Tag: economics

I’ve blogged a few times recently about Thomas Piketty and the making of intellectual superstars. I find his elevation to “rock star” status fascinating, not least of all the deeply performative nature of this silly epithet, revealing as it does many interesting trends about the status of intellectuals in contemporary circumstances. The case has become even more fascinating with the alleged takedown of his data in the FT last night:

Now, in a move that has delighted his manifold critics on the right, who view Piketty’s tome as a dangerous, modern-day successor to Karl Marx’s Das Kapital, the 43-year-old French economist has found himself attracting a less welcome form of attention. The Financial Times has suggested that Piketty’s work contains a series of errors that appear to fatally undermine large parts of his thesis. The normally restrained paper claims that some of the data Piketty uses to support his arguments about yawning inequality in Britain and Europe are dubious or inexplicable. Some of this, the paper suggests, may be down to straightforward transcription errors. More damningly, the FT claims, “some numbers appear simply to be constructed out of thin air”.

The paper goes as far as to suggest its findings are similar to those last year that undermined the work of the Harvard economists, Carmen Reinhart and Kenneth Rogoff, which analysed the relationship between growth and debt and was subsequently found to have been based on a flawed spreadsheet.

Bloomberg described the claims as a bombshell and there has been no shortage of commentators suggesting the story is huge. Some on the right have also been gleeful, suggesting the FT‘s story will scupper Piketty’s chances of landing a Nobel prize. But, as the dust settles, even many of his critics have been reluctant to claim that Piketty has been left badly wounded by an impenetrable row over the selection and interpretation of data, nor do they accept that the FT‘s claims have done much to damage his over-arching thesis.

http://www.theguardian.com/business/2014/may/24/thomas-picketty-economics-data-errors

Much as I expected, I got 50 pages into the book before getting distracted by other things and haven’t been back to it since. I’m deeply aware of not having read the book when reading the coverage of the FT’s attack. I’m also wondering how many other people commenting upon it have actually read the book in depth. I find myself nodding approvingly at Krugman’s critique of the critique, vaguely aware of feeling ‘my side’ is under attack, despite this being a book I only bought because I was intrigued by all the hype surrounding it. I find the whole Piketty affair fascinatingly strange. It all seems so obviously overblown and yet the issues at stake are clearly consequential. Nonetheless, there’s a subtle theatricality pervading the endless stream of verbiage being generated in response to this book, as if the book could in reality consist of 600 blank pages without making a difference to the sentiments underlying the detailed arguments.

I’m really not very clear about what I do think is going on here, perhaps explaining why I’m so gripped by it, but I’m certain I’ll be rehearsing this in my mind for years to come as a case study for considering the causal power of ideas within social life. I think it illustrates an acceleration of the process by which ideas can find material sponsors, concerned to promulgate a way of understanding a contested phenomena and promote it socially. There’s also something interesting going on about the way in which the meditation of this process by the blogosphere contributes to its rapidity, amplifying certain voices through a dynamic which is superficially democratic (bringing lots of people into the process) but basically exclusionary, given pervasive tendencies (e.g. not having read the actual book for quite understandable reasons) which leaves opinion formation in the hands of Krugman and comparable ‘thought leaders’.

I don’t think this is a particularly meaningful statement. But it’s certainly an attention grabbing one. I encountered it earlier when Salon picked up on a post by Adam Grant on Psychology Today:

Why does the invisible hand want to slap you across the face?

Because it belongs to a douchebag.

That’s the conclusion, anyway, of aprovocative blog post in Psychology Today by Wharton professor Adam Grant making the rounds across planet internet.

But before all you econ majors get your demand curves in a twist, hear what the good professor has to say.

Citing research by Cornell professor Robert Frank, Grant makes the compelling case that economists are neither generous, nor cooperative. And that’s because they’ve swallowed one of Adam Smith’s main tenets: people act out of rational self-interest.

Emphasis here on the self.

