start back at Chapter 2 page 45.
Econometrics defined: "the application of statistical techniques to large sets of data on individual behavior."

copyright 2007, so may not be worth finishing

Coyle, Diane (2007). The Soulful Science. What Economists Really Do And Why it Matters. Princeton: Princeton University Press. 2007. ISBN: 9780691125138. Pagine 279. 18.45 $

Come ho raccontato recensendo il suo libro sul GDP, di Diane Coyle avevo comprato e letto 5 o 6 anni fa un altro libro, A Soulful Science. Ero stato attratto soprattutto dal titolo, che contraddice spudoratamente una definizione dell’economia come the dismal science che ho sempre molto amato citare (la citazione è di Thomas Carlyle, lo storico di epoca vittoriana).


Secondo la vulgata, che mi avevano raccontato all’università (come, credo, la raccontino a tutti quelli che si avvicinano all’economia), Carlyle avrebbe coniato la famosa frase commentando le idee di Thomas Robert Malthus, che aveva predetto (An Essay on the Principle of Population) che la conseguenza inevitabile di una crescita esponenziale della popolazione, a fronte di una crescita lineare delle risorse alimentari, avrebbe portato alla carestia e alla morte per fame della popolazione in eccesso. Insomma, Malthus è stato il padre nobile dei profeti di sventura dei limiti dello sviluppo e dell’insostenibilità della crescita economica. E automaticamente, criticandolo con il famoso meme della dismal science, Carlyle viene arruolato nell’esercito dei buoni, dei critici dell’economia in ragione di valori e principî superiori.

Peccato che le cose non siano andate così, come ricostruisce Derek Thompson in un bell’articolo comparso su The Atlantic del 17 dicembre 2013 (Why Economics Is Really Called ‘the Dismal Science’). In effetti, Carlyle si è sì riferito all’economia come a the dismal science, ma in un contesto diverso, quello di un saggio sulla schiavitù nelle Indie occidentali. Infatti, nel suo saggio Occasional Discourse on the Negro Question Carlyle – tutt’altro che un progressista – sosteneva la reintroduzione della schiavitù per regolare il mercato del lavoro. Nel dibattito in corso all’epoca, gli economisti sostenevano il laissez faire e il libero operare della domanda e dell’offerta di lavoro. Carlyle accomuna filantropi ed economisti ed è contro l’emancipazione e la libertà degli schiavi:

Truly, […] philanthropy is wonderful; and the social science – not a “gay science,” but a rueful – which finds the secret of this universe in “supply and demand,” and reduces the duty of human governors to that of letting men alone, is also wonderful. Not a “gay science,” I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science. [Occasional Discourse on the Negro Question]

Ecco ristabilita la verità storica (di cui presumibilmente, come di tutte le smentite, nessuno prenderà nota): Carlyle era un reazionario bigotto, convinto dell’inferiorità dei negri e dei poveri; gli economisti erano allineati con i filantropi per la fine della schiavitù, la libertà e il progresso. Riporto la conclusione dell’articolo di Derek Thompson:

Today, when we hear the term “the dismal science,” it’s typically in reference to economics’ most depressing outcomes (e.g.: on globalization killing manufacturing jobs: “well, that’s why they call it the dismal science,” etc). In other words, we’ve tended to align ourselves with Carlyle to acknowledge that an inescapable element of economics is human misery.
But the right etymology turns that interpretation on its head. In fact, it aligns economics with morality, and against racism, rather than with misery, and against happiness. Carlyle couldn’t find a justification for slavery in political economic thought, and he considered this fact to be “dismal.” Students of economics should be proud: Their “science” was then (as it can be, today) a force for a more just and, crucially, less dismal world.

Diane Coyle, definendo l’economia la soulful science in opposizione alla dismal science, ignora la verità ora ristabilita. Scrive, infatti, a pagina 39:

It [An Essay on the Principle of Population] also earned economics the description “the dismal science” from historian Thomas Carlyle.

* * *

Sono passati 7 anni da quando ho letto questo libro e non posso dire di averne conservato un’impressione vivida. Ma per fortuna avevo preso degli appunti e sono quindi in grado di segnalarvi tre passi in materia di economia dell’informazione, di reti e di istituzioni, rispettivamente.

