HES 2014: It made a happy man very old!

This year, the History of Economics Society (HES) meeting was organized at the University of Quebec at Montreal. The meeting was, on the whole, a nice affair, there were plenty of interesting sessions, I reconvened with old friends and was able to present there my latest work and receive constructive comments.

There were, however, a number of features at the meeting that made me think that HET as a disciplinary subfield of economics is not at a turning point anymore. The turn has occurred some time ago and I would argue that we are now past the point of no return. You may see this as either a good or a bad thing, depending on how you situate yourself in the debates that have peppered our field over the past two decades or so, but here are the facts:

There were approximately 100 participants at the conference. One hundred historians of economics is always a good thing, but it is also a decreasing number - I did not attend the past three conferences but my feeling is that we were far more numerous to attend the HES meeting in Denver (2009) or in Toronto (2008). I found it quite surprising in the sense that Montreal is a vibrant city and I expected that the fact it is more cosmopolitan than, say, Syracuse, would draw more European researchers. What happened, I believe, is most that European historians have privileged the European conferences such as the ESHET and the Charles Gides meetings, which had a lot of sessions and participants. It is possible, also, that the current crises makes it more difficult for research institutions to pay for overseas travels. Yet, I think the evolution is even deeper than that.

The three researchers that were distinguished by the HES awards (best paper, best thesis and best book) are all located outside of economics departments. Dotan Leshem, who received the best paper award for his work on the origins of oikos nomos,is at the Instititute of Comparative Literature and Society at Columbia; Catherine Herfeld, who received the Dorfman Prize for her dissertation on rational choice theory studies philosophy at the  University of Munich; and Jeremy Adelman, who received the Spengler award for his intellectual biography of Albert O. Hirschmann, is a historian at Princeton University. All in all, the best history of economics, according to three subcommittees of one of the two main scientific societies in the field, is now done by people who are not subdiciplinary historians of economics. And these people are just the trees hiding the rest of the forest. At the last HISRECO meeting in Sienna, I met Tim Shenk and we talked a lot about this: there is definitely a world out there! Tim is doing some very nice work on the history of economics, the article he presented there on Maurice Dobb is very promising and I am sure that we will hear a lot about the PhD dissertation he is completing in the history department at Columbia. At the HES meeting, the invited lecturer was the historian of science David Engerman. His current work on economic expertise in India is brilliant. I could cite many more: Verena Halsmayer, a historian of science in Vienna, is completing her PhD dissertation on economic modeling, Michele Alecevich at Columbia is writing a groundbreaking history of development economics. There are many scholars who are studying the history of economics in the history, philosophy or sociology departments of major research institutions in the US and in Europe.

Meanwhile, at the HES meeting, Steve Kates complained that economics is not interested in the history of economics anymore. He is right, economists, in their vast majority, do not want to hear about historians of economics. Personally, I am honoured to be part of a mainstrean economics department in France, but I know I am in a minority position. My colleagues are sometimes interested in my work but as a whole HET is not very appealing to them. It might be a good or a bad thing but it is so. On several occasions at the HES meeting, Thomas Piketty has been mentioned as someone who is reviving some historical tradition but I believe that his otherwise excellent work does not have anything to do with the history of economics as a subfield. Piketty's historical understanding is grounded in the French tradition à la Braudel, not in the kind of works historians of economics do. On the whole, although economists have argued that we should study history more following the 2008 crisis, it did not affect the content in top economics journals and we are 6 years away from the beginning of the crisis. Look at the top 5 journals and you will simply not find any material related to what we see as the history of economics as a subfield. History of economics as we used to know it is now an almost defunct enterprise but, outside of economics departments, history of economics is thriving. It is, I think, more encouraging than worrisome, we have a whole new community to address and the only depresssing thing about this situation, in truth, is that most of our colleagues fail to recognize it (but that, also, is changing).

On a more personal note, this HES meeting made me realize I am not so much a young scholar anymore. I chaired the young scholar session and I believe that is a sign I should ackowledge. For this reason, this post will be my last contribution to this blog. I would like to thank my fellow bloggers for all the fun during those past six years.

