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Archive for March 31st, 2009

Lemon Aid

“When Detroit gives us lemons, we give them billions of dollars”

Jon Stewart

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Responsibility

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Over at Adam Smith’s Lost Legacy (h/t Mark Thoma), Gavin Smith posts about how the discipline of economics has evolved in such a way that the relevance of its own history is in question. I’ve obviously been posting a lot about these sorts of questions in the last few months, so I’ll jump at this opportunity:

There is a debate underway among historians of economic thought on whether economists really need to study the history of ideas in what we may loosely term our discipline. Those economists who take the view that the history of economic ideas really has nothing to do with modern economics, point to it being unnecessary for ‘real scientists’ to read the works of Isaac Newton, and his lesser luminaries, so why bother with Adam Smith and the rest?

My views on this debate (I have not joined in, so far) are predictable. The physical world is fairly constant…Knowledge gains in hard sciences build upon earlier knowledge gains, and future knowledge gains continue the process.

Turning to economics – part of human sciences – it is quite different. We hardly know about past economic history; even recent history is controversial and is well short of arriving at a settled view. There are political views of economic behaviours – as far as I know, we do not have ‘leftwing’ or ‘rightwing’ carbon atoms – and we do not have a settled view on what constitutes economic society or on what would constitute a society that could be said to be the basis for all further societies without (controversial) changes.


My colleagues among the historians of economic ideas are debating, hotly, just now about what constitutes money. Unlike, the physicists, who agree on the role of gravity, modern economists are not so sure about the venerable role of money.

No wonder, that ideas of modern economics fall foul to the barely understood ideas of past economists, where they are not simply made up (as has been the fate of Adam Smith among many modern economists who assert his so-called ideas shamelessly without reading him). We may not need to read Newton’s Principia to add to the knowledge base (so far it has not let us down, though it has been improved upon safely because its foundations were so strong), but where did our ideas about money, for instance, come from, and where may our ideas about money be built on less secure foundations than the ‘certainties’ we were taught recently?

As economics was derived from political economy, shedding within a century, philosophy, sociology, anthropology, history, politics, psychology, and such-like, though, unfortunately not shedding mysticism, idealism, utopianism, and, eventually, all traces of real human beings, an imaginary world has replaced the real world.


Now, that there were great gains from this process is not disputed, of course, but questions arise as to the costs in what the great ‘gains’ do not explain. Apart from which there is genuine concern about the usefulness of the abstract when directed at policy-making in real human societies…


It is not as if modern economists are better fitted in 2009 to understand (stepping down from ‘to advise’) than their predecessors, already starting down the road we’ve travelled, in 1909 (or for that matter 1809). The current ‘global crisis’ has not produced a consensus among the brightest in our profession (Nobel prize winners stand on opposite sides with different prescriptions) as what should be (could be) done, even if the players in the mix of, say, the G20 were minded to accept whatever advice the equations would give them.

And that’s the rub. The players do not behave as the mythical Homo economicus prescribes, and neither do all the other players in all the levels below them. The aggregates in an economy, however expressed neatly in well-behaved functions, do not capture what the models require of them. And their authors are impotent to make them do so…

My colleagues among the historians of economic ideas are debating, hotly, just now about what constitutes money. Unlike, the physicists, who agree on the role of gravity, modern economists are not so sure about the venerable role of money.

No wonder, that ideas of modern economics fall foul to the barely understood ideas of past economists, where they are not simply made up (as has been the fate of Adam Smith among many modern economists who assert his so-called ideas shamelessly without reading him). We may not need to read Newton’s Principia to add to the knowledge base (so far it has not let us down, though it has been improved upon safely because its foundations were so strong), but where did our ideas about money, for instance, come from, and where may our ideas about money be built on less secure foundations than the ‘certainties’ we were taught recently?

I (also predictably) agree with Kennedy about studying history of economic thought. I think he also slips in some other interesting thoughts. First, it’s important to distinguish between studying the history of economic thought and economic history. He writes that economists cannot agree on even recent economic history- I think that is true in many disciplines, but I think that is a lot different from disagreeing, or being plain ignorant about, history of economic thought, which I think is actually more important in this discussion.

At the same time, though, what would a better grasp of economic thought offer? People would certainly misuse Smith and Ricardo less if they actually read it. Keynes would not have been left in a dustbin for decades. Would Marx enter the discussion? What about Veblen? I think the “how” of the history of economic thought is even more important than the “whether.”

One other thing- Smith talks about the policy disagreements and the inability to abstract ideas into agreed upon policies. Sometimes I wonder if economics should be a policy-oriented discipline at all. In fact, I also wonder sometimes if it should be anything other than policy-oriented. This gets back to the science vs. engineering debate (I think Greg Mankiw has an essay on this somewhere on his site). In general, though, I don’t know if any direction will allow economics to be as fruitful as it can be, and a lot of it goes to the ideological implications it carries. This might be economics’ biggest baggage relative to other social sciences, and certainly to the physical sciences.


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A Violent Downturn

This article investigates the relationship between the economic crisis and the recent spat of mass-killings, muder-suicides, and upsurges in domestic violence claims.

one study released Monday in Florida finds a link between domestic violence and economic tragedies like job loss and foreclosures. The Sunshine State saw an almost 40 percent jump in demand for domestic-violence centers, an increase related to the state of the economy, the study says. George Sheldon, secretary of Florida’s Department of Children and Families, calls the situation “the worst I’ve seen in years,” according to the Associated Press.

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