Tim Rogan: What’s Wrong with the Critique of Capitalism Now

RoganWhat’s wrong with capitalism? Answers to that question today focus on material inequality. Led by economists and conducted in utilitarian terms, the critique of capitalism in the twenty-first century is primarily concerned with disparities in income and wealth. It was not always so. In The Moral Economists, Tim Rogan reconstructs another critical tradition, developed across the twentieth century in Britain, in which material deprivation was less important than moral or spiritual desolation. Examining the moral cornerstones of a twentieth-century critique of capitalism, The Moral Economists explains why this critique fell into disuse, and how it might be reformulated for the twenty-first century. Read on to learn more about these moral economists and their critiques of capitalism.

You begin by asking, ‘What’s wrong with capitalism?’ Shouldn’t we start by acknowledging capitalism’s great benefits?

Yes, absolutely. This was a plan for the reform of capitalism, not a prayer for its collapse or a pitch for its overthrow. These moral economists sought in some sense to save capitalism from certain of its enthusiasts—that has always been the project of the socialist tradition out of which these writers emerged. But our question about capitalism—as about every aspect of our social system, every means by which we reconcile individual preferences to arrive at collective decisions—should always be ‘What’s wrong with this?;’ ‘How can we improve this?;’ ‘What could we do better?’ And precisely how we ask those questions, the terms in which we conduct those debates, matters. My argument in this book is that our way of asking the question ‘What’s wrong with capitalism?’ has become too narrow, too focused on material inequality, insufficiently interested in some of the deeper problems of liberty and solidarity which the statistics recording disparities of wealth and income conceal.

Was this critique of capitalism also a critique of economics, and if so what do these critics add to the usual complaints against economics—about unrealistic assumptions, otherworldly models, indifference to historical developments such as financial crises, etc?

Yes, the moral economists were critical of economics. But although their criticisms might sound like variations on the familiar charge that economists make unreal assumptions about the capacities and proclivities of individual human beings, the moral economists’ challenge to mainstream economics was different. The most influential innovators in economics since the Second World War have been behavioral scientists pointing out that our capacity to make utilitarian calculations is not as high as economists once took it to be. Part of what the success of this series of innovations is that the ideal of reducing every decision to a calculation of utility retains its allure, even as we come to realize how fallible our real-time calculations are. Behavioral economists have found our capacity to think like rational utilitarian agents wanting. But when did the capacity to think like a rational utilitarian agent become the measure of our humanity? This is the question moral economists have been asking since the 1920s. Initiated by historians determined to open up means of thinking outside economic orthodoxy, since joined by mathematically-trained economists concerned to get a more realistic handle on the relationship between individual values and social choice, the moral economists’ enterprise promises a far more profound reconstitution of political economy than behavioral economics has ever contemplated.

Doesn’t the profile of these writers—dead, male, English, or Anglophile, writing about a variety of capitalism long since superseded—limit their contemporary relevance?

No. Their main concern was to discover and render articulate forms of social solidarity which the dominant economic discourse concealed. They found these on the outskirts of ‘Red Vienna’, on railroads under construction in post-war Yugoslavia, but most of all in the north of England. They believed that these inarticulate solidarities were what really held the country together—the secret ingredients of the English constitution. Though they belonged to a tradition of social thought in Britain that was skeptical towards Empire and supportive of the push for self-determination in India and elsewhere, they raised the prospect that the same dynamics had developed in countries to which British institutions had been exported—explaining the relative cohesion of Indian and Ghanaian democracies, for instance. More broadly E. P. Thompson in particular argued that factoring these incipient solidarities into constitutional thinking generated a more nuanced understanding of the rule of law than nineteenth-century liberalism entailed: in Thompson’s hand the rule of law became a more tensile creed, more capable of accommodating the personal particularities of the law’s subjects, more adept at mitigating the rigors of rational system to effect justice in specific cases. The profiles of the late-twentieth century commentators who continue the critical tradition Tawney, Polanyi and Thompson developed—especially Amartya Sen—underscore that tradition’s wider relevance.

Aren’t these writers simply nostalgists wishing we could return to a simpler way of life?

No. Tawney especially is often seen as remembering a time of social cohesion before the Reformation and before the advent of international trade and wishing for its return. This perception misunderstands his purpose.

Religion and the Rise of Capitalism draws sharp contrasts between two distinct iterations of European society – the late medieval and the modern. But this was a means of dramatizing a disparity between different societies developing in contemporary England—the society he encountered working at Toynbee Hall in London’s East End, where social atomization left people demoralized beyond relief, on the one hand; the society he encountered when he moved to Manchester to teach in provincial towns in Lancashire and Staffordshire, where life under capitalism was different, where the displacement of older solidarities was offset by the generation of new forms of cohesion, where many people were poor but where the social fabric was still intact.

The demoralized East End was the product of laissez faire capitalism—of the attempt to organize society on the basis that each individual was self-sufficient, profit-minded, unaffected by other human sentiments. The political crisis into which Britain was pitched in the late Edwardian period underlined how untenable this settlement was: without a sense of what more than the appetite for wealth motivated people, there could be no ‘background of mutual understanding’ against which to resolve disputes. At the same time the answer was not simply stronger government, a bigger state. The latent solidarities Tawney discovered in the north of England carried new possibilities: the facility of market exchange and the security of an effective state could be supplemented by informal solidarities making everyday life more human than the impersonal mechanisms of market and government allowed.

Polanyi and Thompson brought their historical settings forward into the nineteenth century, making their writings feel more contemporary. But they were both engaged in much the same exercise as Tawney—using history to dramatize disparities between different possibilities developing within contemporary society. They too had come into contact with forms of solidarity indicating that there was more than calculations of utility and the logic of state power at work in fostering social order.  Polanyi and then especially Thompson advanced their common project significantly when he found a new terminology with which to describe these incipient solidarities. Tawney had talked of ‘tradition’ and ‘convention’ and ‘custom,’ and Polanyi had followed Tawney in this—refusing to associate himself with Ferdinand Tonnies concept of Gemeinschaft and Henry Maine’s system of ‘status’ when pressed to, but offering no cogent concept through which to reckon with these forms of solidarity himself. Thompson’s concept of the ‘moral economy’ made the kinds of solidarities upon which they had all focused more compelling.

Does subscribing to a moral critique of capitalism mean buying into one of the prescriptive belief systems out of which that critique materialized? Do you need to believe in God or Karl Marx in order to advance a moral critique of capitalism without embarrassment?

No. Part of the reason that this critique of capitalism went out of commission was because the belief systems which underpinned it—which, more specifically, provided the conceptions of what a person is which falsified reductive concepts of ‘economic man’—went into decline. Neither Tawney nor Thompson was able to adapt to the attenuation of Christian belief and Marxian conviction respectively from which their iterations of the critique had drawn strength. Polanyi’s case was different: he was able to move beyond both God and Marx, envisaging a basis upon which a moral critique of capitalism could be sustained without relying on either belief system. That basis was furnished by the writings of Adam Smith, which adumbrated an account of political economy which never doubted but that economic transactions are embedded in moral worlds.

This was a very different understanding of Adam Smith’s significance to that with which most people to whom that name means something now have been inculcated. But it is an account of Adam Smith’s significance which grows increasingly recognizable to us now—thanks to the work of Donald Winch, Emma Rothschild and Istvan Hont, among others, facilitated by the end of Cold War hostilities and the renewal of interest in alternatives to state- or market-based principles of social order.

In other words there are ways of re-integrating economics into the wider moral matrices of human society without reverting to a Christian or Marxian belief system. There is nothing extreme or zealous about insisting that the moral significance of economic transactions be recognized. What was zealous and extreme was the determination to divorce economics from broader moral considerations. This moral critique of capitalism represented a recognition that the time for such extremity and zeal had passed. As the critique fell into disuse in the 1970s and 1980s, some of that zeal returned, and the last two decades now look to have been a period of especially pronounced ‘economism.’ The relevance of these writings now, then, is that they help us to put the last two decades and the last two centuries in perspective, revealing just how risky the experiment has been, urging us to settle back in now to a more sustainable pattern of economic thought.

You find that this moral critique of capitalism fell into disuse in the 1970s and 1980s. Bernie Sanders declared in April 2016 that instituting a ‘truly moral economy’ is ‘no longer beyond us.’ Was he right?

Yes and no. Sanders’ made this declaration at the Vatican, contemplating the great papal encyclicals of Rerum Novarum and Centesimus Annus. The discrepancies between what Sanders said and what Popes Leo XIII and Pope John Paul II before him said about capitalism is instructive. The encyclicals have always focussed on the ignominy of approaching a person as a bundle of economic appetites, on the apostasy of abstracting everything else that makes us human out of our economic thinking. Sanders sought to accede to that tradition of social thought—a tradition long since expanded to encompass perspectives at variance with Catholic theology, to include accounts of what a person is which originate outside the Christian tradition. But Sanders’s speech issued no challenge to the reduction of persons to economic actors. In designating material inequality the ‘great issue of our time,’ Sanders reinforced that reductive tendency: the implication is that all we care about is the satisfaction of our material needs, as if redistribution alone would solve all our problems.

