Tag Archives: Paul Krugman

Economists in teen-guy-utopia

My very first post on this site mocked the economics profession for its teen-guy-utopia vision of reality. “Teen-guy-utopia” sounds like a mean-spirited exaggeration, but it’s not. The eminent economist I focused on, Paul Krugman, actually describes himself as a low-tech, real-life version of his boyhood sci-fi hero.  He doesn’t have super-powers or a space ship, but the analytical power of economic reasoning supplies a good-enough equivalent; with it, he’s helping guide humanity toward a better future. Most of us ordinary folk who are being guided aren’t aware of what’s happening, because it involves subtly rejigging the incentives we humans respond to– but we’d be grateful if we knew, because in the long run we’ll be better off as a result.

The gist of my post was, maybe it’s unwise to hand over too much social influence to a profession whose self-image derives from teen fiction. Or at least, if we’re taking inspiration from teen fiction, could we maybe mix in some Judy Blume?

Now we have a new example to ponder, thanks to the current debt crisis in Greece.   In case you haven’t been following, here are some of the background basics: Greece is an under-performing economy, and as such it’s deep in debt (it has lots of other problems too, including an insanely corrupt tax system). In the old days, Greece could have done what underperforming economies have always done– devalue its currency, so its money bought fewer American dollars or British pounds. That would make it more expensive for Greeks to buy other countries’ stuff and cheaper for everyone else to buy theirs, so money would flow in and the economy would take off. But Greece can’t do that, because since 2000 it’s used the euro, the same money as eighteen other European countries, some of them super-high-performers like Germany. So to escape its troubles, Greece has to create a friendlier business climate in other ways– mainly by pushing wages way down, cutting welfare programs and pensions, eliminating regulations business-folk dislike, and so on. All this will hit ordinary people very hard, and for the last year there’s been a frantic search for a way out.

So that’s where today’s story really starts, because of course one way out would be for the Greeks to dump the euro and return to an independent currency, which they could then devalue in the classic way. That’s the course that Paul Krugman himself recommended, and now we’re learning that Greece’s finance minister had actually developed a dump-the-euro plan. The minister of course was Yanis Varoufakis, the globally prominent, self-described “erratic Marxist” economist, who held university positions in England and Australia before returning to his native Greece. Right after leaving the government, Varoufakis gave a few interviews explaining the planning process he led.

Which is where the teen-guy-utopia thing resurfaces– because maybe the plan he came up with could work there, but not here on earth. In his interviews, Varoufakis describes assembling a top-secret, five-person team of brainiacs, including an IT professor at Columbia and another world-class economist from Texas; they claim to have hacked into various govenrment computers and extracted various banking information. Armed with that, Varoufakis explained, “we were planning to create, surreptitiously, reserve accounts attached to every tax file number, without telling anyone, just to have this system in a function under wraps. And, at the touch of a button, to allow us to give PIN numbers to tax file number holders, to taxpayers.” With that, Greeks could use their smartphones to do all the normal banking activities, and the new money would be off and running. (For other descriptions, see here and here.)

OK, got that? A top-secret, hand-picked team of five experts in various fields, working at top speed; they hack into mainframes, they press a button, and a new system starts into operation.

Here of course the teen fiction model is Mission Impossible (the TV version, not the Tom Cruise one), not sci fi, but the distance from real life is about as great. It turns out, only about a third of the Greeks even have smartphones, and anyway, who’s ever heard of IT change-overs working at the push of a button, without massive, lengthy, impossible-to-keep secret testing efforts? That’s before you even get to the possibility that some of the institutions being hacked might fight back– might even call in the cops or take more dramatic steps. This was not a plan that showed much familiarity with real life.  (Update, August 19: for a well-informed but hilarious take-down of these schemes, check out this article from the always-impressive Naked Capitalism team.)

Now, this is a pretty extreme case, and I can’t picture most economists launching a goofball project like this. But at the same time, Varoufakis isn’t some crazy outsider– he’s an internationally respected member of the economics establishment, whose views were being widely quoted long before he entered the government. We humanists get to take him as in some sense representative of his discipline, and we get to point his way any time we’re accused of being out of touch with the real world.

