Don't Rock the Ideological Boat (Too Much)

David Wells

In his opening keynote address at the recently-concluded Rethinking Economics conference in London (June 28-29, 2014), Lord Adair Turner dismissed the need for changes to microeconomics by referring to the beneficial use made of micro by two committees he chaired, the Pensions Commission and the Low Pay Commission.

        

His committees may well have benefited from microeconomic insights but that does not leave micro in the clear. After all, the centrepiece of the micro banquet is the model of perfect competition which is foundational for the theory of General Equilibrium which in turn lies behind those models which assured mainstream economists that the financial crash of 2008 was not merely unlikely but actually logically impossible: so micro has a lot to answer for.

        

Lord Turner then focused his attention entirely on macroeconomics. The obvious problem with this limitation is that it leaves most of the foundations of mainstream orthodox economics intact and so student rebels against orthodoxy are likely to be disappointed.

Every session I attended at the conference included at least one reference to ideology. In addition,'Whig' as in Whig history was heard at least once, and 'neoliberal' several times.

        

Yet no-one put these themes together to actually come out and say plainly that the ideology of mainstream economics is (extreme) liberal, let alone to argue that this ideology which naturally and inevitably promotes laissez faire and free markets and so on, leads to distorted and inadequate models of experience, as seen in current economic textbooks and in the 2008 crash.

Ha-Joon Chang in his concluding keynote called forcefully and eloquently for pluralism in economics teaching, without considering that some of the schools of thought within economics that he identified preach (the correct word) ideas and claims that are deeply ideological and deeply damaging, the prime culprit being the hegemonic and extreme liberal neoclassical school. Thus, I presume that DSGE models ought not to be included in any pluralist course, except possibly as a terrible example of ivory tower economists running amok.

Finally, just before the final keynote address, a short video was played in which Robert Johnson, the President of INET, sent his best wishes to the conference and congratulated the organisers - but also suggested at one point that the students should be 'guided' by INET.

        

This is strange. Why should the students be 'guided' by INET ? Why not the other way around? After all, it is the students who are the instigators of this revolution and who are at the front line, manning the barricades. INET are very active in their own way - the CORE curriculum project is especially interesting - and they supply invaluable funding, including for this conference*, but they are essentially secondary actors on the stage. The protagonists are the students, not just in the UK but all over the world: the ISIPE now has (at least) 65 member associations in 30 countries.

*        And for researchers. I applied for a grant myself and was rejected, probably quite rationally.

Putting these points together, and writing as one of the older generation who was actually there at the time, I am reminded of the 1965 essay by Herbert Marcuse on 'Repressive Tolerance'.

        

Lord Turner is happy to use his vast experience to re-examine macroeconomics, but the foundations are, frankly, OK. Everyone acknowledges that ideology is present, but no-one actually wants to analyse it deeply. Robert Johnson wishes the students well but hopes that they will accept his avuncular guidance, while Ha-Joon Chang favours pluralism but without examining any ideological skeletons that various schools might be hiding in their cupboards.

If I were a student, I think that I would find this extremely disturbing.

David Wells can be contacted at davidggwells@yahoo.co.uk

Get Involved - Call for New Organisers

Want to join the Rethinking movement? We are looking for new organisers! Contact Yuan at rethinkeconomics.org to get involved :)

Newsletter Coordinator - Gather together news from around the RE network for our fortnightly letter. Let the world and our members know what is happening.

Secretary/Note-taker - Keep us all organised and up to date. Attend RE meetings and help us follow up on projects we agree to do together, by keeping all members of the group informed as to what has been discussed and agreed.

Media Coordinator - Be the front line for responding to the many print, online, radio and tv requests we get each week. Organise who is responding to what. You can also do interviews yourself if you like.

New Groups Liaison Officer - Take care of the expanding Rethinking Economics network. Be the first point of call for new groups who want help in starting up (can be grouped into locality or language if you prefer).

All these roles will be given plenty of training, help and contact with existing organisers to ease you into the role. Don’t let lack of experience stop you from getting involved!

Meet the Rethinkers: Dimitri Stoelinga of Laterite, Development Economics Research

Dimitri (right) with his co-founder, Sachin

Yuan’s Interview with Dimitri Stoelinga of Laterite (Development Economics Research - http://www.laterite-africa.com/), Kigali, Rwanda

“Economics is still in its early stages of development. When you go into an economics course, you should go in with a sense that this is a discipline that will change a lot in the next few years. Be anti-disciplinary. Do not let intellectual boundaries confine you.”

May 27^th 2014 – Beijing, China and Kigali, Rwanda

Tell us a little about yourself – where did you grow up? What brought you to the path of studying economics?