The suggestion in Sanders speech was that his specific stance in the utilitarian debate over how best to organise the economy has now taken on moral force. There is an ‘individualist’ position which favors free enterprise and tolerates inequality as incidental to the enlargement of aggregate utility, and there is a ‘collectivist’ stance which enlists the state to limit freedom to ensure that inequality does not grow too wide, seeing inequality as inimical to the maximizing of aggregate utility. The ‘collectivists’ are claiming the moral high ground. But all they are really proposing is a different means to the agreed end of maximizing overall prosperity. The basis for their ‘moral’ claims seems to be that they have more people on their side—a development which would make Nietzsche smile, and should give all of us pause. There are similar overtones to the rallying of progressive forces around Jeremy Corbyn in the UK.

The kind of ‘moral economy’ Sanders had in mind—a big government geared towards maximizing utility—is not what these moral economists would have regarded as a ‘truly moral economy’. The kinds of checks upon economic license they had in mind were more spontaneous and informal—emanating out of everyday interactions, materializing as strictures against certain kinds of commercial practice in common law, inarticulate notions of what is done and what is not done, general conceptions of fairness, broad-based vigilance against excess of power. This kind of moral economy has never been beyond us. The solidarities out of which it arises were never eradicated, and are constantly regenerating.

Tim Rogan is a fellow of St. Catharine’s College, Cambridge, where he teaches history. He is the author of The Moral Economists: R. H. Tawney, Karl Polanyi, E. P. Thompson, and the Critique of Capitalism.

Jerry Z. Muller on The Tyranny of Metrics

Today, organizations of all kinds are ruled by the belief that the path to success is quantifying human performance, publicizing the results, and dividing up the rewards based on the numbers. But in our zeal to instill the evaluation process with scientific rigor, we’ve gone from measuring performance to fixating on measuring itself. The result is a tyranny of metrics that threatens the quality of our lives and most important institutions. In this timely and powerful book, Jerry Muller uncovers the damage our obsession with metrics is causing—and shows how we can begin to fix the problem. Complete with a checklist of when and how to use metrics, The Tyranny of Metrics is an essential corrective to a rarely questioned trend that increasingly affects us all.

What’s the main idea?

We increasingly live in a culture of metric fixation: the belief in so many organizations that scientific management means replacing judgment based upon experience and talent with standardized measures of performance, and then rewarding or punishing individuals and organizations based upon those measures. The buzzwords of metric fixation are all around us: “metrics,” “accountability,” “assessment,” and “transparency.” Though often characterized as “best practice,” metric fixation is in fact often counterproductive, with costs to individual satisfaction with work, organizational effectiveness, and economic growth.

The Tyranny of Metrics treats metric fixation as the organizational equivalent of The Emperor’s New Clothes. It helps explain why metric fixation has become so popular, why it is so often counterproductive, and why some people have an interest in pushing it. It is a book that analyzes and critiques a dominant fashion in contemporary organizational culture, with an eye to making life in organizations more satisfying and productive.

Can you give a few examples of the “tyranny of metrics?”

Sure. In medicine, you have the phenomenon of “surgical report cards” that purport to show the success rates of surgeons who perform a particular procedure, such as cardiac operations. The scores are publicly reported. In an effort to raise their scores, surgeons were found to avoid operating on patients whose complicated circumstances made a successful operation less likely. So, the surgeons raised their scores. But some cardiac patients who might have benefited from an operation failed to get one—and died as a result. That’s what we call “creaming”—only dealing with cases most likely to be successful.

Then there is the phenomenon of goal diversion. A great deal of K-12 education has been distorted by the emphasis that teachers are forced to place on preparing students for standardized tests of English and math, where the results of the tests influence teacher retention or school closings. Teachers are instructed to focus class time on the elements of the subject that are tested (such as reading short prose passages), while ignoring those elements that are not (such as novels). Subjects that are not tested—including civics, art, and history—receive little attention.

Or, to take an example from the world of business. In 2011 the Wells Fargo bank set high quotas for its employees to sign up customers who were interested in one of its products (say, a deposit account) for additional services, such as overdraft coverage or credit cards. For the bank’s employees, failure to reach the quota meant working additional hours without pay and the threat of termination. The result: to reach their quotas, thousands of bankers resorted to low-level fraud, with disastrous effects for the bank. It was forced to pay a fortune in fines, and its stock price dropped.

Why is the book called The Tyranny of Metrics?

Because it helps explain and articulate the sense of frustration and oppression that people in a wide range of organizations feel at the diversion of their time and energy to performance measurement that is wasteful and counterproductive.

What sort of organizations does the book deal with?

There are chapters devoted to colleges and universities, K-12 education, medicine and health care, business and finance, non-profits and philanthropic organizations, policing, and the military. The goal is not to be definitive about any of these realms, but to explore instances in which metrics of measured performance have been functional or dysfunctional, and then to draw useful generalizations about the use and misuse of metrics.

What sort of a book is it? Does it belong to any particular discipline or political ideology?

It’s a work of synthesis, drawing on a wide range of studies and analyses from psychology, sociology, economics, political science, philosophy, organizational behavior, history, and other fields. But it’s written in jargon-free prose, that doesn’t require prior knowledge of any of these fields. Princeton University Press has it classified under “Business,” “Public Policy,” and “Current Affairs.” That’s accurate enough, but it only begins to suggest the ubiquity of the cultural pattern that the book depicts, analyzes, and critiques. The book makes use of conservative, liberal, Marxist, and anarchist authors—some of whom have surprising areas of analytic convergence.

What’s the geographic scope of the book?

In the first instance, the United States. There is also a lot of attention to Great Britain, which in many respects was at the leading edge of metric fixation in the government’s treatment of higher education (from the “Teaching Quality Assessment” through the “Research Excellence Framework”), health care (the NHS) and policing, under the rubric of “New Public Management.” From the US and Great Britain, metric fixation—often carried by consultants touting “best practice”—has spread to Continental Europe, the Anglosphere, Asia, and especially China (where the quest for measured performance and university rankings is having a particularly pernicious effect on science and higher education).

Is the book simply a manifesto against performance measurement?

By no means. Drawing on a wide range of case studies from education to medicine to the military, the book shows how measured performance can be developed and used in positive ways.

Who do you hope will read the book?

Everyone who works in an organization, manages an organization, or supervises an organization, whether in the for-profit, non-profit, or government sector. Or anyone who wants to understand this dominant organizational culture and its intrinsic weaknesses.

Jerry Z. Muller is the author of many books, including Adam Smith in His Time and Ours and Capitalism and the Jews. His writing has appeared in the New York Times, the Wall Street Journal, the Times Literary Supplement, and Foreign Affairs, among other publications. He is professor of history at the Catholic University of America in Washington, D.C., and lives in Silver Spring, Maryland.

Jonathan Haskel & Stian Westlake on Capitalism without Capital

Early in the twenty-first century, a quiet revolution occurred. For the first time, the major developed economies began to invest more in intangible assets, like design, branding, R&D, and software, than in tangible assets, like machinery, buildings, and computers. For all sorts of businesses, from tech firms and pharma companies to coffee shops and gyms, the ability to deploy assets that one can neither see nor touch is increasingly the main source of long-term success. But this is not just a familiar story of the so-called new economy. Capitalism without Capital shows that the growing importance of intangible assets has also played a role in some of the big economic changes of the last decade.

What do you mean when you say we live in an age of Capitalism without Capital?

Our book is based on one big fact about the economy: that the nature of the investment that businesses do has fundamentally changed. Once businesses invested mainly in things you could touch or feel like buildings, machinery, and vehicles. But more and more investment now goes into things you can’t touch or feel: things like research and development, design, organizational development—“intangible’ investments. Today, in developed countries, businesses invest more each year intangible assets than in tangibles. But they’re often measured poorly or not at all in company accounts or national accounts. So there is still a lot of capital about, but it has done a sort of vanishing act, both physically and from the records that businesses and governments keep.

What difference does the rise of intangible investments make?

The rise of intangible investment matters because intangible assets tend to behave differently from tangible ones—they have different economic properties. In the book we call these properties the 4S’s—scalability, sunkenness, synergies, and spillovers. Intangibles can be used again and again, they’re hard to sell if a business fails, they’re especially good when you combine them, and the benefits of intangible investment often end up accruing to businesses other than the ones that make them. We argue that this change helps explain all sorts of important concerns people have about today’s economy, from why inequality has risen so much, to why productivity growth seems to have slowed down.

So is this another book about tech companies?

