The Soulful Science: What Economists Really Do and Why It Matters

by Diane Coyle

To many, Thomas Carlyle's put-down of economics as "the dismal science" is as fitting now as it was 150 years ago. But Diane Coyle argues that economics today is more soulful than dismal, a more practical and human science than ever before. Building on the popularity of books such as Freakonomics that have applied economic thinking to the paradoxes of everyday life, The Soulful Science describes the remarkable creative renaissance in how economics is addressing the most fundamental questions--and how it is starting to help solve problems such as poverty and global warming. A lively and entertaining tour of the most exciting new economic thinking about big-picture problems, The Soulful Science uncovers the hidden humanization of economics over the past two decades. Coyle shows how better data, increased computing power, and techniques such as game theory have transformed economic theory and practice in recent years, enabling economists to make huge strides in understanding real human behavior. Using insights from psychology, evolution, and complexity, economists are revolutionizing efforts to solve the world's most serious problems by giving policymakers a new and vastly more accurate picture of human society than ever before. They are also building our capacity to understand how what we do today shapes what the world will look like tomorrow. And the consequences of these developments for human life, for governments, and for businesses are only now starting to be realized--in areas such as resource auctions, pollution-credit trading, and monetary policy. The Soulful Science tells us how economics got its soul back--and how it just might help save the planet's.

Genres: Economics, Nonfiction

279 pages, Paperback

First published January 1, 2007

About the author

Dame Diane Coyle is a British economist, academic and writer. Since March 2018, she has been the Bennett Professor of Public Policy at the University of Cambridge, co-directing the Bennett Institute.
Coyle's early career as an economist was followed by a period in journalism including being economics editor at The Independent from 1993 to 2001. She was professor of economics at University of Manchester from 2014 to 2018. She was vice-chair of the BBC Trust from 2011 to 2016 and a member of the UK Competition Commission from 2001 until 2009.
Coyle has written nine books on economics.

Reviews

[Eugene Kernes · Rating 3 out of 5]

Economists are perceived to have a lot of influence while using inappropriate views about humans, which precipitated in many problems. The defense to poor economic understanding comes from other economists, who were at the forefront of the criticism. Much of the narrowness in economics came from limited computational ability, in which models that contained very narrow assumptions were the only models computers were able to run. As computational power increased, the assumptions were loosened or removed. Although economics has gone beyond the narrow assumptions, criticism of economics are usually a caricature of what the economic assumptions and ideas have become. Economists respond to their society by including many factors that were once left out, such as the environment and information asymmetries, are now readily used in economics.

Economists do need to take some responsibility for how the profession is perceived. Many economists are poor communicators and use language that is easy to misunderstand. Economists need to better explain their views which jargon laden language does not help with. Divided ideology from an era ago is still used to define aspects of economics, even though the division has become redundant. Economics has changed because of many criticisms, while continuously receiving more. The problem with some criticism is that they are a caricature of economics, which are caused usually by ideological beliefs.

Economists are motivated by the social challenges of the time. Challenges which they apply empirical evidence. Math is used to ensure consistency and obtain clarity, not for precision forecasting. Part of the problem started with economics trying to become more like a physics, creating a mechanistic view of human nature. Even though many of the sterile assumptions are not used, some prior models are still in use because they work. But the profession has gone beyond the strict framework of assumptions that proved invalid. Many of the critics do not reference the more recent research which does not hold the same assumptions. The problem within economics is that with a lot of computational power came many models, which are not tested properly. Various assumptions were questioned by economists, such as those behind rational expectations. That lead to the understanding of bounded rationality in which people satisfice their decisions because they have limited time or information.

The difficulty of finding appropriate economic policies, such as to enable economic growth, comes from the complexity of decisions and policies that are linked to past choices and available resources. What is known about why economies growth depends on division of labor and specialization. Productivity of people to produce more with less people. Depending on how much capital and workers there are, and the productivity of the work.

