Sunday, July 27, 2008

This is random, but.

I want to know when economists lost their souls.

If you go back to the great works of political economy, the founding works of the discipline--The Wealth of Nations, Das Kapital, Burke, Weber, etc. etc.--these men never forgot that they were dealing with people, and furthermore they never forgot what people were like. They were, inasmuch as they were able (and there's quite a difference on this front between, say, Smith and Weber) empirical in drawing their conclusions, and the evidence they examined was not only numerical or statistical.

I know that a lot has changed since their time. I know that financial markets have appeared, economies have grown and diversified, technology has taken off, and trade has expanded to an incredible degree. Of course we need analysts who can focus on the facts, the numbers, the trends, the uptick and the downswing. I get that. It's fine, even good (although, as we're seeing, it can all too easily become a sealed system that plays craps with the rest of us).

But I'm talking about the guys who write books. Not How To books about the stock market; books with titles like A Farewell to Alms. Philosophical economics.

Because, you see, the philosophical dimension of--well, just about everything--is what we've lost as the arts and sciences have developed, specialized, and diverged. Once upon a time, there were no biologists, chemists, physicists, economists, psychologists, etc.--there were philosophers, natural philosophers, natural historians. Such a broad scope allowed for greater vision (in certain ways) than what we have now.

This point can perhaps be better illustrated through a good old compare/contrast exercise. Here we go:

A Farewell to Alms is a book by an academic who studies economic history. It purports, in its introduction, to explain a) why the Industrial Revolution happened when and how it did (apparently one of the great smoking guns of economic history), b) how this phenomenon is actually the result of long, long trends in history rather than a concatenation of incidental factors, and c) why socioeconomic inequality persists after that Revolution--particularly the fact that the people of the poorest countries are actually worse off than they were in the Stone Age.

However, the book fails utterly to do this. The author spends endless pages on minute details of statistics, lists of numbers, huge amounts of tables and near-incomprehensible graphs--largely, I believe, because he's trying to impress "real" economists. He tries to struggle through and actually answer his own questions, which are really not numerical matters--they are best dealt with through broad analysis and some decent research, some of which would be the kind of data he deals with (there's only so many data points on the price of English vs. Polish cotton you need in a chapter, really) and some of which would not.

Significantly, the notion of culture or notions of labor within different societies as a potential factor peeks through his tortured analysis (in about as good a shape as cheese would be after forcing it through a screen door--you know what it is, but you wouldn't want to touch it). Of course, because this sort of thing isn't his purview (because only Western Europe has economic history, natch), he has no idea how to tackle it and talks about the productivity of Indian loom workers vs. British ones. Rather than getting at any larger points about cultural notions of work, the workplace, the separation of work and private life, and time, he basically perpetuates the racist and colonial idea that a British man is worth ten Indians and closes the book with no real conclusion.

(When I finished this book I threw it to the other end of the couch. Can you tell?)

By contrast, we have Development as Freedom, by Amartya Sen. Sen is a Nobel Prize winner, for the record, and I can see why.

Sen's book tackles the notion of "developing nations" and the way the institutions involved view and measure development. Generally, development is measured by GNP per capita (basically the wealth of a nation divided by its population). When that number goes up, we're doing good here, folks.

Sen argues that this measure and its similarly numeric companions can easily be misleading and, more importantly, are fundamentally misdirecting. "Development," he believes, is not a matter primarily of economic wealth but rather of "real freedoms" that people "have reason to value." That is to say, quality of life, health, longevity, freedom to work, freedom to marry and reproduce, etc are what constitutes development. (The "have reason to value" clause is key because it allows for the fact that ambitions and values can and should vary based on culture, circumstances, and so on.) Obviously, greater wealth can provide greater freedom, but it does not guarantee it and it cannot necessarily engender it. A striking example is the fact that while African-Americans are inarguably wealthier than Sri Lankans or Keralans (Kerala is a poor province of India), they are on average much shorter-lived.

I think it's important to note here that "development" and "human development" are separate in institutional and official calculus. Development is measured by dollars; human development is measured by lifespan, childbirth mortality, and similar statistics. I think it's fundamentally wrong that these two things have come to be seen as different--what's the point of development if not to improve the lives of citizens? It is, of course, argued that economic development will lead to better quality of life, but as we have seen with the World Bank and the IMF, attempts at development on an economic basis that has consistently ignored culture and more human measures like those of human development has, so far, largely failed.

Mr. Sen's book is almost completely devoid of charts, tables, and graphs, and certainly does not delve into pricing and labor details the way that A Farewell to Alms does. Yet it is not only a better read and a more coherent argument; it makes sense, in the common-sense way that Adam Smith's books did. It reflects our human reality, rather than the dogmas and conventions of financial analysis--a discipline that, in my opinion, should have been formally separated from the academic study of economics long ago.

I believe that financialism should certainly and always be grounded in the roots of economics; without that foundation, we end up with people making economic decisions and formulating economic policy that will not work positively or even functionally in the world. Indeed, I think that lack of grounding is how we have ended up with the pernicious economic doctrine and thinking we have today. Sen repeatedly cites Smith, Marx, and other greats of earlier economic thought as having considered humans, and the way we live, as more than rational economic pawns; and he argues that to consider people in the latter way--the way that economics has grown to view us--is not only false but also diminishing to humanity.

I remember a deep frustration, in reading this book, that it seems that so many economists--not just financial analysts or stock brokers, but people who deal with economic thought--seem to have lost these essential roots of their own discipline. This argument is (was--the book is several years old) important and reasonably novel in terms of development, but its basis is the same as that of the original works of economic thought. You can tell, because it's universally applicable (in my estimation). It's a perspective, a worldview, and it holds together. He says wryly at one point, and I agree wholeheartedly, that many of these people simply haven't read their Smith, or at least haven't done so with an open mind, and were they to do so their perspectives on what economics really is might change a great deal. The Wealth of Nations and The Theory of Moral Sentiments, both written by Smith, have a great deal in common; and I firmly believe that much of the observation and thought that went into Moral Sentiments was essential to Smith's ability to invent a discipline that has grown to govern our world.

Economics is fundamentally the study of humanity. It studies human choice, human freedom, human action, human preference, and human resources (including ingenuity). The way these quantities are expressed is of their nature different in different circumstances and cultures, and economics' great theorists understood that (Weber is a strong example here). The modern economic establishment does humanity a disservice in focusing overmuch on numbers and disciplinary specialties; what's more, it often does a great many people serious harm. (This is why most people think economics is boring, but Freakonomics was a big hit--it gets at the stuff about economics that is fun, interesting, and familiar.) Economists would do well to step back and rekindle their inner philosophers if they truly have any interest in the quality of life for individuals, or for that matter in the beauties and subtleties of their discipline.

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