Not So Dismal After All?
The Soulful Science: What Economists Really Do and Why It Matters. Diane Coyle. viii + 279 pp. Princeton University Press. $27.95.
If it were really the main point of Diane Coyle's new book to argue that economics is a soulful science, this would be a negative review. Fortunately, that's not the case. Most of The Soulful Science: What Economists Really Do and Why It Matters is devoted to a grand whirlwind tour of modern economics, with fascinating vignettes of individual economists. It's a trip worth taking, because what economists do has changed considerably in the past two decades, and the textbooks haven't kept up. Coyle, who is both a journalist and a Harvard-trained economist, is ideally suited to the role of tour guide: She understands economists as only a fellow economist can, and she can write, as most economists cannot.
Coyle's tour begins with the economics of development and growth. She describes the work of Angus Maddison, a leading economic historian who has collected statistics on the growth that has occurred over the millennia, and she outlines the ongoing debate about the meaning of those statistics. She then characterizes economists as "passionate nerds," making her point with perceptive snapshots of three well-known members of the profession—New York Times columnist Paul Krugman and recent Nobel laureates James A. Heckman and Joseph E. Stiglitz. (Connecting these three with Maddison seems a bit of a stretch; they're doing interesting work that deserves mention, but they are not economic historians or collectors of data.)
Next, Coyle addresses the question of what makes economies grow, and here she nicely captures the ways in which modern growth theory is a far cry from the static analyses found in textbooks. Leaving growth, she introduces the reader to development economics and explains how current views on such topics as globalization and aid to developing countries came to be. This introduction is spiced up by a description of the differing views of Jeffrey Sachs and William Easterly regarding what to do about world poverty. (Write off debts and increase aid, says Sachs; that's much too simplistic, maintains Easterly.)
Coyle now turns to microeconomics and the debate between advocates of the neoclassical "selfish rational agent" models that textbooks present and proponents of the new "enlightened, self-interested, reasonable agent" models found in the work of behavioral economists. She gives the behavioralists credit for having introduced experiments into the economist's toolkit, moving the profession away from deductive models built on supposedly unassailable first principles and toward models in which assumptions are chosen inductively.
The next stop on this journey is the happiness literature, which is exploring the utilitarian foundations of economics and is considering what policies improve people's well-being. Economists have long hidden much ambiguity under the guise of a person's "utility function" (a mathematical formulation attempting to describe how much various items contribute to satisfying that person's wants). Unfortunately, in discussions of utility maximization, economists are never quite clear about just what it is that is being maximized. The happiness literature is examining that issue and finding that the simple textbook stories often miss as much as they reveal. For example, economists have found that once a society achieves an average income level of about $15,000 per capita, further increases in per-capita income don't make the society any happier.
The tour then moves to modern work in information theory. Information theory studies the interface between prices, decisions and information, exploring the circumstances under which prices are likely to convey useful information and those under which they are likely to convey incorrect information. Coyle describes an offshoot of that work—prediction markets, in which futures markets are created so that futures prices can be used by decision makers. The predictions of these markets tend to be more accurate than alternative methods of forecasting, nicely illustrating how modern economics has generated useful tools for business and government.
Quickly moving on, Coyle discusses evolutionary economics and the new institutional economics, which are bringing economic considerations of networks, norms and culture into the discipline. People make decisions in an institutional context, and modern economists are getting much better about specifying that context than were economists two or three decades ago.
I highly recommend Coyle's survey of what economists really do. Any such whirlwind tour necessarily has a bit of an "It's Monday, so this must be Paris" flavor and a few minor inaccuracies. (For example, Coyle dates the publication of Adam Smith's The Wealth of Nations as 1784, but that's when the third edition appeared; the book was actually first published in 1776. She also maintains that the neoclassical period in economics began in 1945, whereas most histories of economic thought see the neoclassical period as having started back at the end of the 19th century and consider 1945 the beginning of the end of that era. In addition, Coyle mistakenly refers to a paid advertisement in the American Economic Review as an "article.") Despite these minor shortcomings, it is a tour worth taking for the glimpse it provides of the diversity and excitement within the field of economics today.