We Can Blog it!

  The more reflexive mode brought by the financial crisis to macroeconomics made economists more outspoken about methodological, historical and sociological issues: how have we come to the DSGE dogma? What are its limitations? How can we produce alternative knowledge? Do publishing practices favor a "monolithic" thinking, and if so, how can we change it? What about the graduate training in economics?

  It is interesting that blogs became a more popular way of reflecting on these kinds of issues. I'm not saying that macroeconomists blog mostly about these issues: like several microeconomists, in their blogs we find a lot of "applied" discussions, here on economic policy, taxes, inequality, growth, etc.  But in contrast to microeconomists, macroeconomists seem more willing to blog about the history of their field, as our fellow blogger Beatrice Cherrier recently wrote about. I have argued elsewhere that contrary to a well established cannonical history of microeconomics, macroeconomics is often seen as made of disagreements between rival "schools of thought," with a few consensus periods (as the "neoclassical synthesis" and the "new neoclassical synthesis"). As a result, macroeconomists seem relatively more open to engage in "historical arguments." 

  While historical (and methodological) questions have been more popular recently, in blogs by Paul Krugman, Simon Wren-Lewis, Noah Smith, and Chris House, for example (all mentioned by Cherrier), historians (and methodologists) have had little participation in this debate. And important issues come up with the practice of blogging about the history of macroeconomics at the same time that very limited space in economics journals is allowed to historical analyses (and there is a quite selected group of economists who are called upon to present the history of the field in the few articles published in economics journals and volumes edited by practicing economists). Blog is a short-attention-span technology, where giving opinions without a careful and detailed analysis is not uncommon. Would blogging impoverish the quality of historical discussion, becoming more and more an expression of one’s own ideas and prejudices? On the other hand, it reached out the youngsters in an important way.

  These and other related topics motivated the proposal of a round table to take place in the coming meeting of the History of Economics Society (HES), in Montreal (June 20-22). There, a groups of historians and a macroeconomist will discuss some of these issues: Steve Ambler (Université du Québec à Montréal), Kevin Hoover (Duke University), Marcel Boumans (Erasmus Universiteit Rotterdam), and myself. A promise of a great discussion!

 

 

Piketty and thinking about economics

There is a new economics rock-star touring the US by all accounts, and his name is Thomas Piketty. More precisely, the star of the show is Picketty's Capital in the Twenty-First century which is a 700-page volume on wealth distribution in 30 countries over decades and centuries of data.

I have not yet read it, but I wanted to note that the last time a piece of economic research got this sort of attention, it was also a long book, it was also a historical study, and it was all about data and looking at the world through the historical lens. That time it was Rogoff and Reinharts book on national debt:This time is different.

Could it be that books are the way to impact the discussion on economics and not papers - is the academic/economics grind counter-productive? I like this sort of scholarship, or let me qualify that, I like how Piketty describes his form of scholarship and his vision for economics:

Capital in the Twenty-first Century, Piketty makes clear, is his notion of what economics scholarship should look like: combining analyses of macro (growth) and micro (income distribution) issues; grounded in abundant empirical data; larded with references to sociology, history, and literature; and sparing on the math. In its scale and scope, the book evokes the foundational works of classical economics by Ricardo, Malthus, and Marx—to whose treatise on capitalism Piketty’s title alludes. (The Chronicle, 17 April 2014)

On that note I'm off to order my copy.

Economics as engineering III: Carnegie stories

Episode I and Episode II; Background chronology of economics at Carnegie.

The “economics and engineering” line of argument is part of economists' rhetoric. While they've used it primarily as a metaphor to describe their practices (formalization, modeling, market design, problem solving, policy expertise), historians have documented the substantial impact engineering as a science, practice or culture had on the formation of economics since the 19th century. For instance, they have studied how engineering was instrumental in shaping the “New Economics” economists built at MIT between the 1940s and the1960s. In a workshop organized by fellow blogger Pedro Duarte on the history of macroeconomic dynamics last summer, Judy Klein and Esther-Mirjam Sent presented new evidence of how New Classical macroeconomic modeling was heavily influenced by the Carnegie engineering mindset (video of their talks here). In particular, they show how Lucas, Prescott and their colleagues built upon the Cold War “modeling strategies” previously devised by economists and engineers under the supervision of the military.

