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Paul Romer and the trouble with macroeconomics
World Bank chief economist Paul Romer was in the news last week for reasons he may not be too proud of. New York University accidentally, prematurely and, as it turns out, incorrectly announced that Romer had received the Nobel Prize in economics.
But a month before that, Romer had caused ripples in the academic community already – by releasing a paper titled ‘The Trouble With Macroeconomics‘. In a scathing, ironic comment on the state of research in the subject, Romer has argued that mainstream macroeconomics has become more abstruse, relying on ‘unknown factors’ to explain away anything they cannot understand. Progress in macroeconomics has not only stalled, he argues that it’s actually moving backwards – all it is now is “post-real” economics.
In their ultra-abstract take on the economy, Romer writes, economists have decided that only unpredictable shocks from the outside can affect the system’s equilibrium. So in mathematical models, the economist has no choice but to imagine what this shock may be. Romer names them “gremlins, trolls and aether”, to demonstrate just how unknown they really are. In a very entertaining exercise, he annotates (insertions in bold) well-known economists Smets and Wouters’s paper with the names of his imaginary forces.
“While “demand” shocks such as the aether AKA risk premium, exoge- nous spending, and investment-specific phlogiston AKA technology shocks explain a significant fraction of the short-run forecast variance in output, both the troll’s wage mark-up (or caloric AKA labor supply) and, to a lesser extent, output-specific phlogiston AKA technology shocks explain most of its variation in the medium to long run. … Third, inflation developments are mostly driven by the gremlin’s price mark-up shocks in the short run and the troll’s wage mark-up shocks in the long run.”
What Romer has said in his article isn’t a new critique of mainstream macroeconomics. Why, then, is it such a big deal? It is because Romer is criticising a system within which he is deeply embedded and well-respected – he isn’t a heterodox ‘outsider’ but very much a part of mainstream economic academia.
Even now, after the financial crises and everything that came with them, several big names in mainstream economics will say that monetary policy and the actions of centrals banks are pointless. Romer brings this up in his article, only to crush it in the harshest terms (“It is absurd to wonder if monetary policy is important”).
And why has economics come to this? Romer has a rather simple (if devastating) and apoliticial answer – “human frailty”. Over confidence, a monolithic community, a disregard for those not in your monolithic circle and so on.
Romer’s critique is a big deal for the field. Paul Mason, writing in The Guardian, puts it well:
“Romer’s huge mea culpa on behalf of mainstream economics is a sign that, after a decade-long hunt for trolls and gremlins as the cause of crisis, academia now has to begin the search for the cause of instablity inside the system, not outside it. My hunch is that the answer lies in large, agent-based simulations, in which millions of virtual people take random decisions driven by irrational urges – such as sex and altruism – not just the pursuit of wealth.
What the left can bring to the design of these models are the insights that still draw lines of emnity through elite campuses: that class, gender and race exist as economic facts; that the 1% always acts with more information than the 99%; that crises are unavoidable but can be mitigated by accepting they might happen.
And above all: that sacking or excluding people who insist “capitalism is unstable” is a bad idea if you are running, say, a treasury, a major political party or a central bank.”
But there’s also more to it. What neither Mason nor Romer have mentioned in their articles when talking about financial crises are the systemic internal sources of instability in capitalism, pointed out both by economists in the Marxian tradition as well as thinkers like Hyman Minsky and Charles Kindleberger. This, however, has been repeatedly ignored by those in mainstream economics, blaming instabilities on extra-economic factors. Looking at the instabilities within capitalism, several heterodox thinkers had predicted the financial crises much before they occurred.
“There is no disagreement that nationalism has been ‘around’ on the face of the globe for, at the very least, two centuries. Long enough, one might think, for it to be reliably and generally understood. But it is hard to think of any political phenomenon which remains so puzzling and about which there is less analytic consensus. No widely accepted definition exists. No one has been able to demonstrate decisively either its modernity or its antiquity. Disagreement over its origins is matched by uncertainty about its future.”
That’s how historian and political scientist Benedict Anderson opened his article on ‘mapping the terrain’ of nationalism in the Verso blog (taken from the introduction of Mapping the Nation). Anderson passed away in December last year, this article was published posthumously last week.
Trying to define the characteristics of nationalism, Anderson writes, has created far more questions than answers. The philosophical difficulties of defining nationalism have been around all along. And as time progressed, colonialism receded and people gave their lives to their nations, “It was gradually becoming clear that it was impossible to think about nationalism except comparatively and globally: but it was also very difficult to feel it, and act politically on it, in any but particular terms”.
Summarising Anderson’s article here would, I think, ruin its point – the beauty is in his concise but detailed narrative that stretches across decades, 19th century onwards. He brings up major events in the history of the ‘nation’ – World War I, the collapse of the Hohenzollern, Habsburg, Romanov and Ottoman empires, formation of the League of Nations, rise of the Bolsheviks, World War II, the Vietnam War, the American civil rights movement and so on. But his is not a narrative of events – what makes his article interesting is the way he describes how thinkers through these events were talking (or, in many cases, not talking) about nationalism, how ideas changed with the times, how vocabulary brought out the conceptualisation of the nation (when nationalisation became the word for removing sectors from private sector control, for instance), how the relationship between the nation and the state changed, from a being a constant hyphenated relationship to concepts that did not always come together.
In the introduction to a book, there is only a limited amount Anderson could address. But the flow of his narrative makes for an easy read that is a window into understanding nationalism.
Making the right choices
Is there a formula for the right choice?
