-Defends economics while highlighting many challenges economics have not grappled with
-Outlines the challenges of an intangible, natural and social world
-Remains skeptical of macroeconomics
-Discusses how economics itself is being disrupted
Diane Coyle has been a leading part of making economics relevant today. Diane has done this through public lectures aimed at real world problems grounded in present challenges but conscious of historic learning. She has emphasised the importance of a diversity of thinking across a range of dimensions such as culture, gender and class. Her public policy thinking has tackled big technology anti-trust and competition challenges as well as the difficulty in measuring an economic world so rich in unmeasured intangibles such as technology, the environment and social relationships.
Her previous works have tackled elements of her thinking. Weightless World on intangibles (and a forerunner to the work of Westlake and Haskel*, Capitalism without Capital), GDP: A brief but affectionate history, on measuring intangibles; Markets, State and People covering public policy, inequality, markets and social welfare. This work, in part, dives much deeper into the philosophy of economics itself.
“…this book reflects on the broader character of economics, not only its lack of inclusivity, and how the subject needs to change to be relevant for the rest of the twenty-first century. The issues covered here concern the fundamental paradigm—the subject’s philosophical roots in utilitarianism, the validity of the distinction between positive and normative economics, the character of dynamic socio-economic systems that do not conform to the standard assumptions, the role of social influence in a discipline built on methodological individualism, and the scope for a powerful social science to alter its own subjects of study…”
I interpret her arguments as:
A defence against many straw man arguments against economics that are unhelpful as they disguise from real problems.
Those problems include the diversity of economic thinking, measuring intangibles, dealing with nature and inequality and a focus on real world problems.
Diane explains:
“some key philosophical issues in economics itself: to what extent is economics performative, or self-fulfilling? Can a social science ever aspire to objectivity when its practitioners are part of society? What policy conclusions can we possibly draw from economics when it assumes people have fixed preferences—an assumption torpedoed by the existence of the advertising industry? Has methodological individualism run out of road as the structure of the economy shifts to activities involving every greater externalities and non-linear dynamics? A second thread is that the way in which the economy is changing, particularly because of digitalisation, means that our analysis of it needs to change. These threads explain the title of this book, Cogs and Monsters: the cogs are the self-interested individuals assumed by mainstream economics, interacting as independent, calculating agents in defined contexts. The monsters are snowballing, socially-influenced, untethered phenomena of … the territory where so much is still unknown (labelled ‘Here be monsters’, on mediaeval maps). In treating us all as cogs, economics is inadvertently creating monsters, emergent phenomena it does not have the tools to understand.”
Diane starts off discussing to what extent economics itself impacts the economy. This sounds like the meta verse but answers whether the economic agenda set by economists has a role in the financial crisis of 2008-2009 and why so many economists failed to see the crisis coming. Diane remains broadly skeptical of macroeconomic thinking which chimes with many a lay persons' views.
My long term pension fund manager boss remains highly skeptical on macroeconomics as well. Although to acknowledge the other side, macroeconomic forecasts are rarely meant to be forecasts in the betting sense, and she does gives the arguments from a macroecon correspondant.
Diane raises the idea that certain economic thinking led to “self-fulfilling outcomes” and in that sense critics are correct in blaming in part of the GFC (Great Financial Crisis) on economists. But wrong in underappreciating how broad a church economic thinking now is.
(As an aside, I would have liked to know her views on a range of other thinking eg, Hyman Minksy and a behavioural cycle; and the latest debates from investment practitioners over sustainability and environment social governance investing).
She distinguishes pro-business from pro-market and argues for markets as an important organising force that has proved better than central planning. (Pro-business can be very anti-market, as business dislikes competition). The benefits of markets as a discovery force are counterbalanced by their failure to value correctly in many instances.
Diane articulates an important distinction about when how to use markets and civic values describing the market innovation (no prices) of a kidney exchange (Roth) and how debaters on the role of the NHS may misunderstand the differing arguments on civic values over using market mechanisms to inform more efficient price discovery.
Diane extends this philosophical thinking into what it means to be “better” how to define that and for whom?
Before this, she does argue for a special role for the church of economics in government and policy due to the use of ideas on opportunity cost and cost-benefit analysis (even if flawed) and including Coase’s ideas of the analysis including the cost of the economist herself. She highlights many successful applied micro economic insights such as Irish taxi licenses, transport economics, telecommunications spectrum license and certain methodological innovations (such as random control trials although I note these had use in healthcare decision making decades of not a century earlier). She does emphasise “the map is not the territory it.”
She continues discuss a multitude of economic failings as well as successes, and the technocratic assumptions behind the profession. She expands on the idea that economists are not politically neutral and therefore “performative” on the system they are analysing.
One observation is that while aimed at the general reader and Diane gives a decent amount of background to her ideas, I do think it may lose a reader typically uninterested in these topics. My activist theatre friends, who I would encourage to read this, might (I think probably would) feel a little at sea. I note this only because not only should a classical male liberal or neoliberal read this to reflect on the arguments Coyle poses but those on the left who perceive economics to be too far divorced from their real challenges and concerns.
Diane on digital reveals the scope and breadth of her reading encompassing knowledge about drugs Avastin and Lucentis (which have similar biological mechanisms but different approved uses in cancer and eyes; and which most non-specialists would not have heard about), dark kitchens (how food delivery comes from specific kitchens that don’t serve as restaurants but for online), amd Andreessen’s view on software eating the world, this shows an economist grappling with the “digital reality” that modern life faces (and to my mind a good breadth).
Diane outlines how economics itself is being “disrupted” like book sellers have been and she suggests:
“… For economics itself, the agenda is clear. We need to build on the work that already exists to incorporate as standard externalities, non-linearities, tipping points, and self-fulfilling (or self-averting) dynamics. We need to revive and rethink welfare economics…We need a modern approach to the public provision and regulation of information goods, applying the rich literature on asymmetric information and older network industries to the non-linearities and externalities of the digital world. And we need to put the social, not the individual, at the heart of the study of economics, taking seriously the line often-stated about the importance of institutions and trust to economic outcomes. This means above all returning to the origins of economics as political economy….”
I’ve considered Diane Coyle potentially a radical centrist. She does not abandon markets so can not claim home with the left and the degrowth thinkers. She is critical of utilitarian and neoliberal answers although perhaps she may have more in common with a notion of state capacity Libertarianism (cf. Tyler Cowen) that it may at first seem. Many of her ideas are not mainstream ergo radical. Perhaps this makes her a radical centrist of our times.
Pre-Order for October 2021 (Amazon link)
I read an uncorrected advanced proof as I recently hosted Diane on my podcast.
State capacity Libertarianism (Cowen)
Capitalism without Capital. (Heskal, Westlake)
You can find my podcast (and video) with Diane below. On reflection after reading this book, I should have asked her more on her critiques of macroeconomics!
Apple Podcasts: https://apple.co/3gJTSuo
Spotify: https://sptfy.com/benyeoh
Anchor: https://anchor.fm/benjamin-yeoh
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