I had planned to write about philosophy. To be precise, to write about my personal philosophy: what it is and how I came to it. I intended to approach my theme obliquely, by saying something about economics. I still plan to do this, but not today – and, therefore, not this year – because I have been distracted. Instead, in this text I will write more directly about economics, because that is now the subject at the front of my mind.
I have been considering why I was easily side-tracked, why so quick to allow a modest diversion to transform itself into a complete change of subject, why I become detained for several days by an idea to which I had planned to devote only an hour of my time. From a philosophical point of view, I might conclude that my will is weak; from an economic point of view I might instead conclude that my true preferences have been revealed through my change of plans. Either way I hope that by writing this post – neither from behind the veil of ignorance, nor from the standpoint of an impartial spectator – I can contribute to a modest increase in the greatest good of the greatest number, while at the same time maximizing my own personal utility function.
I became distracted when I was provoked by two lengthy book reviews, both of which make the case that the academic discipline of economics is in urgent need of complete reform, not least because of the pernicious influence of mainstream economists and their erroneous ideas on social policy. I found both reviews unconvincing – about which more below – and, despite having neither professional nor personal interest in defending the study or practice of economics, was affronted by their tone. The only benefit of my reading these texts – time past but not time lost, I try to convince myself– is that they prompted me to consider why it is that certain academics feel the need to provoke their readers, making claims that are not able to bear serious scrutiny, and which have little chance of persuading anyone in a position of influence to change their approach to substantive issues of public policy.
To be an uninfluential provocateur seems a rather modest aspiration for an academic; harmless too, although certain questions about integrity suggest themselves. To hold the title of “professor” at one of the world’s leading institutions of higher education, at which many (perhaps most) of your colleagues are actively engaged in the promotion of intellectual endeavours that you consider to be wholly misguided: that must be a heavy burden to bear? All that research – often funded by public bodies, written up and published in peer-reviewed journals – which is plain wrong; all those students, expensively misled by those into whose intellectual care they entrusted themselves; all those policy makers, repeatedly imposing unnecessary harms upon the populations they claim to serve, by applying concepts that are central to the discipline, but obviously mistaken: what is to be done? Perhaps it is the despair at being unable to reform their institutions while also being unwilling to leave them, that leads our two professors to don the mantle of provocation? Or, perhaps it is just the easier course, as compared with the slow, painstaking, collegiate work of social-scientific advancement?
I have never studied economics formally, although as part of my research work in political philosophy I read some economic history and theory; and when I worked in the financial services industry I thought about the impact of macro-economics on the financial markets most days for more than a decade. I consider myself an outsider, albeit an interested and informed outsider to the academic discipline of economics; and I see no reason to believe that economics is on a par with alchemy.
At one stage in my life I was encouraged to study for a MSc in Economics, but I resisted the temptation. I had been working at the Bank of England for more than two years, and had been promoted to run a trading team, which invested the British government’s short-term foreign currency reserves. I was invited to a meeting with the Head of HR, who told me that if I wanted a long and successful career at the Bank, I would need to obtain a qualification in economics. Central banking, he told me, was applied economics and the Bank’s Chief Economist had decided that all senior staff should be qualified economists. Having already been awarded a PhD in political philosophy I saw no need to acquire another higher degree: surely, I thought, being able to demonstrate fluency in economics should be sufficient? (A note to my readers: at this stage I had not yet fully understood that preferring substance to form is a mistake when you work for a central bank).
Well, I replied, it seems to me that Ricardo’s work on comparative advantage would suggest that rather than replicating the professional training of all the other senior managers – some of whom already had PhDs from leading economics departments – it would be better for me – and for the Bank – to develop further my political philosophy skillset, since political ideas are also relevant to the performance of the economy and because the Bank is currently undersupplied in this intellectual skill-set. Smart economists, I continued, would understand the value of non-economists in the senior management team. He looked at me blankly, no doubt trying to remember in which department someone called Ricardo was employed. Shortly after this conversation, I left the Bank for the private sector of the financial services industry, where a more nuanced view of value of economists holds sway.
