Deirdre McCloskey Spoke

at this event. Here are my reactions to a few things.

1. She suggested that we should replace the term “capitalism” with “market-tested innovation and supply.” I like the term market-tested innovation. I can understand why she wants to add “and supply,” but that phrase may not in fact help so much. But innovation contrasts nicely with stasis or suppression of innovation. And market-tested contrasts nicely with government as an institution.

2. She suggested that starting in about 1848, four bad ideas grew: nationalism, socialism, imperialism, and eugenics. Obviously, this is a neat way to explain the disasters of the first half of the 20th century. But what (if anything) is holding us back today? After all, nationalism, imperialism, and eugenics are all unpopular with elites, and socialism has a lot of baggage with it. Are we beset by new bad ideas? If so, what are they?

3. Her story for the Industrial Revolution is that England became exceptional by bestowing dignity on all men, most notably merchants. She used the example of the word “honest.” In the 16th century, this was a term that might be applied only to someone of an elite class, such as an aristocrat or warrior. It meant someone who lived up to the expectations of that class. By the late 18th century, anyone could be described as “honest.” It meant, as it does today, someone who keeps their commitments and whose word can be trusted.

I have just finished America 3.0, by James Bennett and Michael Lotus. Their view is that Anglo-Saxon exceptionalism goes back 1000 years, and that it consists of the elevation of the nuclear family structure. This might explain why the Industrial Revolution took place where it did. It does not explain the timing.

McCloskey would explain the timing in terms of the English adopting a more small-d democratic outlook. I guess I will have to read more of her work to get the story of how and why this adoption took place.

4. An issue that came up is why it is that so few economists take the view that ideas matter in explaining differences in living standards. Cultures that encourage innovation do well, and other cultures do not. Instead, economists have an easier time focusing on endowments, meaning available resources, which turn out to explain very little. The next fallback for economists is institutions, which McCloskey thinks are over-rated as explanatory variables. She said that trying to pour better institutions into bad economies is as futile as trying to pour in dams and other capital projects.

This is, of course, a very lively debate. The institutionalists will focus on poster-child comparisons, like North Korea vs. South Korea, or Hong Kong and Singapore vs. other Asian countries. Those who belittle institutions will point to the failed attempt to “nation-build” Iraq. Don’t look for this to be settled any time soon.

In any event, I think it is fair to say that economists are caught up in the project to do social science, meaning looking at material and quantifiable factors as explanatory variables. Also, I am starting to think that there are positive feedback loops between certain professions and politicians. In journalism and economics, the selection pressures may work against those of us whose ideas lead to skepticismm toward political power.

At another event, Art Carden introduced her.

14 thoughts on “Deirdre McCloskey Spoke

  1. Which axes is McCloskey talking along? It may differ by your 4 points, and I am guessing without having the benefit of the full speech, but:

    1. freedom-coercion
    2. civilization-barbarism
    3 & 4: oppressor-oppressed

    I imagine that McCloskey’s default axis is freedom-coercion, but I wanted to note the differences in the points which you brought up. If she oscillates speaking along the three axes in many settings, she probably ranks as one of the most effective communicators.

  2. As a reader of as much (post Max-U) McCloskey works, blogs and recoded appearances, I recommend you note also her references to the Netherlands precedents and other trends in NW Europe.

    What can be derived from her observations (not concisely stated) are the changes and developments in how people (the “Demos”) came to regard one another and thereby their relationships with one another.

    She is opening up something that goes beyond the great “Human Action.”

  3. 1. “Market-tested innovation and supply” is a mouthful, I try to use the term “free markets” instead of capitalism. Capitalism just has too much baggage and connotes an industrial-centrism that is completely outdated today, when manufacturing is a small fraction of world GDP.

    2. Obviously socialism is rampant today and is what’s holding us back. All US govt spending was 30% of GDP in 1960, it hit 45% of GDP under Obama. It was less than 8% of GDP in 1900. I wouldn’t say nationalism is gone today either, only not as strong as at its peak. We’re always coming up with new bad ideas, ie political correctness, allowing anything in the name of combating terrorism, etc, but they are usually merely new incarnations of older bad ideas.

    3. Perhaps it takes 700 years of “nuclear family structure” to build up enough momentum for a break like the industrial revolution, ;) not a promising sign for us today. If it’s democracy that did it, that vein is already tapped, considering the popularity of democracy today. So it might not matter much if that’s the reason, as it’s going to be no guide to what might lead to our next big revolution.

    4. Perhaps institutions alone are not enough and culture and institutions both need to be right and interact. By this rationale, South Korea, Japan, Hong Kong, and Singapore thrived because they had cultures that accepted better institutions easily. By contrast, the tribal culture in Iraq may not be ready for better institutions. Taiwan is a great example of this, where all the anti-communists who left China settled and now has a thriving economy with a higher GDP per capita than Japan.

