When economists ignore the human factor, we all pay the price

Timothy Garton Ash in The Guardian

Economics is not a hard science, and mathematical models won’t explain why people behave as they do. A much broader perspective is needed.

 

Adair Turner argued that ‘the dominant strain of academic economics and of policy-making orthodoxy’ failed to see the crisis coming. Photograph: Bloomberg via Getty Images



The Guardian recently asked nine economists whether we’re heading for another global financial crash and they gave many different answers. Yet still we turn to economists as if they were physicists, armed with scientific predictions about the behaviour of the body economic. We consumers of economics, and economists themselves, need to be more realistic about what economics can do. More modesty on both the supply and the demand side of economics will produce better results.

Following the great crash that began nearly a decade ago, there has been some soul-searching about what economics got wrong. Probably the self-criticism should have been more far-reaching, both in academia and banking, but it’s there if you look for it. In particular, the economic thinkers loosely clustered around George Soros’s Institute for New Economic Thinking (Inet) have produced a telling account of what went wrong.

Adair Turner, who saw top-level decision-making as head of Britain’s Financial Services Authority and now chairs Inet, gives a measured, cogent version of the critique in his book Between Debt and the Devil. Yes, leading academic economists did challenge the mathematical models of market perfection and, yes, financial markets may have followed oversimplistic versions of those models. Nonetheless, Turner argues, “the dominant strain of academic economics and of policy-making orthodoxy” failed to see the crisis coming, and actually contributed to it.
The key flaws were the efficient market hypothesis and the rational expectations hypothesis: economists too often assumed that market actors not only behave rationally but do so according to the same mental models deployed by economists. (Soros himself has spent a half century trying to expose this fallacy.) Modern big-picture economics (macroeconomics) also “largely ignored the operations of the financial system and in particular the role of banks”.

Market fundamentalism understood itself as the diametric opposite of the communist command economy, but in fact made the same cardinal mistake: to believe that a rational model could encompass, predict and optimise the dynamic complexity of collective human behaviour. As Roman Frydman and Michael Goldberg write: “Like a socialist planner, the economist thus believes that he can accomplish great feats, because he supposes that he has finally uncovered the fully determined mechanism which drives market outcomes.”

Large parts of academic economics fell prey to what has been called physics envy, by analogy with the Freudian notion of penis envy. Like some other areas of social science, it aspired to the status, certainty and predictability of physics. I have long thought that this hubris was fed by the fact that economics, alone among the social sciences, has a Nobel prize. Strictly speaking, it is only the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, endowed by the Swedish central bank and first awarded in 1969, not one of the original Nobel prizes. But everyone calls it the Nobel prize. Moreover, politicians and decision-makers listen to economists in ways that they don’t, for example, listen to political scientists of the rational choice school that dominates many American university departments. This may partly be because a politician who practised rational choice politics would soon be kicked out of office, whereas the public has had to pick up the bill for those who practised rational choice economics. 

This does not mean we should not pay attention to economists, nor that economics is unworthy of a Nobel prize. It just means it’s not a hard science like physics. Done properly, it takes account of culture, history, geography, institutions, individual and group psychology. John Stuart Mill said: “A man is not likely to be a good economist if he is nothing else,” and John Maynard Keynesobserved that an economist should be “mathematician, historian, statesman and philosopher in some degree”.

In another remarkable formulation, Keynes wrote: “Economics is essentially a moral science.” Indeed, one could argue that the Nobel prize for economics belongs somewhere midway between those for physics, literature and peace.Economics is, at best, a multidimensional, evidence-based craft, alert to all the influences on human behaviour, at once ambitious in scope and modest in its claims for what we can ever predict in human affairs.