It’s much bigger than that. It’s true that some of the biggest tech companies have lots of very valuable intangibles, and few tangibles. Google’s search algorithms, software, and prodigious stores of data are intangibles; Apple’s design, brand, and supply chains are intangibles; Uber’s networks of drivers and users are intangible assets. Each of these intangibles is worth billions of dollars. But intangibles are everywhere. Even brick and mortar businesses like supermarkets or gyms rely on more and more intangible assets, such as software, codified operating procedures, or brands. And the rise of intangibles is a very long-term story: research by economists like Carol Corrado suggests that intangibles investment has been steadily growing since the early twentieth century, long before the first semiconductors, let alone the Internet.

Who will do well from this new intangible economy?

The intangible economy seems to be creating winners and losers. From a business point of view, we know that around the world, there’s a growing gap between the leading businesses in any given industry and the rest. We think this leader-laggard gap is partly caused by intangibles. Because intangibles are scalable and have synergies with one another, companies that have valuable intangibles will do better and better (and have more incentives to invest in more), while small and low performing companies won’t, and will lag ever further behind.

There is a personal dimension to this too. People who are good at combining ideas, and who are open to new ideas, will do better in an economy where there are lots of synergies between different assets. This will be a boon for educated, open-minded people, people with political, legal, and social connections, and for people who live in cities (where ideas tend to combine easily with one another). But others risk being left further behind.

Does this help explain the big political changes in recent years?

Yes—after the EU referendum in the UK and the 2016 presidential election in the US, a lot of pundits were asking why so many so-called “left behind” communities people voted for Brexit or Donald Trump. Some people thought they did so for cultural reasons, others argued the reasons were mainly economic. But we would argue that an intangible economy, these two reasons are linked: more connected, cosmopolitan places tend to do better economically in an intangible economy, while left-behind places suffer from an alienation that is both economic and cultural.

You mentioned that the rise of intangible investment might help explain why productivity growth is slowing. Why is that?

Many economists and policymakers worry about so-called secular stagnation: the puzzling fact that productivity growth and investment seems to have slowed down, even though interest rates are low and corporate profits are high, especially since 2009. We think the growing importance of intangibles can help explain this in a few ways.

  • There is certainly some under-measurement of investment going on—but as it happens this explains only a small part of the puzzle.
  • The rate of growth of intangible investment has slowed a bit since 2009. This seems to explain part of the slow-down in growth (and also helps explain why the slowdown has been manly concentrated in total factor productivity)
  • The gap between leading firms (with lots of intangibles) and laggard firms (with few) may have created a scenario where a few firms are investing in a lot of intangibles (think Google and Facebook) but for most others, it’s not worth it, since their more powerful competitors are likely to get the spillover benefits.

Does the intangible economy have consequences for investors?

Yes! Company accounts generally don’t record intangibles (except, haphazardly, as “goodwill” after an acquisition). This means that, as intangible assets become more important, corporate balance sheets tell investors less and less about the true value of a company. Much of what equity analysts spend their days doing is, in practice, trying to value intangibles.

And there’s lots of value to be had here: research suggests that equity markets undervalue intangibles like organizational development, and encourage public companies to underinvest in intangibles like R&D. But informed investors can take advantage of this—which can benefit both their own returns and the performance of the economy.

Jonathan, you’re an academic, and Stian, you are a policymaker. How did you come to write this book together?

We started working together in 2009 on the Nesta Innovation Index, which applied some of the techniques that Jonathan had worked on to measure intangibles to build an innovation measurement for the UK. The more we thought about, the clearer it became that intangibles helped explain all sorts of things. Ryan Avent from the Economist asked us to write a piece for their blog about one of these puzzles, and we enjoyed doing that so much we thought we would try writing a book. One of the most fun parts of writing the book was being able to combine the insights from academic economic research on intangibles and innovation with practical insights from innovation policy.

CapitalismJonathan Haskel is professor of economics at Imperial College Business School. Stian Westlake is a senior fellow at Nesta, the UK’s national foundation for innovation. Haskel and Westlake are cowinners of the 2017 Indigo Prize.

The Greatest Showman and the Deceptions of American Capitalism

by Edward J. Balleisen

BalleisenPerhaps unsurprisingly, The Greatest Showman, the new cinematic musical about the nineteenth-century American impresario of entertainment P. T. Barnum, unabashedly takes liberties with the historical record. As reviewers have already documented (Richard Brody in the New Yorker, Bruce Chadwick for History News Network), it fabricates matters large and small, as is the wont of Hollywood screenwriters and directors who work on biopics, while ignoring a host of truthful vignettes that cry out for cinematic treatment. As a historian of business fraud, I found myself especially disappointed that the musical steered clear of many aspects of Barnum’s career that speak powerfully to elements of our own moment, including the rise of a Barnum-esque publicity hound and conductor of media misdirection from the White House, and the constant turmoil swirling over allegations of fake news. And yet, The Greatest Showman does get some of the larger implications of Barnum’s life right—especially his injection of a democratic style of hullabaloo into American capitalism.

A full inventory of the film’s flights of fancy would require catalogue length. But a sampling conveys the minimal concern for fidelity to historical detail. The movie portrays the young Barnum as the poorly-clad son of an impoverished Connecticut tailor, rather than the child of a respectable proprietor who had a number of well-to-do relatives and also owned a store and inn. It gives Barnum experiences that he never had (begging and stealing food as an orphaned New York City street urchin; clerking for an insurance company). It depicts his move into the world of entertainment as occurring sometime well after the establishment of the railroad, perhaps even after the Civil War, rather than in the 1830s.

The Greatest Showman ignores Barnum’s earliest promotions of lotteries, curiosities and hoaxes, including his cruel exhibition of the elderly African-American slave woman Joice Heth as supposedly the 161-year old former wet-nurse of George Washington, and his willingness to profit further after her death through a public autopsy, experiences that laid the groundwork for his management of the American Museum. The screenwriters (Bill Condon and Jenny Bicks) have Barnum buy the museum on a wholly fictional mix of frustration, fantasy, and fraud, made possible by his fraudulent provision of fake collateral to a New York City bank that lends him the necessary $10,000. Instead of coming to grips with the actual Barnum’s vociferous advocacy of temperance, the film conjures up a hard-drinking man who makes deals over whiskeys in saloons. Rather than showing how Barnum consistently found new performers over the years, it brings together the midget Charles Stratton (known on stage as Tom Thumb), the Siamese twins Change and Eng, and the other members of the troupe within weeks of Barnum’s purchase of the American Museum.

The historical Barnum had a falling out with the famed Swedish singer Jenny Lind not because he refused her amorous advances in the middle of their American tour (the musical’s explanation), but because she tired of his relentless focus on maximizing the returns from her concerts. A key antagonist for Barnum in The Greatest Showman is one “Bennett,” portrayed as a stiff-collared, high-toned theatre critic of the New York Herald. The actual James Gordon Bennett was the publisher of that paper, who proved more than happy to go along with hoaxes and sensationalism himself, using both to help cement his newspaper’s position as the first penny newspaper that catered to the broad masses. The character of Barnum’s high society sidekick Philip Carlyle is entirely fictional, as in his relationship with Anne Wheeler, an African-American female trapeze artist. One last illustration—the film attributes the fire that destroyed Barnum’s New York City Museum to neighborhood toughs who did not like his business, rather than the actual arsonist, a Confederate sympathizer who wished toward the end of the Civil War to strike a blow against the Union.

Of course, by indulging a willingness to elide facts or push outright lies in the service of a hokey story, the makers of The Greatest Showman adopt Barnum’s own modus operandi as a purveyor of entertainment. And the movie does a creditable job of engaging with some of Barnum’s larger cultural significance—his recognition that publicity and HYPE of any kind was often a marketing asset; his understanding that the public would be forgiving of misrepresentations and humbug if they, on balance, enjoyed the eventual show; his embrace of difference and variation within the human condition as worthy of celebration (if also exploitation); his compulsion to expand operations to take advantage of new opportunities, even at the cost of incurring gargantuan debts; his relentless focus on the American mythos of democratic opportunity, whether through his own experience (as carefully narrated in his autobiographies) or those of the stars in his shows. As the film implies, there was indeed deep-seated antagonism to Barnum’s business practices and willingness to engage in fakery, though the complaints came overwhelmingly from pulpits and the pages of evangelical newspapers, rather than protesters who made their presence known outside the Museum. And Barnum did in fact seek to defuse those critiques through the promotion of respectable performers such as Jenny Lind, alongside his curiosities, penchant for misdirection, and outright fakery.

Nonetheless, The Greatest Showman also missed many opportunities to explore episodes in Barnum’s life that have renewed resonance in the early twenty-first century. One crucial theme here concerns Barnum’s engagement with American race relations, both as promoter and in his post-Civil War forays in Connecticut politics and public service. Barnum’s often dehumanizing treatment of people of color and his evolving political views on race will surely occasion much commentary amid the current dramatic growth in ethnocentric nationalism and racially-grounded politics, as in a recent Smithsonian Magazine piece by Jackie Mansky. Other contemporary developments that suggest the value of reconsidering Barnum’s historical significance, closer to my own expertise, include the reoccurrence of massive business frauds, the emergence of enduring conflict over the appropriate role of government in consumer and investor protection, and diminished faith in institutions of all sorts.

