Four Years On, The World Has Changed on Disability

December 4, 2015

Links I Liked (and last chance to comment on How Change Happens draft)

December 4, 2015

‘Economics Rules’, Dani Rodrik’s love letter to his discipline

December 4, 2015
empty image
empty image

Dani Rodrik has always played an intriguing role in the endless skirmishes over the economics of development. His rodrik coverhas been a delicate balancing act, critiquing the excesses of market fundamentalism from the inside, while avoiding the more abrasive tone of out-and-out critics such as Joe Stiglitz or Ha-Joon Chang. He does sorrow; they prefer anger.

His work has been hugely influential, helping to stem the tide of unthinking trade and finance liberalization, stressing the importance of institutions and national context, and developing (with Ricardo Hausmann) a methodology – growth diagnostics – which has been widely used not just to promote growth, but to identify and tackle bottlenecks and pinchpoints on many other issues, rather than try and reform everything at the same time.

His latest book, Economics Rules, continues in that tradition, a 200 page love letter to his beloved discipline, and a lament over how it has been misused. The problem, it seems, is always the economists, never economics itself.

The book focuses on what distinguishes economics – the use of models, which are ‘both economics’ strength and its Achilles’ heel’. Rodrik loves models, the more the better. Different issues or settings require different models to shed light on what is going on. Unfortunately, a combination of physics envy and arrogance has led some economists to insist on The Model (singular), putting ideology before pluralism often with disastrous results. The way economics is taught doesn’t help, with faculties promulgating the latest fads, and not equipping students to choose between models, according to context. It’s like medical schools churning out doctors who just prescribe the same pill for every disease.

Rodrik’s intended audience is twofold: first, the critics of economists – people like me who bang on about ‘the dismal science’ with only the vaguest idea of what economists actually do all day. He accepts a lot of the criticisms, but insists they are down to those bad economists, not the discipline itself, which is a paragon of pluralism and humility. Ahem. He points out that economists tend to circle the wagons when confronting Joe Public, putting aside their internal differences over issues like market failures in an effort to defend the fundamentals, especially the virtues of markets and the price mechanism, from barbarians who they think just don’t get it. I think he does achieve a degree of rehabilitation for his profession (only hope it appreciates him!)

the first economistHis other audience is his fellow economists, and their successors. He urges them to beware False Gods – small insights are preferable to Grand Theories; maths is essential, but has to retain some connection with the real world. He moves at ease between the many econ tribes (the book is a handy introduction to the different schools of thought, by the way). Like a kindly uncle, he sees something of value in most of them.

I liked the book, I learned more about the discipline, and it made me think more kindly of Dani’s colleagues (heck, some of my best friends are economists….). But a few doubts surfaced too:

  • Rodrik’s world is still dominated by experts, judiciously choosing between models, advising governments and others. More aware of national difference, sure, but not much space here for bottom-up processes and solutions (unless those taking part have a PhD from a good university). Would have liked to see some discussion of when expert-driven processes are actually the wrong way to go.
  • In my experience, the really blinkered proponents of this or that model are not actually practicing economists, but those who studied it decades ago at University and are now in government or other sectors. In dividing the world up into professional economists and their critics, he misses out some crucial players and a big part of The Problem.
  • He really doesn’t like talking about power, politics or paradigm maintenance. The prolonged battles over supply and demandeconomic policy (in which he is a significant combatant) are presented as disinterested and civilized senior common room discussions. No-one is captured by vested interests. Everything is driven by evidence. I don’t believe that there is some monstrous conspiracy to turn all economics departments into battering rams for the interests of the rich, but it is at least worth noting that they often behave like that, and discussing more nuanced reasons why that might be so.
  • Finally, I understand and admire his love of economics, but is it really credible to say that all the negatives are down to economists not understanding their own discipline; that there is nothing wrong with economics itself? Reminiscent of arguments about religious fundamentalism….. Isn’t there something inherent about the discipline that lends itself to arrogance and a blinkered approach to solving the world’s profoundly messy problems?

A lovely, insightful and highly readable book – go buy it (but not on Amazon).

6 comments

  1. Concerning “a combination of physics envy and arrogance has led some economists to insist on The Model (singular)”, one categorization that can be made of physicists is in terms of whether they take the view that “more is different”, casting doubt on reductionism. Condensed Matter physics, a moderately appropriate analogy for macroeconomics, is distressingly pluralistic if you don’t manage complexity well. Microeconomics, in contrast, is extraordinarily unlike particle physics, where one might say the reductionism is (and perhaps the arrogance), in that the modeling of individual people’s psychology and their relationships seems to be not even remotely precise.

  2. Thanks for the nice summary Duncan.

    I havent read the book but had the chance to hear Rodrik present it at the LSE. I like that he challenges Milton Friedman’s positivism and admits that economics is not like a natural science. The art of economics, I understand Rodrik is arguing, is not to find ‘the’ single ‘true’ model, but to choose from a variety of models, those whose assumptions are more suitable for the context and problem at hand. A perfect competition model may not be applicable in an oligopolistic economy, he said as an example. This is a sharp departure from Friedman’s ‘as if’ dictum which dominates the discipline, and according to which economists simply posit hypotheses, and no matter how wild or unrealistic their assumptions, reality checks which hypotheses survive and which perish.

    In my view though Rodrik did not push his claim to its logical conclusion, and for understandable reasons since this would undermine the unique claims of his discipline to objective expertise. Unlike physicists, economists do not just model a reality out there: they propose actions that alter this reality and can make it fit the model, rather than the other way round. Keynes’ or Milton Friendman’s models were as much a description as a force of construction of the economies of the 1960s and the 1980s. A general equilibrium model can not represent or explain changes in a Soviet economy.

    The conclusion I keep as someone concerned with the development of a broadly defined ‘new economy’ is that a new economics would be part and parcel of the transition to such an economy. We cant create the new with the mental models of the old.

  3. “I don’t believe that there is some monstrous conspiracy to turn all economics departments into battering rams for the interests of the rich, but it is at least worth noting that they often behave like that”

    Can you give three examples?

    1. Only three? Well, off top of head: Trade liberalization, where daft CGE models predict squillion dollar benefits, but Lance Taylor, who more or less invented the model, says it’s all nonsense; user fees and cost recovery in health systems; financial liberalization, which was just about to become an IMF article until the 1998 Asian financial crisis prompted some last minute hesitation. Other readers, feel free to add your own……

Leave a reply Cancel

Translate »