What should follow from this revised, new-old understanding of the character and place of economics? I don’t know enough about university economics courses to say whether they need to adapt, but I was struck by a manifesto published a couple of years ago by economics students at Manchester University. This advocated an approach “that begins with economic phenomena and then gives students a toolkit to evaluate how well different perspectives can explain it”, rather than mathematical models based on unrealistic assumptions. (A colleague of mine claims to have heard a fierce argument between two economists in the common room of Nuffield College, Oxford, which culminated in one exclaiming to the other: “All right, assume immortality!”)

If economics is like other disciplines, it probably changes more slowly than it should, because of the strong inertial effect of older faculty personally invested in a certain way of doing the subject. Then there’s the conduct of major players, be they ministers, central bankers or business leaders. I recently read a splendidly robust lecture by the veteran investor Charlie Munger, Warren Buffett’s partner in Berkshire Hathaway, delivered in 2003, well before the crash. “Berkshire’s whole record has been achieved without paying one ounce of attention to the efficient market theory in its hard form,” he said, adding that the results of that efficient market doctrine in corporate finance “became even sillier than they were in the economics”.

Munger’s sage advice was to restore economics’ proper multidisciplinary character, not overweighting what can be counted against the unquantifiable, nor yielding to the craving for false precision, nor privileging theoretical macroeconomics over the real-life microeconomics that helped guide Berkshire’s long-term investment decisions.

We ordinary punters should learn the same lesson. We should ask of our economists, as of our doctors, only what they can deliver. There is a scientific component to medicine, larger than that in economics, but medical studies themselves indicate how much our health depends on other factors, especially psychological ones, and how much is still unknown. Economists are like doctors, only less so.

On Peter Roebuck by a former student

Fabian Muir

I met Peter Roebuck at boarding school when I was nine years old. It was his first summer in Sydney, having come from England in the off season to teach at Cranbrook School, where he was also a tutor in the junior boarding house.

Even then it was clear that Peter was different. Although already playing for Somerset, this thin, bespectacled Englishman seemed more bookworm than sportsman.

He would wander the halls with his hands behind his back, admonishing boys for saying they were "good" rather than "well". When he was meant to be supervising the students, he could often be found on a nearby bench, his well-developed nose buried in a tome. In the boarding house, a hostile world in which a book-burning never seemed far away, this already marked him as eccentric.

His liking for the unorthodox was further underlined by his instant friendship with another tutor, Mr Griffiths, a nutty professor with messy hair, who played the organ like Lon Chaney and crunched on bulbs of garlic as others do on apples. To this young schoolboy, they were beacons in an otherwise bleak environment.

One holiday weekend I was the only boy left in the house and Peter was "master on duty", giving him the dubious distinction of supervising me for three days. In retrospect I think he used those days to test me.

First we went to a dusty tennis court to play cricket. Subcontinental conditions, no pads, hard ball. It was a scorching summer's day, the kind that exists only in a childhood memory. Peter faced my pale imitations of Dennis Lillee and graciously allowed me to dismiss him once or twice, but I would never be one of his leatherflingers.

When it was my turn to bat, he showed less mercy. He bowled spin unlike anything I had seen before, the ball fizzing through the air like a hornet and skittling me repeatedly. We repeated the exercise in the days that followed, but my enthusiasm outweighed my talent. I failed the test.

So he tried another route. Over dinner he asked me how I felt about War and Peace, a classic question to any nine-year-old. By chance I knew the story, having taken a fancy to Natasha Rostova after seeing the epic Russian film version with my father. Peter's eyes lit up with impish enthusiasm and he began to discuss the novel. He extolled the writing and expressed his own admiration for the character of Pierre. This makes sense to me now, for Pierre was also a seeker, slightly out of place everywhere, yet deeply sympathetic.

This was the way Peter operated. He would search out your strengths and weaknesses, then work on both.

Believing he had identified a strength of mine, he nurtured it in years to come, first with reading, later with writing. He would visit the dormitory and pass me "subversive" literature, samizdat-style, to help me on my way. Narziss and Goldmund was one. His standard greeting became, "Hello Fabes, what are you reading at the moment?" I had to have a good answer ready.