To invest in equipment required savings which comes from reduced consumption, but it enables the expansion of capital. But early versions of growth theory had many problems such as misunderstanding the role of relative scarcity of capital and labor. Theories predicted convergence of growth, but there was no convergence. Initial versions of growth theory had growth inputs as exogenous factors, but later theories internalized growth and made it endogenous. A way to make growth endogenous was via creative destruction. Environmental impact of growth is being taken into account as it is a factor in well-being.

Nations do not need foreign support to growth their economies. Aid can help, but creates a perverse incentive to not produce wealth. Aid makes governments dependent on others. All this theorizing resulted in many practical applications of trying to bring about the end of poverty.

Having lots of resources in a country does not mean that the resources will lead to wealth. Incomes from resources, like oil, tend to go to the few. The competition for resource rights can facilitate conflict in unstable countries. Without the institutions that can cope with increased revenues, it can facilitate corruption. Stable and rich nations can be harmed by resources as the real exchange rates can change.

Government and markets are not mutually exclusive. They just represent different ways to organize institutions. Free market is a misleading abstraction. Trade has always depended on how societies organize transactions. Increased trade with fewer protections has benefited the word, but it has also been harmful. Poor countries do not have the same opportunities to enter the world market, especially when rich countries protect their industries with subsidies. Competition can be seen as survival of the fittest, where fitness means profitability. Firms that lose money are closed or are taken over.

For an economics book trying create a better public image of economics with critics and non-economists, it needs to be better written. Many ideas presented have poor flow, and need better transitions. The topics are mired in more technical details rather than trying to provide a broad understanding. Coyle explains that many of the criticisms of economics that are caricatures of economic ideas, but the criticisms do not make an appearance. It is also mentioned that there are valid and appropriate criticisms, but they are not provided. Providing why some criticisms are valid while others are caricatures would have enabled clearer understand of the undercurrents.

[Boris Limpopo · Rating 3 out of 5]

Coyle, Diane (2007). The Soulful Science. What Economists Really Do And Why it Matters. Princeton: Princeton University Press. 2007. ISBN: 9780691125138. Pagine 279. 18.45 $

Come ho raccontato recensendo il suo libro sul GDP, di Diane Coyle avevo comprato e letto 5 o 6 anni fa un altro libro, A Soulful Science. Ero stato attratto soprattutto dal titolo, che contraddice spudoratamente una definizione dell’economia come the dismal science che ho sempre molto amato citare (la citazione è di Thomas Carlyle, lo storico di epoca vittoriana).


Secondo la vulgata, che mi avevano raccontato all’università (come, credo, la raccontino a tutti quelli che si avvicinano all’economia), Carlyle avrebbe coniato la famosa frase commentando le idee di Thomas Robert Malthus, che aveva predetto (An Essay on the Principle of Population) che la conseguenza inevitabile di una crescita esponenziale della popolazione, a fronte di una crescita lineare delle risorse alimentari, avrebbe portato alla carestia e alla morte per fame della popolazione in eccesso. Insomma, Malthus è stato il padre nobile dei profeti di sventura dei limiti dello sviluppo e dell’insostenibilità della crescita economica. E automaticamente, criticandolo con il famoso meme della dismal science, Carlyle viene arruolato nell’esercito dei buoni, dei critici dell’economia in ragione di valori e principî superiori.

Peccato che le cose non siano andate così, come ricostruisce Derek Thompson in un bell’articolo comparso su The Atlantic del 17 dicembre 2013 (Why Economics Is Really Called ‘the Dismal Science’). In effetti, Carlyle si è sì riferito all’economia come a the dismal science, ma in un contesto diverso, quello di un saggio sulla schiavitù nelle Indie occidentali. Infatti, nel suo saggio Occasional Discourse on the Negro Question Carlyle – tutt’altro che un progressista – sosteneva la reintroduzione della schiavitù per regolare il mercato del lavoro. Nel dibattito in corso all’epoca, gli economisti sostenevano il laissez faire e il libero operare della domanda e dell’offerta di lavoro. Carlyle accomuna filantropi ed economisti ed è contro l’emancipazione e la libertà degli schiavi:

Truly, […] philanthropy is wonderful; and the social science – not a “gay science,” but a rueful – which finds the secret of this universe in “supply and demand,” and reduces the duty of human governors to that of letting men alone, is also wonderful. Not a “gay science,” I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science. [Occasional Discourse on the Negro Question]

Ecco ristabilita la verità storica (di cui presumibilmente, come di tutte le smentite, nessuno prenderà nota): Carlyle era un reazionario bigotto, convinto dell’inferiorità dei negri e dei poveri; gli economisti erano allineati con i filantropi per la fine della schiavitù, la libertà e il progresso. Riporto la conclusione dell’articolo di Derek Thompson:

Today, when we hear the term “the dismal science,” it’s typically in reference to economics’ most depressing outcomes (e.g.: on globalization killing manufacturing jobs: “well, that’s why they call it the dismal science,” etc). In other words, we’ve tended to align ourselves with Carlyle to acknowledge that an inescapable element of economics is human misery.
But the right etymology turns that interpretation on its head. In fact, it aligns economics with morality, and against racism, rather than with misery, and against happiness. Carlyle couldn’t find a justification for slavery in political economic thought, and he considered this fact to be “dismal.” Students of economics should be proud: Their “science” was then (as it can be, today) a force for a more just and, crucially, less dismal world.

Diane Coyle, definendo l’economia la soulful science in opposizione alla dismal science, ignora la verità ora ristabilita. Scrive, infatti, a pagina 39:

It [An Essay on the Principle of Population] also earned economics the description “the dismal science” from historian Thomas Carlyle.

* * *

Sono passati 7 anni da quando ho letto questo libro e non posso dire di averne conservato un’impressione vivida. Ma per fortuna avevo preso degli appunti e sono quindi in grado di segnalarvi tre passi in materia di economia dell’informazione, di reti e di istituzioni, rispettivamente.

[INFORMATION]
Looking at the availability of information, and how it shapes individual decisions, goes to the heart of whether and when markets deliver individually and socially desirable outcomes. People often have access to different information or are uncertain about its reliability – described as information asymmetries – so their decisions will be formed accordingly. Their behavior might be intended to share information, which Is known as signaling. Or the asymmetry will affect their behavior in ways which lead to a less desirable outcome, giving rise to adverse selection. Asymmetric information likewise might give people incentives to behave in undesirable ways from the perspective of the wider market or society, causing the problem of moral hazard.
In addition, information is in many ways a public good. Its use by one person doesn’t use it up at all (it is nonrival or infinitely expansible), and if known by one it readily spills over to others (it is to a large extent nonappropriable). These characteristics were most elegantly and famously expressed by Thomas Jefferson: “He who receives an idea from me receives [it] without lessening [me], as he who lights his [candle] at mine receives light without darkening me.” Recall […] the importance of knowledge spillovers in growth theory – knowledge is the word used for information in that particular context, trying to understand innovation. Even if it is possible to prevent others from acquiring information, it is likely to be socially inefficient to keep it private. Furthermore, the quality of a piece of information can’t be assessed before it’s acquired, so trust and reputation are likely to matter.
These considerations all suggest that the characteristics of information mean that markets don’t work as well as neoclassical theory would have us believe. On the other hand, it’s very clear that markets are good at aggregating information. [p. 149]

NETWORKS
We saw some of this in the previous chapter: the tools of networks allow us to model economic “contagions” or cascades, such as stock market booms, bank crises, or recessions, as if we were ants marching in step toward a new food source. Here I want to focus on just one aspect of social networks: the part which concerns how we run our societies and economies as a whole. Knowing that human networks appear to follow some natural laws, what does this tell us about the overall structure of society? How do the institutions by which we run our affairs take shape? Why do societies and economies then end up being so different from each other? If we all form interpersonal networks according to the laws of complex nonrandom systems, why are some countries rich and some poor? What difference does understanding that there is a natural, presumably biological or evolutionary, basis of social networks make to economic policy prescriptions? It seems, contrary to Mrs. Thatcher’s notorious assertion, that individuals are the same everywhere, and the differences are all down to society. [p. 214]

