Villains by the numbers
ECONOMISTS are not idolised at the best of times, which these aren’t. Just about the only film I can think of that deals with the discipline is the biopic about John Nash, A Beautiful Mind . But the movie had more to do with Nash’s struggle with schizophrenia and his work in maths than its economic application.
There are endless novels about baddies in business ( outside Ayn Rand entrepreneurs are invariably evil). Steven Millhauser won a Pulitzer prize a decade back for a novel that pilloried people keen on a quid. In Martin Dressler he took the quintessentially American self-help story and showed how the pursuit of selffulfilment by making money was ultimately a waste of time.
Books that attack financial whizzes roll around with every recession. ‘‘ Speculation — my! The whole atmosphere’s full of money,’’ Colonel Sellers says in Mark Twain’s The Gilded Age, a novel of the years before the 1870s crash that reverberated in Europe and the US until the end of the century. For cupidity and corruption, nothing we have seen on Wall Street comes close to rivalling the way back then a class of speculators with politicians in their capacious pockets robbed a generation blind as the US and European economies industrialised.
Perhaps the best example of 19th-century morality is Tom Wolfe’s The Bonfire of the Vanities ( 1987), the tale of Sherman McCoy, a bond trader brought low by his greed and arrogance ( plus the opportunism of others). How familiar does Wolfe’s description of a complex deal based on French bonds sound today? ‘‘ The only real problem was the complexity of the whole thing,’’ says Sherman. ‘‘ It took big, sophisticated investors to understand it. Big, sophisticated trusting investors; no newcomer could talk anybody into putting millions into the Giscard. You had to have a track record. You had to have talent — genius! — mastery of the universe!’’
Two decades on, the bond traders who were beaten by the crash of ’ 87 reinvented themselves as financial engineers selling packages of mortgages and betting on their value.
None of this has anything to do with economics but as well as greedy capitalists and financial frauds the profession that provides the intellectual underpinnings for the profit motive itself is under attack. Thomas Legendre’s novel The Burning ( 2006) is the first in a genre we will see more of: the anti-economics rant.
Legendre’s is not an especially engaging story but everybody who assumes the world financial crisis is the fault of economists will love it. It will certainly appeal to people who confuse economics with ethics, blame economists for everything from pollution to poverty and argue that the discipline’s foundation idea, that individuals act rationally in their own interest is wrong.
This attack is serious stuff; without economists society would seize up. Economics explains everything, from how nations distribute resources to how individuals live their lives.
As Diane Coyle puts it in her excellent overview, The Soulful Science ( 2008), economics today is ‘‘ not the study of competitive markets but rather an understanding of society as the aggregation of millions of individual decisions’’.
This idea contradicts the emerging orthodoxy that mainstream economics is immoral because it assumes all human intercourse is a form of market-based exchange and that, rather than rational, people are too compassionate or cretinous to act in their own economic interest.
This is, of course, all nonsense. As iconoclasts such as Steven Landsburg point out, much of the established wisdom on the way society works is wrong precisely because it ignores economics. In More Sex is Safer Sex ( 2007) Landsburg claims: ‘‘ If sexual conservatives could effectively advertise their histories, HIV-conscious suitors would compete to lavish them with attention. But that doesn’t happen because conservatives are hard to identify. Insufficiently rewarded for relaxing their standards, they relax their standards insufficiently.’’
Showing off, to be sure, but Landsburg demonstrates what economics can do as a discipline when it is independent of ideology.
But while economics is not optional, the reasons it gets poor press are as much of its practitioners making as they are the work of people who argue economics is responsible for poverty and global warming.
In Legendre’s novel, good economist Logan’s PhD is a textual analysis of Adam Smith and he is obsessed with the work of Nicholas GeorgescuRoegen, who started as a neoclassical economist before deciding that capitalism was environmentally unsustainable. As Legendre puts it in the first of Logan’s big set speeches: ‘‘ Technology has been the instrument of environmental degradation rather than its saviour. When is this process going to magically reverse itself?’’
In contrast, Deck, the bad economist, is interested in intellectual abstractions of the neoclassical kind that have nothing to do with the way people live.
Legendre demonstrates the aridity of academic economics in describing Deck’s research: ‘‘ He had wanted to show that point-of-sale ATM transactions, when isolated from other expenditures, would result in step-shaped consumption functions with a series of zero-slope or nearly horizontal plateaus bridging the traditional upward-sloping sections.’’
Deck dismisses Logan’s research because he ‘‘ couldn’t work with empirical data. Throw some real figures at the guy and he’d duck every time’’. The argument is obvious: conventional economics is nonsense, while economists who focus on protecting the environment do the important work.
There is no doubting maths makes most economics arcane to the point of incomprehensibility for most of us; any essay for economists by economists always includes formulas that only adepts understand. But this does not mean the discipline, in ideas or intent, somehow deals humanity out of the equation.
In a recent speech, Productivity Commission boss Gary Banks argued for evidence-based policy, suggesting hard data, and lots of it, must be the basis of government strategies. But he warned the study of economics is turning into a niche discipline in universities.
He is entirely right. Information is useless without interpretation, and that requires statisticians and mathematically literate economists: skills that are out of fashion in a world that assumes economics is a diabolic discipline espoused by the extreme capitalists the Prime Minister warns us against.
This is the way it is in Legendre’s world, where the baddies do the maths and virtuous people believe economics is subordinate to environmental activism. It isn’t just greed that isn’t good any more — we are moving into a world where economics is out of place because people confuse a discipline that explains the way society works with the incompetence and avarice of a bunch of bankers.
matchetts@ theaustralian. com. au