    I don’t see what the “selection pressures” towards supporting politicians would be in journalism or economics, other than the early entrants randomly being highly supportive of politicians and establishing a culture that is difficult to change, ie path dependence based on the initial state. I suppose you could argue that all these econ profs work at govt-subsidized colleges, but econ is the least govt-friendly of the social sciences. Perhaps they would be even more skeptical if not for the govt money, but considering how many of them either make money outside or could do so, you’d think that wouldn’t be determinative.

  4. There is an argument, which seems reasonably sound, that part of why the industrial revolution took root and flourished in Great Britain was energy – and in particular, coal.
    see: Energy and the English Industrial Revolution – E.A.Wigley.

    That of course is only “one thing”, and surely would have been limited if bad ideas, or really bad social structures, prevailed.

    • McCloskey demolishes that position (energy from coal) in her second book (which is given over to a lot of “demolishing”).

  5. Arnold: the last paragraph left me wanting more of your thoughts on social _science_, especially the nature of “caught up”. Future blog posts on that topic would be welcome.

  6. I’d count the European movement as nationalist. I’d also say the U.S. is more nationalist than ever; the general public just assumes that the president can do anything he wants, and moreover, that that’s fine.

    Socialism is broadly popular as far as I can tell, but I guess it depends on where you draw the line. Would you consider single-payer medical care to be socialist? It’s certainly very popular, among both elites and the general public.

    Iraq has better infrastructure and institutions than it did under Saddam. This is one of those things that people read about in popular politics and then just assume must be true. The truth is more interesting.

  7. “Are we beset by **new** bad ideas? If so, what are they?”

    Call for Sir Isaiah Berlin!

    1. Determinism: Not **new** but based on new premises (genetics, et al.)

    2. The conflation of “Rights” with organic nature – denying that all “Rights” are grounded in constraints on conduct (obligations “of ought not”).

    3. Misconceptions (many) of “Inequality.” For partial clarification read Amartya Sen, Tanner Lecture May 22,1979.

    4. Economics is a “Science.” Is “Politics?”

    5. Technology will lead to “Innovation;” rather than Innovation will cause the development of technology.

    6. Legislation is equivalent to Law.

    Excelsior!

    • 5. Technology will lead to “Innovation;” rather than Innovation will cause the development of technology.
      It’s a virtuous cycle, with one begetting the other. The invention of the computer allows for a host of new innovations building on computer technology, from computer networking to computer simulations of all kinds. That said, much of it can be silly, simply trying to slap the terms “computerized” or “digital” on the same products and rebranding them as something new.

  8. Left out at least one more:

    7. The Concept the Government, the “State” is an organic entity rather than a mechanism through which human relationships are conducted.

    That’s a biggie!

  9. I’d say the current harmful ideas are

    1. “The desire for profit is unseemly and leads to bad outcomes.” Many people seem to think corporations and profit motive are bad per se, rather than see them as organizations who simply need the proper incentives.

    2. “People who do bad things are bad people who deserve bad things be done to them, forever.” One need only look at our prison system, how we treat ex-cons, and our drug laws. There’s no thought to giving people better incentives or helping them when they fail. This destroys whole chunks of our society, and those destroyed chunks impose huge costs of the remaining healthy tissue.

    Most of what else is wrong with our society is institutional. We know the farm subsidies are bad, but we can’t seem to do anything about them. Campaign finance laws and legislative riders have much harm to answer for.

  10. I think your claim that the elites have rejected nationalism gets the danger of nationalism precisely backwards.

    Nationalism really has a couple of components. One is chauvinism — “my kind is better than your kind”. No question that many of the elites are rejecting that, and bravo, but chauvinism is really not terribly dangerous in a political system because by itself it doesn’t have a lot of policy implications. After all if my kind really is better, we don’t need lots of policy levers to beat your kind because we’ll win anyway. It needs another element to get really dangerous.

    The other big component of nationalism, though, is quite dangerous in its own right: Treating the nation rather than the individual as the fundamental unit of account in moral and practical calculations — and that I think the elites (of both parties) have embraced more than ever. This is the impulse that lets them speak of “us” trading with “China” or that “we” are falling behind “other countries” in education or that “our sanctions” must defeat “Iran” (as opposed to this person trading with that Chinese person, or someone nearby you have never met underperforming someone else you have never met from Singapore, or that restrictions on your or my trade behaviour might defeat certain members of the Iranian ruling coalition).

    Nationalism in tribal, collective sense is as powerful now as ever, and this is important because — unlike bare chauvinism which in the end is subject to some sort of reality testing that inevitably draws the poison from its worst implications — claims about the moral structure of the universe are pretty darn hard to falsify. Worse, it provides a unifying framework for a whole lot of policy choices, and a vocabulary of us-and-them tailor-made to troll an electorate, move debates into increasingly irrational nonsense, and of course replace notions of respect based on virtue (McCloskey’s preferred approach) with those based on loyalty and membership-proving.

  11. “After all, nationalism, imperialism, and eugenics are all unpopular with elites”

    Hard to argue imperialism is unpopular with elites if you look at the European Union.