Social Policy in Ontario

Seeing modern economics as a ‘grand pursuit’

Posted on September 18, 2011 in History

Source: Toronto Star — Authors: Jennifer Wells

TheStar.com – news/insight
Published On Fri Sep 16 2011.    By Jennifer Wells, Feature Writer

In A Beautiful Mind, Sylvia Nasar probed the math brilliance, and schizophrenia, of John Nash, played by Russell Crowe in the movie of the same name. Now, in her just-releasedGrand Pursuit: The Story of Economic Genius, Nasar surveys 200 years of economic thought, give or take.

She is speaking at the Rotman School of Management on Thursday, Sept. 22, at 5 p.m.

Wells: You’re brave. Grand Pursuit hauls out a cavalcade of musty economists, gives them a shake and reveals them as real people. Interesting, too. What got you hooked?

Nasar: I got caught up in the drama, the glamour of the story. When I realized that modern economics was a grand pursuit to overcome scarcity, to take charge of destiny, I thought, wow, that’s like the Golden Fleece, The Wizard of Oz, Apollo 13, Tom Stoppard’s The Coast of Utopia.

It’s not that different from A Beautiful Mind. By the time John Nash won the Nobel, a lot of people, including journalists, knew the essential facts about his life. Most reacted by finding his story depressing, even off-putting. To me, it was epic, universal, deeply romantic.

It took me a lot longer to see the evolution of modern economics in a similarly romantic light.

Wells: Charles Dickens. We wouldn’t tend to think of him as an economist, but you do. Why?

Nasar: The core of economic genius is an exercise of imagination, seeing that what seemed to be fixed and frozen could be altered. That humanity could escape the age-old sentence to nasty, short and brutish lives, that nations could make their own destinies. So it made sense to begin with Dickens, whose name is synonymous with imagination and who was in the capital of the world, London, where it all started. He didn’t invent the new economics, but he could see it was needed.

Wells: You say Dickens’s purpose in writing A Christmas Carol was the conversion of capitalists. What did he seek to convert them to?

Nasar: Well first of all he was calling for a new economics that didn’t see the interests of different social groups as diametrically opposed. Pre-Alfred Marshall, economics was kind of a zero-sum game. If I did better, then you wouldn’t, and that’s what Dickens was protesting. . . . He was an optimist. He loved technology. He felt he was living in this miraculous age of technological progress and social progress and he wanted to see that shared more widely.

Wells: Your examination comes off as quite fun as you weave in Karl Marx.

Nasar: Marx is a fun character. What he really got in a sort of very visceral sense was that there was this huge explosion in the productive capacity of the world. All of a sudden it was clear that the English economy was producing at a level that was unprecedented in history. In addition to getting richer, there were also countries that were becoming more interdependent, so ideas and technology and people and capital were moving across borders. He and (Friedrich) Engels were brilliant journalists.

Wells: I didn’t actually get that from the book.

Nasar: Even though the economics is ridiculous, he captures a lot of true things about the world with a kind of vividness that many others didn’t. I should add that of course some enterprising scholar recently went into the Horace Greeley archives and discovered that Engels co-wrote every single column that Marx wrote (for the New York Tribune).

Wells: Well, he couldn’t make a deadline.

Nasar: And he had terrible writer’s block. I have to say that there was a self-serving motive in my fascination with that. I felt a lot of sympathy.

Wells: You mentioned Alfred Marshall. He plays a central role for his breakthrough thinking on competition and productivity.

Nasar: He figured out how most people in the world would get out of poverty as a result of increasing productivity and higher wages. It sounds like an almost trivial discovery. Marshall identified the single thing that could be affected in many, many ways, primarily through the activities of managers and owners of firms whose job it was to organize production and who were driven by competition to constantly look for ways to do more with what they had. But there were also other ways, including one that sprang from Marshall’s observation that there was a class of workers, clerks, shopkeepers, white-collar workers that was growing very, very fast and that those people with a little bit more education than the ordinary labourer earned much higher wages. All of a sudden it meant that (poverty) was not a fact of nature, this was not immutable.

Wells: Were you at all surprised by the role assumed by enterprising women economists at this time?