The musical, for example, overlooks Barnum’s own bankruptcy in 1855, brought about because of his misplaced faith in the promises of a clock manufacturer who was willing to relocate his operation to Barnum’s adopted home town of Bridgeport, Connecticut, as part of an industrial development scheme. Barnum freely endorsed the Jerome Clock Company’s loans, opening himself up to devastating losses when the company failed, losses made worse by the firm’s eventual forging of Barnum’s endorsement on many additional notes. Yet he also sidestepped the worst consequences of that failure by illegally transferring assets into his wife’s name, a move that greatly facilitated his ability to get back on his financial feet, and for which he never faced public condemnation or legal penalty. Barnum’s insolvency thus speaks to the reality that even the savviest operators can be victims of imposition; and that well-connected perpetrators of commercial deceit have often been able to sidestep the most damaging fallout from their actions.

Another fascinating episode that The Greatest Showman ignores is Barnum’s growing focus on debunking the deceit of other purveyors of rhetorical (or actual) snake oil. By the 1860s, the promoter sought to legitimize his own brand of hokum and bluster not only by adding unquestionably respectable acts to his museum and eventual circus, but also by exposing frauds in many sectors of American life.  Compiled in his 1866 volume, Humbugs of the World, these endeavors targeted misrepresentations in retail trade, medicine, and religion (especially in the realm of spiritualism). Here Barnum intuited the great power associated with well-constructed strategies of deflection—that one could gain trust in part by setting oneself up as an arbiter of untrustworthiness. Perhaps there is no greater contemporary practitioner of this particular form of showmanship than the current occupant of the White House. Donald Trump has rarely hesitated to get out ahead of critiques of his own business and political practices by casting the first stones, as through his allegations of malfeasance by political opponents (the pleas during the 2016 general election campaign to investigate Hillary Clinton and “Lock Her Up”) or representatives of the media (the incessant allegations of FAKE NEWS.) In addition to muddying factual waters, such strategies can shore up support among the faithful, sustaining the conviction that their champion is fighting the good fight, and could not possibly be engaging in duplicitous behavior of his own.

In the end, The Greatest Showman cares most about exploring fictionalized or wholly fictional romantic tensions—those between Barnum and his wife Charity and between the Philip Carlyle and Anne Wheeler—as well as the degree to which Barnum lives up to his purported insistence on an inclusive respect for his socially marginalized performers. These choices constrain the musical’s capacity to engage deeply with Barnum’s historical significance as an entrepreneur who played an outsized role in creating modern mass entertainment. And so a multitude of opportunities go begging. Barnum’s many legacies, however, continue to reverberate in contemporary America, whether one focuses on the the dynamics of social media saturation, the process of invented celebrity, the sources of abiding racial tensions,  the implications of pervasive commercial dissembling, or the nature of popular skepticism about expert appraisals of reality. And so the ground remains open for cultural reinterpretations of the Great Showman’s life and times.  If the twentieth-century is any guide, we won’t have to wait too long for another cinematic treatment—every generation or so, some movie-maker finds the resources to put Barnum back on the screen.[1]

[1] Previous films include “The Mighty Barnum” (1934), “The Greatest Show on Earth” (1952), “Barnum” (1986), and “P. T. Barnum” (1999).

Edward J. Balleisen is professor of history and public policy and vice provost for Interdisciplinary Studies at Duke University. He is the author of Fraud: An American History from Barnum to Madoff. He lives in Durham, North Carolina.

Geoff Mulgan on Big Mind: How Collective Intelligence Can Change Our World

A new field of collective intelligence has emerged in the last few years, prompted by a wave of digital technologies that make it possible for organizations and societies to think at large scale. This “bigger mind”—human and machine capabilities working together—has the potential to solve the great challenges of our time. So why do smart technologies not automatically lead to smart results? Gathering insights from diverse fields, including philosophy, computer science, and biology, Big Mind reveals how collective intelligence can guide corporations, governments, universities, and societies to make the most of human brains and digital technologies. Highlighting differences between environments that stimulate intelligence and those that blunt it, Geoff Mulgan shows how human and machine intelligence could solve challenges in business, climate change, democracy, and public health. Read on to learn more about the ideas in Big Mind.

So what is collective intelligence?

My interest is in how thought happens at a large scale, involving many people and often many machines. Over the last few years many experiments have shown how thousands of people can collaborate online analyzing data or solving problems, and there’s been an explosion of new technologies to sense, analyze and predict. My focus is on how we use these new kinds of collective intelligence to solve problems like climate change or disease—and what risks we need to avoid. My claim is that every organization can work more successfully if it taps into a bigger mind—mobilizing more brains and computers to help it.

How is it different from artificial intelligence?

Artificial intelligence is going through another boom, embedded in everyday things like mobile phones and achieving remarkable break throughs in medicine or games. But for most things that really matter we need human intelligence as well as AI, and an over reliance on algorithms can have horrible effects, whether in financial markets or in politics.

What’s the problem?

The problem is that although there’s huge investment in artificial intelligence there’s been little progress in how intelligently our most important systems work—democracy and politics, business and the economy. You can see this in the most everyday aspect of collective intelligence—how we organize meetings, which ignores almost everything that’s known about how to make meetings effective.

What solutions do you recommend?

I show how you can make sense of the collective intelligence of the organizations you’re in—whether universities or businesses—and how to become better. Much of this is about how we organize our information commons. I also show the importance of countering the many enemies of collective intelligence—distortions, lies, gaming and trolls.

Is this new?

Many of the examples I look at are quite old—like the emergence of an international community of scientists in the 17th and 18th centuries, the Oxford English Dictionary which mobilized tens of thousands of volunteers in the 19th century, or NASA’s Apollo program which at its height employed over half a million people in more than 20,000 organizations. But the tools at our disposal are radically different—and more powerful than ever before.

Who do you hope will read the book?

I’m biased but think this is the most fascinating topic in the world today—how to think our way out of the many crises and pressures that surround us. But I hope it’s of particular interest to anyone involved in running organizations or trying to work on big problems.

Are you optimistic?

It’s easy to be depressed by the many examples of collective stupidity around us. But my instinct is to be optimistic that we’ll figure out how to make the smart machines we’ve created serve us well and that we could on the cusp of a dramatic enhancement of our shared intelligence. That’s a pretty exciting prospect, and much too important to be left in the hands of the geeks alone.

MulganGeoff Mulgan is chief executive of Nesta, the UK’s National Endowment for Science, Technology and the Arts, and a senior visiting scholar at Harvard University’s Ash Center. He was the founder of the think tank Demos and director of the Prime Minister’s Strategy Unit and head of policy under Tony Blair. His books include The Locust and the Bee.

Browse Our New Economics 2018 Catalog

Our new Economics 2018 catalog features new books from Dani Rodrik, Jean Tirole, Andrew W. Lo, and Jonathan Haskel and Stian Westlake, and many more. 

PUP at ASSA 2018

This year in Philadelphia we will be having something of an ASSA PUP bonanza with:
—Reception on Friday at 10am with our new director Christie Henry
—Reception on Saturday at 6pm with Richard Layard and Alan Krueger for The Origins of Happiness
—Competition for John Campbell’s Financial Decisions and Markets
—Samplers of Posner and Weyl’s Radical Markets
—Buttons for Jean Tirole’s Economics of the Common Good

Come and find us at booths 308/310, where you can pick up a copy of the catalog and see our full range of books in Economics.

Follow the conversation on Twitter, #ASSA2018

In Straight Talk on Trade, Dani Rodrik argues that unfettered globalization is undermining the ability of nations to achieve basic goals including prosperity, stability, and equity, and calls for a new global order that balances the global and national interests.

Straight Talk on Trade, by Dani Rodrik

Economics for the Common Good is Nobel Prize-winner Jean Tirole’s manifesto for a new economics that is fully engaged with the many challenges faced by modern society, and seeks to be a force for the common good.

Economics for the Common Good, by Jean Tirole

Are investors rational or irrational? Andrew W. Lo argues that, in real world markets, rationality and irrationality coexist, and proposes a new framework for understanding market behavior in Adaptive Markets.

The increasing share of intangible assets in the economy has ushered in a quiet revolution. In Capitalism without Capital, Jonathan Haskel and Stian Westlake uncovers the role of the intangible economy in the major economic changes of the last decade and consider its implications for the future.

Capitalism without Capital, by Jonathan Haskel and Stian Westlake

Find full details for all of these titles in our Economics 2018 catalog.

