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Am I an economist?

from Peter Radford

Who knows?

If measured by the standards of the current elite of the subject, then clearly not. I am apostate. I am an outsider.

Let me explain: I had the good fortune to attend The London School of Economics – I only mention this because it is important later in the story. It was too long ago for me to recall all that I studied there, but my concentration was what was then called Diplomatic History. What they call it now I have no idea. The only course in economics that I took was the common first year class for those who were not going on to become economists. I can, at this distance, only assume that the class was designed to be less specialized. Somehow I dimly recall the name Alchian. I do remember, however, getting stuck in the elevator with Lord Robbins as we both were on our way to his history of economics class. The book based on that class – although produced much later – still has pride of place on my book shelf.

Now this does not mean that I wasn’t interested in economics. My decisions back then were much more driven by my greater affinity for history rather than a distaste for what economics was, or was about to become.

Upon graduation rather than pursue history further, which is what my academic advisor suggested, I took the advice of my father and became an accountant. His attitude towards an academic lifestyle was both stern and unrepeatable, and I was too callow to resist. So accounting it was. By default. To this day I have no idea why I thought I would make a good accountant. For one thing my problems with dyslexia present an obvious hurdle, especially in those days of pre-calculator and computer. I struggled along doing moderately well, but it was clear I wasn’t destined for anything other than mediocrity. Besides, I really didn’t like it.

So I decided to switch. On a whim I applied to business school, this being the time when the allure of an MBA was untainted by what has befallen the business world subsequently. To the astonishment of all who knew me I managed to finagle my way into a prestigious American school and so embarked on another path through the real economy. And I mean finagle: the partner at my accounting firm who I had write a recommendation for me laughed when I told him I had been accepted. His reaction was clear: my success in gaining entry clearly had nothing to do with what he wrote.

So off to business school I went, only to be deeply disappointed at what I found. Nowhere were we told anything fundamental. Everywhere were we told the latest fad. This is when I was re-exposed to some economics, and I thought the juxtaposition of standard micro-economics with all its wonderful certainties and lovely ignorance of reality alongside classes that taught us how to develop strategies in order to baffle and confound the marketplace was perfect. Although, apparently, not many of us appreciated the irony. It was clear to me that I was being taught something clever in the finance classes, but that the cleverness depended entirely on the efficacy of the underlying theories – which we weren’t taught. And it was equally clear that whilst it was heretical to question the greatness of markets in general, it was perfectly fine to undermine markets with strategy and the other devices of marketing and so on, just so long as we provided something called ‘shareholder value’.

Upon graduation, and having discovered an interest in the aforementioned finance, I found myself in banking. And its was there that my life as an economist began.

It was an accidental reintroduction.

The Chairman of our bank wanted to increase our outreach into the press and the business community. For some reason this led him to search for someone who could communicate and give talks about the economy. He mentioned this to my boss, the Chief Financial Officer, who recalled my attendance at LSE – see I told you it was important. The CFO came to me one morning and said: “You’ve been to LSE, we need you to give a talk about the economy to a group of our customers”. So there I was, a week later, giving a talk to two hundred local business people about the national economy, its outlook and so on. The speech was the easy part. The questions were a tad more difficult. I clearly need to learn a bit about economics.

So I set out to educate myself. Those of you who know me will realize what comes next: I was disappointed, to say the least, in what I read. The subject was in tumult and had taken a radical turn since my previous tenuous exposure to it. The explanations were obscure. The relevance not clear. My audience[s] wanted more information than the subject wanted to provide. The trajectory of the discipline was tangential to the business world. It touched briefly, but then disappeared into what seemed to be a fog of convenient assumption designed to allow its practitioners subsequently to pluck precision from midair, magic like, and declare all sorts of attributes for markets that were simply not visible around me.

But it was fun, this economics. It was really fun. So I started getting my hands on all sorts of articles. Since I had no idea of curriculum I wandered all over the place. I recall reading a type written version of Allyn Young’s 1929 paper and thinking it sounded appropriate long before I ever came across the Santa Fe Institute. And Ronald Coase on the firm grabbed my attention: he has never been answered well, especially by the New Institutional guys who claim to be his heirs.