I did not understand it then, but in short he was becoming a mentor, a word mentioned often in the tributes that have flowed since his death. He was naturally suited to this role, because he came from that breed of teacher who takes a genuine interest in individuals and thrills in their development. He cared.

His ability to build a very personal rapport made him born to share knowledge, be it in the classroom, on the field or in the commentary box. This is the reason why many readers and listeners felt they knew him, and this is the reason he went on to maintain contact with many students once they had completed their schooling. Our own friendship would last for over 30 years.

Mine was by no means an exceptional case. Peter built long-term friendships with a great number of former pupils, charting their growth and proud to think that he might have played a role. He often became close to their families as well. In reverse, we took equal pleasure observing Peter's own progress, first as a cricketer, coach and teacher, later as a writer, commentator and philanthropist.

Having had the benefit of reading the articles since his passing, it seems a number of professional colleagues found Peter somehow inaccessible. Many of his students and those he coached would feel differently. That is not to say they knew him fully, but it is possible that his guard was lower with people he had known from an early age.

By nature he was shy, but to say he was aloof or reclusive is to misunderstand the man. In fact the reverse was the case, for Peter's love for and curiosity about humanity gave him an insatiable appetite for new people and experience. Far from being withdrawn or, worse, elitist, he was in his element chatting to strangers. An Antiguan fruit seller, Mumbai chaiwallah or Sydney taxi driver - he would talk to anyone. More importantly, he treated them all as equals, honoured their opinions and feasted on their stories. He loved life's colour and different cultures, and understood that the big picture is about ordinary people, not celebrities. His pieces were more likely to contain a quote from his local Italian than from a player.

It was this humanist approach that so often set Peter's writing apart. It was this humanist approach that legitimised the decision to read the newspaper from the back page. Cricket, a dramatic sport that ruthlessly exposes a player's resolve and frailties, a sport that reveals more about the human condition than any other, was tailor-made for Peter's sensibilities.

Fascinated by the triumphs and follies of man, he was always trying to get beneath the surface and discover the causes. To meet him personally meant you had to be willing to answer a series of thoughtful, interested questions, which were sometimes direct but never intrusive. And he would absorb the answers. Often he would refer to remarks made during conversations that had taken place years earlier.

For those more accustomed to reading his columns and hearing his commentary, the skill of Roebuck the listener may come as a surprise. For it is a skill, an important one, especially in a world where so many people prefer to talk about themselves. Peter was a two-way street.

It seems he also had his demons. I never saw them. That he had made some mistakes is established fact. Sometimes he would make veiled references to the past, which showed that it had burdened, chastened and hurt him, but otherwise his view was to the future. It is possible that the charitable work he would go on to perform was in part born of a desire to wipe the slate clean.

	It was an unusual experience to arrive at Roebuck's front door - always wide open - and peer down the corridor. His clear voice would penetrate the gloom, after which his physical form would slowly materialise in the shadows like the Tardis. I quipped about this once and his response was typically elliptic: "Only moths need bright light"

Upon reflection, perhaps something could have been read into his Bondi home, which he kept in a state of almost complete darkness. It was an unusual experience to arrive at his front door - always wide open - and peer down the corridor while announcing one's arrival. His clear voice would penetrate the gloom, after which his physical form would slowly materialise in the shadows like the Tardis. I quipped about this once and his response was typically elliptic: "Only moths need bright light."

Certainly the good he achieved far outweighed any indiscretions, but the modesty of the man meant that the broader public was unaware of much of it. Only now are people learning of the hundreds of underprivileged children who received an education through his unstinting efforts, frequently at his own expense.

This was a natural extension of his first instinct, which was always to help. Often he would do so without even asking if help were needed. He began by helping privileged children in Sydney, but moved on to the far more meaningful task of youths from Zimbabwe and India.