Éloi Laurent on Measuring Tomorrow

Never before in human history have we produced so much data, and this empirical revolution has shaped economic research and policy profoundly. But are we measuring, and thus managing, the right things—those that will help us solve the real social, economic, political, and environmental challenges of the twenty-first century? In Measuring Tomorrow, Éloi Laurent argues that we need to move away from narrowly useful metrics such as gross domestic product and instead use broader ones that aim at well-being, resilience, and sustainability. An essential resource for scholars, students, and policymakers, Measuring Tomorrow covers all aspects of well-being, and incorporates a broad range of data and fascinating case studies from around the world: not just the United States and Europe but also China, Africa, the Middle East, and India. Read on to learn more about how we can measure tomorrow.

Why should we go “beyond growth” in the 21st century to pay attention, as you advocate, to well-being, resilience and sustainability?

Because “growth,” that is growth of Gross Domestic Product or GDP, captures only a tiny fraction of what goes on in complex human societies: it tracks some but not all of economic well-being (saying nothing about fundamental issues such as income inequality), it does not account for most dimensions of well-being (think about the importance of health, education, or happiness for your own quality of life), and does not account at all for sustainability, which basically means well-being not just today but also tomorrow (imagine your quality of life in a world where the temperature would be 6 degrees higher). My point is that because well-being (human flourishing), resilience (resisting to shocks) and sustainability (caring about the future) have been overlooked by mainstream economics in the last three decades, our economic world has been mismanaged and our prosperity is now threatened.

To put it differently, while policymakers govern with numbers and data, they are as well governed by them so they better be relevant and accurate. It turns out, and that’s a strong argument of the book, that GDP’s relevance is fast declining in the beginning of the twenty-first century for three major reasons. First, economic growth, so buoyant during the three decades following the Second World War, has gradually faded away in advanced and even developing economies and is therefore becoming an ever-more-elusive goal for policy. Second, both objective and subjective well-being—those things that make life worth living—are visibly more and more disconnected from economic growth. Finally, GDP and growth tell us nothing about the compatibility of our current well-being with the long-term viability of ecosystems, even though it is clearly the major challenge we and our descendants must face.

Since “growth” cannot help us understand let alone solve the two major crises of our time, the inequality crisis and ecological crises, we must rely on other compasses to find our way in this new century. In my view, the whole of economic activity, which is a subset of social cooperation, should be reoriented toward the well-being of citizens and the resilience and sustainability of societies. For that to happen, we need to put these three collective horizons at the center of our empirical world. Or rather, back at the center, because issues of well-being and sustainability have been around for quite a long time in economic analysis and were a central part of its philosophy until the end of the nineteenth century. But economics as we know it today has largely forgotten that these concerns were once at the core of its reflections.

Isn’t there a fundamental trade-off between well-being and sustainability? Can we really pursue those goals together?

That is a key question and the book makes the case that advances in human well-being are fully compatible with environmental sustainability and even that the two are, or at least can be, mutually reinforcing provided we think clearly about those notions. Well-being represents the many dimensions of human development and sustainability represents dynamic well-being. They are obviously related.

To use the words of Chinese Environment Minister Zhou Shengxian in 2011, “If our planet is wrecked and our health ravaged, what is the benefit of our development?” In other words, our economic and political systems exist only within a larger context, the biosphere, whose vitality is the source of their survival and perpetuation. If ecological crises are not measured, monitored, and mitigated, they will eventually wipe out human well-being.

Well-being without sustainability (and resilience understood as short-term sustainability) is just an illusion. Our planet’s climate crisis has the potential to destroy the unprecedented contemporary progress in human health in a mere few decades. As acknowledged by Minister Zhou, if China’s ecosystems collapse under the weight of hyper-growth, with no unpolluted water left to drink nor clean air to breathe, the hundreds of millions of people in that country who have escaped poverty since the 1980s will be thrown back into it and worse. But, conversely, sustainability without well-being is just an ideal. Human behaviors and attitudes will become more sustainable not to “save the planet,” but to preserve well-being. Measuring well-being, resilience and sustainability makes their fundamental interdependence even clearer.

 But do robust indicators of well-being and sustainability already exist? If so, what do they tell us about our world that conventional economic indicators cannot?

Plenty exist, the task now is to select the best and use them to change policy. This is really what this book is about. Think about health in the US. Simple metrics such as life expectancy or mortality rates tell us a whole different story about what has happened in the country in the last thirty years than just growth. Actually, the healthcare reform initiated by Barack Obama in 2009 can be explained by the desire to amend a health system in which the human and economic cost has become unbearable. The recent discovery by economists Angus Deaton and Anne Case of very high mortality rates among middle-aged whites in the United States, all the while GDP was growing, is proof that health status must be studied and measured regardless of a nation’s perceived wealth status. How is it that the richest country in the world in terms of average income per capita, a country that devotes more of its wealth to health than any other, comes close to last in the rankings with comparable countries in terms of health outcomes? Use different indicators, as I do in the chapter devoted to health, and the solution to the American health puzzle quickly becomes apparent to you: the ballooning of inefficient private spending has led to a system where the costs are huge compared to its performance.

Or consider happiness in China, which has seen its per capita income grow exponentially since the early 1990s, while happiness levels have either stagnated or dropped (depending on the survey) only to increase again in recent years when growth was much lower. If you look at China only through the lens of growth, you basically miss the whole story about the life of people.

Paying attention to well-being can also help us understand why the Arab Spring erupted in Tunisia in 2011, a country where growth was strong and steady but where civil liberties and political rights clearly deteriorated before the revolution. The same is true for the quality of life in Europe and in my hometown of Paris, where air pollution has reached unbearable and life threatening levels despite the appearance of considerable wealth. Measuring well-being and sustainability simply change the way we see the world and should change the way we do policy.

What sign do you see that what you call the well-being and sustainability transition is under way?

In the last decade alone, scholars and policy makers have recognized in increasing numbers that standard economic indicators such as GDP not only create false expectations of perpetual societal growth but are also broken compasses for policy. And things are changing fast at all levels of governance: global, national, local.

The well-being and sustainability transition received international recognition in September 2015, when the United Nations embraced a “sustainable development goals” agenda in which GDP growth plays only a marginal role. In the US, scores of scholars and (some) policy makers increasingly realize the importance of paying attention to inequality rather than just growth. China’s leaders acknowledge that sustainability is a much better policy target than explosive economic expansion. Pope Francis is also a force of change when he writes in the encyclical Laudato si, published in June 2015: “We are faced not with two separate crises, one environmental and the other social, but rather with one complex crisis which is both social and environmental.” and urges us to abandon growth as a collective horizon. Influential newspapers and magazines such as The Economist and NYT recently ran articles arguing that GDP should be dropped or at least complemented. Local transitions are happening all over the planet, from Copenhagen to Baltimore, Chinese provinces to Indian states.

How should students, activists and policymakers engage in “Measuring tomorrow?”

The book serves as a practical guide to using indicators of well-being and sustainability to change our world. The basic course of action is to make visible what matters for humans and then make it count. Unmeasurability means invisibility: “what is not measured is not managed.” as the saying goes Conversely, measuring is governing: indicators determine policies and actions. Measuring, done properly, can produce positive social meaning.

First, we thus need to engage in a transition in values to change behaviors and attitudes. We live in a world where many dimensions of human well-being already have a value and often a price; it is the pluralism of value that can therefore protect those dimensions from the dictatorship of the single price. It does not mean that everything should be monetized or marketed but understanding how what matters to humans can be accounted for is the first step to valuing and taking care of what really counts.

Then we need to understand that the challenge is not just to interpret or even analyze this new economic world, but to change it. We thus need to understand how indicators of well-being and sustainability can become performative and not just descriptive. This can be done by integrating indicators in policy through representative democracy, regulatory democracy, and democratic activism. Applied carefully by private and public decision-makers, well-being and sustainability indicators can foster genuine progress.

Finally, we need to build tangible transitions at the local level. Well-being is best measured where it is actually experienced. Localities (cities, regions) are more agile than states, not to mention international institutions, and better able to put in motion well-being indicators and translate them into new policies. We can talk, in this respect, after the late Elinor Ostrom, of a “polycentric transition,” meaning that each level of government can seize the opportunity of the well-being and sustainability transition without waiting for the impetus to come from above.

As you can see, so much to learn, do and imagine!

LaurentÉloi Laurent is senior economist at the Sciences Po Centre for Economic Research (OFCE) in Paris. He also teaches at Stanford University and has been a visiting professor at Harvard University. He is the author or editor of fifteen books, including Measuring Tomorrow: Accounting for Well-Being, Resilience, and Sustainability in the Twenty-First Century.

 

Barry Eichengreen on How Global Currencies Work

At first glance, the modern history of the global economic system seems to support the long-held view that the leading world power’s currency—the British pound, the U.S. dollar, and perhaps someday the Chinese yuan—invariably dominates international trade and finance. In How Global Currencies Work, three noted economists provide a reassessment of this history and the theories behind the conventional wisdom. Read on to learn more about the two views of global currencies, changes in international monetary leadership, and more.

