Enlightening economics reads

by Sebastian Benthall

Nils Gilman argues that the future of the world is wide open because neoliberalism has been discredited. So what’s the future going to look like?

Given that neoliberalism is for the most part an economic vision, and that competing theories have often also been economic visions (when they have not been political or theological theories), a compelling futurist approach is to look out for new thinking about economics. The three articles below have recently taught me something new about economics:

Dani Rodrik. “Rescuing Economics from Neoliberalism”, Boston Review. (link)

This article makes the case that the association frequently made between economics as a social science and neoliberalism as an ideology is overdrawn. Of course, probably the majority of economists are not neoliberals. Rodrik is defending a view of economics that keeps its options open. I think he overstates the point with the claim, “Good economists know that the correct answer to any question in economics is: it depends.” This is just simply incorrect, if questions have their assumptions bracketed well enough. But since Rodrik’s rhetorical point appears to be that economists should not be dogmatists, he can be forgiven this overstatement.

As an aside, there is something compelling but also dangerous to the view that a social science can provide at best narrowly tailored insights into specific phenomena. These kinds of ‘sciences’ wind up being unaccountable, because the specificity of particular events prevent the repeated testing of the theories that are used to explain them. There is a risk of too much nuance, which is akin to the statistical concept of overfitting.

A different kind of article is:

Seth Ackerman. “The Disruptors” Jacobin. (link)

An interview with J.W. Mason in the smart socialist magazine, Jacobin, that had the honor of a shout out from Matt Levine’s popular “Money Talk” Bloomberg column (column?). On of the interesting topics it raises is whether or not mutual funds, in which many people invest in a fund that then owns a wide portfolio of stocks, are in a sense socialist and anti-competitive because shareholders no longer have an interest in seeing competition in the market.

This is original thinking, and the endorsement by Levine is an indication that it’s not a crazy thing to consider even for the seasoned practical economists in the financial sector. My hunch at this point in life is that if you want to understand the economy, you have to understand finance, because they are the ones whose job it is to profit from their understanding of the economy. As a corollary, I don’t really understand the economy because I don’t have a great grasp of the financial sector. Maybe one day that will change.

Speaking of expertise being enhanced by having ‘skin in the game’, the third article is:

Nassim Nicholas Taleb. “Inequality and Skin in the Game,” Medium. (link)

I haven’t read a lot of Taleb though I acknowledge he’s a noteworthy an important thinker. This article confirmed for me the reputation of his style. It was also a strikingly fresh look at economics of inequality, capturing a few of the important things mainstream opinion overlooks about inequality, namely:

  • Comparing people at different life stages is a mistake when analyzing inequality of a population.
  • A lot of the cause of inequality is randomness (as opposed to fixed population categories), and this inequality is inevitable

He’s got a theory of what kinds of inequality people resent versus what they tolerate, which is a fine theory. It would be nice to see some empirical validation of it. He writes about the relationship between ergodicity and inequality, which is interesting. He is scornful of Piketty and everyone who was impressed by Piketty’s argument, which comes off as unfriendly.

Much of what Taleb writes about the need to understand the economy through a richer understanding of probability and statistics strikes me as correct. If it is indeed the case that mainstream economics has not caught up to this, there is an opportunity here!

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