I asked him not so long ago whether he missed having had a family. "What do you mean?" he retorted. "I have the best family a man could want, look here." He then, glowing with pride, fetched photos of a number of his "sons" in South Africa.

For, of itself, cricket had become too small for him. Not meaningless, just small. Around 2007 we were sitting in his backyard and he said that, having become pre-eminent in his field, he had nothing left to achieve in cricket and that "my priority now is helping these kids, that's how I can really change something". If he enjoyed charting the progress of his former pupils, then charting that of the former teacher was much more rewarding.

Another word that has been recurring since his passing is "complex". It is a dangerous pastime to analyse people who are no longer able to present their own view, but it is no doubt true that he combined many qualities that appeared to be at odds with one another. Sensitive yet tough; a maverick yet a stickler for tradition; humble yet intensely proud; a great success, but with no interest in wealth; a man of coruscating intelligence, but given to faints of unexpected vagueness; an introvert with the courage to bare his opinions before millions. He was, one might say, the Morrissey of cricket writing.

In many ways he was born out of his time. Nineteenth-century England might have suited him better, where he would have dined with Sir Richard Burton or been an envoy to the Khan of Samarkand.

Perhaps the key element of the "Roebuck conundrum" was that of a private and retiring individual becoming a public figure. Had he been able to choose, he quite likely would have eschewed the limelight, but it inevitably came with the territory. More usefully, it gave him access to certain people and opportunities to pursue his humanitarian goals.

Never did the limelight's glare find him more spectacularly than when he called for Ricky Ponting's sacking in 2008. We had dinner several weeks after the article appeared and it was noticeable that a number people stared as he entered the restaurant. "I've crossed the Rubicon," he said. "People now know who I am. That was never my intention." I asked what his intention had been. "To say what I thought at that moment." In other words, to do what he always did, often as a lone voice, come hell or high water.

Peter was at times criticised for supposed inconsistency in his articles, writing one thing one week, then something rather different down the line. He also softened on Ponting. What this really showed, however, was his willingness to reconsider his initial opinion, reshape it and even admit a mistake. The same exacting standards he imposed on others he imposed twofold on himself. This was honesty not hypocrisy, a strength not a weakness.

Why was he a mystery to many who knew him? Perhaps experience of how the English media can handle public figures had made him build his walls a little higher, even in Australia. But there was a gate in those walls, which had only to be lightly pushed. Those who passed through it found themselves in a quite extraordinary garden, which revealed something new with each visit. On the 13th I wept as I was forced to accept that I had seen that garden for the last time.

I could weep again now when I think of all the lines left unwritten. Instinctively the eyes of readers will search for his column and the ears of listeners will strain for his voice - the twitches of a phantom limb. Or more accurately, the gap he leaves will hurt like a pulled tooth.

An evening with Peter was always stimulating. The wine was usually cheap but the debate was champagne. 

His mind was incisive, his humour oblique; his idea of a good joke was to ask Prime Minister John Howard on air whether he did yoga.

More often than not, our discussions did not concern cricket, rather literature, travel or politics. Sometimes we talked about relationships and the beauty of Russian girls. I know of at least one woman whom Peter loved and lost.

We also discussed death on numerous occasions. He was not preoccupied with it, but he was intrigued by cricketers who fall into a hole and contemplate suicide upon conclusion of their playing careers. Not for him, however. He believed that the simple solution lay in finding a worthwhile and satisfying alternative, something he had surely managed for himself in several fields.

He did not rule out life after death. He considered this presumptuous, for there was too much unexplained in a miraculous universe, where everything seemed possible. At our last meeting this year, he had no intention of discovering the answer anytime soon, declaring, "Death is about confronting your own mortality, but I don't have this problem because my starting point is that I'm immortal!"

Tragic events have proven otherwise, with draining suddenness. Truly immortal, however, are his words, which cannot be wrenched away from us so brutally and will remain as a permanent gift to all.

Fabian Muir is an Australian writer now based in Berlin

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