Deirdre McCloskey at Cato Unbound
This month’s Cato Unbound features a lead essay by economist and polymath Deirdre McCloskey. Though she’s been professionally associated with the Chicago School, her ideas are anything but predictable, and she’s been one of the strongest critics of the mainstream of her discipline.
Economic activity, she argues, is driven primarily by forces outside of conventional economic theory. Sure, there’s supply and demand, and we all know the story, and there’s nothing terribly wrong with it, at least as far as it goes. Elaborations on the model aren’t wrong either — externalities, transaction costs, asymmetrical information, problems of coordination and public goods — these too are fine, as far as they go.
Where she disagrees is in her claim that a whole lot of things have to happen inside people’s minds before these things become terribly interesting to talk about. The decision to enter a marketplace, or to behave in ways that we might call “a market,” or even just the decision to look for economic incentives, all depend on some fairly deep value judgments. The creation of a highly market-driven society implies a commitment to a set of values.
What values are we talking about? Here’s a sample:
The Big Economic Story of our times has not been the Great Recession of 2007–2009, unpleasant though it was. And the important moral is not the one that was drawn in the journals of opinion during 2009 — about how very rotten the Great Recession shows economics to be, and especially an economics of free markets. Failure to predict recessions is not what is wrong with economics, whether free-market economics or not. Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. They’re not. No science can predict its own future, which is what predicting business cycles entails. Economists are among the molecules their theory of cycles is supposed to predict. No can do — not in a society in which the molecules are watching and arbitraging.
The important flaw in economics, I argue here, is not its mathematical and necessarily mistaken theory of future business cycles, but its materialist and unnecessarily mistaken theory of past growth. The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy, and came to attribute a dignity and a liberty to the bourgeoisie formerly denied. And then China and India exploded in economic growth. The important moral, therefore, is that in achieving a pretty good life for the mass of humankind, and a chance at a fully human existence, ideas have mattered more than the usual material causes.
A society that denigrates small businesses, small landowners, entrepreneurship, thrift, and innovation will see less of each. It will have different laws, customs, and institutions. Its resources will be used differently. Even its class structure will be different.
As another example, the French Old Regime had a Law of Derogation (dérogation is a cognate in French; it’s also where we get the word “derogatory”) that kept nobles out of certain professions on pain of losing their nobility. These tended to involve retail, money changing, and certain industries and crafts. The French had another unpleasant word for these trades — vil — and it’s also a cognate. A third word — roturier — has no precise English equivalent. It denotes “a person who is not a noble,” but its connotation is more like “a bastard.” French is full of words like these, while most similar words in English are relatively shallow imports from other languages: canaille, hoi polloi, plebes.
Societies that make a place for the artisan, the entrepreneur, the innovator — societies that see these people as valuable — will prosper. Mainstream economics, however, might not be able to say just why.
Sure this is is right- well, the Old Regime economic theories were really dominated by the physiocrats who had little use for anybody but land owners or farmers. All the other economic activities were sort of unnatural or base in their opinion. They did have a few ideas that have survived, about self-interest as an economic motivator, private property and individualism; there’s a reason that French also gave us the term ‘laissez faire’. But, on the whole, I’m fairly glad that there aren’t many physiocrats around after the Revolution.Report
@Rufus,
Oh, it’s even worse than you imagine. The physiocrats were in relative terms the good guys.
