Sunday, February 18, 2018
An interview relevant to Steven Pinker’s latest book Enlightenment Now:
The way to deal with pollution is not to rail against consumption, according to public intellectual Steven Pinker. He explains himself to Andrew Anthony, of The Observer.
If moral values are nothing but cultural customs, would you agree that our disapproval of slavery or racial discrimination or the oppression of women is just a Western fancy?
Say the word ‘‘ enlightenment’ ’ and it tends to conjure images of a certain kind of new-age spiritual ‘‘ self-improvement’’ : meditation, candles, chakra lines. Add the definite article and a capital letter and the Enlightenment becomes something quite different: dead white men in wigs.
For many people, particularly in the West, reaching a state of mindful nirvana probably seems more relevant to their wellbeing than the writings of, say, Immanuel Kant and Adam Smith. But according to Enlightenment Now, a new book by the celebrated Harvard cognitive psychologist Steven Pinker, this is precisely where we’re getting our priorities wrong.
For Pinker, the Enlightenment is not some distant era, of interest only to historians and philosophers, but instead the foundation for all the many benefits and advantages to which we scarcely give a second’s thought in the 21st century.
He lists some of the advancements made by modern societies: ‘‘ Newborns who will live more than eight decades, markets overflowing with food, clean water that appears with a flick of a finger and waste that disappears with another, pills that erase a painful infection, sons who are not sent off to war, daughters who can walk the streets in safety, critics of the powerful who are not jailed or shot, the world’s knowledge and culture available in a shirt pocket.’’
These were not inevitable developments, Pinker wants us to know, but the fruits of the methods and values that were first popularised in the 18th century.
It’s safe to say that few of us stop and marvel at the extraordinary progress that humankind has made in the past couple of hundred years; a mere blink of the eye in evolutionary terms. Instead we’re more likely to lament the state of the world, deplore the ravenous nature of humanity, rage at the political and financial elites and despair at the empty materialism of consumer society.
But for Pinker, that’s an indulgence we can no longer afford. His book is a sustained, data-packed argument in favour of the principles promoted by the Enlightenment, ‘‘ The Case,’’ as its subtitle puts it, ‘‘ for Reason, Science, Humanism, and Progress’’ .
By virtue of science, I’m able to see and speak to Pinker via Skype, from my office in north London, while he is in his office in Boston. He explores the issue of inequality in some depth in the book, so it’s not an entirely trivial observation to note that his office looks to be about eight times larger than mine. But more on the distribution of wealth later.
Pinker’s trademark mop of silver curls, more like that of an ageing hard rock guitarist than an Ivy League academic, a pair of twinkling blue eyes and a ready expression of amusement beam out from my screen.
So, I ask, why do the values of the Enlightenment require such staunch and detailed defence at this particular juncture in time?
‘‘ Among other things,’’ he replies, ‘‘ they are under threat from authoritarian populism, religious fundamentalism and radicalism of the left and right. The great successes the world has enjoyed over the past decades and centuries are taken for granted, because many of the ideas responsible for them have become part of the establishment and no-one is willing to defend
them. So anything that is going right is not associated with any movement, any values, and that has left a vacuum that forces of extremism have rushed into.’’
Pinker, however, is willing to defend these established, even establishment, ideas. He is, rather bravely, prepared to be the bearer of good news. I say bravely because it’s not a popular stance. Announce that the world has gone badly wrong, that there are too many people, the earth has been despoiled, we’ve never been in greater danger of death and destruction, or more adrift in the spiritual void of materialism and you’ll have the nodding attention of the news media and the intellectual classes.
But painstakingly show that, actually, things are on the whole quite a bit better than they have ever been and you’ll meet a torrent of bafflement and denial. Pinker knows this because he’s already been through the process with his previous book, The Better Angels of Our Nature, which persuasively argued that humankind was becoming progressively less violent.
It was a message that seemed to run counter to everything we thought we knew or had been told. How, after two world wars, the advent of the nuclear bomb, the proliferation of the arms industry and the brutality and murder we saw on television each night, could we seriously entertain the notion that we are becoming less violent?
But we are, and Pinker showed it with such an abundance of apparently irrefutable data: graphs showing rates of homicide have fallen by a factor of 50, that rates of death in war have fallen by a factor of more than 20, and that rape and domestic violence and child abuse have all fallen.
The Enlightenment is a period placed by historians largely in the 18th century. In his 1784 essay ‘‘ An Answer to the Question: What is Enlightenment?’’ , Kant said that it amounted to ‘‘ humankind’s emergence from its self-incurred immaturity’’ . He exhorted his readers to ‘‘ dare to understand’’ .