If there is, I’m really frustrated that I don’t know it. Decision-making always makes me anxious (as it does for most people my age I know, especially women). It doesn’t help that we’re now confronted with choices everywhere we turn – if each decision requires a set amount of thinking, rethinking and hyperventilating, imagine how much time we could be saving if we had just a few less choices. Or, alternatively, if there was something that could help us choose.
Journalist Tom Vanderbilt spent several years looking at consumer behaviour, psychology and neuroscience to try and understand what goes into making decisions and how these could be made better, leading to his 2016 book You May Also Like: Taste in An Age of Endless Choice. And now, writing in Nautilus, he has decided to use his experience to help people like me.
“…to help you navigate the confusing landscape of endless choices, to choose wisely, more efficiently, and with greater self-awareness, I have distilled some of that research into the form of an advice column – though in this case I also supplied the questions, based on real questions that arose during my research, and which I have subsequently heard from friends and readers.”
“Sometimes I will come across something I have bought and wonder, ‘What was I thinking?’ How much can I actually trust that my own choices will make me happy?” goes one of the questions.
While this has happened to me multiple times, I’ve always blamed the sometimes disastrous outcome on temporary insanity, a weird mood or a pushy salesperson. Vanderbilt has a much more complex analysis of what might have happened in a situation of this kind – but his conclusion isn’t too different from mine, in terms of the occurrence being random.
A decision that we make numerous times in the day without even thinking about it is that of where to look next, Vanderbilt quotes neuroscience professor Roger Carpenter as saying. But this decision isn’t quite as fast or predictable as one might imagine. According to Carpenter, it is not only about response to stimuli – it seems almost as though the brain thinks about the involuntary action that is coming (sounds completely counter-intuitive I know, not to mention it’s an oxymoron). “Neurons in the brain encode probability,” he writes, “and run races with each other to make decisions.” So when one particular sweater in a pile of sweaters catches our eye, this doesn’t mean that we want it – it could just mean that some sort of neuronal race produced a random winner.
Carpenter says this process is randomised also to ensure that we do not make the same decision again and again. All the we do is pick what we think in that moment we have chosen – which, for all intents and purposes, is completely true.
And after all of that, Vanderbilt’s conclusion has parallels to mine, though I blamed the randomness on external factors and he explains it as a response to out biological wiring:
“So as much as knowing what we like, we like thinking we know what we like. Choosing the “right” sweater is mostly a fait accompli – that you have chosen it makes it right. If it does not end up making you happy, you can blame it on a case of biological randomness gone wrong.”
Voluntourism and hypocritical global citizenship
To what extent are we all in a ‘global world’?
Voluntourism is a term a I first came across during my masters, and I have to admit that it left a bad taste in my mouth from the very beginning. A mash of ‘volunteering’ and ‘tourism’, it is a fast-growing industry in the Global North. People, usually young people taking a gap year or wanting to travel, are recruited by companies under the pretext of ‘giving back’. For a certain sum of money, you are taken to somewhere “in need” where you can “help” the local population for a few months. Even the UN has encouraged the idea of voluntourism, as part of building a global civil society.
In their article in the Global Studies of Childhood, Margaret Zeddies and Zsuzsa Millei look at one particular voluntourist company and study how they use a certain transnational vocabulary to try and indicate the extent to which we are now ‘global citizens’ – a citizenship that feeds off inequalities between the Global North and South. Notions of childhood play a big role in creating the imagery of a global citizenship, they argue.
Zeddies and Millei base their research on the popular American voluntourist company United Planet – giving of the impression of a sort of borderless world from its very name. Advertising for a particular promotional day, the duo quote the United Planet website as saying:
“United Planet Day: Sharing a Moment in Time … held on the fall equinox, when the sun is … shining on every location on Earth for an equal amount of time. This once a year occurrence represents United Planet’s mission of fostering mutual understanding, improving the quality of life for everyone, and creating harmony among the people of the world.”
This quote gives off the impression of a world brimming with equal opportunity, where boundaries and borders don’t exist for anyone. What we can do, suggests this text and other messages on the website, is be a global civil society that conquers the impositions of boundaries, become a “community without borders”.
In their imagery of a global world, children from the Global South are particularly relevant. Not only do children invoke certain emotions, they are the future – a future the voluntourist can “change”. Images of voluntourists with their arms around local children populate the company’s website, Zeddies and Millei write, building a discourse of protection and care from the voluntourist.
All of this, including the privilege that makes travel across countries seem incredibly possible at all time, is driven by certain binaries, the authors write: ““needed” and “needy,” “adult” and “child,” “beings” (adults) and “becomings” (children), a “developed” subject and a “non-developed” object emerge”. None of this, though, is questioned within the discourse.
What all of this does is create a homogenised image of the Global South and their children, all looking forward to a voluntourist who will come and change their lives, the authors argue. It also leads to thinking of this entire set-up as depoliticised, where privilege and inequality make up for the very basis of the sector and therefore cannot be questioned. It is a commodified experience of “giving back” being sold to a specific section of global society, under the garb of creating a world that is more equal.
“Depoliticizing and homogenizing the voluntourist experience in discourses and images works to empty those historically entrenched power relations from the personal relations of voluntourists with “locals.” Without awareness to these historical and structural inequalities, the personal relationship created maintains the economic, political, and social “backwardness” of the South. Through sanitized personal relations, the voluntourist global citizen’s work remains simple and can proceed in an unproblematic way by following dominant trajectories of develop- ment and progress that characterize modernity.”
Voluntourism is the fastest growing sector of the tourism industry at the moment, with more than 1.6 million participants a year. How this reinstates global hierarchies while being a CV-building exercise for some is a question that continues to linger.
That’s it for this week! If you liked what you read, please consider subscribing to this weekly newsletter.
If you have any comments or suggestions on what could be carried in this column, write to me at [email protected]