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Getting economists to wake up to reality

The Uneconomics series challenged the power of economists, inviting diverse perspectives from disciplines whose work on the economy has been increasingly recognised post-crash. This reflection by the editor ends the nine month series.

During the 1970s and ‘80s, many of the social sciences experienced a development that came to be known as the ‘cultural turn’. This referred to a growing awareness that language and symbolism are component parts of how the social world fits together and changes over time. Culture is not simply stuff that gets discussed by art critics, but permeates day-to-day life. Not only that, there are some types of activity that can only be understood if their cultural elements are taken into account, for otherwise they simply appear ‘irrational’ or mistaken. The phenomenon of working class people voting for political parties that benefit the rich is a prime example.

The question then arises of how far should the cultural turn be extended. Unsurprisingly, the social sciences that are most committed to ‘hard’ scientific and quantitative explanations are also those which have been least receptive. It is no coincidence that these are also the ones with the greatest respectability in the bastions of Oxbridge and Whitehall. At the top of this list sits economics, with political science not far behind. Meanwhile, human geographers, anthropologists, sociologists and historians of science have been happy to explore cultural explanations, as many of them never aspired to scientific objectivism or policy influence in the first place.

This exploration of language and symbols has been lampooned as frivolous by more orthodox scholars and policy-makers. But over the past thirty years, these less politically authoritative social sciences have been slowly pushing their cultural analyses further towards the territory of economics and political science.  More recently, they have penetrated that territory, exploring how even financial markets, accounting standards and technocratic policy elites are shaped by cultural codes and norms.

A great deal has been said and written about how the present economic crisis has (or should have) undermined the validity of orthodox economic methods. Part of the purpose of the Uneconomics debate has been to develop this challenge, as demonstrated by Phillip Mirowski’s polemical contribution. But less has been said about how this crisis represents an overwhelming endorsement for the emergence of more culturally-conscious forms of economic and political analysis.

Can you really hope to understand why bankers would risk their entire banks, without also understanding something of the destructive exuberance of finance culture since the 1980s? When core pillars of financial governance, such as ‘shareholder value’ and central bank inflation-targeting, start to backfire, surely it is important to understand how certain numerical indicators come to attain symbolic authority in the first place. What is going on when regulators and credit-raters place their faith in statistical risk models?    

Dealing with these issues requires an anthropological sensibility, which is attuned to questions of symbolic representation and organizational norms. So much of the financial crisis comes down to a single problem, of allowing models of reality to be mistaken for reality itself. The paradoxical result was that the quest for transparency began to generate its own opacity. Accounting reports obscured the messiness of organisations. Simple credit ratings hid the intrinsic complexity of the firms, mortgages and products that were being evaluated. As Andy Haldane, Executive Director for Financial Stability at the Bank of England, said, when interviewed for Uneconomics:

We [economists] forgot the key part, which is that the models are only true if the assumptions that underpin those models are also true. And we started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis. 

Haldane points out that many of the giants of 20th century economics recognized this threat, including Keynes and Hayek. Economists were once more alert to uncertainty and the limitations of quantitative models of the future. Keynes and Hayek can both be read as offering a warning against excessive confidence in economic knowledge, whether on the part of policy-makers or investors. Part of the goal of the Uneconomics debate has been to give support to heterodox economic perspectives, which give far greater prominence to uncertainty and historical evolution. Judith Marquand’s splendid piece showcases this.

And yet declaring that we simply do not know, as John Gray has done for example, is scant consolation, given that certain strategically placed individuals clearly did know what was going on in the build up to the crisis. More seriously, this level of agnosticism is often propagated by certain parties to protect themselves, as Linsey McGoey’s article discussed. As I argued in my opening Uneconomics essay, it is no coincidence that many of the best interpretations of the crisis have come from anthropologists such as Gillian Tett and journalists such as Michael Lewis. Digging around, uncovering stories, being a nuisance; these are the skills necessary to reveal what’s going on inside institutions that use their preferred model of transparency and reporting, precisely so as to hide what is really going on. Thus with the experience of her campaigning against third world debt, Ann Pettifor took a look at the developed countries back in 2003 and could see clearly: The coming first world debt crisis. Or David Potter, with a background in global manufacturing, tried to warn about the bubble and sees the current realities with a practical eye in his interview with Uneconomics.

Only if we recognize that economics is part of the reality it seeks to describe, can we begin to understand how the crisis occurred. Again, this might have sounded like zany postmodernism a decade ago. But now, all serious policy thinkers accept this to some extent. This is why Haldane now gives speeches about the history of statistical risk models, a topic that was once the preserve of constructionists, such as Ian Hacking or Alain Desrosieres. It is why one recent review of corporate governance has called for less accounting, not more.  It is also why we need to cast a critical light upon the types of economic expertise at work in Whitehall, as the CRESC authors did in their contribution.

In launching the Uneconomics debate, I was aware of a large number of economic sociologists, geographers, political economists and anthropologists producing fascinating work on economic practices and institutions, deserving of larger public audiences. As impressive as Paul Krugman and Joseph Stiglitz are, we already know what they think, not least because it is partly determined by their methodology. But scholars who research institutions and cultures produce interpretations and narratives that are often genuinely surprising and transformative. I felt we needed to hear from them, and hoped that Uneconomics would provide a platform.