In short: economists don’t feel bad about acting in their self-interest because — well — the economic theories tell them that they should be selfish.

http://www.salon.com/2013/10/24/economists_are_horrible_horrible_people_study_says_partner/

This is the same Adam Grant who’s achieved an impressive degree of visibility at a relatively young age, not least of all because of the snappily counter-intuitive thesis propounded in his last book that ‘giving’ is a route to career success. As befitting the youngest tenured professor at the Wharton Business School*, his claim about economists is one grounded in empirical research:

Robert Frank, an economist at Cornell, believes that his profession is squashing cooperationand generosity. And he believes he has the evidence to prove it. Consider these data points:

Less charitable giving: In the US, economics professors gave less money to charity than professors in other fields—including history, philosophy, education, psychology, sociology, anthropology, literature, physics, chemistry, and biology. More than twice as many economics professors gave zero dollars to charity than professors from the other fields.

More deception for personal gain: Economics students in Germany were more likely than students from other majors to recommend an overpriced plumber when they were paid to do it.

Greater acceptance of greed: Economics majors and students who had taken at least three economics courses were more likely than their peers to rate greed as “generally good,” “correct,” and “moral.”

Less concern for fairness: Students were given $10 and had to make a proposal about how to divide the money with a peer. If the peer accepted, they had a deal, but if the peer declined, both sides got nothing. On average, economics students proposed to keep 13% more money for themselves than students from other majors.

In another experiment, students received money, and could either keep it or donate it to the common pool, where it would be multiplied and divided equally between all participants. On average, students contributed 49% of their money, but economics students contributed only 20%. When asked what a “fair” contribution was, the non-economists were clear: 100% of them said “half or more” (a full 25% said “all”). The economists struggled with this question. Over a third of them refused to answer it or gave unintelligible responses. The researchers wrote that the “meaning of ‘fairness’… was somewhat alien for this group.

http://www.psychologytoday.com/blog/give-and-take/201310/does-studying-economics-breed-greed

This raises the obvious question of causation: does economists make people horrible or are horrible people drawn to economics? Obviously, it’s likely to be a little of both. It seems glaringly self-evident to me that self-selection is at work in shaping the characteristics of people within different disciplines (not least of all because I have a few hundred surveys from my PhD that demonstrate precisely this). There is a sense in which it is meaningful to talk about ‘physics people’ and ‘english literature people’, though these are of course fuzzy folk typologies which barely meet the status of being an empirical generalisation. Where I think they become more plausible though, is in making sense of the mentalities likely to be found amongst professionalised members of disciplines i.e. though who keep on self-selecting all the way to grad school and beyond. So could we assume on this basis that the processes identified amongst economics students are likely to apply with a greater intensity amongst professional economists? Here’s what Grant suggests with regard to the former:

To figure out whether economics education can shift people in the selfish direction, we need to track beliefs and behaviors over time—or randomly assign them to economics exposure. Here’s what the evidence shows:

1. Altruistic Values Drop Among Economics Majors

At the very beginning of their freshman year, Israeli college students who planned to study economics rated helpfulness, honesty, loyalty, and responsibility as just as important as students who were studying communications, political science, and sociology. But third-year economics students rated these values as significantly less important than first-year economics students.

2. Economics Students Stay Selfish, Even Though Their Peers Become More Cooperative

When faced with choices between cooperating and defecting, overall, 60% of economics majors defected, compared with only 39% of non-economics majors. For non-economists, 54% of freshmen and sophomores defected, while only 40% of juniors and seniors did. The economists, on the other hand, did not decrease in defection significantly over time. Roughly 70% defected across the board. Non-economists became less selfish as they matured; economists didn’t.

3. After Taking Economics, Students Become More Selfish and Expect Worse of Others

Frank and his colleagues studied college students in astronomy, economic game theory, and economic development classes. Self-interest was a fundamental assumption in the game theory class, but had little role in the economic development class. In all three classes, students answered questions about benefiting from a billing error where they received ten computers but only paid for nine and finding a lost envelope with $100. They reported how likely they would be to report the billing error and return the envelope, and predicted the odds that other people would do the same.

When the students answered these questions in September at the start of the semester, the estimates were similar across the three classes. When they answered the questions again in December at the end of the semester, Frank’s team tracked how many students decreased their estimates. After taking the game theory course, students came to expect more selfish behavior from others, and they became less willing to report the error and return the envelope themselves.