Klein's take on the rise of New Classical economics is especially interesting. She aims at explaining how the demands of military patrons in the context of the Cold War turned some branches of mathematics into a “science of economizing.” The solutions yielded by production planning or warfare models had to be expressed as simple, e.g. implementable and computable decision rules. This requirement forced applied mathematicians, engineers and economists working on such projects to rethink their “modeling strategies.” Klein thus demonstrates that the “modeling strategies” Carnegie researchers crafted for their clients proved especially fit for economics use : computational and practical constraints shaped Bellman's dynamic programming techniques, Simon's certainty-equivalence theorem and Muth's notion of rational expectations, three pillars of New Classical macrodynamics.

Bellman's research interests evolved hand in hand with the warfare between the US and the USSR, Klein explains. His first assignment was to work on the best allocation of the 9 US nuclear bombs in case of a strike. The solution had to be designed as a decision rule telling the bomber how to reoptimize after each move to inflict the maximum damage to the enemy. As bombs, missiles and other war equipments multiplied in the second half of the 50s, Bellman switched to inventory control and the determination of optimal military production in the face of uncertain demand. In the wake of the launch of Sputnik, he concentrated on the design of optimal control trajectories for fuses and missiles. Again, his models were constrained by the requirement that the resulting decision rules accommodate uncertainty, be operational and quickly computable. It was in this context that he fashioned his dynamic programming method, a more tractable alternative to the refined type of calculus of variations enabled by the 1962 translation of Pontryagin's book. Bellman envisioned his clients' control issue as a multi-stage decision process, in which the state of the environment at each stage determined which control variables should be used and how (the policy decision). He managed to show that solving for the optimum value of the objective function was equivalent to solving for the optimal policy and then derive the value of the function, a protocol much easier to compute and more useful for his clients.

 

 

Bellman's protocol was immediately implemented by those economists and engineers recruited at the newly established Graduate School of Industrial Administration of the Carnegie Institute of Technology. During the fifties, the Air Force, then the Office of Naval Research asked Herbert Simon, former engineer Charles Holt, Franco Modigliani and William Cooper to devise decision rules aimed at minimizing some plants' production and inventory costs. Those rules had to be implementable by non-technicians and easily computable, so that approximate solutions were preferred to abstract solutions. As a result, the Carnegie team worked in the spirit of “application-driven theory,” in Cooper's words: you start with a problem, you develop a solution, and then the theory comes from the generalization of such solution. In particular, they resorted to reverse engineering: knowing from previous work on servomechanism that the use of Laplace transforms made calculus much easier, they looked for the cost function amenable to such results, and found out that it had to exhibit a quadratic form. The quadratic cost function had yet another virtue. Since the models had to include some forecast of the (uncertain) future demand, Simon demonstrated that, in the case of a quadratic objective function, uncertain state variables could be approximated by their unconditional expectation. This certainty equivalence theorem spared the modeler the task of handling the whole probability distribution of future variables and performing long and complex computation. Reflecting of his team's modeling strategy, Simon came up with the idea that, just like scientists, those entrepreneurs confronted with limited information and computation abilities were not maximizing, but looking for satisfying rules of behavior. They thus exhibited bounded rationality. One of Simon's PhD student working on the project, John Muth, however interpreted their experience in an opposite way. While Simon had concluded that economic models assume too strong a form of rationality, Muth argued that “dynamic economic models do not assume enough rationality.” Entrepreneurs' expectations, “since they are informed predictions of future events, are essentially the same as the predictions of the relevant economic theory,” he famously explained in 1960.