[INSTITUTIONS]
Partha Dasgupta writes:
When they have needed to, and have been able to, people have developed what are often crisscrossing institutions, such as extended-family and kinship networks; civic, commercial and religious associations; charities; production units; and various layers of what is known as government. Each serves functions the others are not so good at serving… Their elucidation, in particular our increased understanding of their strengths and weaknesses, has been the most compelling achievement of economics over the past 25 years or so. [Dasgupta (1998])
Networks, norms, culture, social capital, institutions, markets, governments, all words for mechanisms which turn individual choices into collective actions. One of the aims of the continuing research in this area must be further evidence about which form of collective arrangement delivers desirable outcomes, for there isn’t yet a comprehensive taxonomy. Each can fail in certain circumstances, each has its strengths and weaknesses. In the case of markets, anonymity can be a benefit in some circumstances and a burden in others. The close traditional ties of the village can be either supporting or stifling. Social capital can be positive or negative. Trust reduces transactions costs, making it more likely that markets will function efficiently, but the wider the extent of markets, the harder it ought become to sustain trust. No framework for collective action stands still, as today’s institutions shape tomorrow’s economic performance, which in turn feeds back to the evolution of institutions There remains an enormous research task in trying to understand these feedbacks, in one of the most exhilarating areas of economics today. [p. 229]

[Chris · Rating 3 out of 5]

A good overview of all of the fields of economics, the key players in the history and development of economics, and largely fair in discussing the strengths and weaknesses in what is essentially a social science which seeks the "rigor" of the hard sciences, and which is expanding into other, less financial realms, through behavioral economics - a discipline which must look to psychology and sociology for data.
Personally, I think economics should stick to discussing exchange rates, tariffs, protectionism, free-trade, comparative advantage, interest rates, monetary supply, GDP, and all of the other aspects of the financial world, and not seek to expand into the micro realm of human decisions making.
Additionally, economists brag that their conclusions are "robust" and have great predictive power, but also admit that the assumptions they are based on, such as the utility-maximizing rational actor, and market participants armed with equal knowledge, are not valid. So how can their conclusions have any weight, when they are based on faulty assumptions? They answer this question by saying that the conclusions are rich enough that their faulty premises can be forgiven. I have long felt resistant to the haughty air of economists who believe in the superiority and infallibility of their discipline, and will continue to assail the underpinnings of their craft, either using the jargon and tools of their own field, or through the subtle deconstructive tools of critical theory and modern analytical philosophy.
A book I would like to re-read.

[Rachel Bayles · Rating 4 out of 5]

This book is written as if the writer is giving a senior tutorial in recent economic trends. It's not that her observations aren't interesting, but it's as if she's having a long Sunday brunch conversation with her lecture notes in front of her. There isn't enough cohesion here for a book.

She assumes certain beliefs that she shouldn't, by making sweeping statements and moving on without explanation. This would work in a tutorial format, since very often we allow the teacher to continue the lecture without challenging them on every point, simply because they are the expert. But it doesn't work in a written format.

It's a hopeful book, in that we need a lot more mainstream writing out there to challenge simplistic economics. She does a good job in illustrating that there are many smart economists out there doing complex work, and the field does not only consist of the pap of partisan politics. Read as a series of magazine articles over a period of time, her information would come across better than it does read in this book format.

[Darian · Rating 4 out of 5]

Coyle provides an extensive overview of the changes in economic theory, data analysis and policy implications in this book. The book provides a lot of well documented analysis of these changes, but at some points falls short of providing enough explanation. One might consider finishing their undergraduate degree (or maybe even a masters) in economics before picking up this book.

[Polly Callahan]

start back at Chapter 2 page 45.
Econometrics defined: "the application of statistical techniques to large sets of data on individual behavior."

copyright 2007, so may not be worth finishing