“The pernicious effects of the self-interest theory have been most disturbing,” Frank writes in Passions Within Reason. “By encouraging us to expect the worst in others it brings out the worst in us: dreading the role of the chump, we are often loath to heed our nobler instincts.”

4. Just Thinking about Economics Can Make Us Less Caring

Exposure to economic words might be enough to inhibit compassion and concern for others, even among experienced executives. In one experiment, Andy Molinsky, Joshua Margolis, and I recruited presidents, CEOs, partners, VPs, directors, and managers who supervised an average of 140 employees. We randomly assigned them to unscramble 30 sentences, with either neutral phrases like [green tree was a] or economic words like [continues economy growing our].

Then, the executives wrote letters conveying bad news to an employee who was transferred to an undesirable city and disciplining a highly competent employee for being late to meetings because she lacked a car. Independent coders rated their letters for compassion.

Executives who unscrambled sentences with economic words expressed significantly less compassion. There were two factors at play: empathy and unprofessionalism. After thinking about economics, executives felt less empathy—and even when they did empathize, they worried that expressing concern and offering help would be inappropriate.

http://www.psychologytoday.com/blog/give-and-take/201310/does-studying-economics-breed-greed

I recall encountering more work exploring this issue in the past and I really wish I’d saved the references. It also leads me to wonder if economists have a unusual proclivity for empirically studying themselves and, if so, what this says about the discipline in general and these findings in particular? As naval gazing as sociologists tend to be, they also seem to spend much less time studying themselves… at least until I persuade someone to part with the money that would allow me to spend my early 30s writing The Sociology of Intellectual Faddishness. Encountering Grant’s post has also left me wondering if I should do something more substantive with my PhD surveys, originally just an overly-elaborate preliminary to my sampling strategy, given that they shed light on this issue in an interesting way. The survey instrument I used measures style of reflexivity and they were distributed to the compulsory first year modules for English Literature, Sociology, Physics and Business students. For anyone interested, the results are discussed in the methodological appendix of Margaret Archer’s The Reflexive Imperative. 

*Writing this post also led me to discover that he’s only 4 years older than me, which is a piece of information now lodged in my brain that I’m not really sure what to do with.

This wonderful post by Simon Wren-Lewis, who is far and away my favourite economics blogger, gets to the heart of austerity politics and its implications for economics as an academic discipline. The underlying question has long fascinated me: are economic ideas adopted by political actors as clothing for pre-existing policies or do these ideas actually shape political agendas in their own right? As Keynes purportedly remarked, “even the most practical man of affairs is usually in the thrall of the ideas of some long-dead economist”.  It’s an instance of a broader theoretical question about the autonomy of culture: how and to what extent are ideas causally efficacious? But dealing with the question at that level of abstraction isn’t enormously enlightening, which is why I find such a concrete instance of these issues (the role of economic ideas in formulating and justifying austerity politics) so interesting. Krugman offered an interesting perspective on this after the Reinhart and Rogoff scandal,

But what did go wrong? I’ve been seeing a lot of comments along the lines of “They’re all just tools of Pete Peterson”; so I guess I should say that this is, in these cases, way too crude an interpretation.

Notice that I say “in these cases”. There are indeed plenty of economists who are essentially hired guns for interest groups, and they don’t all work at right-wing think tanks. But the temptations that led to the current affair are, I’d argue, nowhere near that crude.

Start with R-R. The fact is that Carmen and Ken are fine economists. Carmen has been doing terrific empirical work on banking crises for a long time. Ken is arguably the world’s leading international macroeconomic theorist. In fact, the main reason I knew that the case for fiscal policy remained strong even in the context of New Keynesian models was that I carefully read the canonical text by Obstfeld and Rogoff.