 

 

While Pontryagin's type of dynamic optimization was immediately translated into the growth theoretic modeling developed at Stanford and MIT, Bellman's dynamic programming, combined with Kalman filtering, rational expectations, and the certainty equivalent theorem, was the “modeling strategy” chosen by Carnegie economists. Lucas first used Muth's framework in a 1966 paper aimed a studying individual investment decisions, then in his and Prescott's 1971 model of firms facing random shifts in the industry demand curve. Bellman's protocol enabled them to determine the optimal time path of investment and prices, a technique subsequently spread in macroeconomics works. As Esther-Mirjam Sent emphasized, opposing “freshwater” science to “saltwater” engineering is thus misleading: both modeling styles heavily drew upon modeling strategies initially developed for engineering purposes.

             

 

Klein's catchword “modeling strategy” is extremely important in that story. It conveys what the turn to rational expectations was for those Carnegie economists immersed in a Cold War engineering zeitgeist. That economic agents were viewed as a collection of decision rules reflected modelers' daily practice. The normative decision rules Carnegie economists developed for their military and private clients eventually became a positive representation of how economic agents behave, so that it made sense to assume that a communism of models existed between the modelers and the agents. The modeling strategies chosen by New Classical economists had been previously designed for practical purpose, and their specific pattern therefore framed economists' research and policy conclusions. The stabilizing quality of agents' rules of behavior was built in those models exhibiting a new kind of rationality and a multistage decision process, while Pontryagin types of protocols led modelers toward alternative notions of equilibrium and thus, diverging policy prescriptions. All this suggests that the modeling and policy aspects of the macro debates raging in the 70s and 80s are ultimately impossible to disentangle. 

 

Thomas Scheiding: A history of scholarly communication in economics

We invited Thomas Scheiding from Cardinal Stritch University to review what we know about the scholarly communication process in economics. Tom has written forcefully on the history and economics of economic literature (see for instance, his 2009 JEM article). His latest is a study of the scholarly communication process in physics (an article in Studies).

Macroeconomics in Perspective

In which MIT decided to teach micro first so as to make economics more relevant

I've already blogged on how undergraduate education evolved at MIT in the postwar era here and here, but since Mike Konczal and Paul Krugman make the case that, to bring introductory economics closer to the real world, macro should be taught before micro as Samuelson did in the first 13 editions of his Economi Read more

Mature history of economics

In the past decade, the volume of literature in the history of economics has been of 500 articles and just under 50 books a year. The graph below traces the count in two year intervals (articles left axis, books right axis). The absolute volume is stable but given the growth of economic literature in the period, stable might be rebranded as static.

Read more

In the thick of it (labels and research)

Historians like labels. X history. History of y. The labels carve out subjects, set boundaries in time and space, at times even suggest methodological commitments. Read more

Do social movements create new ideas?

The short answer is yes. For the long answer I will make you sit through seven paragraphs. Read more

Economic theory declassified?

So, most Nobel Prize exegetes went a long way, this week, toward explaining that asset pricing is not primarily born out of theoretical reflection but out of prize-deserving empirical work.John Cochrane, for instance, writes about efficient markets that: Read more

The Political Economy of the Nobel Prize, 45th edition

This morning, when I woke up a few hours before the Nobel announcement, I felt seriously dissatisfied. I had meant to write a post on Thomson Reuters's prediction that Card, Angrist and Krueger may win the Nobel for their work on empirical microeconomics. I thought that such prediction would come true, sooner or later, because of the irresistible development of empirical economics in the past 50 years, one illustrated by the list of John Bates Clark medalists. Such expansion, fostered by the increasing availability of data and computing resources, could itself be recast as part of an even larger move toward making economics an applied science. Read more

Guy Numa "The Financial Crisis Five Years Later: The Role of Banking"

Present day puzzlements shed their complexity when Guy Numa in this essay draws on some age old distinctions borrowed from Jean-Baptiste Say. Numa is a INET Research Fellow who specializes in the History of Economic Thought and Industrial Organization.

Five years ago Lehman Brothers filed for bankruptcy marking the unofficial start of the latest financial crisis. Several commentators argued that the key to understanding the root cause of the crisis lies in the partial repeal of the Glass–Steagall provisions that occurred in the late 1990s. The provisions restricted commercial banks from participating in the investment banking business and therefore institutionalized a de facto separation of the two types of institutions. Read more