In Pinker’s conception, there was a unifying rejection of the constraints of religious faith and tribal loyalties, and in their place a belief in human universalism, the power of reason and the progressive role of science. For him it’s no coincidence that slavery and cruel punishments (such as being hanged, drawn and quartered) were outlawed in the wake of the Enlightenment. Nor that health, wealth and life expectancy began to rapidly improve.
Right from its inception, the Enlightenment had to do battle with the counter-Enlightenment ; formed from the massed ranks of traditionalists, the religiously orthodox, and Romantics who recoiled from the unblinking gaze with which the Enlightenment thinkers felt emboldened to observe the world.
The struggle has continued ever since, with the Enlightenment being blamed for racism, imperialism and Nazi eugenics by critics from the left, and by the right for the moral void of atheism and materialism that found its murderous apogee in the Soviet Union and communist China. More recently, postmodernists have looked upon the Enlightenment as yet another false grand narrative, in which humanism, science and reason are just more belief systems, no more nor less valid than any others.
Pinker rejects all three positions. Far from sanctioning racism or Nazism, he says, the Enlightenment laid the philosophical groundwork for universalism, the belief in equal rights for all, which ultimately triumphed over fascism and imperialism. Pinker argues that the inspiration for Nazi ideology should be more appropriately traced to Friedrich Nietzsche, who attacked the Enlightenment’s dependence on reason and argued for a ‘‘ will to power’ ’ and the idea of ‘‘ ubermensch’’ , or superman.
And Marxism, he maintains, was not a legacy of the Enlightenment, but instead a pseudoscience that has more to do with German Romanticism.
As for postmodernism, Pinker is scathing.
‘‘ If scientific beliefs are just a particular culture’s mythology, how come we can cure smallpox and get to the moon, and traditional cultures can’t ? And if truth is just socially constructed, would you say that climate change is a myth? It’s the same with moral values. If moral values are nothing but cultural customs, would you agree that our disapproval of slavery or racial discrimination or the oppression of women is just a Western fancy?’’
No doubt Pinker will be admonished for mischaracterising the views of his opponents. But while there are certainly some polemical flourishes, Enlightenment Now is a careful and deeply researched piece of work.
Canadian-born , Pinker has done the faculty rounds of MIT, Stanford and Harvard, where he has built a formidable reputation as a multidisciplined thinker. But it is his books that have elevated him to the coveted position of public intellectual.
He wrote a series of wellreceived books about linguistics and psychology before publishing The Blank Slate in 2002, which argued that human behaviour was not simply or even largely a matter of environmental influence but instead shaped mostly by evolutionary adaptations. The book had its critics, but it became a bestseller. Ever since, Pinker’s audience has only grown in number; as have his critics.
It’s likely that Enlightenment Now will prove his most controversial book to date. His targets are many and he pulls few punches. For example, he takes the green movement to task for a ‘‘ misanthropic environmentalism’ ’ that views modern humans as ‘‘ vile despoilers of a pristine planet’’ .
Underpinning the belief that humans are destroying the earth is the assumption that progress is not sustainable. Pinker disagrees, or at least argues that such doomsday conclusions have a long and fallible history. A fundamental tenet of the Enlightenment was that all problems, if studied long and hard enough, could be understood, and therefore at some point solved. And environmental problems, writes Pinker, are no exception.
He argues that progress is not only sustainable, but essential for attaining the knowledge that will enable us to find the cleanest and most efficient use of energy. In other words, scientific progress is what will make economic progress work. The book is a kind of rallying call to replace moral posturing with clear-eyed realism. Pinker’s message is that if we are not going to return to huntergathering — and we’re not — we had better face up to the task at hand.
That probably means using more nuclear reactors in the immediate future, something that, as with GM crops and shale gas, the green movement has responded to with apocalyptic protestations. And we may also have to acknowledge that to cut down on carbon emissions, the developing world first needs to attain a level of material wealth, by burning more energy, at which point it can turn its attention to the environment.
But perhaps he will be most in need of a tin hat for his unapologetic dismissal of the kind of anti-capitalists who see globalism as an international conspiracy bent on impoverishing the world for the enrichment of a tiny elite. A rave review by Microsoft founder Bill Gates, who called Enlightenment Now ‘‘ my new favourite book of all time’ ’ (his previous favourite was The Better Angels of Our Nature), is unlikely to improve Pinker’s credentials in radical circles. Although he emphasises the need for strict regulation of capitalism, Pinker points to the data that shows that history has never seen such a massive movement out of poverty as that witnessed by the late 20th-century capitalist revolutions in China and India. It’s for this reason that he believes the dangers of inequality have been overstated.