Looking back, I slightly regret that I never studied for a post-graduate degree in Economics, which I think I would have found intellectually stimulating. I have never regretted moving jobs. Nor do I blame academic economists the foolish behaviour of central bankers. Mervyn King – later to become Sir Mervyn, and then Lord King – was wrong about the need for all senior Bank staff to have economics qualifications, just as he was wrong about many other more important things, such as hitting the inflation target and providing financial support to banks during a liquidity freeze, before it became too late to save them.
Having successfully navigated a career in finance without availing myself of a formal qualification in economics, whey then was I recently driven to distraction by two bad reviews of economics books? It’s not as if I don’t know that all professions tend to attract a small number of people who feign to distain the work that they are trained to do. On reflection, I was provoked in part because both reviewers used the same strategy of claiming that the entire edifice of academic economics needed to be pulled down and rebuilt, while offering their readers, as illustrations of improved economic thinking, examples that were so feeble and implausible that I found it hard to believe that the authors themselves could believe what they had written. Pull down a mansion, build a small shed, call it progress.
It is time to name the guilty men: first, David Graeber (Professor of Anthropology at the London School of Economics) in the New York Review of Books, dated 5 December 2019; second, Paul Collier (Professor of Economics and Public Policy at the Blavatnik School of Government, Oxford) in the Times Literary Supplement, dated 6 December 2019. I was irritated by Graeber’s passing endorsement of the economic policies of Jeremy Corbyn and John McDonnell, the gestural socialism that was principally responsible for Labour’s historic election defeat in mid-December; likewise, by Collier’s endorsement of proposals to impose legal requirements on companies to adopt socially useful purposes and more diverse board memberships, alongside the privileging of long-term investors, none of which prevented the former leadership of the UK’s Co-Operative Bank from driving the company to ruin. If this is the best that the new economic thinking can offer, I’ll happily to stick with the old.
The provocateur professors both claim that the academic discipline of economics needs urgent and comprehensive reform because its central ideas are hugely influential and obviously wrong. Graeber thinks the problem stems from Hume’s invention of the quantity theory of money, back in the 1750s, whereas Collier points to the work by von Neumann and Nash on game theory, from the 1940s and ‘50s. Both believe that the dominant ideas of academic economics have been shown to be false, by psychologists, evolutionary biologists and anthropologists; nonetheless, policy makers, bankers and the wealthy elites continue to rely on these wrong ideas to justify their behaviour, leading to unnecessary financial crises, austerity and growing inequality.
If very many bad things can be caused by the dissemination of a handful of bad ideas, just imagine how much happier the world will be when the LSE and the University of Oxford start teaching economics students the truth? However, I doubt that academic economics is quite as influential as critics believe. I suspect it has as much influence on the world as academic moral philosophy has. Nobody I knew, when I worked in finance, really believed in rational economic man or truly thought that the efficient markets hypothesis meant that all assets were fairly priced; and nobody I now know, when confronted with a serious moral decision, turns to the latest research on the trolly problem. It is the irrelevance of academic ideas, not their unjustified influence, that should probably be the subject of the professoriat’s ire. It is not the philosopher kings they should worry about, but the presidential and prime ministerial clowns. We suffer from too little sound economic policy making, not too much.
Meanwhile, I confess that I have been, in the words of TS Eliot, distracted from distraction by distraction. Tomorrow is the start of a new year: no more “hollow men”, back to philosophy!
Mark, as you undoubtedly know, it isn’t just central banks who have a preference for form over substance.
I am a newbie to the study of understanding how banks and governments work together for the benefit of ALL. Thank you for this essay. I enjoyed reading it.
“It is the irrelevance of academic ideas, not their unjustified influence, that should probably be the subject of the professoriat’s ire.” Bravo! I wasn’t sure where you were leading us with your rant — but I wholeheartedly support its conclusion.