I’m half-Greek, half-Dutch, and my parents always moved around. I chose to move around too, living in France, India, Angola, the US, Kenya, Rwanda, Malawi …I studied economics because I lived for a long time in Africa, and I really wanted to move back. I wanted to be involved in economic development.

I went to the Kennedy School to do the MPA in International Development. After that, I worked for the World Bank in Washington, and then in Kenya. I was getting frustrated with the whole set-up - I didn’t think it was the right place for a young person to be.

Why did you feel the World Bank was not the right place to be?

From a personal perspective, it was the work model itself. I felt the projects we were doing were not designed to fit the needs of the country itself. Economists from Washington would fly in and design a research project. Then they’d sell it to the local government. So we ended up with very large, very technical projects, based on little local context, and for which there was not much local ownership.

In Africa, the consultancy you get tends to be like that: fly-in, fly-out. We wanted to replace that model, and start research companies immersed in developing countries, which is why we started Laterite in Rwanda.

You mentioned that there was a “mismatch of people and projects.” What do you mean by this?

The World Bank has fantastic people - very committed, hard-working, who believe in what they're doing. But for operational roles – managing, let's say, a couple of large scale projects – they have economics PhDs with little operational and practical work experience outside the World Bank or academia.

So the mismatch comes from not understanding the local context, and thus focusing on tasks that exercise the skills one has, rather than tasks that exercise the skills the local project needs?

I think so, yes. What the World Bankers bring is logical design. On paper it makes sense - but in practice things are different, and what the country needs might be different.

To me this sounds like one of the general problems with economics teaching: on paper it all looks coherent, but in practice we may need very different tools! 

For yourself personally, what were the highs and lows of your Economics education?

One of the highs was definitely discovering all the possibilities of statistics and data analysis. I had a great professor, Alberto Abadie, who tries out all sorts of new program evaluation techniques and has come up with some fantastic ideas and tools – to give you one example, "synthetic controls". Another prof, Cesar Hidalgo, was looking into how to use network analysis and applying it to economics through exports networks.

All of this innovative data analysis fascinates me – and goes much beyond the linear regression framework that bugs economics research today.

The low? Definitely theory. So long as you understand the basic dynamics of a system, it felt very unhelpful for anyone’s career to study the amount of theory we did at Harvard. It felt both disconnected from reality and also at times misleading.

In what way do you think it was misleading?

A lot of what’s out there right now is very interesting – RCTs, Duflo and Banerjee’s work – but just applying, say, game theory, or some microeconomic models, will never really work in a local context. We barely use any theoretical models learnt from economic theory in our work.

What is the alternative – what do you use instead?

Data and empirical evidence. A lot of the tools we have are for post-event analysis: RCTs and evaluations after the fact. There are very few tools that have been developed for pre-event analysis or project design. We need to find better ways of testing why certain types of interventions are likely to work or not ahead of time, and do that in a very rigorous way. This could be through games or specially designed surveys, that happen on a large scale before projects and policies are rolled out.

This reminds me of the “participatory econometrics” movement – see http://www.cultureandpublicaction.org/bijupdf/EPW_ParticipatoryEconmetrics.pdf

Economists have tried to make economics a scientific discipline, with formulae and models, but at the end of the day, we know that few of these models really work, and they have very little evidence-base or real-world application. So I applaud the movement to Rethink!

Inspiration. What two thinkers, artists, creators, come to mind when you think of those who have inspired you or helped you along your way?

My top two are two professors: Cesar Hidalgo, at MIT. He’s a physicist by profession, and through studying physics became a master of network analysis – from natural, biological networks, to mobile phone networks, export goods networks. He’s been doing all this with tools completely unknown to the economics profession. What I admire is how anti-disciplinary he is; how he rejects disciplinary boundaries, and takes things from various fields. (http://chidalgo.com/ - https://twitter.com/cesifoti)

And very personally, Alberto Abadie. He helped me a lot along the way, giving me advice. I took from him the idea that you don’t need to work with real data, per se; you can work with synthetic data, with as much predictive value as real data.

Recommend one book we should read in the next half-year.

I’m very inspired by network theory, and how to apply it to economics. The book that introduced me to this was Linked, by Albert-László Barabási.

And one piece of music to listen to.

I spent five years of my life in Mali, which is the place I’ve stayed the longest. I absolutely love Malian music – it’s a world in itself. I’d recommend the song Amana Quai, by Vieux Farka Touré (the son of Ali Farka Touré): http://www.last.fm/music/Vieux+Farka+Tour%C3%A9/_/Amana+Quai

      If you could have a wish-list of 3 items, or 3 words, for the future of your project, what would they be, and why?