So what happened here? My interpretation is that after writing a very good book, R-R dashed off a careless paper on debt and growth that was so much what the VSPs wanted to hear that it made them instant celebrities in a way they hadn’t been before — and they didn’t know how to say stop the merry-go-round, we want to think about this a bit harder. The temptation involved was one of fame and becoming a part of the alleged real world, not some crude mercenary consideration.

http://krugman.blogs.nytimes.com/2013/05/03/varieties-of-academic-temptation/

I think his point is an important one: we need to recognise that think tanks provide a mechanism for the consolidation of ‘hired guns’ (as part of a broader process of restructuring in the ‘market place of ideas’) but that self-interest can serve to mobilise academic endeavour in ways which extend far beyond ‘crude mercenary considerations’. But as Wren-Lewis observes, pursuit of this individual self-interest may prove extraordinarily damaging for the discipline as a whole:

As I argued in a recent post, what we have here is a combination of two things. First a strong political force that wants deficit reduction to be the focus of policy because it sees this as a useful way of reducing the size of the state. Second, public perceptions that try and understand events in terms of what they know: their own borrowing and spending decisions. So the need for immediate austerity becomes the dominant policy almost everywhere. I get frustrated sometimes that some colleagues, naturally concerned about the details of academic debate, cannot see the bigger picture here. The bigger picture is the marginalisation of our discipline – used when it suits a particular political purpose, but ignored otherwise. If policymakers and the pundits just pick up economic ideas when its suits them, and when the analysis or facts do not suit them just make stuff up (examples from US and UK), economic analysis just becomes fodder for speech writers. That reduces the discipline to an academic game, and soon those same people will ask: why are we paying people just to play games?

So how do we get macroeconomics back into fiscal policy making? First, we need to sort between politicians and political parties that are quite happy with the current state of affairs, and those who are not. Those who are not need to fight fire with fire, replacing one bit of homespun thinking with another which gets us closer to how policy should be made. One way of doing that is to replace the ‘state as an overextended household’ idea with the ‘state as an innovative firm’.

http://mainlymacro.blogspot.co.uk/2013/08/bringing-economics-back-into-fiscal.html

I find his proposed solution quite compelling. Rather than nervously attempting to triangulate their way out of a corner that the Conservatives have backed them into, the forceful promulgation of an alternative metaphor (the state as “a firm that decides to undertake these investments by borrowing when borrowing is cheap”) could be an effective strategy for Labour. But what really interests me about this post is his diagnosis of the underlying political situation facing economics as an academic discipline. Tom Medvetz has offered a really astute analysis of the underlying structural changes that have transformed the interface between the academy and politics in the United States over the last half century:

While social scientists with little left to prove in the academy can afford to reinvest their academic capital in pulibc debate – and often do – rank-and-file scholars have little incentive to follow this route […] the growth of think tanks over the past forty years has played a pivotal role in undermining the relevance of autonomously produced social scientific knowledge in the United States by fortifying a system of social relations that relegates its producers to the margins of public debate. To the degree that think tanks arrogate for themselves a central role in the policy-making process, they effectively limit the range of options available to more autonomous intellectuals, or those less willing to tailor their work to the demands of moneyed sponsors and politicians […] The rise of think tanks must therefore be set analytically against the backdrop of a series of processes that have contributed to the growing subordination of knowledge to political and economic demand – including the reassertion of control over the economy by holders of economic capital, the development of specialised forms of political expertise, the growth of the mass media as a conduit for the imposition of market forces into politics, the corportization of the university, and the withdrawal of the state from the financing of public education. The question posed acutely by the rise of think tanks in America concerns the social value of social scientific knowledge itself: Put simply, should money and political power direct ideas, or should ideas direct themselves?

Tom Medvetz, Think Tanks In America 225-226

The diagnosis offered by Wren-Lewis concerns, from this perspective, the long term implications for academic economists of the tendency to, as Medvetz describes it, “engage in policy debate by imitating the style of intellectual production institutionalized in the space of think tanks”. While it’s not possible to prevent policymakers and pundits from ‘picking up’ economics ideas when it suits them, this deleterious trend rapidly intensifies with each aspirational economist who actively embraces this situational logic in the pursuit of self advancement (or ‘relevance’). Could the impact agenda be seen as an attempt to institutionalize this strategy within the academy, rather than merely leaving it to the power of incentive structures emanating from outside academic institutions? Even acquiescence to it helps perpetuate the process. The only solution would be for more economists to engage in public debate, including on Twitter and blogs, though as Medvetz points out, this is a strategy primarily open to those who have ‘little left to prove in the academy’.