I see one real problem though — that of opportunity cost. I’ve studied economics in undergrad, BA Honours. The degree — as form — has opened doors for me. But it was literally 2 years of deriving and regurgitating equations, of which all I even wanted was to wake up from as if from a nightmare. At that point in my life’s path, I had to stick with it because I needed a major and ‘social generalist’ is not a possibility. Those who study economics, or even practice applied economics, know that the large swats of the assumptions made in academic economics are ‘bullshit’ (used as a technical term to refer to ‘claims to truth’ which are ultimately unrepresentative of reality = Matt, I use bullshit as used in Anathem from Neal Stevenson, which I know you recommended to Peter).
I didn’t go on to read the articles you linked — I’m quite sure that I don’t want to start my new decade with anger at the ‘professors’ who enjoy their intellectual authority and paid ‘scholarly-leisure’ with teaching — knowingly — bullshit to the many cohorts coming under their tutelage.
The problem is this: they (we, as a the community of the learned) could have used the time more productively. Instead of deriving and regurgitating equations, we could have talked through the implications of our limited ability to know what the heck is economically happening in the economy. I studied economics intensely in 2010-2011 — and we never seriously discussed the 2008 crisis. Talk about being disconnected from reality.
And yet, I have a love/hate relationship with academia. I want their ‘aura’, the force of their claim to authority, how they are perceived by the populace as ‘possessing knowledge’. Intellectuals are important because they have a role to play in our ‘progress’ — and if the people who are ‘professors’ do not ‘profess’ what they have spend their lives learning (and learning means to sift through ideas and judge their validity), then there is a real problem under the sun.
We — as a humanity — are stunting our development if our temples of knowledge — our universities — are teaching ideas whose irrelevance becomes apparent as soon as the ‘graduates’ are immersed in the real world. Insofar as such ‘learned souls’ do not adapt to the complexity of the world in which they will spend the entirety of their productive lives, then yes, they are unduly spreading the influence of irrelevant ideas, doing so with a moral superiority justified only by pointing to the temples’ authority as the source of their blind certainty. There is real danger in this type of behavior.
Thus, if the universities were to directly teach their pupils how to face complexity, how to live with ambiguity, how to dialogue, understand and debate with others’ ‘alterity’ without anyone imposing an absolute (or at least spotting it when someone tries); if university were rebuilt to teach pupils all the many ways in which it is possible to think (as opposed to ‘what’ to think), that ‘small shed of today’ — that return to the agora — could — within generations — built a world in which diversity is taken seriously, and not only a mansion which necessarily excludes all those who happen to think differently. I don’t want to throw the ‘baby with the bath water’: I know that some good work is produced in the universities too. But relevance is certainly not an important criteria of a vast majority of scholarly work — and that only exacerbates the problem of having to ‘find’ the relevant amidst the ‘crap’ (Another Neal’s Stevenson’s technical term).
In my best efforts not to rant, I have failed. Maybe I am overly optimistic. In the universities, I see so much efforts devoted to preserving the prestige of ‘professors with no clothes’. And so many genuine insights lost amidst so much information! I keep thinking: there’s got to be a better way!
Anyway, as this new year commence, I sincerely wish that your distraction from distraction is at least lovely …
Economic theory is one thing while economic policy is an entirely different matter. How many economist studied QE before it became the primary policy response to the financial crisis? There are diverse and wide ranging discussions among economic policy wonks about better and more effective policy responses to the next recession. See for example the book Recession Ready. Nevertheless much of our current predicament including the aimless left and the self-interested right has to do with a lack of understanding of the financial crisis, it’s severe consequences for the middle class and the continuing impact of automation and globalisation on middle income jobs. To me, the Corbynist phrase “peoples QE” sums up both the lack of understanding of economic policy in response to the current challenges and an unwillingness to look beyond simplistic policy responses which were never intended to be a substitute for economic or social policy. The last thing the UK middle class needs right now is more QE. The Corbynists now have 5 years in the wilderness to come up with a practical and 21st Century economic agenda. Meanwhile we are left with the right who seem willing to suspend reality to justify, ipso facto, their antiquated and narrow world view where economic policy is subjugated to some expert who doesn’t understand elections, slogans and moral duplicity.