Your title refers to “two views” of global currencies. Can you explain?
We distinguish the “old view” and the “new view”—you can probably infer from the terminology to which view we personally incline. In the old view, one currency will tend dominate as the vehicle for cross-border transactions at any point in time. In the past it was the British pound; more recently it has been the U.S. dollar; and in the future it may be the Chinese renminbi, these being the currencies of the leading international economies of the nineteenth, twentieth, and twenty first centuries. The argument, grounded largely in theory, is that a single currency has tended to dominate, or will dominate, because it pays for investors and producers when engaging in cross-border transactions; specifically, it pays for them to do cross-border business in the same currency as their partners and competitors. This pattern reflects the convenience value of conformity—it reflects what economists refer to as “network externalities.” In this view, it pays to quote the prices of one’s exports in the same units in which they are quoted by other exporters; this makes it easy for customers to compare prices, enabling a newly competitive producer to break into international markets. It pays to denominate bonds marketed to foreign investors in the same currency as other international bonds, in this case to make it easier for investors to compare yields and maximize the demand for the bonds in question.

In what we call the new view, on the other hand, several national currencies can coexist—they can play consequential international roles at the same point in time. In the modern world, it is argued, network externalities are not all that strong. For one thing, interchangeability costs are low as a result of modern financial technology. The existence of deep and liquid markets allows investors and exporters to do business in a variety of different currencies and switch all but effortlessly between them—to sell one currency for another at negligible cost. The existence of hedging instruments allows those investors to insure themselves against financial risks—specifically, against the risk that prices will move in unexpected ways. Prices denominated in different currencies are easy to compare, since everyone now carries a currency converter in his or her pocket, in the form of a smartphone. These observations point to the conclusion, which is compelling in our view, that several national currencies can simultaneously serve as units of account, means of payment and stores of value for individuals, firms and governments engaged in cross-border transactions.

In our book we provide several kinds of evidence supporting the relevance of the new view, not just today but in the past as well. We suggest that the old view is an inaccurate characterization of not just the current state of affairs but, in fact, of the last century and more of international monetary history.

What exactly motivated you to write this book?
We were worried by the extent to which the old view, which pointed to a battle to the death for international monetary supremacy between the dollar and the renminbi, continues to dominate scholarly analysis and popular discourse. This misapprehension gives rise to concerns that we think are misplaced, and to policy recommendations that we think are misguided. Renminbi internationalization, the technical name for policies intended to foster use of China’s currency in cross-border transactions not just within China itself but among third countries as well, is not in fact an existential threat to the dollar’s international role. To the contrary, it is entirely consistent with continued international use of the greenback, or so our evidence suggests.

In addition, making a convincing case for the new view requires marshaling historical, institutional and statistical material and analyzing the better part of a century. We though this extensive body of evidence cried out for a book-length treatment.

To what revisions of received historical wisdom does your analysis point?
We use that historical, institutional and statistical analysis to show that the old view of single-currency dominance is inaccurate not just for today but also as a description of the situation in the first half of the twentieth century and even in the final decades of the nineteenth. In the 1920s and 1930s, the pound sterling and the dollar both in fact played consequential international roles. Under the pre-World War I gold standard, the same was true of sterling, the French franc and the German mark. Our reassessment of the historical record suggests that the coexistence of multiple international currencies, the state of affairs toward which we are currently moving, is not the exception but in fact the rule. There is nothing unprecedented or anomalous about it.

And, contrary to what is sometimes asserted, we show that there is no necessary association between international currency competition and financial instability. The classical gold standard was a prototypical multiple international and reserve currency system by our reading of the evidence. But, whatever its other defects, the gold standard system was a strikingly stable exchange-rate arrangement.

Finally, we show that, under certain circumstances at least, international monetary and financial leadership can be gained and lost quickly. This is contrary to the conventional wisdom that persistence and inertia are overwhelmingly strong in the monetary domain owing to the prevalence of network effects. It is contrary to the presumption that changes of the guard are relatively rare. It is similarly contrary to the presumption that, once an international currency, always an international currency.

So you argue, contrary to conventional wisdom, that changes in international monetary leadership can occur quickly under certain circumstances.  But what circumstances exactly?
The rising currency has to confront and overcome economic and institutional challenges, while the incumbent has to find it hard to keep up. Consider the case of the U.S. dollar. As late as 1914 the dollar played essentially no international role despite the fact that the U.S. had long since become the single largest economy. This initial position reflected the fact that although the U.S. had many of the economic preconditions in place—not only was it was far and away the largest economy but it was also the the number-one exporter—it lacked the institutional prerequisites. Passage of the Federal Reserve Act in 1913 corrected this deficiency. The founding of the Fed created a lender and liquidity provider of last resort. And the Federal Reserve Act authorized U.S. banks to branch abroad, essentially for the first time. World War I, which disrupted London’s foreign financial relations, meanwhile created an opening, of which the U.S. took full advantage. Over the first post-Fed decade, the greenback quickly rose to international prominence. It came to be widely used internationally, fully matching the role of the incumbent international currency, the British pound sterling, already by the middle of the first post-World War I decade.

The shift to dollar dominance after World War II was equally swift. Again the stage was set by a combination of economic and institutional advances on the side of the rising power and difficulties for the incumbent. The U.S. emerged from World War II significantly strengthened economically, the UK significantly weakened. In terms of institutions, the U.S. responded to the unsettled monetary and financial circumstances of the immediate postwar period with the Marshall Plan and other initiatives extending the country’s international financial reach. The UK meanwhile, was forced to resort to capital controls and stringent financial regulation, which limited sterling’s appeal.

What are the implications of your analysis for the future of the international monetary and financial system?
The implications depend on the policies adopted, prospectively, by the governments and central banks that are the issuers of the potential international currencies. Here we have in mind not just the dollar and the renminbi but also the euro, the Euro Area being the third economy, along with the U.S. and China with the economic scale that is a prerequisite for being able to issue a true international currency. If all three issuers follow sound and stable policies, then there is no reason why their three currencies can’t share the international stage for the foreseeable future—in effect there’s no reason why they can’t share that stage indefinitely. The global economy will be better off with three sources of liquidity, compared to the current status quo where it is all but wholly dependent on one.

In contrast, if one or more of the issuers in question follows erratic policies, investors will flee its currency, since in a world of multiple international and reserve currencies they will have alternatives—they will have somewhere to go. The result could then be sharp changes in exchange rates.  The consequence could be high volatility that would wreak havoc with national and international financial markets. So while a world of multiple international currencies has benefits, it also entails risks. Policy choices—and politics—will determine  whether the risks or benefits dominate in the end.

EichengreenBarry Eichengreen is the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley. His books include Hall of Mirrors, Exorbitant Privilege, Globalizing Capital, and The European Economy since 1945Arnaud Mehl is principal economist at the European Central Bank. Livia Chiţu is an economist at the European Central Bank.

John Tutino: Mexico, Mexicans, and the Challenge of Global Capitalism

This piece has been published in collaboration with the History News Network. 

TutinoMexico and Mexicans are in the news these days. The Trump administration demands a wall to keep Mexicans out of “America,” insisting that undocumented immigrants cause unemployment, low wages, and worse north of the border. It presses a renegotiation of the North American Free Trade Agreement, claiming to defend U.S. workers from the pernicious impacts of a deal said to favor Mexico and its people. Meanwhile U.S. businesses (from autos to agriculture) work to keep the gains they have made in decades of profitable cross-border production and marketing. Their lobbying highlights the profits they make employing Mexicans who earn little (at home and in the U.S.), and by their efforts subsidize U.S. businesses and consumers.

The integration of Mexico and the U.S., their workers and markets, is pivotal to U.S. power, yet problematic to many U.S. voters who feel prejudiced in a world of globalizing capitalism and buy into stereotypes that proclaim invasive Mexicans the cause of so many problems. Analysts of diverse views, including many scholars, often imagine that this all began in the 1990s with NAFTA. A historical survey, however, shows that the integration of North America’s economies began with the U.S. taking rich lands from Texas to California by war in the 1840s, driving the border south to its current location. U.S. capitalists led a westward expansion and turned south to rule railroads, mining, petroleum, and more in Mexico before 1910—while Mexican migrants went north to build railroads, harvest crops, and supply cities in lands once Mexican. The revolution that followed in part reacted to U.S. economic power; its disruptions sent more Mexicans north to work. While Mexico struggled toward national development in the 1920s, displaced families still moved north. When depression stalled the U.S. economy in the 1930s, Mexicans (including many born U.S. citizens) were expelled south. When World War II stimulated both North American economies, the nations contracted to draw Mexican men north to work as braceros. Mexico’s “miracle” growth after 1950 relied on U.S. models, capital, and labor-saving technology—and never created enough work to curtail migrant flows. The Mexican oil boom of the 1970s tapped U.S. funds, aiming to bring down OPEC oil prices to favor U.S. hegemony in a Cold-War world. By the 1980s the U.S. gained cheaper oil, helping re-start its economy. In the same decade, falling oil prices set off a debt fueled depression in Mexico that drove more people north. NAFTA, another Mexican collapse, and soaring migration followed in the 1990s. The history of life and work across the U.S.-Mexican border is long and complex. Through twists and turns it shaped modern Mexico while drawing profits, produce, and Mexicans to the U.S.