‘‘ If wealth consisted of a finite pot that was divided in a zero-sum fashion,’’ he says, ‘‘ then maybe poverty and inequality would be the same issue. But we know that isn’t true, that prosperity has increased maybe a hundred-fold since the Industrial Revolution. A second point that gets omitted from discussions on inequality: although it’s true that inequality within many rich Western countries, especially the Anglosphere, UK, US and Canada, has grown, globally, inequality has fallen because the poor are getting richer faster than the rich are getting richer. China and India and Africa and Latin America are getting richer and that has reduced the global indices of poverty.’’
Pinker accepts that, to a degree, the decreased inequality between the developing world and the West has come at the expense of increased inequality within the West, as manufacturing jobs that once benefited the lower middle class in America and Europe now benefit the lower middle class in China and India.
‘‘ If we were to step back and look at the progress of the world’s poor, we’d have to say this is a marvellous development. If you’re a British or American politician, of course it’s much harder to make that argument. More generally, the political issue that should engage us is how well off the people at the bottom of the ladder are. What we do to combat poverty: that’s far more important than reducing inequality.’’
But what of the argument that this ever-expanding cycle of production and commercialisation is turning us into mindless consumers, who can only see value in disposable commodities?
Pinker laughs. ‘‘ The intellectual and cultural critics who make that argument never seem to include trips to the continent or fine food and wine as a sign of soulless materialistic consumption. It’s always consumption by the other guy that they think of as morally compromising. There’s an issue with the effects on the environment: it really is not good to pollute the environment, particularly when it comes to carbon emissions, but the way to deal with that is not to rail against consumption. There are a lot of aspects of consumption, like being able to travel, see the world, be warm in the winter, cool in the summer, that are human goods. The challenge is: how do we get the most human benefit with the least environmental damage?’’
Even Pinker’s fiercest enemies would acknowledge that, however it may have been distributed, there has been scientific and material progress since the advent of the Enlightenment. But many, perhaps most notably the philosopher John Gray, argue that it has not been — and cannot be — accompanied by moral progress.
Pinker disagrees. He thinks that the Enlightenment has been misunderstood as a doomed project aimed at perfecting humanity by repressing emotion. But that was never the intention, says Pinker, because humans are inescapably emotional beings, made from what Kant famously called the ‘‘ crooked timber of humanity’’ .
Those unpredictable impulses that lead to strife, violence and war will always be with us. What’s at issue is how we govern those impulses; through religious dogma, tribal lore and superstition, or by reason, debate, the rule of law? Pinker suggests that latter approach has delivered undeniable moral advancement.
‘‘ Slavery used to be practised by every single civilisation,’’ he says. ‘‘ Now it is illegal everywhere on Earth. The concept of equal rights for women wasn’t a concept until a couple of hundred years ago. Now it is part of the explicit belief of all world bodies and most countries. The rights of children not to be exploited for their labour, racial equality, religious tolerance, freedom of speech . . . it’s very difficult to find clear statements of these values before the Enlightenment. There were some statements in ancient Greece, but they certainly didn’t carry the day then. In almost everything that you could take as an index of moral progress, the data show that we have been making it.’’
It’s just the kind of speech that will be pilloried as ‘‘ Panglossian’’ , after Voltaire’s relentlessly optimistic Professor Pangloss in Candide. But as Pinker correctly notes, Pangloss was a satire on theodicy, the belief that God had created the best of all possible worlds. Prof Pinker, by contrast, believes the world is inherently unstable and nothing is guaranteed. His concern is to make things better. And you can only do that if you first acknowledge the improvements that have been made. Enlightenment Now has made it extremely difficult to ignore them, even if you’d much prefer a spot of crystal healing and a Deepak Chopra tape. Namaste. — Guardian News and Media
As printed in The Mix, Otago Daily Times 17 September 2018
Saturday, February 3, 2018
Kiwiblog reports ( MOH report concludes sugar taxes don’t work ) on the Health Dept. commissioned Study by NZIER showing (as many of us have said for a long time) that no dependable study shows reliable evidence that sugar taxes produce health benefits.
It took 50 days and an Ombudsman to release the information taxpayers paid for. Much of the evidence either ignores elasticity, relies on regurgitating discredited information or comprises modelled results. No surprises except the gullibility of those who continue to believe that health professionals understand the complexities of behaviour and tax linkages. There is no reason to suppose they should any more than I know anything about brain surgery.
