Home > Uncategorized > Gordon, McCloskey and growing pains

Gordon, McCloskey and growing pains

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.

  1. jlegge
    June 4, 2016 at 4:46 am

    I shall try to get my hands on McCloskey and maybe some of the others. There is an accessible account of innovation driven growth in my book: http://www.transactionpub.com/title/Economics-versus-Reality-978-1-4128-6251-6.html

    It is not a very academic work (although I did try to reference it correctly) and may be more useful for people without much if any formal education in economics than the more formal work intended to be read by the economically literate. Part of the text:

    “Schumpeter… demonstrated how the “circular flow” of wages purchasing commodities and so providing the finance for more wages and the production of more commodities could become an ascending spiral though the activities of innovating entrepreneurs.
    “The archetypal Schumpeterian entrepreneur plans to introduce a new product to the market: to do so, she will need labor and materials. Since there is no reason to expect that the required labor and materials will be idle, waiting for the entrepreneur, she must bid them away from their current use, offering in particular higher wages than had been customary. Existing firms will be forced to raise the wages that they pay in order to retain their workforce and replace the key employees enticed away from them by the entrepreneur, and at the margin some of the least efficient employers will not be able to afford higher wages and will cease trading.
    “Because the entrepreneur’s product is of higher value than the products of the inefficient firms forced out of business by the rise in wage levels, the total value of all production is higher than before, and equal to the higher wages now generally paid plus the increased profits earned. Real wages have therefore risen, as has real production; there has been economic growth accompanied by rising living standards.
    “Heinz Kurz and Neri Salvadori applied techniques developed by Piero Sraffa to Schumpeter’s model of innovation disrupting the circular flow of an economy previously in equilibrium and demonstrated that process innovation also led to a permanent increase in wages. Their approach by no means demonstrates that the increase in wages will be evenly or fairly distributed, just that there will be more to distribute.”

  2. June 4, 2016 at 6:58 am

    Peter I guess I expected more from economists than they can deliver. Or even consider delivering. It’s seems obvious to me that to say one knows what growth is and understands it one must look to how growth is made. And I’m not referring to ideas that make growth happen or solving the mysteries of making growth happen. No, I’m referring to the history that creates growth, change, movement, momentum, or any other way you want to say it. I approach this two ways. First, until it was invented by the social philosophers and later the social scientists in the 14th and 15th centuries history as change over time that could be studied and had a causal structure did not exist. Time was either the repeating of universal natural functions that did not change. Or time was the working out of the will of the gods or God that ruled the universe. In these circumstances change, apart from that wrought by the repeating universal pattern or the will of the gods/God did not exist. It simply was not part of life. Second, when the social philosophers and social scientists changed that, the change was to a history driven by and explained by natural laws, as in physics, astronomy, biology, etc. Human behavior made history and human behavior was governed by natural laws that it was the function of science to study, reveal and explain, and then use to predict human action. In these circumstances what can one expect from economists? They are likely to focus on the natural laws that governed economic behavior, right?

    Two ancient Greeks, Herodotus and Thucydides are sometimes identified by historians today as the fathers of history. “History,” from the Ancient Greek ἱστορία (historía), usually translated as “inquiry,” “knowledge from inquiry,” or “judge.” Greek historians such as Herodotus and Thucydides wrote about great wars and military campaigns and about the everyday lives of Greeks and those living around them. They did not expect to find change or growth. They expected an orderly world. But later historians expected to find (because they were part of creating them) a sequence of past events leading up to today through cause and effect and took it as their job to objectively describe that pattern. That they did not find such lead them back eventually to history as the narrative of change over time in human existence. But the social sciences held on to the search for natural laws of behavior that could be discovered, quantified, and then applied to predict and control. Over time, however, most of the social sciences focused less (because it was not workable) on natural laws and prediction/control and more on telling the story of how humans build their psychologies, societies, political arrangements, etc. Economics held out, however, and the longer it did the more lost and ineffectual its work became. Until today economics provides not even the most basic elements of scientific work. Dazed and confused.

  3. blocke the
    June 4, 2016 at 8:25 am

    What took you so long to get to the subject of “growth” Historians have been discussing it for quite some time, especially when D McCloskey and others tried to introduce neoclassical economics and econometrics into the study of history, which brought about radical reinterpretation of comparative history, See, Richard Roehl., French Industrialization: A Reconsideration Explorations in Economic History, Volume XIII (1976) published in French L’Industrialization francaise: une remise en cause Revue d’Histoire Economique et Sociale, Volume LIV (1976) Reprinted in The Economic Development of France Since 1850, Francois Crouzet, Editor; two-volume set in the series The Economic Development of Modern Europe Since 1870, Charles Feinstein, Series Editor (London, Edward Elgar, 1993) Roehl argued that France was the first industrial nation – that was the great reinterpretation — to which I replied following the arguments, among others, of David Landes, in the Unbound Prometheus [(Robert R. Locke, The Roehl Thesis Reconsidered Explorations in Economic History, Volume XVIII (1981)] that Roehl could only come up with this reinterpretation by confusing growth with industrialization. Neoclassical economists and econometricians deal with growth not industrialization. McCloskey abandoned her views about the need to introduce neoclassical economics into history, by stating that she had it wrong, economics was not science, in her famous (to historians) about face of 1983, “The Rhetoric of Economics,” Journal of Economic Literature 21, 481-517.

    Orthodox economics ignores history and historians, which is why you find nothing much has changed in this blog. But Marx said that philosophers have only interpreted the world, in various ways; the point is to change it.

    And that point has not been completely ignored while you have been away. Fullbrook pointed this out when he posted information on what he called The Rana Foroohar Phenomenon – on which I commented:

    “The Rana Foroohar Phenomenon offers a way for economics to break out of the impasse in which it finds itself. That impasse we all recognize as the inability of economics to make progress as a discipline because it is under the control of a stubborn elite that refuses to discuss the shortcoming of neoclassical economic, thereby, blocking the way to reform that is essential to solving the social crises currently confronting American society.

    The RF phenomenon amounts to a use of media, in this case Rana’s book, Makers and Takers, and her presence on Time and television, to break academic resistance to reform. The success depends not only on swaying public opinion in general to confront and break the hold of the neoclassical economics establishing over the discipline, but in convincing those within the university community (presidents, vice-presidents, deans, and departmental chairs) who shape curricula to put pressure on obstinate economists in their citadels to reform research and teaching in economics in community responsible ways that media proselytizing, i. e., Makers and Takers, advocate.”

    In my post about the “The naiveté of science as the history of Ideas” I noted that we cannot understand the “development of science without going into the political, social, and economic environment in which science exists.” This blog is a particular instance of what I mean, because the power brokers in orothodox economics have not been challenged effectively through its networking . Welcome back, hopefully to the promotion of networking that can effectively change economics so that you won’t find it unchanged on returning from future absences.

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