The Mexican Heartland takes a long view to explore how communities around Mexico City sustained, shaped, and at times challenged capitalism from its sixteenth century origins to our globalizing times. From the 1550s they fed an economy that sent silver, then the world’s primary money, to fuel trades that linked China, South Asia, Europe, and Africa—before British America began. By the eighteenth century, Mexico City was the richest place in the Americas, financing mines and global trade, sustained by people living in landed communities and laboring at commercial estates. It’s merchant-financiers and landed oligarchs were the richest men in the Americas while the coastal colonies of British America drew small profits sending tobacco to Europe and food to Caribbean plantations (the other American engines of early capitalism).

Then, imperial wars mixed with revolutionary risings to bring a world of change: North American merchants and slave holders escaped British rule after 1776, founding the United States; slaves in Saint Domingue took arms, claimed freedom, destroyed sugar plantations, and ended French rule, making Haiti by 1804; insurgents north of Mexico City took down silver capitalism and Spain’s empire after 1810, founding Mexico in 1821. Amid those conflicts, Britain forged a new industrial world while the U.S. began a rise to continental hegemony, taking lands from native peoples and Mexico to expand cotton and slavery, gain gold and silver, and settle European migrants. Meanwhile, Mexicans struggled to make a nation in a reduced territory while searching for a new economy.

The Mexican Heartland explores how families built lives within capitalism before and after the U.S. rose to power. They sought the best they could get from economies made and remade to profit the few. Grounded in landed communities sanctioned by Spain’s empire, they provided produce and labor to carry silver capitalism. When nineteenth-century liberals denied community land rights, villagers pushed back in long struggles. When land became scarce as new machines curtailed work and income, they joined Zapata in revolution after 1910. They gained land, rebuilt communities, and carried a national development project. Then after 1950, medical capitalism delivered antibiotics that fueled a population explosion while “green revolution” agriculture profited by expanding harvests while making work and income scarce. People without land or work thronged to burgeoning cities and across the border into the U.S., searching for new ways to survive, sustain families, and re-create communities.

Now, Mexicans’ continuing search for sustainable lives and sustaining communities is proclaimed an assault on U.S. power and prosperity. Such claims distract us from the myriad ways that Mexicans feed the profits of global corporations, the prosperity of the U.S. economy, and the comforts of many consumers. Mexicans’ efforts to sustain families and communities have long benefitted capitalism, even as they periodically challenged capitalists and their political allies to keep promises of shared prosperity. Yet many in the U.S. blame Mexico and Mexicans for the insecurities, inequities, and scarce opportunities that mark too many lives under urbanizing global capitalism.

Can a wall can solve problems of dependence and insecurity pervasive on both sides of the border? Or would it lock in inequities and turn neighboring nations proclaiming shared democratic values into ever more coercive police states? Can we dream that those who proclaim the liberating good of democratic capitalism may allow people across North America to pursue secure sustenance, build sustaining communities, and moderate soaring inequities? Such questions define our times and will shape our future. The historic struggles of Mexican communities illuminate the challenges we face—and reveal the power of people who persevere.

John Tutino is professor of history and international affairs and director of the Americas Initiative at Georgetown University. His books include The Mexican Heartland: How Communities Shaped Capitalism, a Nation, and World History, 1500-2000 and From Insurrection to Revolution in Mexico: Social Bases of Agrarian Violence, 1750–1940.

Joel Brockner: The Passion Plea

This post originally appears on the blog of Psychology Today

BrocknerIt’s tough to argue with the idea that passion is an admirable aspect of the human condition. Passionate people are engaged in life; they really care about their values and causes and being true to them. However, a big minefield of passion is when people use it to excuse or explain away unseemly behavior. We saw this during the summer of 2017 in how the White House press secretary, Sarah Huckabee Sanders, responded to the infamous expletive-laced attack of Anthony Scaramucci on his then fellow members of the Trump team, Steve Bannon and Reince Priebus. According to The New York Times, (July 27, 2017),  “Ms. Sanders said mildly that Mr. Scaramucci was simply expressing strong feelings, and that his statement made clear that ‘he’s a passionate guy and sometimes he lets that passion get the better of him.’ ” Whereas Ms. Sanders acknowledged that Mr. Scaramucci behaved badly (his passion got the better of him), her meta-message is that it was no big deal, as implied by the words “mildly” and “simply” in the quote above.

The passion plea is by no means limited to the world of politics. Executives who are seen as emotionally rough around the edges by their co-workers often defend their behavior with statements like, “I’m just being passionate,” or “I am not afraid to tell it like it is,” or, “My problem is that I care too much.”

The passion plea distorts reality by glossing over the distinction between what is said and how it is said. Executives who deliver negative feedback in a harsh tone are not just being passionate. Even when the content of the negative feedback is factual, harsh tones convey additional messages – notably a lack of dignity and respect. Almost always, there are ways to send the same strong messages or deliver the same powerful feedback in ways that do not convey a lack of dignity and respect. For instance, Mr. Scaramucci could have said something like, “Let me be as clear as possible: I have strong disagreements with Steve Bannon and Reince Priebus.” It may have been less newsworthy, but it could have gotten the same message across. Arguably, Mr. Scaramucci’s 11-day tenure as White House director of communications would have been longer had he not been so “passionate” and instead used more diplomatic language.

Similarly, executives that I coach rarely disagree when it is made evident that they could have sent the same strong negative feedback in ways that would have been easier for their co-workers to digest. Indeed, this is the essence of constructive criticism, which typically seeks to change the behavior of the person on the receiving end. Rarely are managers accused of coming on “too strong” if they deliver negative feedback in the right ways. For example, instead of saying something about people’s traits or characters (e.g., “You aren’t reliable”) it would be far better to provide feedback with reference to specific behavior (e.g., “You do not turn in your work on time”). People usually are more willing and able to respond to negative feedback about what they do rather than who they are. Adding a problem-solving approach is helpful as well, such as, “Some weeks you can be counted on to do a good job whereas other weeks not nearly as much. Why do you think that is happening, and what can we do together to ensure greater consistency in your performance?” Moreover, the feedback has to be imparted in a reasonable tone of voice, and in a context in which people on the receiving end are willing and able to take it in. For instance, one of my rules in discussing with students why they didn’t do well on an assignment is that we not talk immediately after they received the unwanted news. It is far better to have a cooling-off period in which defensiveness goes down and open-mindedness goes up.

If our goal is to alienate people or draw negative attention to ourselves then we should be strong and hard-driving, even passionate, in what we say as well as crude and inappropriate in how we say it. However, if we want to be a force for meaningful change or a positive role model, it is well within our grasp to be just as strong and hard-driving in what we say while being respectful and dignified in how we say it.

Joel Brockner is the Phillip Hettleman Professor of Business at Columbia Business School.

Why Luck Is the Silent Partner of Success

Princeton University Press is partnering with Knowledge@Wharton, The Wharton School’s online business analysis journal, to bring you regular thought pieces from our authors. Our inaugural post is from economist Robert Frank. The piece appeared initially on the Knowledge@Wharton site. 

Why do the rich underestimate the role of luck in their success? Why does that mindset hurt society? What can be done about it? These are some of the questions that Robert H. Frank, author of Success and Luck: Good Fortune and the Myth of Meritocracy, addresses in this opinion piece. Frank is an economist at Cornell University and an economics columnist for the New York Times. His books, which include Success and Luck and The Winner-Take-All Society, have been translated into 24 languages.

As the essayist E.B. White once wrote, “Luck is not something you can mention in the presence of self-made men.” Some people are of course quick to acknowledge the good fortune they’ve enjoyed along their paths to the top.  But White was surely correct that such people are in the minority. More commonly, successful people overestimate their responsibility for whatever successes they achieve.

Even lottery winners are sometimes blind to luck’s role. In his 2012 book, The Success Equation, Michael Mauboussin describes a man inspired by a succession of dreams to believe he’d win the Spanish National Lottery if he could purchase a ticket number whose last two digits were 48. After an extensive search, he located and bought such a ticket, which indeed turned out to be a winner. When an interviewer later asked why he’d sought out that particular number, he said, “I dreamed of the number 7 for seven straight nights. And 7 times 7 is 48.”

The tendency to overestimate the predictability of events extends well beyond lottery winners. The sociologist Paul Lazarsfeld illustrated this tendency, known as “hindsight bias,” with people’s reactions to a study that investigated how different groups of men adjusted to the rigors of military life. As he described the study to his subjects, its principal finding was that men who had grown up in rural areas adjusted far more successfully than their urban counterparts. Many of Lazarsfeld’s subjects reacted exactly as he had expected. Why, they wondered, was a costly study needed to confirm something so obvious?