Thursday, January 25, 2018
Profits are the proper gauge of a company’s value to consumers—and to society.
By Andy Kessler
Wall Street considers it a truism that money sloshes around the globe seeking the highest return. But there are countless investors, believe it or not, who are willing to accept lower returns. P.T. Barnum supposedly said there’s a sucker born every minute. Many of them go into so-called socially responsible investing. Laurence Fink of BlackRock , which manages $6 trillion in assets, is only the latest to evangelize this fad. But the basic idea is to throw money away. In reality there is no trade-off of Vice vs. Nice. There are only returns.
“Corporate social responsibility” fails under the same halo. Reread Milton Friedman’s 1970 article “The Social Responsibility of Business Is to Increase Its Profits.” For stockholders to push their view of social responsibility, Friedman wrote, is simply to force others “to contribute against their will to ‘social’ causes favored by the activists.”
Profits are the best measure of a business’s value to consumers—and to society. No one holds a gun to the customer’s head. If the buyer weren’t glad to pay the free-market price, he would make the product or perform the service himself. Yet this idea is questioned all the time.
A case in point is Amazon, currently worth $625 billion based on expectations for Amazon-size profits to come. A Seattle Times headline in 2012 lamented that the company was “a virtual no-show in hometown philanthropy.” Sally Jewell of the retailer REI told the newspaper: “I’m not aware of what Amazon does in the community.” Really? Besides offer low prices, huge variety and quick delivery, along with jobs not only in Seattle but around the world, as manufacturers leverage Amazon’s platform to reach global customers? But the company didn’t sponsor concerts in the park! Gimme a break.
A counterexample is Etsy , which for years proudly touted that it was a “B Corp,” one “certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance.” Sounds a bit wishy-washy, but maybe it was supposed to attract social-impact investors. How’s it going? After Etsy went public in 2015, it opened at $31 a share, bottomed out in 2016 around $7, and now trades at $19. That’s worse than dead money, given that the overall market is up a third since Etsy’s IPO. Little surprise, Etsy is no longer interested in being a B Corp.
In 2016 the Rockefeller Family Fund decided to “divest from fossil fuels.” Whether or not that improved the family’s social standing in New York, it couldn’t have been good for the bottom line: Brent crude was $40 a barrel then, and it’s now pushing $70.
California’s $350 billion state pension system, Calpers, has its own set of confusing divestment initiatives. Last month the American Council for Capital Formation warnedthat Calpers “has demonstrated a troubling pattern of investments in social and political causes that are truly jeopardizing the retirement fund.” Of the system’s nine worst-performing funds, the report says that four focused on renewable energy.
Individual investors can put their own money into hundreds of “sustainable,” “responsible” and “impact” funds, with names like Domini Social Equity and the Neuberger Berman Socially Responsive. Returns are all over the place. But of about 175 that had full-year returns in 2017, 75% underperformed the market. That’s a steep price to pay.
Don’t be fooled by the word “sustainable.” Al Gore and Goldman Sachs alum David Blood set up Generation Investment Management to pair sustainability research with traditional investing rigor. A few leaks of Generation’s returns have shown pretty good numbers. But it depends on what the meaning of “sustainable” is.
Think of Google, which made Al Gore a fortune thanks to his pre-public stock options. Google seems to be sustainable in the business sense, but in the climate-change sense? The company has data centers all over the place that use gobs of electricity. Perhaps Blood and Gore—I know, that would have been a much better company name—are simply deniers, since reports from the Securities and Exchange Commission show that their fund owns not just Google but also electricity hogs Facebook and Amazon.
Master investor Charlie Munger summed it up last year: “Gore hired a staff to find people who didn’t put CO2 in the air, and of course that put him into services. Microsoft , and all these service companies were just ideally located, and this value investor picked the best service companies, so all of a sudden the clients are making hundreds of millions of dollars . . . and he’s an idiot.”
The bottom line is this: Do whatever you want with your money. Feel virtuous. But if you think you’re being charitable for “responsible” investing, you are, but not in the way you think. If you don’t put your money where the returns are, someone else will. By passing up gains, you’re just making guys like George Soros and Steven Cohen richer so they can buy more bad art. Let the money slosh.
Appeared in the January 22, 2018, print edition.
Monday, January 15, 2018
New Zealand lifestyles are changing and to reflect this a number of items have been deleted from the Consumer Price List Basket and replaced with more commonly purchased items as per this article from Scoop:
Statistics New Zealand has rejigged the consumers price index basket in its latest three-year review, adding body massages, Airbnb and Uber and removing DVD and Blu-Ray players.
