increasing sense of the bigger world and an awareness that one may have the ability to steer this world a little bit in a direction of one’s own liking.  Later in life, when the novelties of adulthood have become self-evident and one’s position and family secured, that brief coming of age period is treasured as the experience that gave meaning to everything that came after. For the rest of our lives we (and men in particular) tend to judge the novels, music and even arguments appreciated during this time as the best in their categories.

This is how we should read the recently published Top 20 articles in the AER of the past hundred years, composed by Arrow, Bernheim, Feldstein, McFadden, Poterba, and Solow. It documents how American economics came of age during the post war decades, the struggles it had to go through, its experiments, its crises of identity, and even its cherished childhood memory. At the same it is a testimony to the authors’ coming of age as economists between the 1950s and the 1980s. AER’s Top 20 paints a beautiful, romantic picture of the long and winding road that led to the top.

The flip side of all the uncertainty, experimentation and identity crises in this process of coming of age is narcissism, self-love, and overestimation of one’s own achievements. Given American economics and these economists’ position and (late) middle age point of view one would have hoped for a little more reflection on how their coming of age has influenced their judgment of quality.  One would also have expected a greater appreciation of the influence of others and of the particular historical circumstances in which the coming of age happened to occur. AER’s Top 20 is a great story and romanticism at its best, but it’s not history.

But enough whining. When will we get the Econometrica Top 20?

Politics as History of Economics

Since almost a year now I’m involved in local politics (a few long evenings a week). Apart from all the obvious differences between the business of politics and the business of history of economics, I’ve noticed an unexpected similarity. Whenever politicians receive information of any kind, they will immediately do two things: 1) Check where the information is coming from, and 2) See how they can spin the information to their advantage. Politics is founded on the firm belief that there is no such thing as objevtive, or value-free information – even though part of the rhetoric is that there is. Ok, you might say, surely you knew that before entering politics. I did, although I had never realized how strongly and deeply rooted this conviction is in every nerve of the political process. But I also think that how readily you, reader of this blog, recognize the self-evidence of this observation, testifies to how similar the history of economics perspective is to the political perspective. Although we do different things, we historians also treat all information – publications, archival sources, interviews – always and everywhere very explicitly as the product of its source. That is, we never treat the information without taking into account the origin of the source.

But academic economists (including the IMFs and OECDs of this world) do. In fact, when we as historians of economics are alerted by fact that economists could take some information about some phenomena as THE truth, we are alerted in the very same way as are politicians about the same economists. Ipso facto, when economists are alerted because we introduce this source- or context-dependence in the discussion, they are alerted in the same way as they are alerted when politicians start questioning the source of their information (or worse, start spinning it). Economics is a self-perceived body of value-free, objective knoweldge in between two realms of politics and history of economics with surprisingly similar world views.

Ps: Not implying any of the three is better than the other of course….

Mon cher Baumol

In his correspondance with Jimmie Savage and Will Baumol in the early 1950s, Maurice Allais would write in French and the two Americans would reply in English. Also Italian mathematician Bruno de Finetti started his corrspondance with Savage in French in the 1940s, although he switched to English in the mid 1950s. In addition, it appears from remakrs here and there that people such as Samuelson, Baumol and Savage could read German, that Savage’s Latin wasn’t so bad, but that Baumol apologized not being able to read Latin.

Which all begs the question: In general, how well did American economists in the twentieth century read and speak other languages? Could American professors in the 1920s, 1950s and 1980s be expected to read French and/or German? Or was this really an exception?  

Dans l’attente de votre réponse, je vous prie d’agréer, mon cher Baumol, mes salutations distinguées.

No tragedy like a great thesis without the slightest proof

Following up on Loic’s previous entry, what to do with the most brilliant idea for which you find absolutely no proof or information? It starts with those mildly annoying frantic searches for secondary literature on an issue related to your topic which you don’t want to discuss, but want to refer to in a footnote nevertheless. It includes questions such as Was Adam Smith homosexual? (he must have been – I’m absolutely sure). But above all, it encompasses all those daily questions regarding your topic you simply cannot answer because there is absolutely nothing to answer it with. What to do with them?

And PS: What’s  the ratio answerable/non-answerable questions?

Research methods as manipulating actors

Historians of economics are well aware of the non-neutrality of the research methods economists use. Or are they? Sure, we know that also research methods – statistics, experiments, field observation, armchairs, you name it – have their histories. And obviously, that makes them an integral part of how economics developed. However, in this reasoning the research method itself has remained a passive and neutral information producing device. Jan Tinbergen became famous for combining mathematics and statistics in a novel way, in which the resulting econometrics was and is understood as a tool that can be applied by anyone alike. Similarly, Fogel and Engerman applied a whole bunch of empirical methods to the history of slavery, in which their tools might have been inappropriately used or interpreted, but in themselves were have been understood as neutral. Despite being aware that the tools have their own histories, historians of economics have essentially maintained a view of research methods as neutral and passive.