Why study history, Part 1: The case of the disillusioned history major

Why study history? It’s a good question. Studying history means learning about dead people, by-gone situations, wrong-headed ideas, funny clothes. But that’s not where we live; the knowledge we need for real life deals with the here-and-now, not the over-and-done. That’s always been true, but it’s especially pertinent nowadays, as we face possibilities and troubles that never worried our ancestors. With self-aware, armed robots coming off the assembly lines any day now, should we really be worrying about Louis XIV and Julius Caesar? Wouldn’t that time and energy be better spent on our own problems?

Every historian has to take that question seriously. We get paid to think about the past, and we ask our students to spend at least a few hours a week thinking about it too– we’d better have some answers as to why it’s worth their time and ours.

Here I offer a few of my own answers by describing a case of rejection– the case of a smart guy who encountered history, didn’t like what he found, and turned elsewhere for intellectual sustenance.

The smart guy is Paul Krugman, one of America’s most important intellectuals. Krugman is a rare figure in the United States, both a star professor (having taught economics at MIT and Princeton, he’s now moving to CUNY) and at the same time someone who tries hard to reach ordinary readers, with a regular column in the New York Times and a widely-followed blog. His columns and blog posts show him to be literate, progressive in his politics, and deeply engaged by the real issues of contemporary life.

So for anyone trying to understand where historical study fits in today’s world, it’s interesting to learn that Krugman came to college expecting to major in history. What he found disappointed him. As he explained in a New Yorker profile a few years ago, his idea of history had been shaped by his teenage reading of Isaac Asimov’s Foundation series. Those books show history to be a difference-making intellectual tool. Having carefully studied the past, Asimov’s heroes (a small band of historians armed with math skills and big computers) can see where their society is heading, long before the people around them have a clue.

Not only can the heroes see the deep processes governing their world, they can act on their knowledge. Centuries in advance, they secretly establish mechanisms that will head off the worst of the troubles they’ve diagnosed, and their plans work; trouble emerges just as they’ve predicted, but since they’ve seen it coming, their pre-programmed remedies are effective. They can’t prevent all the disasters, but they do enough to improve billions of lives.

But Krugman discovered as a Yale freshman that university history didn’t match up with the history he’d read about in Asimov. Just the reverse– his history courses seemed to offer only a mass of complexities and uncertainty. They didn’t elucidate those deep processes of changes that Asimov’s historian-heroes had grasped, and they offered no hope of guiding society to a better future. “History was too much about what and not enough about why,” the New Yorker article explains. In his disappointment, Krugman switched departments, and in economics he found what history had failed to deliver. Unlike history, he found, economics explored the basic rules by which societies function; it offered the kind of knowledge that could guide effective action. “Suddenly, a simple story made sense of a huge and baffling swath of reality,” is the journalist’s summary of Krugman’s intellectual experience.

Ordinarily, teen reading and freshman disappointments wouldn’t count in assessing an intellectual’s views; we all get a free pass on our adolescent hopes and dreams. But Krugman himself offers Asimov as a key to understanding his grown-up intellectual life as a professional economist. He acknowledges, of course, that even as an economist he can’t attain the predictive clarity that Asimov’s historian-heroes managed, but economics allows him to play something like their role. Using economic reasoning, we can get beneath the surface mess of life, understand its essential mechanisms, and use that knowledge to nudge society’s development in the right directions. Unlike history, economics both explains the world and provides a basis for improving it.

So Paul Krugman’s autobiographical reflections contrast the robust and useable knowledge of economics with the baffling jumble of detail produced by historians. It’s a critique that matters because it starts from assumptions that most historians share. These are the complaints of an intellectual, someone who believes in what universities do, not the standard ignoramus haroomphing about tenured radicals and useless research.