In the book's last chapter, "Why Economics Has Soul," Coyle turns to the questions that gave the book its title: whether economics is soulful, and whether the answer to that question matters. Here, I am a bit less satisfied, perhaps because I am an academic, not a journalist. One of journalism's general rules seems to be that one should stake out a strong theme and pound it home. Coyle's theme is that modern economics is great, and getting greater.She argues that behavioral work and happiness work are humanizing the field and that the new economics is making substantial and overlooked contributions to policy. In Coyle's view, this humanization is making economics more soulful, and the contributions are making it more meaningful.
Although I agree that economics is changing for the better, I don't see the recent changes as making the field more soulful, or more meaningful, than before. It's just different. When I think of soul, I think of James Brown or Aretha Franklin, not a white-male-dominated profession studying happiness or running some experiment. My suspicion is that the "soulful" title was picked because it contrasted nicely with Thomas Carlyle's description of economics as the "dismal science." However, it doesn't work as a contrast. In 1849, Carlyle used the phrase in a pamphlet expressing his disapproval of John Stuart Mill's philosophical/economic argument against slavery—an argument based on Mill's deeply held belief in classical liberal moral philosophy, not on his belief in the pure science of economics. For Carlyle, economics was dismal because it had the soul of an economist, or at least as much soul as one can expect from a repressed Victorian.
Today in their training, young economists are not introduced to the soul of Mill (or that of Adam Smith, John Maynard Keynes, Lionel Charles Robbins, Friedrich August von Hayek or John Kenneth Galbraith). Moral philosophy, wherein soulful policy lies, has been purged from modern economics, and recent developments are not changing that. The economics of Mill's time was highly relevant to policy precisely because it was not a pure science. Mill's economic policy discussions were part of his applied moral philosophy; he accepted that almost all relevant policy issues lay outside the pure science of economics, in the art of economics, where formal models did not suffice. That's why classical economists such as Mill called their field of study political economy rather than economics.
Today, most economists see themselves as scientists, not moral philosophers, but they also try to have a direct policy impact. With increasingly formal technical models, they attempt to do the impossible—to make an end run around Hume's dictum that a "should" cannot be derived from an "is." In doing so, they have sold their souls, and the recent changes have not mortgaged their souls back. Most economists (Amartya Sen and his followers and allies excepted) don't even know that the soul of economics is missing. This doesn't mean that economics isn't relevant to policy; it simply means that the connection is not through the soul of economics (which lies in the moral philosophy of classical liberalism), but rather through technical channels.
My point is that modern economics is not more meaningful than it was in the past. Economic issues are important to society, and thus economists' ideas are going to be important, regardless of what they are. One could choose any period in history and find economists influencing events. For example, think back to the 1950s and 1960s, when economics was spinning off ideas that would fundamentally change the world financial structure, or to the heyday of Keynesian economics, when economists were espousing ideas that would fundamentally change the relationship between government and the aggregate economy. Given this recent past, it's hard to see economics mattering more today than it formerly did.
My suspicion is that the role of the economist in society is more happenstance than anything else. As I have argued elsewhere, economics, like any science, is best seen as a complex adaptive system that evolves over time. As is the case with all true scientists, scientific economists explore issues of intellectual, rather than of practical, interest. Every so often something they are investigating fits with developments going on in the real world. At that point, scientific economists matter. Then, those ideas having been integrated, scientific economic researchers move on to explore other issues, and the real world moves forward as well.
Economists have an influence on society, but that influence should not be overestimated; the truth is that life goes on quite well with or without them. For example, consider the reduction in extreme poverty that Coyle presents as one of the successes of the new economics. Does the new economics really deserve credit? Almost the entire decline in poverty has to do with phenomenal growth in China and India. Markets may have been central in that development, but economists have been extolling the virtues of markets for centuries, so I don't see how the new economics can claim credit. It is politics that has led to the change—not new economic theories.
In summary, economics is changing, probably for the better. It's fun to follow recent trends in the profession, but they don't matter a whole lot for society or for policy, much as we economists might wish that they did. Economists are just a small part of the complex world, and our recent shifts in research focus, although warranted, do not constitute a revolution. Rather, they represent a slow evolution that has been going on for centuries.