"People are spending more online to rent a taxi, or a house for a night, and less on in-car satellite navigation and DVDs," Stats NZ said. The basket is a reflection of New Zealand society and how it has changed over time, said prices senior manager Jason Attewell. Stats NZ has added 15 new items and removed 23.
"More people are going online to buy shared ride services, such as Uber, and shared accommodation services, like home-rental operators Airbnb and BookaBach," Attewell said.
Among other things, people are spending more on craft beer and massages, so these are joining the CPI basket, he said.
"New Zealand used to be called a country of rugby, racing, and beer – but spending patterns are changing and Kiwis are increasingly keen on craft beer, body massages at beauty spas, and football club memberships," Attewell said. According to consumer prices manager Matt Haigh, Kiwi households spend about $100 million a year on body massages.
Other newly included items are olives, flavoured tea and bicycle helmets as well as accessories for cellphones like headphones and cases.
Items that have been removed include in-car satellite navigation systems, DVDs and Blu-ray discs and MP3 players, as well as luncheon meat, cottage cheese and antacids, together with soft toys, prams and pushchairs.
Within some items that remained in the basket, changes were also made. For example, within the new cars an electric vehicle has been included and within international flights, five additional destinations were added. Under taxi fares, the sample now includes ride-sharing services.
Sewing machines were removed but clothing alterations are now in. "People don't have as much time to do things themselves and are prepared to pay others to do jobs for them," said Attewell.
Housing and food continue to make up more than half of what goes into the CPI basket.
Stats NZ collects around 100,000 prices each quarter, visiting supermarkets, departments stores and clothing shops. It surveys 2,500 businesses including construction firms, medical centres and used car years. It also uses data from websites for things like streaming services. There are 701 items in the basket.
Friday, October 20, 2017
If Anyone Is in Need of a Nudge, It’s the Politicians
By Ryan Bourne
This article appeared in The Telegraph on October 13, 2017.
Imagine a school canteen. There’s a full array of food on sale, from healthy salads through to chocolate fudge brownies. But the canteen deliberately puts the salads in the children’s eye-line at the front of the counter. Economists describe such a choice as a “nudge”. Behavioural evidence suggests food placed here is more likely to be purchased. The canteen is encouraging healthy eating with this information, but without coercion. The children are, after all, still free to buy chocolate fudge brownies, should they wish.
Richard Thaler, this week’s Nobel Economics Prize winner, has made a career observing how humans deviate from perfect rationality and how applying “nudges” can alter economic decision-making. He has presented compelling evidence that humans tend to be biased towards the status quo, value things more when we already own them and are influenced by the framing of decisions.
Nudgers aim to alter our “choice architecture” to influence decisions but without restricting our freedom to choose. The UK Government has a whole unit working on this. The new policy of auto-enrolment in company pensions, requiring an active opt-out, is a “nudge” attempting to help people meet their stated desire for more saving towards retirement. Participation in workplace pensions has increased by 37 percentage points since it was introduced. Provided they are based on good evidence, do not use heavy-handed bans or change the payoffs to choices, Thaler advocates such nudges as a form of “libertarian paternalism” - guidance in decision-making, which does not restrain individual free will.
But the concept is controversial among economists. Just because some individuals are not rational does not mean regulators and politicians have better information on their circumstances or preferences. Some now auto-enrolled in pension schemes, for example, would need and prefer more cash today, but the same bias towards inertia prevents them from opting out.
Nudgers aim to alter our “choice architecture” to influence decisions but without restricting our freedom to choose.
In many markets regular feedback, repeat decisions and competition allow people to fulfil their preferences whilst overcoming individual-level biases. Regulators and politicians have their own motivations, too, and can be prone to groupthink and capture by vested interests. The lines between nudging and shoving are quite often blurry. Auto-enrolment might be a nudge for the employee, but it seems one hell of a shove to obliged employers threatened with fines for non-compliance.
The main issue with behavioural economics, though, is that we appear to be applying its insights to the wrong target group. The book Nudge has a whole chapter explaining the conditions under which they are likely to be effective: when the consequences of choices are delayed, choices are difficult, the choice is made infrequently, and when it is difficult to predict how the choice might affect our lives. These seem to apply most aptly to decisions politicians and regulators make all the time on our behalf.
Yes, individuals have their biases. But politicians do too. They put the status quo on a pedestal, suffer groupthink, seek to bribe the electorate, have a bias for budget deficits, continuously complicate the tax system and grow the size and scope of government. Absent a constitution that constrains them, why not change the “choice architecture” they face?
