(Mis)Behaviour: Economics and the academy’s great image problem
Benoit Mandelbrot, the father of fractals and a true pioneer of the infiltration of mathematics into economics likens financial economics as an academic discipline to “chemistry in the sixteenth century: a messy compendium of proven know-how, misty folk wisdom, unexamined assumptions, and grandiose speculation”. If the discipline is such, then its administration closely resembles Christianity in the same 100 years: if elbow patches replaced clerical collars, PhDs were indulgences and the cities of Vienna and Chicago were Rome and Constantinople, little would be unnerving.
In recent years, the unrelenting themes of women in STEM, women in the c-suite and women in economics have intensified. The true antidote to these concerns is not outright denial or blind following, but a sense of sceptical restraint and nuance. In many cases, the medium of delivery is indicative of the content, and this is most evident in the messengers of the dismal science. Economists have a reputation for being short, bald pariahs – and invariably Jewish. The distaste towards the past 35 years of increased immigration, free trade, deregulation and the full-throated adoption of neoliberalism is somewhat contingent on antisemitism. This arrogance provides a backdoor for hatred because the marketing of the science is so unconvincing. This is a matter not of sex or race, but of attitude and culture. Economics has a culture of robust denial of empirical fact, or as in the case of neoliberalism, a refusal to accept the messy byproducts of an improving economy.
Since Adam Smith, economics has constantly splintered and fragmented, with many in the 1930s jettisoning its philosophical roots in search of a mathematical foundation. More recently an evolution has ensued, swapping lofty mathematical models for data. This switch is an attempt, no doubt driven by business schools, to keep the discipline relevant in the era of high-frequency trading, machine learning, and of course, the 21st century’s rendition of a worn out 90s catchphrase… ‘big data’. However, there is a schism between those who apply economics and those who feed the engine. The former set is well known; Elon Musk, Donald Trump (dare I say), and Warren Buffett. All used their economic grounding to guide their success, from recognising the need to dominate the market for luxury electric cars where none existed, to isolating a demographic (or consumers of populism by another description), to being the most high-profile stock picker in the world. Then comes the latter…. Nobody. There is only a faceless army of teachers and lecturers – agoraphobic trolls guarding the keeps of the rotting castles that are the social sciences.
In many instances, the most famous figures in economics aren’t economists, many haven’t even formally studied the discipline. Benoit Mandelbrot was laughed at by the scholars at the Sorbonne and rejected from nearly every major economic journal in the United States (he was eventually published by the University of Chicago). Turning away from academia, Mandelbrot decided to analyse data at IBM’s Watson Institute, a tenure that lasted 35 years, with brief interruptions at Harvard where he conducted groundbreaking research into commodity prices and their relation to cotton futures. The work at IBM served a deep interdisciplinary purpose, as a mathematician like Mandelbrot helped bridge the gap between database services, the bread and butter of IBM at the time, and mathematical finance, which erupted in the tech sector in the following decades. It is important to recognise that this research, like all in mathematics, had a direct lineage, eventually informing the decisions of the world’s foremost AI-driven exchange-traded fund – the AI Powered Equity ETF by IBM.
Unfortunately, change is unlikely as those occupying the high offices of academic economics are unlikely to jeopardise their authority, which relies on certain ideas going unthreatened. German physicist Max Planck wrote that “science advances one funeral at a time”, and it appears the ivory tower may be guarding the dismal science in our day. And so, if there is any change to be pursued, it will have to be driven from the bottom up, rather than the top down. A good start would be to accept and become comfortable with the reality that around half of all academic articles across all disciplines go uncited.
Another prudent course of action, in the interest of allaying the doubts of those in adjacent disciplines, would be to further explain the concept of rationality, often mistaken for the general application rather than a specific set of consistencies. A rational consumer can take withdraw a thousand dollars from an ATM and give it to the nearest homeless person or spend it on a pair of shoes designed by Kayne West. It is not the job (nor should it be) of the economist to question why someone values the welfare of the homeless, saving an endangered bird, or gathering content for a YouTube video. It is the job of an economist to assess that which someone values and understand the way it is traded. What is key is consistency – if apples are better than oranges, and oranges are better than pears, then I am led to believe that apples are better than pears – I don’t care why someone would choose apples in the first place; leave the judging for the tabloids. Explaining this distinction will be the low-hanging fruit that surprises the academic community in its effectiveness.
Despite this, Homo Economicus is still a tad too airbrushed, and it very often takes a force more innate to show us. In trying to graph consumer behaviour, Paul Ormerod wrote in Butterfly Economics of the dynamics of ant colonies in exploring and deciding on food sources. He revealed ants either stay on their current path, move of their own volition, or are persuaded to alter course due to the influence of others in the colony. We try to tell ourselves we’re different, that our consciousness as humans separates us, but Descartes be damned; the success of VHS, an inferior system by every metric swamped Betamax in the 90s, simply because in the early stages of home video VHS had a slight lead right when exponential growth kicked into overdrive. Success begets success, and popularity dictated the mode of production by media companies, and families decided on which unit to buy based on the range of films, the rest can be inferred. Alas, it’s not our fault that the market gave us a dud; we just found out when it was too late, and so a little healthy scepticism and acceptance of the randomness of modernity is always a good chaser if the dismal science leaves a bitter taste.