When I was ignominiously kicked out of banking I decided to dedicate myself to economics. My particular interest was how changes in technology would affect business. This seemed to be a fine intersection of business with economics. Back then we were all talking about ‘digitization’ and the impact of the internet. Since then we have been engulfed by endless business school fads like ‘innovation’ and ‘disruption’. And where are they in economics? Where in growth theory do we find them? In a residual. Well, it’s improved some since its beginning, but growth theory is still a tough issue for most economists. They’re too busy running the math of transactions in perfect markets.

That’s it. For the past thirty years or so I have read and listened. I have tried to understand. I have tried to explain what I have learned to those who ask. And I have written this blog for the past ten years.

So I am I an economist?

Not if by economist you mean someone who is blind to uncertainty: after all the entire structure of business is to seek profit from the uncertainties of the marketplace. Strategy is simply a method to create an alternative reality – one not so beset by uncertainty that investment can never be justified. Not if by economist you mean someone who believes in the mysteries of equilibrium: the world I worked in is for ever changing, if there is an equilibrium it is so remote that its presence is of little practical relevance. It might be out there somewhere, but who cares? Not if by economist you mean someone who believes in the rational choice described in economics books. That is a phenomenon I never have met. Yes people are rational, but in an idiosyncratic and personal way that defies the simplicity of economic theory. Not if by economist you mean someone who thinks that values are somehow set on the margin. I recall  pricing decisions being an administrative process loosely based on an understanding of scarcely reliable management accounting, profit targets, and pricing feedback from the marketplace that entered the discussion only in extremis. Marginal theory is a convenience for economists it is not a fact of reality. Not if by economist you mean someone who is blind to the subject’s political association. One advantage of being self-taught is that I realize the quirks and contexts within which current theories developed. And I know of the conveniently forgotten potholes that people like Joan Robinson or Oscar Lange thought ought ensnare modern theory.

Oh, this list could go on and on: what about the relationship with our environment? Or the evident sexism in the entire history of economics? Or, for that matter, in the way we measure an economy?

Economics has an allure for me, not because of what it purports to know, but because of what it quite obviously doesn’t know. Most of which it has chosen to forget or not explore at all.

So am I an an economist?

Yes, I suppose I am. Although I am still learning and quite prepared to acknowledge the gaps in my understanding.  Why? Because there’s so much yet to learn, and in the possibility of that learning, in that potential, we are all equal. Aren’t we?

  1. March 14, 2016 at 10:03 pm

    We are all equal and I am forever awed by focused human intelligence. Have you thought about an economy that uses less than one Earth and leaves room for diversity?

    China has achieved a gently declining population. Very good. Now how do we help other countries reach China’s maturity, maintain our lust for travel among the stars and live in balance with Earth?

    This is a huge economic riddle. All those boardroom plans about coffee, peanuts and war are still going on. Next to that, we see an awakening humanity that needs a new story of an economy that is so different that it is at this time still unimaginable.

    What will it be like when bottom up democracy instead of corporatism is operating in ways so vast no individual can see more than a little?

  2. March 14, 2016 at 11:00 pm

    Excellent post.

    And there isn’t a neoclassical nor Austrian school economist who’d say that you are an ‘economist’.

    I’d say you are because you know that textbook theory does not jibe with actual managerial practice, er, strategy and all that.

    I’d say you are because you aren’t enchanted with imaginary invisibles like individual (or ‘representative’) subjective utilities, how invisible demand curves/schedules are constructed from these, how invisible supply curves/schedules are constructed, how invisible equilibria might be theoretically attainable (especially if you have an ‘auctioneer’ who doesn’t permit trades to occur below equilibrium ‘exchange-values’, how markets always clear at nominally equilibrium prices, with no remainders so to speak.

    Let me remind you that John Kenneth Galbraith was not considered to meet Milton Friedman’s small-box-you-must-fit-into idea of what economics was.

    Coase thought very little of the theory of the firm;less about the theory of the consumer; and less still about ‘blackboard’ economics.

    You’re in good company.
    .
    Congratulations!

  3. March 15, 2016 at 3:44 am

    Great post. Damn now I may have to think of myself as an economist too!