The twist was that Lazarsfeld’s description of the study was a fabrication. The study had actually discovered that men who had grown up in urban settings adjusted to military life more successfully. If Lazarsfeld had reported the actual finding to his subjects, of course, they would have found it just as easy to construct a compelling narrative to explain its truth.

“An unfortunate consequence of seeing ourselves as entirely self-made … [is that it] makes us much less likely to support the public investments that made our own successes possible….”

In similar fashion, when successful people reflect on their paths to the top, they tend to view their success as having been all but inevitable. In their attempts to construct narratives to explain it, they search their memory banks for details that are consistent with successful outcomes. And because the overwhelming majority of successful people are in fact extremely talented and hardworking, they’ll find many ready examples of the long hours they logged, the many difficult problems they solved, and the many formidable opponents they vanquished.

But as the psychologist Tom Gilovich has shown, they’re much less likely to remember external events that may have helped them along the way — the teacher who once steered them out of trouble, perhaps, or the early promotion received only because a slightly more qualified colleague had to care for an ailing parent. This asymmetry, Gilovich points out, resembles the one with which people react to headwinds and tailwinds.

When you’re running or bicycling into a strong headwind, for example, you’re keenly aware of the handicap you face. And when your course shifts, putting the wind at your back, you feel a momentary sense of relief. But that feeling fades almost immediately, leaving you completely unmindful of the tailwind’s assistance. Gilovich’s collaborations with the psychologist Shai Davidai demonstrate the pervasiveness of analogous asymmetries in memory. People are far more cognizant of the forces that impede their progress than of those that boost them along.

An unfortunate consequence of seeing ourselves as entirely self-made — rather than as talented, hardworking, and lucky—is that this perception makes us much less likely to support the public investments that made our own successes possible in the first place.

Being born in a good environment is an enormously lucky thing and one of the only lucky things we can actually control. Basically, we get to decide how lucky our children will be. But that requires extensive investment in the future, something we’ve been reluctant to undertake of late. Even as a shrinking group among us has been growing steadily luckier, a growing number of the unluckiest have been falling still further behind.

The good news is that we can easily do better. It turns out that when successful people are prompted to reflect on how chance events affected their paths to the top, they become much more inclined to pay forward for the next generation.

It would be a mistake, however, to think that simply telling successful people that they’ve been lucky will elicit this reaction. On the contrary, it seems to have precisely the opposite effect, making them angry and defensive. It’s as if you’ve told them that they don’t really deserve to be on top, that they aren’t who they think they are.

Consider Elizabeth Warren’s 2012 you-didn’t-build-that speech, in which she reminded successful business owners that they had shipped their goods to market on roads the rest of us paid for, they had hired workers educated at taxpayer expense, and they had been safe in their factories because of police and firefighters the community hired. In return, she then reminded them, the social contract asks them to pay forward for the next group that comes along.

It is difficult to spot anything controversial in these words. Yet shortly after she spoke them, the video of her speech went viral, provoking outraged comments by the millions.

“Don’t remind your successful friends that they’ve enjoyed a bit of luck. Instead, ask them to recall examples of lucky breaks….”

No, simply telling rich people that they’ve been lucky won’t make them more willing to invest in the next generation. Mysteriously, however, an ostensibly equivalent rhetorical move seems to have precisely that effect: If you ask your successful friends whether they can think of any lucky breaks they might have enjoyed, you’ll almost invariably discover that they seem to enjoy trying to recall examples. You’ll see, too, that their eyes light up as they describe each one they remember.

Research has demonstrated that priming people to experience the emotion of gratitude significantly increases their willingness to incur costs to promote the common good. And people who recall instances in which they’ve been lucky reliably experience gratitude, even when there is no specific person to whom they feel grateful.

The economist Yuezhou Huo, for example, asked one group of people to list three external causes for something good that had recently happened to them, a second group to list three personal traits or actions that had contributed to the good thing, and a third group merely to report a good thing that had recently happened. Subjects received a bonus payment for their participation in this study, and  Huo offered them a chance to donate some or all of that payment to a charity when the study ended. Those who had been asked to list external causes — many of whom mentioned luck explicitly — donated 25% more than those who were asked to name personal traits or behaviors. The control group’s donations fell squarely in the middle.

As psychologists have long understood, logically equivalent statements often elicit very different emotional responses. Calling a glass half empty, for example, conveys something quite different from calling it half full. So, too, with our statements about luck. Don’t remind your successful friends that they’ve enjoyed a bit of luck. Instead, ask them to recall examples of lucky breaks they might have enjoyed along the way. Even if their recollections don’t prompt them to adopt a more generous posture toward future generations, you’re bound to hear some interesting stories.

Gary Saul Morson & Morton Schapiro: The Humanomics of Tax Reform

CentsThe Trump administration is now placing tax reform near the top of its legislative agenda. Perhaps they will garner the votes for tax reduction, but reform? Good luck.

It has been three decades since there has been meaningful tax reform in this country. In 1986, tax shelters were eliminated, the number of tax brackets went from 15 to 4, including a reduction of the highest marginal tax rate from 50% to 38.5% and the standard deduction was increased, simplifying tax preparation and resulting in zero tax liability for millions of low-income families. At the same time, a large-scale expansion of the alternative minimum tax affected substantial numbers of the more affluent.

President Reagan insisted that the overall effect be neutral with regard to tax revenues. That demand made it possible to set aside the issue of whether government should be larger or smaller and instead focus on inefficiencies or inequities in how taxes were assessed. Two powerful Democrats, Dick Gephardt in the House and Bill Bradley in the Senate, were co-sponsors.

Economists might evaluate the merits of this monumental piece of legislation in terms of the incentives and disincentives it created, its ultimate impact on labor force participation, capital investment and the like, but there is another metric to be evaluated – was it perceived to be fair? Accounts from that day imply that it was.

The notion of fairness is not generally in the wheelhouse of economics. But the humanities have much to say on that matter.

To begin with, literature teaches that fairness is one of those concepts that seem simple so long as one does not transcend one’s own habitual way of looking at things. As soon as one learns to see issues from other points of view, different conceptions of fairness become visible and simple questions become more complex. Great novels work by immersing the reader in one character’s perspective after another, so we learn to experience how different people – people as reasonable and decent as we ourselves are – might honestly come to see questions of fairness differently.

So, the first thing that literature would suggest is that, apart from the specific provisions of the 1986 tax reform, the fact that it was genuinely bipartisan was part of what made it fair. Bipartisanship meant the reform was not one side forcing its will on the other. Had the same reform been passed by one party, it would not have seemed so fair. Part of fairness is the perception of fairness, which suggests that the process, not just the result, was fair.

Fairness, of course, also pertains to the content of the reforms. What are the obligations of the rich to support needy families? Are there responsibilities of the poor to participate however they can in providing for their own transformation?

In Tolstoy’s novel Anna Karenina, two main characters, Levin and Stiva, go hunting with the young fop, Vasenka, and as they encounter hard-working peasants, they start discussing the justice of economic inequality. Only foolish Vasenka can discuss the question disinterestedly, because it is, believe it or not, entirely new to him: “`Yes, why is it we spend our time riding, drinking, shooting doing nothing, while they are forever at work?’ said Vasenka, obviously for the first time in his life reflecting on the question, and consequently considering it with perfect sincerity.” Can it really be that an educated person has reached adulthood with this question never having occurred to him at all?

And yet, isn’t that the position economists find themselves in when they ignore fairness? When they treat tax reform, or any other issue, entirely in economic terms? Levin recognizes that there is something unfair about his wealth, but also recognizes that there is no obvious solution: it would do the peasants no good if he were to just give away his property. Should he make things more equal by making everyone worse off? On the contrary, his ability to make farmland more productive benefits the peasants, too. So, what, he asks, should be done?

Levin also knows that inequality is not only economic. If one experiences oneself as a lesser person because of social status, as many of the peasants do, that is itself a form of inequality entirely apart from wealth. In our society, we refer to participants in government as “taxpayers.” Does that then mean that to exempt large numbers of people from any taxation entirely demeans them – not least of all, in their own eyes?  There may be no effective economic difference between a very small tax and none at all, but it may make a tremendous psychological difference. Isn’t the failure to take the psychological effect of tax rates seriously as disturbingly innocent as Vasenka’s question about inequality?

Combining a humanistic and an economic approach might not give us specific answers, but it does make questions of fairness, including symbolic effects, part of the question. And in a democracy, where popular acceptance of the rules as legitimate is crucial, that would be a step forward.

Gary Saul Morson is the Lawrence B. Dumas Professor of the Arts and Humanities and professor of Slavic languages and literatures at Northwestern University. His many books include Narrative and Freedom, “Anna Karenina” in Our Time, and The Words of Others: From Quotations to Culture. Morton Schapiro is the president of Northwestern University and a professor of economics. His many books include The Student Aid Game. Morson and Schapiro are also the editors of The Fabulous Future?: America and the World in 2040 and the authors of Cents and Sensibility: What Economics Can Learn from the Humanities.