Diane Coyle - Cogs and Monsters: What Economics Is, and What It Should Be

COGS AND MONSTERS

Cogs and Monsters

What Economics Is, and What It Should Be

Diane Coyle

PRINCETON UNIVERSITY PRESS

PRINCETON AND OXFORD

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Library of Congress Cataloging-in-Publication Data

Names: Coyle, Diane, author.

Title: Cogs and monsters : what economics is, and what it should be / Diane Coyle.

Description: Princeton : Princeton University Press, [2021] | Includes bibliographical references and index.

Identifiers: LCCN 2021017044 (print) | LCCN 2021017045 (ebook) | ISBN 9780691210599 (hardcover ; alk. paper) | ISBN 9780691231037 (ebook)

Subjects: LCSH: Electronic commerceHistory21st century. | Digital mediaHistory21st century. | EconomicsHistory21st century. | BISAC: BUSINESS & ECONOMICS / Economics / General | BUSINESS & ECONOMICS / Public Finance

Classification: LCC HF5548.32 .C69 2021 (print) | LCC HF5548.32 (ebook) | DDC 330dc23

LC record available at https://lccn.loc.gov/2021017044

LC ebook record available at https://lccn.loc.gov/2021017045

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British Library Cataloging-in-Publication Data is available

Editorial: Hannah Paul, Josh Drake

Production Editorial: Terri OPrey

Jacket/Cover Design: Karl Spurzem

Production: Erin Suydam

Publicity: James Schneider, Kate Farquhar-Thomson

Jacket image by Ryger / Shutterstock

Dedicated to the memory of Peter Sinclair, 19462020

COGS AND MONSTERS

ECONOMICS TODAY AND TOMORROW

Economics comes in for plenty of criticism. It is not hard to understand why, given that events like the 20082009 financial crisis, the Brexit vote in the UK, or even the rise of populism across the western democracies, seemed to catch the economics profession off-balance. Yet many criticisms of the subject long pre-date these specific events, while the substance of what most of them say has not changed since at least the early 2000s: economists make assumptions about people being selfish, calculating individuals; economics is all complicated mathematics and ignores the real world; economists only care about money and profit, not about truly valuable things like the environment. These are familiar accusations, given a new edge by events. Yet at the same time, economics has become more successful than ever in terms of its influence on policy-making, or more materially in terms of the incomes economics graduates can earn (Britton et al. 2020).

The unchanging critique is deeply frustrating to many of us in the economics profession because it sets up straw men, while ignoring deep-seated problems that are likely to present more significant challenges. Economics has changed a lot in recent decades. It needs to change a lot in futurebut the critique needs to move on too, to address what really needs attention.

To take the issues with critique first, one of its standard elements is that economics uses abstract models written down in mathematical formulae. There is certainly abuse of mathematical formalism in economics (Romer 2015), but every discipline uses models in the sense of selecting a small number of elements in the complex world to investigate causal relations. The causes of the first world war is a model, just as much as Gary Beckers (1965) theory of time allocation.

Another common criticism is that economics ignores history, including its own history of thought. Many of us would love economic history to return to its former place as a standard part of the curriculuma trend that has already started in many courses. So too has the teaching of the links between historical events, the history of economic ideas, and policy choices (something covered in ). Research in economic history is thriving currently, albeit from a small base, and so too is institutional economics, for which understanding historical context is essential.

This criticism therefore has merit but those who deploy it are somewhat ahistorical themselves in refusing to recognise that the discipline has been changing dramatically during the past thirty years. There has been a substantial turn away from theory to empirical work (Angrist et al. 2017). Most economists do applied microeconomic research, where data sets, econometric techniques, computer power, and a lively methodological debate about causal inference mean there has been an effective revolution in knowledge and practice since the 1980s. Economics is at the forefront of using new massive data setsbig data (Athey 2017). None of the recent critics (such as Skidelsky 2020) acknowledge this. Indeed most critics only discuss macroeconomics (the study of the aggregate behaviour of the economy as a whole), which is an easy target because macroeconomic forecasting is genuinely difficult, far harder than weather forecasting.

A different type of criticism reflects mutually incompatible views about whether there can be advances in economic knowledge. Heterodox critics advocate pluralism in approaches to economics (for example, Earle, Moran, and Ward-Perkins 2016). They seem to see the subject as comparable to the humanities, where fundamental truths do not exist and ultimately researchers values determine their conclusions. The main body of the economics professionlabel it mainstream or neoclassical or even neoliberalbelieves that knowledge about economics does accumulate (although none want economics to be just like physics, as some critics continue to claim; true in the 1950s or 60s perhaps, but not in the 2020s). All economists would agree that values and ideologies affect policy choices. Many think it possible nevertheless to separate empirical knowledgehow much is a higher tax rate likely to reduce demand for sugary drinks?from political valuesshould the government protect consumers from their own bad choices?

To my mind, values cannot be wholly separable from empirical investigation, and yet it is important for economists to aspire to be as impartial as possible. Economic knowledge certainly accumulates. If we had not learned lessons from the experience of the 1930s, the consequences of the 20089 financial crisis would have been far more severe, and governments would not have introduced furlough schemes during the coronavirus lockdowns. If we had not created and learned from market design (defining the rules that make markets work well), far fewer of the apps on our phones could work.

There are other important differences between economics and its critics. One is whether it is ever acceptable to put monetary values on intrinsically good things like nature or human life. The economists answer is that there are implicit valuations made whenever people make choices about where to build roads or what safety features to require of new products, so is it not better to be explicit about those judgements? These are healthy debates, generally with constructive mutual engagement among the participants. Indeed, some leading economists have begun to argue for a closer dialogue between economics and ethics (Bowles 2016), and to identify the importance of identity (Akerlof and Kranton 2010), and narrative and persuasion (Shiller 2019). This engagement with the humanities is necessary and welcome (Morson and Shapiro 2016).