We could, for example, make mandatory five-year sunset clauses the default on new regulations to try to curb the growth of the regulatory state. Politicians would have to rubber-stamp the continuation of each regulation, enabling them to assess and reflect on their effectiveness. The same concept could be applied to all repatriated EU law.
To stop taxation by stealth, we could pass a law so that all tax thresholds rise automatically each year in line with the growth rate of nominal GDP. If politicians want to raise taxes by playing with income thresholds or through fiscal drag, they would have to do so explicitly and transparently, facing the political heat.
The opportunities to apply this thinking are endless. To deter cronyism, large political donations could be anonymised through a central clearing house, leaving complete freedom to donate to a party but dampening the incentive for politicians to appease specific donor interests. An option for politicians’ salaries to be tied to economic growth as default could be added to their contracts too, with the freedom for them to “opt out” and maintain current arrangements should they wish to signal their lack of faith in their own policies.
On the spending side, zero-based budgeting should be the norm in any comprehensive spending review. Any new policy that raises net spending above a threshold amount should trigger an OBR analysis on how much it will add to national debt over the coming 30 years, which must be read out by the relevant minister in Parliament.
“Tax trigger laws” could be passed too, meaning when revenue is much stronger than expected, the default would be to cut tax rates so revenues are simply maintained to meet government spending. This would deter the perceived “windfall” effects the Treasury can obtain from growth before budgets, often used to bribe the electorate, and would highlight the trade-off between spending and taxes.
Despite Thaler’s interesting work, history suggests bad government policy can be far more damaging to our welfare than individuals’ biases. So why not apply the insights of Nudge where it is most needed, and frame politicians’ choices to encourage the salad diet for government?
Ryan Bourne holds the R Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.
Monday, August 28, 2017
Economists have gotten a bad rap in recent years, but their devotion to data still offers the most practical, bias-free way to assess our most pressing problems
ILLUSTRATION: BRIAN STAUFFER
By Greg Ip
Aug. 25, 2017
Earlier this month, a Greek court convicted an economist for what amounted to doing his job. In 2010, Andreas Georgiou took over Greece’s statistical agency and revised upward the figures for the country’s debt, which had long been suspect, in order to meet European Union standards. Ever since, Greek officials have tried to blame him for the austerity measures and economic hardship that followed. This month’s verdict, which came after Mr. Georgiou had been repeatedly exonerated, was met with dismay by outside experts who call his work exemplary.
Mr. Georgiou’s case is only the most extreme instance of public vilification of economists around the world. After Bank of England Gov. Mark Carney warned last year that leaving the EU could harm the British economy, one pro-Brexit member of Parliament demanded that he be sacked. When the Congressional Budget Office said this year that replacing the Affordable Care Act would swell the number of uninsured Americans by millions, President Donald Trump’s staff called the nonpartisan agency’s work “fake news.”
Many voters share these politicians’ contempt. More than 40% of Americans completely or partly mistrust federal economic data, according to a poll last October by Marketplace-Edison Research.
The backlash can be traced, in part, to the global financial crisis nine years ago, but the ire doesn’t just stem from anger over the failure of economists to predict or explain that catastrophe. Today, there is a growing chasm between how economists and the public (and its elected leaders) think.
Economists pride themselves on being the most scientific of social scientists. This leads them to reduce all human motives and behavior to quantifiable variables such as utility, welfare and income. But people are not by nature quantitative, and their motives often have no economic basis. Today’s most divisive issues, from fairness and inequality to national identity and culture, don’t have economic solutions.
Greece’s statistics chief, Andreas Georgiou, stands outside his agency’s headquarters, Athens, July 22, 2010. PHOTO: PETROS GIANNAKOURIS/ASSOCIATED PRESS
Thus, when economists preach the virtues of globalization, market solutions or cost-benefit analysis, they sound to critics on the left like corporate shills lacking any moral anchor. To critics on the right, they sound like globalist elites who despise patriotism.
Yet it is precisely their love of numbers that makes economists invaluable. By stripping the emotions from pressing problems, economists can often illuminate the most practical ways to tackle them—but only if ordinary people and their representatives are prepared to listen.
‘Economics emerged in the 1700s as an offshoot of moral philosophy.’
Economics emerged in the 1700s as an offshoot of moral philosophy. Known then as political economy, its pioneering practitioners—such as David Hume and Adam Smith —believed that liberating individual self-interest, rather than following religious or political authority, maximized society’s well-being.
Smith made this case most memorably in “The Wealth of Nations” (1776), in which he famously invoked the benevolent “invisible hand” of the free market. But for today’s economists, David Ricardo’s “The Principles of Political Economy and Taxation,” published in 1817, was even more of a breakthrough.