Grounded – in the local context. It affects how you ask questions, how you communicate, how you contribute without duplicating existing effort.

Anti-disciplinary – meaning, beyond disciplines. Not being stuck to one discipline, and working with people from many disciplines.

Human – principled in what we think is right. Sticking to what we believe in. Doing good.

What advice would you give to other young economists, and Rethinkers in general, starting out on their journey?

My sense is that economics is still in its early stages of development. When you go into an economics course, you should go in with a sense that this is a discipline that will change a lot in the next few years. I think this change will be brought by changes in data: new visualisations, big data analysis, new methods borrowed from other disciplines. And also, don’t neglect network theory – learn about it and how it might apply to some of the problems you want to solve.

Go in open-minded, and embrace all the new techniques! Try and master data. The empirics will make a huge difference to the discipline.

We’re setting up the Laterite Lab, where our team members do research together, and eventually we want to develop this into a more sort of formal lab, where we have people from different disciplines trying out new tools. We are currently recruiting new researchers: please get in contact via http://www.laterite-africa.com/.

Who are we?

We are most likely to be aged 18-34....

We are from London, Berlin, Oxford, Cambridge, Vienna, New Delhi, Lisbon, Manchester, São Paulo, Barcelona, New York, Paris, Copenhagen, Islamabad, Rome, Kuala Lumpur, Singapore, Santiago, Lahore, Belo Horizonte, Melbourne, Rio de Janeiro, Washington, Bangkok, Brussels, Calcutta and many, many more!

The Economics of Information in the 21st Century: A Review of Jaron Lanier's Books

Author: Dave Hochfelder

Jaron Lanier, You Are Not a Gadget: A Manifesto. New York: Vintage, 2010. 240 pp.

Jaron Lanier, Who Owns the Future? New York: Simon & Schuster, 2013. 416 pp.

The specter of technological unemployment has been haunting traditional economics since at least the Great Depression. Technological unemployment arises from increasing labor productivity due to technological advances like automation and computerization. In the aftermath of the Great Depression, American economist Hans Neisser warned of “permanent” technological unemployment and ended his article with the “inevitable” conclusion that “there is no mechanism within the framework of rational economic analysis that…would secure the full absorption of displaced workers and render ‘permanent’ technological unemployment in any sense impossible.” [1] More recently, in 2012, Nir Jaimovich and Henry E. Siu published an NBER working paper showing that recovery from the last three recessions has been “jobless” because of productivity gains from technology.[2]

Enter Jaron Lanier, a Silicon Valley pioneer turned critic of Web 2.0. In these two books, he lays out a powerful indictment of the technological and economic ideology behind today’s Internet and its likely future development. In particular, Lanier warns of a serious potential effect of networked information technologies: an increasing gap in the distribution of wealth. In a world where information is free, the creators of that information derive no economic value, Lanier argues. Instead, wealth flows upward to those who control the servers that store and disseminate that information. Karl Marx famously noted that “the hand-mill gives you society with the feudal lord; the steam-mill society with the industrial capitalist.” In Lanier’s future, the digital cloud gives you society with a techno-oligarchy.

Traditionally, the workers most affected by technological unemployment were in the manufacturing sector. 3-D printing and new-generation robotics are likely to reduce employment in manufacturing while enabling dramatic increases in output. Lanier, however, warns that workers in the so-called creative and knowledge classes are also likely to fall victim thanks to the technological networks of the 21^st century. File-sharing, for example, has allowed musicians to reach broader audiences while at the same time has eroded their ability to earn a living at their craft.

Lanier offers a solution—allow individuals to monetize the information they share in the digital cloud. He reasons that since this information is valuable to Google, predictive analytics companies, and advertisers, then the people who generate this information should be compensated in the form of “nanopayments” (Who Owns the Future? p. 20).  It is unclear whether the “lords of the clouds” (You Are Not a Gadget, p. 54) will accept this solution, but Lanier argues that it is in their long-term interest to do so. Otherwise, he concludes, the alternative is a world of vastly unequal distributions of wealth and power.

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[1] Hans P. Neisser, “’Permanent’ Technological Unemployment: ‘Demand for Commodities Is Not Demand for Labor,’” American Economic Review 32 (March 1942): 50–71.

[2] Nir Jaimovich and Henry E. Siu, “The Trend Is the Cycle: Job Polarization and Jobless Recoveries,” National Bureau of Economic Research Working Paper, 31 March 2012. http://faculty.arts.ubc.ca/hsiu/research/polar20120331.pdf (accessed 5 May 2014).