Nasar: Of course I was. It turns out there were an awful of (women), often widows, who made their living and got themselves out of desperate situations after their husbands died by writing full time. Some of them wrote about economics. A lot of them wrote about social conditions. Even in the last half of the 19th century women’s work was being transformed, women were being pulled into the labour force and not just into factories but also into these white-collar professions, which were growing even faster than factory occupations. The other thing I thought it showed was that economics was everybody’s business in England.

Wells: One of your most vibrant portraits is of Beatrice Potter Webb, who drew firsthand observations by interviewing London dock workers. She was a reporter, she was a social observer, she was an economist.

Nasar: And she was beautiful.

Wells: She played a central role in pushing for a minimum wage.

Nasar: These are her ideas. I credit her with inventing the think tank. She wasn’t a politician, she wasn’t an academic. She saw her role as collecting data and making observations. She also understood that for all that information to have any use, she had to reach conclusions and think about what could be done. When politicians decided they needed them you know they would have to turn to her. That’s exactly what happened.

Wells: We need to mention the marquee economists that you refer to. Joseph Schumpeter and his championing of the entrepreneur.

Nasar: He had a resurgence in the ’90s for the obvious reason that all of a sudden the really interesting businesspeople were not the head of GM or IBM but Steve Jobs and (later) the Google guys. I was struck by the fact that he tried so many long shots. He had a really big ego and he made a lot of mistakes and he burned a lot of bridges. He ruined a lot of relationships. And of course he destroyed his finances by speculating on margin.

Wells: Irving Fisher was both an entrepreneur — he invented the Rolodex — and an economist who wisely cautioned about the ill effects of over-speculation. Yet he held onto his own company’s stock through the crash of ’29, which meant financial ruination. Crazy? Blind sided?

Nasar: Irving Fisher was an incorrigible optimist, like most great inventors, explorers, entrepreneurs. Like Maynard Keynes, for example. But an early misadventure in currency trading had taught Keynes that he could be perfectly right about market fundamentals but still go broke long before the market returned to them. Fisher, who, by the way, was probably right about the fundamentals, hung on partly because he’d never lost money on stocks before and because he had a sister-in-law who did him the dubious favour of bailing him out. So Keynes cut his losses much faster.

Wells: What was Fisher’s single greatest contribution to the art of economics, or is it a science?

Nasar: Fisher pioneered the systematic study of the relationship between money, prices and interest rates and the “real” production and employment. He showed that inflationary booms and deflationary depressions, which appeared to be opposites, were both due to monetary disturbances and could be treated with monetary policy. If a science is a method for breaking down big complicated problems into smaller, more tractable ones and for dealing with them one at a time systematically, I’d say sure, it’s a science.

Wells: You gave a talk recently in which you said material reality is malleable, we can learn to affect it to make things better. Shouldn’t we be able to affect a better economic outcome by now?

Nasar: The fact is we’ve come a tremendously long way and it’s important to understand that. Somewhere between complacency and smugness and self-congratulation and this mindless pessimism that we occasionally have attacks of, particularly in recessions, there’s a place that’s neither of those. A realistic understanding of where we are will really help us.

Wells: There are 14 million people unemployed in the U.S. You can see where what you call this “mindless pessimism” comes from. What comfort can the study of economics offer, if any?

Nasar: Mindless means assuming that today’s bad times will never end, which is as purely emotional as betting, in 2006 and 2007, that the boom times would never end. Learning where we’ve come from and how we got here should give us confidence because we’ve been there before. We not only survived but went on to even better days. Sweden had a terrible financial crisis in the early 1990s and so did South Korea in the late 1990s. They suffered acutely but they didn’t become permanently poor. As bad as things are now in the U.S., it’s not 1930. In the midst of a global slump, living standards are 10 times higher on average than in Jane Austen’s day. Lives are two and a half times as long. Think of acquiring some understanding of economic ideas and facts as cognitive therapy, a way to temper emotion with logic and facts. Blind panic is probably why the economic debate in the U.S. sounds so vicious right now.

Sylvia Nasar is Knight professor at Columbia University’s graduate school of journalism.

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Tags: economy, standard of living

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