Most people aren’t surprised if a doctor, who could be a better caregiver to her children than a nanny, chooses instead to spend that time seeing patients and pays a nanny out of what she earns. Thanks to Ricardo, economists know that the same principle applies to countries. The average American worker can probably make more tires than a foreign worker, but his edge at producing grain is even greater—and thus the U.S. should export grain and import tires. This theory, known as “comparative advantage,” is both counterintuitive and powerful.
Engravings of pioneering economists David Ricardo (left) and Adam Smith. PHOTO: GETTY IMAGES
Ricardo went further, extolling the pacifying power of free trade: It “binds together, by one common tie of interest and intercourse, the universal society of nations throughout the civilized world,” he wrote. Most economists still agree that globalization fosters political stability and cooperation.
Non-economists have always found this emphasis on material interests and motives somewhat distasteful. In 1790, Edmund Burke, who was friends with Hume and Smith, wrote in “Reflections on the Revolution in France,” “The age of chivalry is gone. That of sophisters, economists, and calculators has succeeded; and the glory of Europe is extinguished forever.”
The influence of economists truly blossomed in the 20th century. The Great Depression gave birth to macroeconomics, the study of how consumption, investment, income and interest rates interact in the aggregate.
In search of better tools to manage the economy, the federal government commissioned economists in the 1930s to calculate gross national product. Convinced that the economy could no longer be left to its own devices, Congress passed the Employment Act in 1946, which established, among other things, a Council of Economic Advisers to provide the president with the necessary expert guidance.
The next year, Paul Samuelson’s seminal book, “Foundations of Economic Analysis,” used mathematics to formalize the key axioms of economics. He touched off a revolution that equipped economists with ever more powerful methods for explaining and analyzing economic behavior. They increasingly adopted the trappings of the physical sciences, hoping to achieve a similar degree of objective truth and predictive power.
Math did clarify economic thinking, but it didn’t improve its forecasting accuracy, which remains dreadful. Virtually no economists predicted the financial crisis of 2007-08 and the recession that followed. Nor has economics rid itself of bias. Economists who advise presidents and prime ministers routinely shape their analyses to validate particular political views.
In recent decades, the stature of economists has taken a beating from two critiques in particular. The first, popular especially on the left, argues that economists are slaves to the assumption that individuals act rationally and in their own best interests. These critics point to psychological and experimental evidence that shows how often people violate the axioms of Econ 101: Our spending and investment habits are often driven by emotions, rules of thumb, ignorance and shortsightedness. The financial crisis seemed to be the ultimate proof, as highly paid bankers and traders, armed with state-of-the-art economic techniques, took on so much risk that they nearly destroyed the global financial system.
‘Economists consider national borders and sovereignty annoying obstacles to the free flow of goods, capital and people.’
The second critique originates from populist, nativist and nationalist movements in the world’s more prosperous countries. Economists consider national borders and sovereignty annoying obstacles to the free flow of goods, capital and people. The new movements of the right see them as essential preconditions for national identity and cohesion. Many Britons voted for Brexit because control over immigration and their laws mattered more to them than the pecuniary advantages of the European common market.
These trends have fed a broader mistrust of experts and elites. During last year’s election campaign, Mike Pence, Mr. Trump’s vice-presidential running mate, dismissed statistical evidence of the U.S. economy’s health by saying, “People in Fort Wayne, Indiana, know different.” In the months after Mr. Trump’s victory, his team wondered whether it should even appoint a chairman of the Council of Economic Advisers. (The administration eventually nominated Kevin Hassett, a highly regarded economist from the conservative American Enterprise Institute.)
In Greece, economists aren’t simply mistrusted; they’re prosecuted. During the 2000s, Eurostat, the EU’s statistical arm, had repeatedly questioned the accuracy and political independence of Greek statistics. Soaring deficits in 2009 triggered a crisis and forced Greece to seek a bailout in 2010. Mr. Georgiou, a Greek native who received his Ph.D. from the University of Michigan and spent 21 years at the International Monetary Fund, took over Greece’s statistical agency that August. Officials had already shown previous debt and deficit figures to be understated. He revised them further upward and earned for his agency a clean bill of health from Eurostat.
A customer searches for groceries at a supermarket in Caracas, Venezuela,
Politicians of the left and right accused him of inflating Greece’s debts to justify its creditors’ demands for austerity. Prosecutors charged him with making false statements and improperly disseminating statistics without his board’s approval. Courts acquitted him, but the second set of charges was reinstated, resulting in this month’s conviction. Mr. Georgiou, who now lives in a suburb of Washington, D.C., plans to ask Greece’s supreme court for a retrial.