  4. louisperetzperetz
    March 15, 2016 at 8:54 am

    I think you’ll have to read the Keynesian theory first. And think by you own. And so on, reading other news keynesian economists. They are the ones who are nearer the truth of real economics.

  5. March 15, 2016 at 10:25 am

    According to the AEA website,

    “Economics is the study of how people choose to use resources.

    Resources include the time and talent people have available, the land, buildings, equipment, and other tools on hand, and the knowledge of how to combine them to create useful products and services.

    Important choices involve how much time to devote to work, to school, and to leisure, how many dollars to spend and how many to save, how to combine resources to produce goods and services, and how to vote and shape the level of taxes and the role of government.

    Often, people appear to use their resources to improve their well-being. Well-being includes the satisfaction people gain from the products and services they choose to consume, from their time spent in leisure and with family and community as well as in jobs, and the security and services provided by effective governments. Sometimes, however, people appear to use their resources in ways that don’t improve their well-being.

    In short, economics includes the study of labor, land, and investments, of money, income, and production, and of taxes and government expenditures. Economists seek to measure well-being, to learn how well-being may increase over time, and to evaluate the well-being of the rich and the poor. The most famous book in economics is the Inquiry into the Nature and Causes of The Wealth of Nations written by Adam Smith, and published in 1776 in Scotland.”

    Based on this write up Peter you seem to be acting like an economist.

    My concern is with the breath and frankly arrogance of these statements. Taken at face value there is no need for any other inquiries into human actions, except economics. Historians, sociologists, anthropologists, psychologists, etc. pack up your stuff and find another job. Your services are no longer needed. Economists can do it all. Like the 19th century queen of science, physics, economics is the 20th century queen of science. Problem being we found out in the 20th century to our pain that physics is an imperfect and fickle queen. Economics is worse.

    • March 15, 2016 at 3:53 pm

      AEA quote: “Often, people appear to use their resources to improve their well-being.Well-being includes the satisfaction people gain from the products and services they choose to consume…”

      Well, looking around me, I’d say that often/[most] they use their resources just to survive with or without well-being. Well-being is a ‘plus’ if one can afford to obtain it. Providing for needs is not tantamount to providing for well-being. As Thoreau put it, “The mass … lead lives of quiet desperation.”

      In any reconstruction of economics, the difference between satisfaction from what one can afford to consume relative to realizing some objective benefits from consumption needs to be distinguished, for the latter :: realizing some benefits :: often does not imply the former: realizing some Gain in Satisfaction.

      In a monetized economy, money is itself a resource. Having it is essential to being able to provide for biological, social, and psychological well-being. This is why the distribution of incomes is vital to the understanding of consumption paths, production paths, and how one aggregates demand.

      When Keynes talked about the Marginal Propensity to Consume, he was actually saying that those with lower incomes needed to spend all or most it (and possibly borrow if they could to finance their current consumption) whereas those with higher incomes did not have to do that. Had he argued that governments needed to get more money into the hands of those who needed it most, few would have paid attention. So, it was necessary to talk about marginal propensities and all that.

      Yes, there are serious problems with the AEA definition and approach.

      • March 15, 2016 at 7:26 pm

        Like most such “professional” associations this is “advertising” to attract prospective students and to make themselves look non-threatening and supportive of democracy and good will. If you want to see as they say, the “underbelly” of the beast join AEA and attend the sessions at their meetings and most particularly the “business” (members only) meetings. And if you can sneak in the private meetings among the officers. These, particularly the last are enlightening. And I don’t mean in the Enlightenment sense.

      • March 15, 2016 at 11:14 pm

        So very true.

        I have seen that ‘underbelly’, but I am left wondering if the beast has a heart.

      • March 16, 2016 at 4:50 am

        If you mean by “a heart” empathy for other humans and nonhumans with whom the “beast” shares the world, the answer depends on how the beast is created. Dorothy Ross in “The Origins of American Social Science” (I’ve always thought this should be “sciences”) points out that to create the social sciences two things had to be created first. History as an explainable process and human behavior as an explainable process. Once we have these in place the the science or sciences created can take many forms.

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