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A Million Years of Logic, the End of Economics, and the Sociological Future
This entry is cross-posted at orgtheory.net, the social science and management blog. Also, please check out my on book politics and universities, From Black Power to Black Studies. Thanks for reading!
We’ve reached the end of Logic of Life, Tim Harford’s engaging tour of economics and its lessons for everyday life. Harford ends the book on a highly speculative note about technology, economics, and growth. Tim does a good job summarizing the emerging consensus. The “normal” state of human life is poverty and near zero economic development. Once a community establishes reasonable institutions for commerce and trade, people can quickly produce and exploit technological advances. The effects are cumulative: once a nation allows markets to work beyond a certain threshold, the population experiences exponentially increasing benefits. The economists’ summary of world history is: “no capitalism = no growth, some capitalism = growth, growth, growth!!”
This discussion is interesting because of the connections to ideas outside the normal realm of economics, especially in areas like psychology and, my own area, sociology. Here’s just one example. Harford discusses the idea that population size should correlate with innovation. Simply put, if you have a hundred million people, you’ll get a least a few geniuses. The inventions of these geniuses can be mass marketed, which fuels later growth episodes. Fair enough.
But where do “geniuses” come from? Turns out, there is a fascinating literature on creativity and achievement. A few names: R. Keith Sawyer, a sociologist/psychologist, writes eloquently on the emergence of genius from networks and groups. Sociologist Randall Collins wrote a highly regarded book on prominent philosophers showing that “genius level” philosophers tended to be clustered in space and time, suggesting that genius is made possible by very specific kinds of “hot house” situations. Other research, pioneered by Florida State psychologist Anders Ericsson, shows that high level performance isn’t just a matter of talent. It’s also a matter of specific training techniques and immersion in a topic. Basically, it’s not just talent that leads to achievement, it’s also the right kind of social environment.*
What’s the point? It’s this: Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade.
However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.
* Author David Shenk nicely covers this research on his blog The Genius in All of Us.
Posted by Fabio Rojas on March 3, 2008 at 11:18 PM in Books | Permalink
Comments
"...the market system itself...depends on population, innovation, and liberal economic institutions."
Why not take it a step further? Liberal economic institutions (primarily Rule of Law-ish sorts of things) depend on morality.
Posted by: dzot at Mar 3, 2008 11:48:21 PM
dzot: Ah, but what sort of morality? And where does the morality come from?
All in all, I though this was an excellent book, especially for a general audience. In the last chaper I though Nordhaus's work on the productivity of light was especialyl delightful. Its both sobering and wonderous to think that every light bulb I have in my house represents the livelihood of one average 19th Century European.
Posted by: James K at Mar 4, 2008 12:08:25 AM
This sort of puts a perspective on Tyler's remarks about Ed Glaeser and cities, doesn't it?
Simply put, we've developed a political system that incentivises the lack of density, and thus as a society we under-invest in urban areas and the density they contain. However, density, or at least density of specific communities, is a clear prerequisite to the types of "hot house" situations you describe, which may lead to massive economic growth. It follows that by encouraging policies that lead to less-than-optimal density, we are actually retarding economic growth.
This "hot house" or "critical mass" factor has long been acknowledged in the world of arts and culture. In a world with modern technology, a jazz fan in Peoria may be just as capable of listening to music as his counterpart in New Orleans, but it's obvious that innovation, growth and change are brought about by the jazz community density of the latter city and not the existence of jazz fans in the former.
Similarly, few would dispute that the existence of great universities has had an enormous impact on the breadth and depth of intellectual though in modern society. While the economies of scale in acquiring capital assets may have something to do with this (i.e. the existence of one large library), it is clear that the real value of universities has historically been and continues to be that they bring many academics and intellectuals together in a setting where they interact, and that their ability to advance thought collectively is greater than would be possible if they each worked independently.
Why ever would we expect the forces economic growth to behave any differently?
What an irony that the country that most visibly claims to espouse capitalism in the name of economic growth does so much to undermine one of the central inputs that leads to growth!
Posted by: Lee at Mar 4, 2008 1:06:33 AM
Just because a discipline has produced results doesn't mean it is finished. Nice try though.
Posted by: at Mar 4, 2008 1:49:48 AM
I don't think geniuses are driving the growth we've seen in China, for example. Geniuses make beautiful art, write colorful sentences and entertain with their eccentric personages, but they don't create sustained economic growth.
Speaking of China, how about those liberal economic institutions? Should I mention Sweden? Malawi?
Posted by: pushmedia1 at Mar 4, 2008 1:50:51 AM
Fascinating post, but one quibble:
"Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved."
