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March 14, 2009

Economist's View - 4 new articles

"Blame Economists, Not Economics"

Dani Rodrik says economics is fine, but its practitioners are not (the full version points to macroeconomists in particular):

Blame economists, not economics, by Dani Rodrik, Project Syndicate: As the world economy tumbles off the edge of a precipice, critics of the economics profession are raising questions about its complicity in the current crisis. Rightly so: economists have plenty to answer for. ...

So is economics in need of a major shake-up? Should we burn our existing textbooks and rewrite them from scratch? Actually, no. Without recourse to the economist's toolkit, we cannot even begin to make sense of the current crisis.

Why, for example, did China's decision to accumulate foreign reserves result in a mortgage lender in Ohio taking excessive risks? If your answer does not use elements from behavioral economics, agency theory, information economics, and international economics, among others, it is likely to remain seriously incomplete.

The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.

They forgot that there were many other models that led in radically different directions. Hubris creates blind spots. If anything needs fixing, it is the sociology of the profession. The textbooks -- at least those used in advanced courses -- are fine.

Non-economists tend to think of economics as a discipline that idolizes markets and a narrow concept of (allocative) efficiency. ... But ... spend some time in advanced seminar rooms, and you will get a different picture. ... Advanced training in economics requires learning about market failures in detail, and about the myriad ways in which governments can help markets work better. ...

Economics is really a toolkit with multiple models -- each a different, stylized representation of some aspect of reality. One's skill as an economist depends on the ability to pick and choose the right model for the situation.

Economics' richness has not been reflected in public debate because economists have taken far too much license.

Instead of presenting menus of options and listing the relevant trade-offs -- which is what economics is about -- economists have too often conveyed their own social and political preferences. Instead of being analysts, they have been ideologues, favoring one set of social arrangements over others.

Furthermore, economists have been reluctant to share their intellectual doubts with the public, lest they 'empower the barbarians.' ...

Paradoxically, then, the current disarray within the profession is perhaps a better reflection of the profession's true value added than its previous misleading consensus. Economics can at best clarify the choices for policymakers; it cannot make those choices for them.

When economists disagree, the world gets exposed to legitimate differences of views on how the economy operates. It is when they agree too much that the public should beware.

Who's Responsible for the Budget Deficit?

Dean Baker:


"The Agenda for 'Understanding Society' is an Old One"

Daniel Little:

Proto social inquiry, Understanding Society: We sometimes imagine that the current disciplines and methods of the social sciences represent a more or less inevitable set of approaches to the problem of understanding social phenomena. But really, the latter task is much larger than the specific sets of disciplines and methods we have currently developed. It is worth turning back the dial a bit and reflecting on the intellectual currents that led to contemporary programmes for the social sciences. Reflective people have been curious about the workings of the social world for as long as they have observed and commented upon the world of actions and institutions that they found around themselves. The Greeks were particularly interested in such things as the causes and outcomes of war (Thucydides), the properties of different kinds of states (Plato), the nature of the family (Aristotle), and so on. Often the focus was on the question of "justice"—the features of social arrangements that were justified on moral grounds. But there are also many examples of philosophers and writers who were interested in the question of the how and why of social life: how does it work, what sorts of causes are at work, and why do certain kinds of outcomes occur (poverty, war, violence)? These reflections often represented systematic thinking and observation, but they did not amount to what we would call "social science" today. Several important changes occurred in Europe in the eighteenth and nineteenth centuries that created a new impulse towards a different kind of study of the social world.

One was eighteenth-century globalization. There was more knowledge available from travelers and colonial administrators about exotic social and familial practices in non-European places. The fact of religious and moral diversity was itself a startling discovery. This set of discoveries demonstrated the unavoidable fact of human social diversity. In the eighteenth century European thinkers raised questions deriving from the observed differences in social orders around the globe; so thinkers such as Rousseau and Montesquieu considered the significance and causes of different patterns of social organization in Europe, the New World, Africa, and Asia. So the questions arose, how do these alternative social orders work, and why are there such wide differences in the first place? Second was an increasing recognition of the interconnectedness of economic and political life within European societies themselves. The physiocrats and the British political economists began to postulate causal connections between certain kinds of social facts—settlement, trade, extension of agriculture, and law—with certain kinds of outcomes—the creation of the wealth of nations. The physiocrats particularly highlighted the systematic relationships that exist between environment, land, food production, prices, rents, and other forms of economic development. And debates about economic policies in the nineteenth century -- debates over the Corn Laws, for example -- likewise pointed towards the discovery of previously unobserved causal connections among economic facts. A third major change carried over into the nineteenth century—the advance of modern industrial production, urbanization, bureaucratic states, class formation, migration, and a recognition of major social changes associated with urbanization and industrialization. These changes, associated with the industrial revolution, set urgent new intellectual challenges to thoughtful observers; why were these changes taking place, and where were they going? Even Hegel expressed theoretical interest in the rise of the bureaucratic state -- Shlomo Avineri's Hegel's Theory of the Modern State makes a very clear case for the historical and empirical interests that Hegel had, along with his abstract philosophical theory of Right. What would be the consequences for European (or French and English) civilization of these basic seismic shifts in the order of society? Thus, for example, Engels, Tocqueville, and Carlyle all reflected intensely on the meaning of Manchester for the new society (link, link, link). Fourth, a raft of novel and urgent social problems—destitution, factory safety, crime, widespread hunger, deracination of the majority population, and the creation of enormous cities—loomed large in the emerging interest in creating "sociology." How could a modern society cope with these problems? (Gareth Stedman Jones's book Outcast London is particularly interesting for the insights it shed on how nineteenth-century observers, including Alfred Marshall, attempted to understand the problems and changes associated with London's rapid development.) Parliamentary commissions on conditions of labor, public health, and other important social problems provided an empirical basis for more systematic study by theoretically minded thinkers. The systematic collection of social statistics in turn created an intellectual demand for analysis in the form of the mathematics of probability and statistics. (Ian Hacking's book, The Emergence of Probability: A Philosophical Study of Early Ideas about Probability, Induction and Statistical Inference, provides a nice account of some of these developments.) Finally was the rise of full-blown results in the natural sciences in the nineteenth century—chemistry, electromagnetism, mechanics, geology, and biology. So the idea of studying and explaining the patterns of the social world with the same kinds of "science" was a fairly natural next step. The sudden impact of Darwinian ideas about biological evolution and the origin of species at late century was also important for some early sociologists. Founding social scientists as diverse as Marx, Durkheim, Comte, and Spencer were influenced by the models of empirical and logical rigor associated with positive natural science -- sometimes to the detriment of the future development of the social sciences. (See earlier postings on positivism and naturalism for more about these shortcomings.) The point here is a simple one. The agenda for "understanding society" is an old one, predating the modern social sciences by centuries. And the needs that we have for understanding, explanation, and intervention in the area of complex social processes and problems inherently exceed the scope of the particular efforts we've made to date in constructing empirically rigorous social science. We need to keep our eyes open for new problems and new approaches in the social sciences, if we are to do a satisfactory job of understanding and coping with the social issues of the twenty-first century. (See earlier postings on world sociology , French sociology, and Chinese sociology for more thinking about the need for innovation in the social sciences.)

links for 2009-03-14

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