by From Peter Radford I try to take my own advice: when you have nothing to say, don’t say anything. Thus, for the best part of a month I have busied myself doing other things and staying away from here. It’s been a nice break, and here I am still convinced that there’s not much to say. The economy is where it was. Economics is where it was. Politics is where it was. The three intermingle, mix, merge, separate and go their different ways in the same manner as before. The same complaints and criticisms are made. The same critics say the same things. Nothing it seems changes. I think this is what equilibrium must feel like. Now all I need is some exogenous event to come along and shake things up. You know, like someone being human and changing their mind. This doesn’t mean that I haven’t been busy. Far from it. I dived deeply into growth. Or, as it turns out, the undergrowth, since the entire topic seems infested with weeds and a tangle of interwoven branches that can easily ensnare the unwary. It began with Robert Gordon’s massive “The Rise and Fall of American Growth”; it expanded to include Deirdre McCloskey’s epic “Bourgeois Equality”; and finally forced me to retrieve from my dusty shelves Elhanen’ Helpman’s far more accessible “The Mystery of Economic Growth”.
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from Peter Radford
I try to take my own advice: when you have nothing to say, don’t say anything. Thus, for the best part of a month I have busied myself doing other things and staying away from here. It’s been a nice break, and here I am still convinced that there’s not much to say.
The economy is where it was. Economics is where it was. Politics is where it was. The three intermingle, mix, merge, separate and go their different ways in the same manner as before. The same complaints and criticisms are made. The same critics say the same things. Nothing it seems changes.
I think this is what equilibrium must feel like.
Now all I need is some exogenous event to come along and shake things up. You know, like someone being human and changing their mind.
This doesn’t mean that I haven’t been busy. Far from it. I dived deeply into growth. Or, as it turns out, the undergrowth, since the entire topic seems infested with weeds and a tangle of interwoven branches that can easily ensnare the unwary.
It began with Robert Gordon’s massive “The Rise and Fall of American Growth”; it expanded to include Deirdre McCloskey’s epic “Bourgeois Equality”; and finally forced me to retrieve from my dusty shelves Elhanen’ Helpman’s far more accessible “The Mystery of Economic Growth”. Oh, and in the midst of this I added in Richard Heinberg’s “The End of Growth” just to keep a nice ideological balance.
No wonder I have a headache and have nothing to say.
You would think that such an obvious phenomenon as the surge in prosperity experienced in most corners of the globe over the past two hundred or so years would be the centerpiece of economics, but it is not. Growth remains inscrutable to the technology we know as economics. This is mainly because economics reduced itself successively through the years, ending up as a form of applied mathematics mixed with dubious psychology, and a relentless disdain for reality. Since growth is evidently real – like it or not – it gets to be very difficult to explain it from within the confines of such a toxic brew. You end up with absurdities such as the infamous “Total Factor Productivity” which is a complicated name for the bit of growth that economics cannot explain without recourse to magic. It turns out to be a big bit too: well over half, so the magic is really important.
Maybe economics danced around growth in the early years simply because the rates of growth back then weren’t terribly excessive. Economists clearly knew change was afoot, but they seem to have been obsessed with mechanics and primitive physics rather than movements through time. They wanted to know why and how the economy fitted together rather than what made it change. So they fell foul of a version of the Heisenberg principle: they foreswore trajectory in order to pin down the here-and-now. Eventually this obsession drove them into a strange other-wordly embrace of equilibrium, and various attempts to make the metaphorical invisible hand a tangible, albeit abstract, centerpiece of social interaction.
From within its own redoubt economics is largely successful. Economists actually do think they know something about economics. Whether they know much about economies is the open question. This is because the relationship between economics and real life economies is somewhat vague. Okay, let me go further: it is very vague.
Think about growth.
How do we measure it? Well, in terms that fit nicely within economics. But is what we measure a true picture of the real-life economy? What do we even mean by ‘real-life economy’?
This is something Gordon tries to tackle. He devotes hundreds of pages to detailed descriptions of how the typical person’s way of life has been transformed by the upwelling of technology since the beginnings of industrialization. There can be no doubt that we are massively better off than our ancestors. This, too, is McCloskey’s central point: even the poorest amongst us is better off than our wealthiest ancestors. Growth is a wondrous thing. Yes it is, despite its tarnished reputation of late.
The problem is that much of this leap forward in prosperity isn’t measured by any of our major economic statistics. Gross National Product (GDP) is an approximation at best. It was devised to help western governments manage World War II military manufacturing. It was never devised to measure our living standards, let alone to allow us to compare back in time with the relative lifestyles of our ancestors. GDP is intensely manufacturing oriented. It has huge gaps, not least in its ignorance of home production, and its ability to capture the changes in technology and the increased importance of service sector activity is, how shall we say, primitive.
And economics is stuck with this, and other, poor measurements of real-life economies. Bad or insufficient data is the common grist for the economic mill.
No wonder that economics has such a hard time with growth. If we can’t even measure an economy well, how can we describe one? Or explain it? Or predict it? Let alone discuss its trajectory through time.
This doesn’t mean that economists haven’t tried, but economics-as-history is vastly different from economics-as-machine. And, as I mentioned earlier, the pioneers of economics were a lot more fascinated by machines, mechanics, and the interconnected parts thereof, than they were about narrative or longitudinal comparisons. It was obvious that things were changing, so they wanted to understand what was making the system hum. Why it existed in the first place was irrelevant to them, and how it compared with what came before was much less interesting than how it all came together and appeared to balance so well.
I imagine growth must have seemed inexorable to them. The age of invention and innovation was at hand. The excitement was about understanding systems, not of pondering the consequences of growth, nor of the possibility that the pace of innovation might stall.
This is why it is that economics, when viewed from within itself, has an aura of success. It has answered most of its original questions. That it has done this often by discarding uncomfortable questions is, of course, a blot against its reputation and serves as a reminder that it is actually a very specialized and diminished discipline when set against its puffed up self-regard.
Gordon and McCloskey both do us a great favor in this regard.
Gordon through his unrelenting critique of our understanding of what comparative values in prosperity mean in everyday lives. And McCloskey through her equally unrelenting evaluation of the role of ideas in the acceleration of growth. Her emphasis on the values – her ‘bourgeois’ values – that undergird the entire transformation in society since industrialization is a bold contradiction to the sterility of economics. It is simply not possible to explain growth without reference to its context: the cultural, institutional, political, social, and geographic factors that enabled it to take root.
An economics that fails to accommodate those factors is doomed to prattle on about Total Factor Productivity rather than real things that made a difference in our lives. It is doomed, in other words, to fail to explain growth.
Growing pains indeed.