I would say that's a risky thing to say, given the number of things we don't know we don't know. The next economic breakthrough may be just around the corner. And if the problems in econ 101 have been solved, why is the US struggling to get out of the financial mire it is in now?
Posted by: greentintedglasses at Mar 4, 2008 3:00:08 AM
"The major problems of econ 101 have been solved."
that's worryingly close to declaring that all possible melodies have been composed.
I reckon there may be room for some big twists in the 'basics' yet - but I don't want to derail the thread / expose my own ignorance by speculating here.
What I meant to say was that I'm very interested to learn of all this work on innovation & creativity - so far the only such work I knew of was Mokyr's The Gifts of Athena. I like to think there may be a lot of mileage for economists from this stuff.
Posted by: Luis Enrique at Mar 4, 2008 5:35:50 AM
Economics was never clearly defined enough to actually exist. That said, it seems simply to be (failed) attempts to analyze (predict and control) dynamics of exchange. These attempts will surely continue, and continue to fail. The real possibility seems to be that we would have a less outrageous and arrogant faith in the "discipline" of economics - and maybe develop a more open faith in it. This wouldn't be an end to economics, but a new beginning.
Posted by: peritropist at Mar 4, 2008 5:42:18 AM
Excellent post, Dr. Rojas. I agree that discovering what causes societies to choose liberal economic institutions, and what causes innovations to be produced, are fascinating and important research problems. But I think that solutions will come through an integration of the various social sciences rather than a decline of a "played out" economics and a rise of sociology and psychology. What if economics isn't played out, it just needs to be generalized so that it can be more usefully "imperialist"? Maybe, as Robert Putnam once said, we need more economic analysis of sociological variables.
Posted by: Paul Jaminet at Mar 4, 2008 5:47:45 AM
Hmmmm. Nice Idea. Lots of the work you cite is more entertainingly described in "Lunar Men" a fine read on how
geniuses work in groups. Will incentives every disapear? Will Anthropologists and Sociologists
go work for hedge funds and make major dough? Will there even be a GS rating for sociologists or antrhopologiests
. Have you heard of behavioral economics? Have you heard of decision science? By the same token
most of the problems of medicine, chemistry and physics were at one time triumphantly heralded as solved.
Another Poli-sci sociology weenie even declared the end of history. In fact, Sociology was started
by people also tellng us that economics was silly and this new social science called sociology
would be done......Lots o good ideas in econ and Hartford or any other current popular light reads
are popularizations of yesterdays results. All due respect, this has got to be the silliest post on
here ever. Dude you like what you do--fine but guess what it aint the be all end all.....By the way
when the sociologists come up with something as useful as supply and demand to help understand the world
let us all know. For now, its a major for people who cant do math and want to work in a bookstore.
Posted by: at Mar 4, 2008 6:31:37 AM
Hmmm. The sociologists, political scientists, anthropoligists and anybody in "studies" have been
saying roughtly the same thing for years and years and just as wrong and well just silly and demonstrating
their own self serving bias. The Marxists, the institutional economists and ad infinitum. The declarations
of economics being over and irrelevant have been made for years. Their was a nice hit piece in the Atlantic
back in 84 even......Not the first to say this, not the last and wrong like the rest....
Well, lets save the post and track down Rojas in 20 years and I predict that economists on average
will be doing higher impact work, earning more and contributing more to society (and more genuises) than
the sociologists... What is your bet? Great example of a.) self serving bias and b.) saying something that
we can likely characterize as controversial but its really stupid to get more web hits. c.) confirms
what we always suspected about the other social "sciences".
Posted by: Robert C at Mar 4, 2008 6:38:56 AM
'The most important fundamental laws and facts of physical science have all been discovered, and these are now so firmly established that the possibility of their ever being supplemented in consequence of new discoveries is exceedingly remote.'
Michelson, Albert Abraham in 1903.
Posted by: datacharmer at Mar 4, 2008 7:09:18 AM
"Economics" is a flexible concept, denoting basically whatever it is that economists study, and economists are flexible enough to move to study whatever seems most interesting. So if "psychology, group culture, and networks," are the future of social insight, well then that may well be the future of economics.
Posted by: Robin Hanson at Mar 4, 2008 9:34:45 AM
However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions.
And the necessary resources to support those innovations and that population.
Posted by: Josh R. at Mar 4, 2008 9:36:09 AM
It is striking that the USA has contributed massively to human wealth without ever producing a genuine copper-bottomed genius. Otherwise you've made do with fine scientists, excellent engineers, prodigious industrialists, practical Constitution-writers, innovative inventors and so on. But no Newton, Einstein or Clerk Maxwell. No Darwin or Mendel. No Lavoisier, no Gauss. No Rembrandt, Shakespeare, Beethoven, Mozart. No Smith or Ricardo, no Hume or Socrates, no Aristotle or Archimedes. Not one from the genuine top drawer. All very odd.