The old-time laws of derogation forbade working the soil, too. That’s for your peasants and tenants, not for your lordship.Report
I read that this morning and had a really harsh reaction to it so i didn’t respond. Maybe I’m still missing something. But accounting for deeply held personal and societal values as significant inputs into economics sounds…..ummmmm….. really really incredibly obvious. In fact i thought of a few other examples where some people have done this. It was a common criticism from the Left of the Reagan year up through today that the Greed is Good culture of Wall Street has led to a devaluing of ordinary work, acceptance of screwing regular people over as long as it made piles of cash and ripped away any pretense of morality or conscience that existed in Wall Street/high finance. Making big money justified all.Report
@gregiank, At one level its a no-brainer that values impact economics – economics is about the accumulated affects of decisions, and values obviously impact decisions. But the Big Question in this area has always been how we got from one kind of economy and one set of values, where guys in tin cans on horses got lots of kudos for hacking one another into little bits and other guys got no kudos for actually growing food, to another where hacking one another into little bits is generally frowned upon and people who grow food (or program computers or trade stocks or whatever) well are generally thought highly of. McCloskey’s most important point is that all previous attempts to answer this question have failed – they’re ideologically motivated and don’t fit with the empirical facts. Whether her answer is better or not I’m not sure yet. I’m not sure what anything she says has to do with the Left’s view of Reagan – you’ll have to explain that one to me.Report
@Simon K, The left critique of Reagan and the Greed is Good age suggested that a change in values led to vastly different economic behavior. That seems to be what she is saying. In the 80’s unrestrained avarice became a positive good, consequences to communities were irrelevant, fiscally responsibility was a joke, Greed was the solution. One of the worlds worst business men, donny trump, became a hero and icon, and for some reason is to this day. (as a side note, up until the recent great crash i knew a conservative i work with say Greed is Good repeatedly as a policy prescription and rationale for many things)Report
I’m struck by the parallel with Nadezhda’s reply to Rufus – She emphasized the importance of bourgeois values, and expanding the scope of those values to give more people bourgeois freedoms in countries where the bourgeoisie has basically already won. The McCloskey quote above emphasizes creating enough respect for bourgeois pursuits to give the bourgeoisie enough space to start generating wealth. It seems to me there’s a very strong connection between wealth and freedom here, where freedom is necessary to generate wealth but some level of wealth already needs to exist to allow enough freedom.
“Bourgeois” doesn’t really seem quite accurate though – The bourgeoisie were the people who owned and ran fairly large businesses that employed the proletariat. Aren’t the values of artisans, small businessmen, traders and even wage labourers themselves actually more central to development than the values of factory owners? The latter tend to be able to buy status because they have wealth – its protecting the status of those who aren’t already rich that seems to be the more important thing.Report
Cato Unbound is on a roll. Props for putting together two great issues.Report
Am I the only one struck by the unapologetic dodge implicit in this passage: Failure to predict recessions is not what is wrong with economics, whether free-market economics or not. Such prediction is anyway impossible: if economists were so smart as to be able to predict recessions they would be rich. They’re not. No science can predict its own future, which is what predicting business cycles entails.
Much of the serious post-recession criticism of economists (and, particularly, economic advisors) has not been for their failure to predict the recession but for their insistent, nearly evangelical, claim that a recession was impossible. It’s certainly an ordinary thing to not predict the overall movement of your research field, but it’s entirely different to make such a prediction and be dreadfully mistaken. It’s especially odd of McCloskey to sweep this under the rug especially as she goes on to call for economists to … abandon the materialist premise that reshuffling and efficiency, or an exploitation of the poor, made the modern world.
Perhaps I’m being too aggressive, but this is eerily similar to the post Iraq War justification of “who could have predicted?” when the very same people were making confident positive predictions during the run-up.Report
@trizzlor, What economist claimed recession was impossible in 2007? Certainly not McCloskey.Report
@trizzlor, I was also struck by it, chiefly because I couldn’t imagine any other field of science trying to get away with such a claim. Take any parallel, for example “Chemists cannot predict how molecules will react, because they are made of molecules,” to illustrate how odd this is. No science can predict its own future, which is what predicting business cycles entails also seems to indicate some confusion between the subject of a science and the science itself. Again by analogy, chemists can’t predict what areas will be the hot topics of chemistry in ten years, but they can certainly tell you what a mixture of chemicals will do.
Perhaps McCloskey is simply that economics has not developed enough power to be a predictive science. She may even be going further, and saying that it will never (and can never) be able to predict future economic activity. If that’s the case, she should just come out and say that. Of course this might raise further questions for discussion, such as “So why are we paying economists to evaluate the effects of business and government policies, if they can’t make such predictions?”Report
I’m all for looking at ideas and their power to influence history, but McCloskey may be putting the cart before the horse. The idea of an elevated middle class – what became known as the bourgeoisie – probably just emerged as the mercantile class grew under expanding economies.
It should not be overlooked that today, in France at least, “bourgeoisie” has derogatory implications. It is almost interchangeable with “petite bourgeoisie”, small minded social climbers eager to display their upwardly mobile status in an effort to sublimate their workhorse role in the economic machine.Report