Mr. Georgiou says that his real offense, in the politicians’ eyes, was breaking from the past practice of “resisting” and “negotiating” with outsiders, such as the EU, over what official Greek data would show. The politicians needed a scapegoat to preserve their own “political narratives,” he says. He calls the implications of his case “terrifying” for other professionals responsible for economic statistics.
Economists bear some blame for the public and political backlash. Their disagreement with populist policies has often colored their predictions. British economists, including Mr. Carney, thought that Brexit would unleash so much uncertainty that markets and the economy would tank. American economists foresaw similar swoons if Mr. Trump became president. Both were wrong, at least thus far: Economies in both countries have chugged along, and stock markets in particular have soared. There may be long-term costs, of course, but those may be hard to detect.
‘Economists didn’t predict the financial crisis, but they did help to arrest it.’
But such misjudgments don’t justify the charges leveled at economists. Take, for example, their inability to predict financial meltdowns. Crises almost by definition are unpredictable. In a recent essay, Ricardo Reis, an economist at the London School of Economics, argues that failing to foretell a financial crash is no more an indictment of economics than failing to predict when a patient will die is an indictment of medicine. Economists didn’t predict the financial crisis, Prof. Reis notes, but they did help to arrest it by applying theory and experience: “The economy did not die, and a Great Depression was avoided, in no small part due to the advances of economics over many decades.”
Another caricature of economists is that they try to emulate physicists, fetishizing elegant, abstract mathematical models disconnected from economic reality. Paul Romer, the chief economist at the World Bank, derisively calls this approach “mathiness.” The critique is certainly fair in some corners of academia, but it is increasingly untrue of the profession as a whole.
In 1963, roughly half the papers published in the top three American economics journals were theoretical, according to a tally by Daniel Hamermesh, now at Royal Holloway, University of London. By 2011, that figure had shrunk to 28%; the remainder were empirical papers based on public data, on data gathered by the authors or on experiments. Economic debates these days are won not by the best theory but by the best data: Statistics are more important than calculus. Economists are far more obsessed with measurement than with math. When public discourse is plagued by innumeracy, this capacity to count is no small thing.
Economists are also instinctively skeptical of simple explanations. They are trained to look for equilibrium, which is another way of saying, “When you change one thing, how do other things respond? Where do things settle once all interactions have occurred?”
Advocates for a higher minimum wage extol the benefits to workers. Economists ask: Will it change employers’ demand for workers who earn the minimum wage? Or what they pay workers who earn just above the minimum? Or the prices they charge, or how much market share they lose to companies that don’t face the higher minimum or how much they invest in automation? Does it reduce turnover and thus make workers more productive?
Advocates of tariffs on imported steel focus on the benefit to domestic steelmakers and their workers. But economists ask: What happens to steel-consuming companies that now face higher prices, as well as to their workers and customers? Does penalizing imports boost the dollar and hurt U.S. exports?
The more data economists collect, the better they can map such complex interactions. Seemingly simple questions seldom have simple answers. A higher minimum wage helps workers in some circumstances but hurts them in others. Tariffs help some workers but hurt many others. Global warming will do some economic harm, but not enough to justify banning fossil fuels.
Sometimes, this attachment to numbers conveys a false precision. Critics say that the Congressional Budget Office overestimated how many people would get insurance under Obamacare and must therefore be overestimating how many will lose it if the law were to be replaced. But the CBO always warned that its estimates were highly uncertain; what no economists doubted, including those working in Mr. Trump’s administration, is that the number would be large. Economists could confidently predict that price controls would lead to shortages in Venezuela, though not how severe they would be.
Non-economists see all this as hopeless equivocation, but it is actually the way that evidence drives science. Economists still have their ideological leanings, but data has helped to restrict these biases. Surveys of top academic economists by the University of Chicago show considerable agreement, even among liberals and conservatives.
For example, the scholars almost all agree that fiscal stimulus reduced unemployment after the last recession and that trade with China benefits Americans by providing them with cheap goods. A study by Gordon Dahl and Roger Gordon of the University of California, San Diego, found that disagreement among economists was greatest where the empirical research was most sparse, as with the issue of whether natural-gas fracking helps U.S. exports.
Though economics remains an imperfect science, it has come a long way in 200 years. Its greatest challenge today isn’t the quality of the analysis it supplies, but whether there is still sufficient demand for it.
Appeared in the August 26, 2017, print edition.