[INFORMATION]
Looking at the availability of information, and how it shapes individual decisions, goes to the heart of whether and when markets deliver individually and socially desirable outcomes. People often have access to different information or are uncertain about its reliability – described as information asymmetries – so their decisions will be formed accordingly. Their behavior might be intended to share information, which Is known as signaling. Or the asymmetry will affect their behavior in ways which lead to a less desirable outcome, giving rise to adverse selection. Asymmetric information likewise might give people incentives to behave in undesirable ways from the perspective of the wider market or society, causing the problem of moral hazard.
In addition, information is in many ways a public good. Its use by one person doesn’t use it up at all (it is nonrival or infinitely expansible), and if known by one it readily spills over to others (it is to a large extent nonappropriable). These characteristics were most elegantly and famously expressed by Thomas Jefferson: “He who receives an idea from me receives [it] without lessening [me], as he who lights his [candle] at mine receives light without darkening me.” Recall […] the importance of knowledge spillovers in growth theory – knowledge is the word used for information in that particular context, trying to understand innovation. Even if it is possible to prevent others from acquiring information, it is likely to be socially inefficient to keep it private. Furthermore, the quality of a piece of information can’t be assessed before it’s acquired, so trust and reputation are likely to matter.
These considerations all suggest that the characteristics of information mean that markets don’t work as well as neoclassical theory would have us believe. On the other hand, it’s very clear that markets are good at aggregating information. [p. 149]

NETWORKS
We saw some of this in the previous chapter: the tools of networks allow us to model economic “contagions” or cascades, such as stock market booms, bank crises, or recessions, as if we were ants marching in step toward a new food source. Here I want to focus on just one aspect of social networks: the part which concerns how we run our societies and economies as a whole. Knowing that human networks appear to follow some natural laws, what does this tell us about the overall structure of society? How do the institutions by which we run our affairs take shape? Why do societies and economies then end up being so different from each other? If we all form interpersonal networks according to the laws of complex nonrandom systems, why are some countries rich and some poor? What difference does understanding that there is a natural, presumably biological or evolutionary, basis of social networks make to economic policy prescriptions? It seems, contrary to Mrs. Thatcher’s notorious assertion, that individuals are the same everywhere, and the differences are all down to society. [p. 214]

[INSTITUTIONS]
Partha Dasgupta writes:
When they have needed to, and have been able to, people have developed what are often crisscrossing institutions, such as extended-family and kinship networks; civic, commercial and religious associations; charities; production units; and various layers of what is known as government. Each serves functions the others are not so good at serving… Their elucidation, in particular our increased understanding of their strengths and weaknesses, has been the most compelling achievement of economics over the past 25 years or so. [Dasgupta (1998])
Networks, norms, culture, social capital, institutions, markets, governments, all words for mechanisms which turn individual choices into collective actions. One of the aims of the continuing research in this area must be further evidence about which form of collective arrangement delivers desirable outcomes, for there isn’t yet a comprehensive taxonomy. Each can fail in certain circumstances, each has its strengths and weaknesses. In the case of markets, anonymity can be a benefit in some circumstances and a burden in others. The close traditional ties of the village can be either supporting or stifling. Social capital can be positive or negative. Trust reduces transactions costs, making it more likely that markets will function efficiently, but the wider the extent of markets, the harder it ought become to sustain trust. No framework for collective action stands still, as today’s institutions shape tomorrow’s economic performance, which in turn feeds back to the evolution of institutions There remains an enormous research task in trying to understand these feedbacks, in one of the most exhilarating areas of economics today. [p. 229] ( )

I should have liked this book. Why didn't I make much headway? I think it was just my diet or concentration level at the time that I borrowed the book. I'll give it another go soon.

Coyle's thesis is that general equilibrium/neoclassical economics peaked in economics departments around 1985. At that point, economists realized that they had reached the end of the line with neoclassical theory and began to develop more interesting and useful approaches to their field. Thus, thinkers who criticize economic theory as unrealistic really are criticizing a "caricature" of economics that economists themselves already have abandoned.

I am not convinced by her argument, but she does provide an excellent overview of much of the recent work in economics. She talks about endogenous growth theory, game theory, "information" economics, behavioral economics, new institutional economics, and efforts to develop more realistic psychological models of economic behavior. Although she has a Ph.D. in economics, her prose is clear and accessible. She usually gets to the heart of the matter and tries to be fair to both sides of an argument.

She does convince me that economists have done some interesting things in the last twenty years. But she doesn't convince me that economists have abandoned neoclassical orthodoxy. She admits that almost all introductory classes in economics still teach neoclassical equilibrium theory and that students are not exposed to the new stuff until they get into advanced graduate studies.

This suggests that the new ideas that Coyle discusses haven't given economists themselves much reason to doubt the value of neoclassical theory. They still see it as a solid foundation for learning economics and understanding economic behavior. To most economists, the new ideas that Coyle discusses seem to be additional stories to add to the existing foundation rather than a fundamental challenge to existing theories.

That is the basic question that Coyle fails to address directly. Should the various challenges to neoclassical equilibrium theory radically alter the way that economists think about the economy? I would assert that the neoclassical emphasis on rigor and mathematics lends a false sense of precision and universality to their theories. Really, the economy is a complex phenomenon and those who study it are confronted by the same ambiguities and limitations faced by other human sciences such as sociology and history. ( )