Robert Shiller is (despite running an investment fund on the side) one of the few ‘public’ economists to emerge from the financial crisis with his reputation reasonably intact. Unlike, say, Eugene Fama, who cannot see a bubble when it stares him in the face, Shiller repeatedly warned about bubbles throughout the last decade (and wrote a popular book about it, Irrational Exuberance). So, when Shiller speaks, folk take notice. In what follows I will be very critical (this seems to become a bad habit when I discuss public economists: here, here, here, here, here, and here) but the damage wrought by hyper-specialization that has infected even those dimly aware of its dangers must be exposed. (Below I also call attention to leading economists who are very subtle and sophisticated about their own discipline!)
What should economics be? According to a draft essay by Robert and Virginia Shiller, it should be a discipline driven by “the broad moral purpose of improving human welfare” (11). To that end they propose less specialization and more “knowledge of findings in other fields, including history, psychology, and sociology.” (9) Somewhat surprisingly -- the quoted sentence comes just quoted below a section-heading, “Promoting Economics as a Moral Science,” (and in earlier sections the engagement with philosophy by Adam Smith and Keynes was extolled), -- philosophy is missing from the Shillers’s list. This is unfortunate because philosophers ask tough questions about the concept, “welfare,” that is being advocated: what is being packed into this concept? How will the various ways of operationalizing/measuring favor some folk and not others? Does the (content of the) concept evolve?, etc. The Shillers seem to equate “human welfare” with “bettering the lives of citizens” (4). Now in what follows, I first call attention to the disciplinary pre-history that prevent the Shillers from asking the right question(s); remarkably crucial clues are littered throughout the Shillers’s essay. Second, I show how the Shillers conflate specialization with ideological uniformity. Third, I comment on some examples of the appalling ignorance of the history of economics displayed by the Shillers.
We cannot escape the proposition that as science moves from pure knowledge toward control, that is, toward creating what it knows, what it creates becomes a problem of ethical choice, and will depend upon the common values of the societies in which the scientific subculture is embedded, as well as of the scientific subculture. Under these circumstances science cannot proceed at all without at least an implicit ethic, that is, a subculture with appropriate common values. (9; p. 3 in Boulding)
Boulder also calls attention to the assumption that is crucial to the Shillers’s aim: "Every culture, or subculture, is defined by a set of common values, that is, generally agreed upon preferences." (Boulding, 1) So, societies and value/preference-homogeneity are inter-defined. Within a society welfare is a trivially shared commitment. As an important aside, on Talcott Parsons reading of the history of philosophy, this claim goes back to Hobbes. I mention this not to cite Parsons as authority. But Parsons' narrative was picked up by Frank Knight (about whom I have blogged here before) and his prominent students, George Stigler, who struggled with value unanimity in his (now largely unknown) 1943 criticism of the new welfare economics, and Milton Friedman, who relies on it explicitly in his famous 1953 methodological essay. (I have documented elsewhere the disastrous afterlife of this assumption in Pinochet's Chile: if one assumes value homogeneity, then economic ‘experts’ can propose (as if they were social doctors) radical ‘cures’ for ‘ailing’ economies while claiming technocratic expertise rather than biasing one set of interests and values over others.) While the Shillers pretend as if they are offering something new, they are merely recycling the kinds of doctrines that prevented generations of economists to think about conflicting values. More important, it created a disastrous self-understanding about the nature between theory/model and policy.
Amazingly the Shillers read Boulding’s criticism of relying “on Pareto improvement as a framework for policy analysis” as requiring that economists “have some knowledge of about history and the broader social sciences” (9; this must one of the greatest non-sequiturs I have ever encountered). But if one returns to Boulding’s philosophically sophisticated essay, it is clear that Boulding is *attacking* the very idea that there is fundamental value unanimity. In particular context, he calls attention to the significance of malevolence and benevolence, but the larger essay identifies a “heroic” ethic (and three kinds of it: “the military, the religious, and the sporting” (Boulding, 9) as a major alternative to the “economic (or “cost-benefit”) ethic. Now, the examples Boulding gives are drawn from literature and anecdote, but the points are, well, philosophical. The absence of disagreement over values is not a given for Boulding, but evidence of some conflict resolution mechanism (sometimes peaceful, sometimes violent). Boulding calls the idea that taste (or some other shared value) as simply given, the “Immaculate Conception of the Inddifference Curve.” (2) Among economists, the Shillers may count as intellectuals, but they clearly do not read the works they quote! (This is indicative of the totemic nature of citations within economics, but let’s leave that aside.)