As the deservedly acclaimed CRESC keep demonstrating, this isn’t necessarily an either or: orthodox economics can be married to qualitative interpretations, histories and ethnographies. Their paper on British industrial policy (which I reviewed for Uneconomics) demonstrates that greater institutional sensitivity can have a policy pay-off. Hayekian ignorance regarding the future is not the only alternative to unthinking trust in numbers. Some knowledge gaps can and should be filled, if necessary by qualitative forms of evidence. Economics may be good at providing models, but other social sciences can provide examples. We may be witnessing the fallout of what happens when policy-makers try to govern with one but not the other.

Leading think tanks have also recognized the current crisis as an opportunity to bring economic and cultural analysis together. Last year, the ippr published a report seeking to renew the implicit cultural and political sociology of the centre left, accompanying it with a journal issue marking the twentieth anniversary of the closure of Marxism Today. They argued that Marxism Today had performed a key role in the genesis of New Labour, in providing interpretation of capitalist evolution, and not simply statistical analysis, which needed repeating for the current era. This year, Matthew Taylor, former advisor to Tony Blair, used his annual lecture at the RSA (of which he is Chief Executive) to provide a cultural theory of contemporary forms of power.

A few months in to the Uneconomics debate, Aditya Chakrabortty, economics leader writer for The Guardian launched a blistering attack on the social sciences, arguing that following the financial crisis:

With the all-powerful [economists] temporarily discredited, an opportunity opened up for the sociologists, the political scientists and the rest to charge in, have their say – and change the way public policy is shaped… So have the non-economists grasped their moment? Have they hell. Look at the academic conferences held over the past few weeks, at which the latest and most promising research in each discipline is presented, and it's as if Lehman Brothers never fell over.

Chakrabortty generously recognized Uneconomics as an attempt to do otherwise, but was generally pessimistic about the capacity of the social sciences to challenge orthodox economics. Whatever the validity of Chakrabortty’s claims, his piece sparked a very welcome debate amongst academics as to whether they were taking their public responsibilities seriously (for a stern rebuke, see Andrew Gamble’s answer). Unperturbed by all the protestations, Chakrabortty wrote a second piece refusing to budge.

Was Chakrabortty being unfair? It depends on exactly how you understand the public responsibilities of social science. No academic wants to risk the charge of ‘irrelevance’ any longer, and many social scientists were fiercely aggrieved. The problem is that ‘relevance’ is not something that can be easily or quickly grasped.

To paraphrase Shakespeare, some academics are born relevant, some achieve relevance and some have relevance thrust upon them. Economists tend to be ‘born relevant’, in having tools to evaluate public policies and predict their outcomes. But these tools can look very blunt when the world is suddenly turned upside down. As the funding environment gets tighter, the research councils are imploring academics to ‘achieve relevance’, by chasing some mercurial entity known as ‘impact’ and demonstrating value to their ‘user groups’. No funding bid is now complete without a shopping list of podcasts, twitter feeds and blogs, through which the applicant promises to hurl themselves out of their ivory tower and land with an impactful thud upon the public below.

I would argue that those analyzing economic, elite and financial cultures have had relevance ‘thrust upon them’ by the events of the last few years. Donald MacKenzie, for example, had been observing derivatives trading for several years before the crisis broke. He came to this subject via the circuitous and (to most people) obscure route of science studies, taking in studies of eugenics and nuclear missile accuracy along the way. Yet he was surveying the esoteric world of Credit Default Swaps and Collateralized Debt Obligations (the derivatives which initiated the crisis) long before the media had ever heard of them. If he’d been chasing ‘relevance’ in 2003, this wouldn’t have happened. As with all research and development, the social sciences cannot know what they will uncover or where, until they uncover it.

As an experiment in public knowledge, however, Uneconomics had mixed results. Via email lists, facebook and twitter, I tried to attract contributions from scholars whose work would otherwise remain confined to the academic world, but to very little avail. Of course, there is no good reason why my precious debate should be recognized as a worthwhile platform by anyone else; most people quite understandably feel they have more important things to write, and limited time to write them. The incentives governing an academic career nowadays do not strongly induce engagement beyond one’s peer group, regardless of the research councils’ rhetoric of public engagement.

Worse, many scholars may view it as a career risk to step outside of the peer-reviewed sphere, and have a journalistic blog post near the top of their Google ranking. The insecurity of academic careers and the deep uncertainty surrounding higher education generally means that no sensible social scientist would suddenly switch from their area of specialism, and start studying investment banking, just because that was what was in the newspapers that week. Apart from anything else, this isn’t the vocation that leads people to conduct lengthy and rigorous research in the first place.

Part of CRESC’s success derives from its kibbutz-style pooling of research resources. Their working papers and books published on the financial crisis generally have five or six authors named on them, enabling a form of rapid response that no individual scholar would be able to achieve (CRESC managed to put out a paper on the Libor scandal within three weeks of it breaking). Could this co-operative research model be replicated? It does depend on academics being willing to suspend egos.

All of this leaves unanswered the question of what precisely will or should constitute public engagement of the social sciences, especially when they have ‘relevance thrust upon them’. During the English riots of August 2011, the BBC demonstrated a lamentable inability to find anyone able to speak intelligently and authoritatively about the phenomenon, with the result that David Starkey was invited onto Newsnight only to espouse racist drivel. The media has a responsibility here too. The Guardian’s New Political Economy Network (a collaboration between Commentisfree and heterodox economists) represents one possible model. Stepping-stones are needed between slow and laborious journal articles and the shouting matches of the blogosphere. Hopefully Uneconomics has provided one small example of this.

Read the Uneconomics series

About the author

William Davies is a Senior Lecturer at Goldsmiths, University of London, where he is Director of the Political Economy Research Centre. His weblog is at www.potlatch.org.uk and his new book is The Happiness Industry: How the government & big business sold us wellbeing (published by Verso).


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