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August Baker's PhilosophyPodcasts.Org

Mar 12, 2023

Deirdre Nansen McCloskey (Cato Institute)

Beyond positivism, behaviorism, and neoinstitutionalism in economics

penetrating analysis from one of the defining voices of contemporary economics.

In Beyond Positivism, Behaviorism, and Neoinstitutionalism in Economics, Deirdre Nansen McCloskey zeroes in on the authoritarian cast of recent economics, arguing for a re-focusing on the liberated human. The behaviorist positivism fashionable in the field since the 1930s treats people from the outside. It yielded in Williamson and North a manipulative neo-institutionalism. McCloskey argues that institutions as causes are mainly temporary and intermediate, not ultimate. They are human-made, depending on words, myth, ethics, ideology, history, identity, professionalism, gossip, movies, what your mother taught you.  Humans create conversations as they go, in the economy as in the rest of life.

In engaging and erudite prose, McCloskey exhibits in detail the scientific failures of neo-institutionalism. She proposes a “humanomics,” an economics with the humans left in.  Humanomics keeps theory, quantification, experiment, mathematics, econometrics, though insisting on more true rigor than is usual. It adds what can be learned about the economy from history, philosophy, literature, and all the sciences of humans. McCloskey reaffirms the durability of “market-tested innovation” against the imagined imperfections to be corrected by a perfect government. With her trademark zeal and incisive wit, she rebuilds the foundations of economics.


“A compact discussion of some crucial issues economists should be contemplating.” The Enlightened Economist.

"Beyond Positivism [presents] a criticism and reshaping of economic thought that departs from neoinstitutionalism and other non-‘humanomical’ movements, promoting the ethics of liberalism as the ideal foundation for an adequate economic science.” Journal of Economic Literature

“The manuscript is a collection of writings for various forums, many reviews of others and many replies to critics. One unifying theme is a critique of neoinstitutional economics. But yet another theme is a defense of the bourgeois trilogy against its critics. This book is well worth a read.” Richard Langlois, University of Connecticut

“This new book deepens the continuing conversation in Humanomics. It’s essentially about discovering Adam Smith and resuming a path that McCloskey has so magnificently helped to reinvigorate in the last half century.” Vernon Smith, Chapman University and 2002 Nobel Laureate in Economics


Introduction The Argument in Brief

Part I. Economics Is in Scientific Trouble
Chapter 1. An Antique, Unethical, and Badly Measured Behaviorism Doesn’t Yield Good Economic Science or Good Politics
Chapter 2. Economics Needs to Get Serious about Measuring the Economy
Chapter 3. The Number of Unmeasured “Imperfections” Is Embarrassingly Long
Chapter 4. Historical Economics Can Measure Them, Showing Them to Be Small
Chapter 5. The Worst of Orthodox Positivism Lacks Ethics and Measurement

Part II. Neoinstitutionalism Shares in the Troubles
Chapter 6. Even the Best of Neoinstitutionalism Lacks Measurement
Chapter 7. And “Culture,” or Mistaken History, Will Not Repair It
Chapter 8. That Is, Neoinstitutionalism, Like the Rest of Behavioral Positivism, Fails as History and as Economics
Chapter 9. As It Fails in Logic and in Philosophy
Chapter 10. Neoinstitutionalism, in Short, Is Not a Scientific Success

Part III. Humanomics Can Save the Science
Chapter 11. But It’s Been Hard for Positivists to Understand Humanomics
Chapter 12. Yet We Can Get a Humanomics
Chapter 13. And Although We Can’t Save Private Max U
Chapter 14. We Can Save an Ethical Humanomics