And Krugman’s critique gets at something fundamental about history, and about where it diverges from other kinds of knowledge. He’s right that we historians are interested in everything that reality presents; no other academic discipline has as much invested in exploring the details of life, and none has the same belief that all the details deserve our attention. We fuss about getting the dates right, and we write whole books about individual lives and brief episodes, some famous, many of them previously unknown. We want to tell all the stories that humanity has preserved, even the stories of lost causes and dead-end lives. That’s the historian’s paradox: we study the dead because that’s where we can explore all the dimensions of life.

That absolute commitment to the real, in all its chaotic variety, is the defining characteristic of historical thinking, and Krugman is right to zero in on it.

But he’s wrong in seeing history as “too much about what and not enough about why,” and that mistake is also important. The real difference concerns HOW historians and economists understand causation, not how much importance they attach to asking why things happen. The New Yorker profile makes that clear in summarizing Krugman’s freshman studies of ancient slavery and medieval serfdom: in explaining them, his history teachers talked “about culture and national character and climate and changing mores and heroes and revolts and the history of agriculture and the Romans and the Christians and the Middle Ages and all the rest of it;” his economics teacher explained the same phenomena with one simple calculation about agricultural productivity, population, and land availability.

So in fact Krugman’s complaint wasn’t that history didn’t say “enough about why,” but that it said too much– in his history course there were too many explanations, involving too many areas of life, too disconnected from one another. His economics professor replaced that long list with one causal rule, which applied in all situations. For the young Krugman, it was easy to choose between these two modes of understanding: the simpler explanation was more powerful and more useful– and therefore better. The mature Krugman agrees.

A few years ago, I would have said that we don’t have to choose between these two visions of causation, and that economics and history are just two ways of thinking about the world, each useful for some purposes, each with strengths and weaknesses. Sometimes we need a simple and elegant formula for understanding whatever it is we’re dealing with, and sometimes we need to wallow in the complications. That’s true in our personal lives, and just as true in our thinking about human societies. It’s why universities have lots of departments, and why we push students to take a wide range of courses.

But in today’s world, it’s difficult to stay so tolerant, because economics today is not just one academic area among many or a toolbox of handy techniques for thinking about business. It presents itself instead as a master discipline, a way of thinking that can illuminate all areas of our lives. Its methods and assumptions now show up in education, law, family relations, crime prevention, and pretty much everywhere else. Its terminology is also everywhere, and we scarcely notice anymore when a political leader tells us to apply marketplace solutions to some new area of public life. (For a cogent account of this “economics imperialism,” see here.)

With economic thinking taking over so much of modern life, the “we don’t have to choose” option isn’ really on the table. Others are trying to choose for us, and it’s important to push back — and not to be too polite as we do so.

I’ve chosen Paul Krugman to push back against here, but not because he’s an especially extreme advocate of the economics take-over. On these issues he’s probably the best that mainstream economics has to offer, an economist who seems alert to the arguments, values, and concerns that other ways of thinking offer. But that’s really the point: it’s often the best representatives of a worldview that we should question, not the worst.

And the fundamental question for Paul Krugman is, why should we take seriously any simple story about human affairs, let alone prefer it to a more complicated story? In the dream world that Isaac Asimov cooked up, sure, but in our world of real human beings? Krugman’s college economics teacher could offer a one-step formula that “made sense of a huge and baffling swath of reality”– but fairy tales and paranoiac fantasies do the same thing. In those cases, we all know, “making sense” of a phenomenon isn’t the same as getting it right. Ditto for explaining our own or our friends’ behavior: it’s usually not a good sign when we give a one sentence answer explaining a divorce or a workplace event.

Why would we apply different standards to a phenomenon like slavery, which brings together so many forms of human motivation: self-interest, racism, anger, sex, religion, culture, tradition, the love of domination, and much more?

We need history for exactly the reasons that the young Paul Krugman found it so frustrating. Reality is complicated, and its complications press in on us, confronting us daily with lusts, angers, and all sorts of other forces that don’t make it into Asimov-style fiction.  For some purposes and in some limited contexts, we can get away with pretending that those forces don’t matter. We can’t pretend for very long, though, before reality starts biting back. Historical study won’t tell us what to do when it does, but at least it will give us a serious idea of what’s out there.