Posted by: dearieme at Mar 4, 2008 9:53:38 AM
Jefferson, Madison, Friedman, Feynman and any number of nobel prize winners are more genius than Mendel.
Posted by: guy in the veal calf office at Mar 4, 2008 12:30:49 PM
I don't think we have reached the end of economics. I think the truth is we never really reached the beginning. Economics has contributed very little to our understanding of economies. About all it really taught us is that capitalism is good. I don't think though that we really understand exactly why or even why socialism has been such a disaster.
Posted by: assman at Mar 4, 2008 1:45:40 PM
Mendel was a terrible example, but derieme's assertion still stands as valid. Franklin Feynman and Edison might stand with Maxwell or Lavoisier, but certainly not with Einstein or Newton. Maybe Witten would, depends on if Sting Theory turns out to be what its advocates hope, but no-one old enough for the chips to be in plausibly qualifies.
Posted by: michael vassar at Mar 4, 2008 3:19:19 PM
"But no Newton, Einstein or Clerk Maxwell. No Darwin or Mendel. No Lavoisier, no Gauss. No Rembrandt, Shakespeare, Beethoven, Mozart. No Smith or Ricardo, no Hume or Socrates, no Aristotle or Archimedes. Not one from the genuine top drawer. All very odd."
These names trend backward in time (e.g. Socrates). To be fair, you want to compare similar times. You're giving Europe an over-2000-year window (since you include Socrates), and the US has existed only for a little over 200 years. And for much of that time it was relatively small and something of a backwater. It really came into its own as a massive contributor in the 20th century. Okay then, if we want to do a fair comparison, let's limit ourselves to 20th-century names. Who's left from the above list? Einstein did his earth-shattering work in the early 20th century, arguably before American preeminence. Maxwell died in the early 20th century and probably did his major work in the 19th (I didn't check the details).
So, essentially, nobody is left. What we can gather from the list is that you can't think of anybody in any part of the world who was genius level during the American period of preeminence. This says little about the US per se.
Posted by: Constant at Mar 4, 2008 4:45:40 PM
Michael- So you'd take the field (everyone who has ever lived on this planet) vs the long shot (220 years of Americans)? Bold bet.
I'd still take Madison (or Solon, or Lacedæmon) over the other political thinkers like Hume, Aristotle (or what we attribute to him), Socrates (The Republic? really?), etc. It is a more difficult task to successfully organize human affairs into a world-conquering society than to pontificate about optimal theories to a small handful of acolytes.
Posted by: guy in the veal calf office at Mar 4, 2008 4:58:51 PM
"Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from."
And eventually economics will absorb the sciences that explain them?
Posted by: Polish Alice at Mar 4, 2008 6:34:30 PM
Fabio,
This one is cheeky, but perhaps we economists deserve it... Like most of the commenters I am not at all convinced that economics has solved all the problems it might reasonably expect to solve, and we can now hand over to the other social scientists. But I am persuaded that there is much to be learned from "sociologists, psychologists, historians, and anthropologists."
Understanding the world is like putting together a complex jigsaw, many pieces of which are missing. The sociologists have contributed some of them, and the historians, and so on. My aim in The Logic of Life was not to sweep away those pieces and declare that economics had discovered the completed picture, but simply to show that economists were bringing new pieces to the table that might help us put the jigsaw together.
It has been an extraordinary privilege to have my book discussed in this manner. Thank you to all commenters and especially to Tyler and Alex for hosting.
Best wishes,
Tim Harford
Posted by: Tim Harford at Mar 5, 2008 5:37:13 AM
Oh Great:
So the future of our prosperity is dependent upon Sociologists, Psychologists and Anthropologists: three groups whose economics are overwhelmingly socialist and hostile to the free market.
If you are right, then we are doomed.
Posted by: bill reeves at Mar 9, 2008 7:34:56 AM
Economics played out?? Economics is really the study of humanity and how people relate to each other.
Yes, we've pretty much closed out some areas of inquiry. Free markets make wealth possible. Free trade is good. People are (mostly) utility maximizers. Entrepreneurship is the engine of the modern world.
But that is pretty small for truisms. We still don't know what game theory can tell us about human behavior. There are other questions. What can we do about Africa? What can economics tell us about the stultifying effects of bureaucracy on society?
There are many areas of human endeavor that have barely been touched.
Posted by: Dwight Lemke at Mar 11, 2008 12:39:40 AM
There's still a pretty big question to be answered from Econ 101. Why does self-interest in some instances work for the greater good? The invisible hand is still invisible...
Posted by: Nate Housley at Mar 12, 2008 5:18:49 PM
