Economics From The Heart

A brief interlude to recommend “Economics From The Heart“, a collection of short Paul Samuelson columns from the 60s through the 90s. Doesn’t look like it’s in print, but you can get it used for cheap on Amazon. It’s entertaining stuff, not just as a document of historical op-ed economics:

Billy Graham’s book on angels sold well, one presumes primarily to non-angels. Intellectuals have a propensity to write books that are read only by intellectuals and therefore do not sell well. This despite the propensity of intellectuals to read books. That is all intellectuals are good for: to read, write and talk about books and ideas.

Using economics to talk policy

A few years ago I took a course called “Economics of OECD Countries” with a wonderful teacher, Gavin Cameron, who sadly passed away recently. It was really an economic history course; we took a few big, general, flexible models from macroeconomics and used them to talk about the last hundred years in the rich countries of the world – the Great Depression, oil shocks, the ‘Golden Age’ of growth, the rise of computers, productivity. It wasn’t an especially politicized class, just nuts and bolts economics, but I’ll be forever grateful not just for learning a bit of history but for learning that a little model goes a long, long way.

For instance: the BBC website had a piece a while back about the presidential candidates’ economic policies with this passage:
Mr McCain has endorsed “supply side economics”, calling for more tax cuts for business to boost economic growth and sharp cuts in spending programmes.
Mr Obama, on the other hand, wants more domestic spending, particularly on health care, and has indicated that he is not averse to higher taxes on the rich to pay for it.

Again, I’m not going to start analyzing policy, but I really like – no sarcasm here, I promise – that the same debates that have cropped up again and again through the history of economic policy as an actual thing are still here. A crude characterization would be to call Obama Keynesian, on the strength of what the article is saying; it’s the famous injection of spending by the government to try to prop everything up, the great policy success of the original Keynesian era. That was the one that dragged America out of the Great Depression. 
Or did it? Surely a bold stroke to open the government’s wallet when the whole country is broke, but, of course, there’s plenty of wiggle room for debate. One of the many things we talked about in our course was the role of war spending in providing a natural bounce out of the Depression. Same concept, different reasons. 
McCain’s being painted in the BBC article as a supply-sider, which is something of a dirty little epithet around the Dem-leaning economics faculties of the world. Paul Krugman made his journalistic bones (as opposed to his impressive academic record) with “Peddling Prosperity“, a big chunk of which was devoted to a critique of what came to be called supply-side economics. Perhaps I’m reaching a bit here, but you could plausibly argue that supply-side policy grew out of monetarism, which was itself the big weapon against the oil-shock driven recession of the 1970s. Keynesianism versus monetarism was the big debate in economic policy, and it lives still into the 21st century.
As a teacher, the beauty of these debates is that they don’t need fancy techniques, or math, or number crunching, to be explained. Naturally some of the academics who’ve spent their careers on policy questions are doing very complicated things, but to explain – in simplified form, but correctly – what was driving the problems of the 30s, the 70s, or whenever, and the logic behind the policies that were tried, is easy. It takes a bit of clear reasoning and is even easier if we are willing to use a few simple diagrams, both commodities that go a long, long way in economics. It’s possible, even, to boil the whole mixture off to a supply-and-demand story. Don’t roll your eyes, though: there’s a reason why that’s the most famous, most reproduced little model in economics, and how awesome that we can use it to talk about the biggest policy issues of the last century.
Many economics courses are ‘tooling up’ courses, where you learn those models, the diagrams, the math; what is even more crucial are those courses like the one Professor Cameron taught me, the ones where we use those tools to think about interesting things. It’s truly staggering how simple the tools are that we used, truly gratifying to learn how far even the simplest little insight can go. 

Ignore the past, and it shall teach thee?

So why don’t we teach much economic history anymore? An article in the Chronicle by Russell Jacoby asks this question, with similar for the history of psychology and philosophy, by wondering why Marx doesn’t feature on your typical economics syllabus.

The analogy is probably to the natural sciences. Once we scientificize (is that a word?) economics, it becomes more reasonable to follow the path of the naturals – after all, the history of chemistry, for example, might be interesting, but it doesn’t necessarily help you be a better chemist. Economists try to answer very specific, answerable questions: methodology becomes crucial, and while the foundation of methodology is important, it’s not it. Here’s what Jacoby says on the topic:

The flight from history marks economics and philosophy as well. Economics looks more and more like mathematics, in which the past vanishes. Sometimes it even looks like biopsychology. A recent issue of the American Economic Review includes numerous papers under the rubrics of “Neuroscientific Foundations of Economic Decision-Making” and “Cognitive Neuroscientific Foundations of Economic Behavior.” But can we really figure out today’s economic problems without considering whence they came?