Boulding, who did see economics as part of a much larger (evolutionary) inquiry, rightly calls attention to the importance and existence of an implicit ethic in practical discipline such as economics. The core of his essay reflects the Weberian assumption that science presupposes non-trivially a common core of values. But, unlike the Shillers, Boulding is very aware that science can change, and even undermine its own values (and that of its host societies; see Boulding, 4). For Boulding, “the epistemological content of science, that what, what scientists think they know, has an ethical component.” (2; it is hard to find a contemporary, leading public economist who would even know how to unpack this statement.) The consequence of all of this for Boulding (citing the great iconoclast economist, Veblen) is that economics “cannot afford to neglect the [sometimes directed] processes by which cultures are created and by which preferences are learned.” (Boulding, 2) So while the Shillers want the economists to become better at quoting from the New York Review of Books, Boulding wanted economics to become reflexive (and this long before Soros popularized a version of this). As the economist-theorist, M. Ali Khan (not only an instance of that endangered species within economics, a genuine theoretician, but unusual within any science because he reflects critically on his own pratice), points out, Boulding was also an early and perceptive, sophisticated critic (from within) of the way economists thought about the very nature of mathematics within economics. (I will say more about this and Boulding in the future.)
Okay, let’s return to Shillers’ essay, which diagnoses specialization as the core problem ailing economics. The cost of it, is lack of knowledge of “basic simple facts outside their specialty.” No argument from me. But I hope to have made clear that the deeper problem is not factual, but conceptual-cultural. By being trained into a focused regime of techniques, economists do not learn to ask foundational questions about their own tools (and the commitments presupposed by them). The problem is not factual (i.e., more information) the problem is cultural: economists are trained to become engineers who do not know how to question or model their own activity and its impact on complex societies. It is, moreover, hampered by a culture in which alternative doctrines to ruling prejudice are not systematically investigated. Weirdly, ïn their article, the Shillers quote the “inventor… of the concept of rational expectations, John F. Muth,” and his dismayed surprise “that serious alternatives to rational expectations have never been proposed.” (7-8; writing in 1984). The Shillers lack the concepts to label accurately Muth’s concern; the problem is not “technical specialization,” but ideological uniformity! (This is no coincidence: in the wake of Thomas Kuhn’s work, George Stigler actively promoted economics as a science in which there would be a ruling paradigm that did not permit dissent.)
At one point in their essay, they quote evidence that at the end of the nineteenth century there was a "tension" between an "old school" that used a "historical and comparitive method" and the "new school" that stressed an "a priori natural-law method" and abstract reasoning. The exact details of the (interesting) debate that is being alluded to, need not detain us here. The Shillers write "the emphasis of modern economics on representing human economic behavior in terms of maximazation of utility functions in the face of constraints was a triumph for a broader more humanistic view of economic processes, in that it saw people and their motives as the core of economic theory, and led to the development of welfare economics, which gave a better moral connection to economic analysis." (7) This is utter nonsense as a moment's reflection on the fact that Utilitarianism (Bentham, the Mills, Sedgwick, Marshall, etc) does not figure in the Shiller's narrative at all reveals. (Boulding, who was Cambridge educated, would not have missed it.) By cutting itself off from its own history, economists flounder to make sense of the projects they engage in when they loose their self-evidentness.
Finally, a quick note on Adam Smith and John Maynard Keynes, who are both held up as "examples." On the Shiller's account both are deeply interested in philosophy. (Even so, contemporary economists shouldn't be!) Now it is a sure sign that the Shillers have never read Adam Smith (or Heilbronner's summary) when they happily promote the fact that he was a professor of moral philosophy and wrote The Theory of Moral Sentiments as evidence that in *contrast* to the Wealth of Nations he was interested in moral matters! For, the Wealth of Nations is itself a thoroughly moral and moralistic book! Yes, it is/may be the book that "ultimately laid the foundation for modern economics" (4), but it does not hide/disguise its moral vision at all. It is not (as Boulding recognizes!) a species of wertfrei science. Smith appeals to "equity" and "humanity" throughout the Wealth of Nations! (And he has quite a bit of running commentary on the immorality of merchants and European colonial enterprise.)
Let's conclude with their treatment of Keynes. They quote Keynes, "Some statistical frequencies are, with narrower or wider limits, stable. But stable frequences are not very common, and cannot be assumed lightly." Now in this quote Keynes makes a very sensible, limited point. There are objective and stable frequencies in the world, but this is a rare phenomenon. As I pointed out a few weeks ago, much of the interesting phenomena are, in fact, deeply uncertain for Keynes. Here's the Shillers' gloss on this quote: "This led him to think of probabilities as degrees of belief, and hence psychological phenomena, to reject much probabilistic economic modeling, and to formulate a concept of animal spirits as a force in the economy. Thus his philosophy of probability, and his rejection of mechanical manipulation of probabilistic models, were central to The General Theory." (4) I have gone on long enough...