            I want to contest this view. Research methods are not neutral tools, but actors that actively shape economists’ view of the social world. The exact same experiment makes Vernon Smith and Richard Thaler see two different social realities, and makes these two economists develop their own theories in diverging ways. It is not just that economists like Smith and Thaler have different economic views, and in particular it is not the case that their views converge because of the laboratory experiment, data collection, or field experiment. Quite the contrary, the experiment actively diverges Smith and Thaler’s economics. Research methods are not neutral and passive tools, but actively manipulating actors who need to be treated as such.

By Force of Economic Clarity

As everyone, I tend to read different books at the same time. And sometimes these different texts unexpectedly relate, even strengthen one another. Janos Kornai’s powerful autobiography By Force of Thought – Irregular Memoirs of an Intelectual Journey (2006), wants to be everything that the older Jorge Borges in my collections of short stories does not want to be: factual, rationally reconstructive, and clear. In addition the author claims to lack the literary talent to sketch characters, historical circumstances, and emotions.

Compare that to the erudite-intellectual-if-ever-there-was-one Borges. Literature as the constant balancing act between realism and what lies beyond. With a different companion, I would have thought Kornai a nice historical source, but dull and academic. Equally, my snobbish academic ego again would have fallen wholeheartedly for Borges. But this time I could not but admire Kornai for analyzing his own past as he would have analyzed the Soviet Union, while being slightly annoyed by Borges’ over-the-top literary tours de force. It males one hope for more economic autobiographies.

Morality, culture and economic organization

A now extensive literature in New Institutional Economics (NIE), which I guess developed over the last ten to fifteen years or so, explores how different systems of moral and cultural belief systems produce different forms of economic organization. People such as Ayner Greif and Partha Dasgupta trace differences in economic wealth and growth to differences in institutions, to differences in culture, to differences in historical development, to differences in geographical environments, etc.. This research is popularized by authors such as Jared Diamond. On the other hand, one finds a number of (American) economists who stress the influence of economic growth, and of the capitalist system in general, on moral and cultural beliefs and behaviors. I’m thinking of, for instance, Deirdre McCloskey’s The Bourgeois Virtues and Benjamin Friedman’s Moral Consequences of Growth. These are of course not new themes, but does someone know of any comparative, historical, taxonomic etc literature on these recent development in these two lines of research, in particular regarding the NIE people?

Of old men, things that pass

Not from economics, but worth telling:

In the late 1970s and early 1980s B.F. Skinner was not yet very old. Born in 1904 the famous behaviorist was still busy working and teaching at Harvard Univeristy. But he must have felt old. His sternly defended and once highly influential behaviorism had gradually been discarded for a psychology that, horros of horrors, tried to open up the mind’s black box. In addition, a mathematical approach to psychology that dwarfed all behaviorism’s strict and formal claims to scientificity had strongly gained in prominence. But Skinner could not let go and sent letter after letter to his colleague Duncan Luce, by this time an equally famous cognitive and mathematical psychologist. Skinner tried to persuade Luce of the merits of behaviorism and the demerits of modelling the mind’s interior. Luce thanked him for sharing his ideas with him. Skinner sent Luce his latest book, and asked whether they could meet some time next week to discuss cognitive psychology. Pick a day and time of your convenience. One week later Luce responded politely that no unfortunately he was too busy. Lunch then? Skinner tried. But again Luce declined. A few more difficult back-and-forth polite invitations followed over the course of a few years.

Based on Luce -Skinner correspondance in archives of Harvard University

The incomprehensible 19th century

I’m a twentieth century guy, a post-World War Two US guy even. This means that whatever happened in economics there after 1945 I can grasp. I might need some time, but in the end I always have the feeling to understand what the issues are about. The first half of the twentieth century already gets trickier. I read, but it always remains, I don’t know, a movie your parents absolutely love but you simply fail to have an opinion about. The 19th century is worse. I mean, they didn’t even have movies back then.

So, when I have to teach 19th century economic methodoloy (which must be an oxymoron), as I had to this afternoon, I’m soooo grateful for Wade Hands’ Reflection without Rules (2001). It gives you everything you need to know about J.S. Mill, Nassau Senior, Cairnes and all the rest of them. Well, enough to teach about them anyway. The only thing I did not understand was, why were all those nineteenth centurists so concerned with defining method and content of political economy (as Hands presents them)? Why did for instance Mill go to such great lengths to construct the a priori method? Why did Nassau Senior felt compelled to define political economy on the basis of four general principles? What was all the fuzz about?