Of course, my prejudice is the history of thought for its own sake is worthwhile. I want to know how economics evolved; how the foundations of the subject and a couple hundred years of thought brought us to where we are today. However: it’s useful like that more to people like me with a predisposition to wonder about the philosophy of the subject than it is to those who are more interested in learning the tools to form and evaluate policy, for example. If I want to advise on school vouchers, to pluck one example, it doesn’t necessarily help me to know the history of economic thought; I need to know the evidence on school vouchers. Obviously.

The ‘economics as toolbox for analysis’ – positivist, scientific economics – maybe doesn’t need the past. Research building on research, like we do as academic economists, doesn’t need the foundation of the history of thought. Seeing the evolution of the subject, and the little battles over the big issues of days gone by, might, however, make studying the subject as an undergraduate more interesting. Perhaps we could have both: the toolbox-y courses and the intellectual history, for-their-own-sake courses. Why do we need to justify the history only as something that contributes to the toolbox, especially when that might not even be true?

Maybe that’s why courses in economic history or the history of economic thought are not as widely offered as you might expect. Maybe they’d be nice or interesting, but very few academic economists are historians or scholars of thought; we’re scientists now. What faculty wants to teach a course so wildly unrelated to their other work, their research?

Perhaps we should stop using this phrase

I mentioned the old “dismal science” slight on economics the other day. It’s not exactly new news, but I like the story of the origins of the term a lot, because knowing it would surely cause people to think twice before using the phrase.

Here‘s a good article that tells the story of Thomas Carlyle’s first uses of the phrase.

“Carlyle attacked Mill, not for supporting Malthus’s predictions about the dire consequences of population growth, but for supporting the emancipation of slaves. It was this fact—that economics assumed that people were basically all the same, and thus all entitled to liberty—that led Carlyle to label economics “the dismal science.””

Now, economics is probably pretty low on the list of reasons to oppose slavery, but it seems that Carlyle was taking issue with John Stuart Mill (among others) for arguing that since people are basically the same, there’s no such thing as a “natural” hierarchy of people. Carlyle’s position, sadly, speaks for itself:

“Carlyle disagreed with the conclusion that slavery was wrong because he disagreed with the assumption that under the skin, people are all the same. He argued that blacks were subhumans (“two-legged cattle”), who needed the tutelage of whites wielding the “beneficent whip” if they were to contribute to the good of society.”

Aside from its connotations – which are about as politically incorrect as it’s possible to be these days, and would certainly not be allowed to be printed in any of the places where we see the phrase “dismal science” – the target Carlyle was directing his argument towards is not much like the method of economic science at all. In fact, he seems to really be taking issue not with the practice of scientific, positive economics but with the assumptions the economists made about people. From another article on the same subject:

“In short, Carlyle was of the view that compulsion, rather than market forces should regulate the supply of labour on plantations in the West Indies because the laws of supply and demand are not appropriately applied to the relationship between White and Black as they are contrary to “their mutual duties” (white = master and black = servant) as ordained by “the Maker of them both”. In Carlyle’s opinion: “declaring that Negro and White are unrelated, loose from one another, on a footing of perfect equality, and subject to no law but that of supply and demand according to the Dismal Science”, “is clearly no solution” to the problem.”

Oddly enough, and though it’s probably ridiculous to compare them, Carlyle is attacking exactly the same assumption that is still criticized today: the assumption on the motivation of people in economic models. Certainly the reasoning of the critic of today is significantly less outrageous than Carlyle’s, but they’re shooting at the same target.

Carlyle certainly seems to demand a different kind of response than today’s defense of the modeling of people – “it’s just an abstraction, we know we’re not being realistic”. Luckily, as some of Mill’s angry and eloquent responses indicate, Carlyle’s normative beliefs were vigorously challenged right from the start. His assumption was, I hope we can agree, unrealistic. If he had performed a positive economic analysis based on his assumption, it would have been badly wrong and inaccurate.

No normative belief or opinion can ever be “wrong”, but an assumption can certainly be wrong. Which assumption would lead to better economic science: Carlyle’s assumption of natural servitude or Mill’s assumption of natural equality? If Carlyle had argued that slavery was a good thing, plenty of people would have disagreed with his opinion. When he argued that people are inequal and thus servitude is a better use of people than freedom, he didn’t just have an objectionable opinion, he had bad science.

Modern economics has fought hard to work the number of abstractions made on the motivation of people down to just one: rationality. We don’t restrict what people care about, we just require there to be some method to the madness. Economics should be value-free, boring, scientific, clinical, and, yes, dismal, but I’d think twice before I called it the “dismal science”.