Works Cited

192 pages | 6 x 9 | © 2022




August Baker:
Hello and welcome to Philosophy Podcast. I'm August Baker. Today I have the distinct pleasure of speaking with Professor Deirdre McCloskey. I'd say that her book The Rhetoric of Economics is one of the pop five books that influenced my understanding of economics. And it was such a great, exciting read, really.Deirdre McCloskey:
Thank you.August Baker:
You know her as the Distinguished Professor Emerita of Economics and of History, and Professor Emerita of English and of Communication at the University of Illinois, Chicago. However, after 34 years of praying for the Bears and the Cubs in Chicago, she has a new title now, which is a great title, Distinguished Scholar, Isaiah Berlin Chair in Liberal Thought at the Cato Institute. Welcome, Professor McCloskey.Deirdre McCloskey:
Thank you, dear. I'm here in my home, which is right next door to Cato, so I'm three minutes away from my office.August Baker:
Okay, good. How has the move been?Deirdre McCloskey:
Well, if you've moved, you know how it is.August Baker:
Yeah, I know.Deirdre McCloskey:
It's really rough.August Baker:
I know.Deirdre McCloskey:
It's starting to come to together.August Baker:
Good.Deirdre McCloskey:
It'll be another week or so before everything's put away.August Baker:
Gotcha. Okay. Okay, so today we're talking about your newest book Beyond Positivism, Behaviorism and Neoinstitutionalism in Economics, University of Chicago Press. And I would say that it's got some economics, it's got some philosophy of economics, sociology of economics. It's got some great nuggets and some gossip, and it's got some saying of things that you aren't supposed to say, but she says them. I thought maybe we could start with the economics, which I think to me is the great enrichment, which I had not heard of before, but what is that and what are the various schools of thought on that?Deirdre McCloskey:
Well, the great enrichment is simply the amazing change in world income per head since 1800. In places like the United States, it's a factor of, I don't know, 40 places, and worldwide, a factor of 25 or 30 in the increased amount of goods and services that the average person could buy. And recently as 1960, about four out of the five billion people on the planet lived at $2 a day. Imagine living where you live on $2 a day. And now the average of the seven billion people on the planet, the average has gone up to about $50 a day and the same prices. And of that seven billion, one billion are still at this horrible $2 a day. So there's this enormous quantitative change, and it's so large that it's a qualitative change. It's a change in the character of life. I take it that you, like me, are a descendant of peasants or urban workers, unspeakably poor.August Baker:
Right.Deirdre McCloskey:
Here we are. So it's an amazing change, and the two usual explanations are exploitation from the Left. Europe is rich because it stole from the Third World or because of slavery or something. And on the other hand, savings accumulation, which is embodied in the very misleading word, capitalism, that piling up factories and roads and so on is how we get rich. Neither of those is correct, I would argue. And what actually caused our amazing increase in human scope since 1800 is the idea of liberalism, understood as equality of permission, allowing people, as the English say, to have a go. And this having a go has just been amazing. You look around your room and everything you see is someone's smart idea. So it's ideas that caused the modern world, not one group of people stealing from another or some people piling up capital. So that's that. And to just-August Baker:
Yeah, please.Deirdre McCloskey:
Connected with the theme of the book, the main thing of the book, the materialist suppositions in economics are ill-suited to understanding ideas. The ideas were philosophical, political, sociological, and it's those ideas that made us rich.August Baker:
So did the idea of liberalism occur in 1800?Deirdre McCloskey:
Yeah. It occurred, and although it sounds kind of single-minded to say it that way, it did occur. It's not ancient. It's not from, I don't know, Christianity or the Indo-European race. Not Indo-European, the European race, something like that. That's not what caused it. It happened in Northwestern Europe in the 17th and especially in the 18th century, starting in Holland and then transferred and translated to Britain, and then the North American colonies, such as Pennsylvania, Massachusetts. Now, these societies were not perfectly liberal by any means. The American founders were largely slave holders.Even Benjamin Franklin had owned slaves. But the idea was implanted and that idea that all people are created equal, and their equality consists of being allowed to do things, to have a go, keeps... It's very appealing to most people, although some people don't like to be adults, but it's appealing to most people. And it's extremely powerful, it inspirits people to invent in institutions, such as the modern university invented in 1910 at the University of Berlin, or the field of analytic or continental philosophy, just to speak of here ideas. And then ideas such as internal combustion engine or the computer, a zillion other things.August Baker:
And so I guess one comment would be it doesn't seem to be necessary to let everyone have a go, but it's necessary to have a lot of people, enough people to have a go.Deirdre McCloskey:
That's a very wise comment, because it's obvious that in the United States, for example, until 1865, substantial part of the population, all women, for example, and all Black enslaved people were not allowed to have a go. So it's this gradual increase, and as you said, if there are enough people?August Baker:
Yeah.Deirdre McCloskey:
Now, it can't be confined to a tiny, tiny class. That's not going to work and does not work. But in places like Hong Kong after the Second World War, or Ireland since the 1960s, you relieve people of obstacles to having a go, and they keep having a go. They keep trying things. That doesn't mean they succeed, but they're allowed to try.August Baker:
And part of it is also, I think, for economists, the baker does not bake our bread out of a sense of benevolence. It's for a reward.Deirdre McCloskey:
Yeah.August Baker:
Now, I'm sure that people who are inventing things are not doing it solely for the money, but that would be part of it. People can have a go and they can get monetary rewards for doing so.Deirdre McCloskey:
Yeah, it's true. But of course, it's always been so that if you allow people to invent, they would make money out of it. But there were very strong forces against invention. The very word innovation in English, and I think in French and so forth, is a bad word until the 19th century, because it suggests you're going to change religious conventions. "Oh, no, let's not do that." So there are these conservative forces that were temporarily overcome places, as I said, like Holland or Scotland, and immediately resulted in astonishing innovation. And then the innovation just got completely wacko. It got crazy. We're inventing all the time, new apps for our cell phones and so forth.August Baker:
Yeah, right.Deirdre McCloskey:
And yes, it's profit, but you and I know that in, say, academic life-August Baker:
Right. Sure.Deirdre McCloskey:
Money, profit is not where it's coming from.August Baker:
Right.Deirdre McCloskey:
And that's surprisingly true, I believe, if you actually talk to people in business, it's true in business, too.August Baker:
Sure.Deirdre McCloskey:
People like to found companies and to pursue their American dream, and it's not all material.August Baker:
They like to work with other people for a common goal and compete and win and rise in the hierarchy and all of these things.Deirdre McCloskey:
Exactly. And there are all kinds of other coin in which ones paid. And indeed, that passage from Adam Smith that you paraphrased.August Baker:
Yeah.Deirdre McCloskey:
Where you said it's not from the love of the butcher or the baker that we expect our dinner. It's actually an appeal to take the viewpoint of the other person to walk in his shoes. He called it the impartial spectator. It's very theatrical metaphor. And the impartial spectator, kind of substitute for God, is watching you. And in order to do well by your fellow humans, you have to be able to have moral empathy, fellow feeling, it means of course in Greek. And that's what he's talking about. It's not so much he's saying, "Oh yeah, everyone's driven by money. You got to give them money, or they won't do anything." That's not Adam Smith. It's some of his followers, I admit, but not Adam Smith.August Baker:
You see, the way I think of that quote is, if you think of a new economic system and that economic system is, well, we're all going to work together and we're all going to do the best we can, and we're going to share with each other because we're going to all love each other, you think, "No, I don't believe it."Deirdre McCloskey:
Well-August Baker:
That's not going to happen.Deirdre McCloskey:
But it works in a family.August Baker:
True.Deirdre McCloskey:
It works in a small group of friends, and I love it. It's wonderful. A bunch of colleagues, most academic departments don't behave like that. But still, that's the idea. And it works fine in a small group. The problem is it doesn't work at arm's length. You order something on Amazon, you're not depending on the love of the person at the other end. Although, indeed, in a odd way, you're depending on their sense of professionalism and so on.August Baker:
Sure.Deirdre McCloskey:
So in a large society, love doesn't work. And in fact, it's worse than that, because appeals to the love model in a large society, we have seen in the 20th century especially, are extremely dangerous.August Baker:
Yeah.Deirdre McCloskey:
The Germans loved the folk, the German people. And Hitler's vision of a thousand year Reich and people loved the Communist Party. And arousing this king and country passion in which you can do these things, you can also do terrible things.August Baker:
Right.Deirdre McCloskey:
So it's much better, it works for human flourishing to let people make deals between the smith and the baker.August Baker:
Right. Now, if I were to... Excuse me. Go ahead.Deirdre McCloskey:
You have a last words habit of thinking before you speak.August Baker:
No, I just... Well, okay. Thank you.Deirdre McCloskey:
Well, that's a good habit.August Baker:
I appreciate that. Appreciate that. If I were to take a Marxist response, I would say... Well, I think two things, compound question. Sorry. One of them is, when you say ideas, a Marxist might say ideology. I think you actually pointed that out in your book.Deirdre McCloskey:
Yeah. And I say I actually use the word ideology a lot. I think it's just fine.August Baker:
Right. Okay.Deirdre McCloskey:
Marx particularly adopted it from French where the word ideology, when he adopted it, didn't have the Marxist meaning, which I approve of. I was once a Marxist, so I'm very familiar with the German ideology and so forth.August Baker:
Well, there's a funny... I think that the feel of your writing has something of Marxist, he's sarcastic with people.Deirdre McCloskey:
I know. I'm sorry about that.August Baker:
No, no.Deirdre McCloskey:
It annoys people, and I don't mean to be mean.August Baker:
Hey.Deirdre McCloskey:
Yes, I do. I mean to be mean with stupid people who are not doing it right.August Baker:
Right. The other thing, though, I would say is, okay, so the Marxist it's going to say, "Well, the ownership of means... what is required is ownership of the means of... Private ownership of the means of production."Deirdre McCloskey:
That's what they'd say.August Baker:
And they'd say-Deirdre McCloskey:
That causes the ideas.August Baker:
Right.Deirdre McCloskey:
Ideas are merely the superstructure of the froth on top of the great waves and tides of material history.August Baker:
Right.Deirdre McCloskey:
It's the business of turning Hegel on his head.August Baker:
And then I think they might also say, "Look, it's true that maybe even if we grant you that it wasn't capital accumulation or exploitation, which enabled this. Still, the exploitation, if you just think of it in sense of the worker is not going to be paid everything they protect, that would be required to accumulate large..."Deirdre McCloskey:
Yeah. Except that accumulation is not where it's at. You accumulate once you have a new idea. You open a hairdressing salon in the neighborhood, and if it was a good idea to do so, and if you do good work or have some innovation in organizing a hairdressing salon, then it'll have success. And then you'll be able to buy more machines and you'll be able to... The big mistake in modern economics is that we can't get away from the conviction that capital accumulation is creative. But it's not, unless there's a smart idea behind it. I just wrote a column for a Brazilian newspaper in which I made this point. I said, "Look, just spending doesn't generate anything." You say, "Oh, we'll spend a lot on the northeast of Brazil, and that'll make it better off." If the ideas are stupid, if the spending is bad, and it's not doing new things or organizing things in a better way, then all it does is shuffle resources around without making the resources, namely people better off.August Baker:
Right. That makes perfect sense. There's a lot more to talk about on this, but I want to go to the next part of your book. I would say, we'll talk about the critique of economics.Deirdre McCloskey:
Sure.August Baker:
You've got the... Very well shown that the scientism, the contempt for the humanities, the creepy behaviorism. I loved your discussion of that. The creepy is such a great word. The idea of incentives and these policies, economists, policymakers controlling these levers to control people for their own good. The ones that... You could speak to any of those if I misrepresented them. The other two that were so new to me was what you called the unmeasuring silliness.Deirdre McCloskey:
Yeah.August Baker:
And then the idea that the way economics is done is you spend the first week, if you think of economics as being a microeconomics course in graduate school, the first week is on the first and second welfare theorem, and the rest of the year are on the 108 imperfections.Deirdre McCloskey:
Yeah.August Baker:
My camera.Deirdre McCloskey:
Those two are closely connected. Are you there?August Baker:
I am. I'm going to fix my camera, but just go ahead.Deirdre McCloskey:
It's okay. I'll go ahead. The justification for the social engineering that economists have gotten more and more enthralled by in the last century, since the 1920s, is that, oh my word, there are so many imperfections in this economy. But my first response as an economic historian is, have you heard of the great enrichment? Don't you know that this highly imperfect economy with monopoly and externalities and all kinds of terrible things going on, consumer ignorance, meanwhile has been producing an increase in human scope by a factor of 25 or 30 or higher? So there's a kind of strangeness about this claim that all things are really imperfect. And my scientific... Well, that's a scientific criticism of the argument, but the other scientific criticism is that they don't measure it. Surprisingly, since economists are, as Edmund Burke said, economists and calculators are well known in the culture as being quantitative. But they're not.August Baker:
No, they're not. You're right.Deirdre McCloskey:
Their quantification is phony in all kinds of ways.August Baker:
I thought that was pastime. Yeah, go ahead.Deirdre McCloskey:
I've done books and articles up the kazoo on the technique. They're called tests of statistical significance. Correlation, R square, E tests, anything you want to call it. And it's just nonsense. It's the belief, which if we were to say about words, we would know it's false, the belief that numbers have their own interpretation, that inside a number is its meaning. And that would be like saying the American constitution has of 1789 has inside it its own interpretation, which is ridiculous. Everyone agrees on that. They don't get that the same is true of numbers. So anyway, there are all kinds of assertions of Krugman and so on, shows all their imperfections, and they're informationally symmetries and blah, blah, blah.And in some fields, like environmental studies, there are serious attempts to measure it. The advantage in those fields is the economists are sitting right beside people who actually do measure things, like climatologists. So they're led to actually do quantitative science in that field, and in agricultural economics, the economists are serious about magnitudes. And that's, again, because they're right next door to agronomists and practical farmers who want to know how big is big. But in many other fields, like this informationally symmetry stuff or monopolies increasing their monopolies. Google is a monopoly. It's complete nonsense and it's silly. And it's not backed by numbers. So I think that's a major scientific failure for a field that claims to be a policy science. I wish it wouldn't, but claims to be a policy science, and I'm from economics, and I'm going to run your life from now on.August Baker:
Right.Deirdre McCloskey:
If a doctor came to you and said, "Well, I'm going to bleed you because I think that's what you need," and had no evidence at all that bleeding was good for you, I would run from doctors.August Baker:
Sure. Yeah. One of these quotes that I love, you're right, "Mostly in economic theory, it has sufficed to show the mere direction of an imperfection on a blackboard. The quantitative theorems recommended by Samuelson in 1941, and then await the telephone call from the Swedish Academy early on a Monday in early October."Deirdre McCloskey:
I could attach names.August Baker:
Irreverence.Deirdre McCloskey:
If you wanted me to be really mean, I could tell you the economists for whom that is true.August Baker:
Right. No, I don't. I'm not as brave as you. But I did want to ask you... Well, first of all, two things, and I think this comes from Rhetoric of Economics, but I might be wrong. If we're trying to understand economists, then we would say, "Well, it's not that..." Well, okay. Why is this? It's because what are economists doing, academic economists, what are they doing? They're trying to self-actualize, they're trying to do interesting things, come up with interesting ideas. And that's what other economists find interesting, ar these.Deirdre McCloskey:
Yeah, that's true.August Baker:
And that's what journal editors want. And you might also say there's a little prestige in measuring. I don't know.Deirdre McCloskey:
Yeah, there is. Oh, boy is there. It was amazing that Simon Kuznets actually got the Nobel Prize. Yeah, that's right. There's a little prestige because of a absurd idea that economists have about physics, which since the war, everyone admires for the second one, because they think, "Well, there are these people called theoretical physicists who do a lot of math, so that must be what I could do as an economist. I'll just sit here and make up theorems," as though they're in the math department. And the other reason this happens is that economists, when they take math courses, take them from mathematicians.August Baker:
That was a good point also.Deirdre McCloskey:
They don't take them from engineers or physicists meteorologists or other people who use math. And this is not really how physics operates. The theoretical physicists are disdained who don't propose quantitative measures. And necessarily, the theorist makes them now. They hand that over to another group of physicists. But I was at a conference in South Africa about string theory, and who was the English physicist who ended up in a chair with-August Baker:
Hawkings?Deirdre McCloskey:
Yeah, Hawkings. He was there. I was within a couple of yards of him listening to his machine talking and so on. He was there, a whole bunch of famous physicists. And then there were these string theorists from Santa Barbara and so forth, and you could tell that the other physicists just hated them because it was all theory. It was airy-fairy, it's the strings. I mean, it's consistent. It's good math. The strings are so small that according to most physicists, there is never going to be a way of testing this hypothesis. Never. So they hated it. And that's the way physicists or geologists. Look, if a geologist proposed a theory of the origin of mountains and didn't have quantitative simulations, so to speak, that showed how big was big, and look, you can see that these plates are moving around, that could raise the Andes.August Baker:
Right.Deirdre McCloskey:
No one would paying any attention to it, whereas economists who in this airy-fairy way say, "Oh, there's imperfections in the capital market. Trade causes distortion."August Baker:
Behavioral finance.Deirdre McCloskey:
Behavioral finance is a good case in point because the only test of a financial model is can you make money from it?August Baker:
I love that quote in your-Deirdre McCloskey:
And if you can't, shut up, go home. The idea that you do econometrics that shows there's a glitch in the foreign exchange market, give me a break.August Baker:
Right. Here's from your book, page 60, "When I used to eat lunch daily in the seventies at the Quadrangle Club at the University of Chicago with Merton Miller, Gene Fama, Myron Soles, and Fisher Black, I would hear, without quite grasping it import, that the Journal of Business did not accept tests of statistical significance of an alleged irrationality in the stock market, but would instead demand to see the author's bank account."Deirdre McCloskey:
And that's, of course, sensible. And it's true of a lot of things. It's true of art. Show me your painting, I'll evaluate it. You say you're a great artist. Okay, show me. And if it is true, there are payoffs. And to keep asserting that we're going to just do things because numbers have intrinsic meaning is just silly. They have external meaning. When I say the temperature in Washington today is a disappointing 45 degrees, that means something because you can compare it with other numbers.August Baker:
So I think that one of the comparisons with physics is when we look at physics, I heard a lecture about this that Daniel Robinson, that we forget how... We know that there are these mathematical laws underlying the natural world, but it wasn't known before Newton.Deirdre McCloskey:
Sure.August Baker:
But there's this assumption that there must be some mathematical laws underneath the social economy.Deirdre McCloskey:
That's right. That's Adam Smith's conviction.August Baker:
And that would be an assumption in becoming an economist, that you're going to believe that.Deirdre McCloskey:
Yep. And it's got this problem that if you're so smart, why aren't you rich?August Baker:
Right.Deirdre McCloskey:
We know that there's an inverse square log for gravitation. It doesn't make anyone... There's no profit to be gotten from that because everyone knows it. And when you don't know it, you can't follow a cannonball very well. But when you do know it, then you can derive the parabola of the cannonball. But if there were similar tricks in economics that would aid people to buy low and sell high, they would already be exploited for one thing. And it would be... This is the problem with modern finance. If it were easy to do, then we'd all be multi-billionaires. So there's this big difference. A great economist named Fritz, an Austrian, in 1941 review said, "Imagine what physics would be like or chemistry if molecules could talk to each other. I mean, actually persuade each other to do stuff by saying, no, no. Why don't you not repel me this time because I do love you so much?" This would be very hard to do and would have this deep uncertainty that consciousness and social life creates.August Baker:
Right. Yeah. And in fact, once you make a rule and it seems to work, if people find out about it, they'll say, "I'm going to prove it wrong."Deirdre McCloskey:
Exactly. Exactly. And if that's an opportunity for profit, it'll happen. Now, I was trained as a transportation economist, and there are some transportation engineering formulas that work. For example, the famous gaper's delay. There's an accident on the left side of the highway, and yet people slow down on the right side to have a look. And that adds up. And you can actually simulate that rather easily and show how long the queue is going to be, how much delay in total there's going to be so there. And I don't deny that there are, what can you say-August Baker:
Regularities.Deirdre McCloskey:
Important and true regularities such as that if you raise the relative price of something, the quantity demand of it will go down pretty much. And that's true for all kinds of things. And it's not a dumb thing that economists say. It's appropriate. But the idea that you could run an economy, like a machine, like a car, you'll hear an awful lot about the Federal Reserve steering the economy, and it puts on the brake and it puts on the accelerator. And these mysterious people in Washington are doing this, and it's just baloney. They can't do it. They're driving in a dense fog. The instruments are no good, they're not sure what speed they're going. They're not sure if the brake works. The accelerator is very unreliable. The steering wheel doesn't work very well, and they're in a crowd of people. What do you do? Stop the car and get out of it. Stop trying to steer it.August Baker:
I guess the counter would be, if we had a case of laissez-faire, really had one, then we could say that's true. But all we really do is have laissez-faire with a substantial government.Deirdre McCloskey:
That's true. That's certainly true. We have a massive government. Look, before the First World War sophisticated modern countries, their state took 10% of national income for its purposes at all, from local to federal. Now, in most of these countries, well, for all of them, actually, it's 40% or somewhat higher. In France, it's 57%, actually. And that's in the last century that's gone up. And not only spending, but then they regulate the rest. Childcare is regulated. In the United States, when I was a kid, moms would say, on Saturday, "Go out and play. Come back when the streetlights come on." So we played. And if we wanted to play football, we played football. We didn't have adult supervision.August Baker:
Ride your bike.Deirdre McCloskey:
We wandered around and we did stuff and learned how to deal with each other. And now, if you do that, child protection will come, the state will intervene and take your child away from you. So even childcare is now under strict state supervision. I think it's terrible. And I wish we could get... You have to have some state. I don't disagree with that, but it doesn't have to be this leviathan.August Baker:
Right.Deirdre McCloskey:
James Robinson and Daron Acemoglu write books in favor of the leviathan, and they keep saying that bigger and bigger state, such as we have now, and getting even bigger is good for, shockingly, they say for liberty, by which they mean, Mama and Papa State will take care of you. I assure you, they'll be nice parents.August Baker:
So therefore you can-Deirdre McCloskey:
Therefore, just allow yourself to be a child. Go back to being a child in your household, and that's fine. You'll be happy as a lark. Not like a lark, more like a worm.August Baker:
Let me go now to some of these great nuggets. I've always felt that Friedman's The Methodology of Positive Economics, well, everyone can criticize it. I really have always thought that it captured a lot of what economists do or the way they think.Deirdre McCloskey:
Or what they think they're doing, at least.August Baker:
The idea to me, from what I recall, was that you're supposed to make assumptions which are contrary to reality. That's what a good assumption is. So then how would you judge a good assumption? It's based on what other economists find is an interesting assumption.Deirdre McCloskey:
Yeah. But if that's all, then we're back to a bad aspect of the Rhetoric of Economics, where the kind of academic agreement that, well, we're going to suppose there are tremendous imperfections in a modern economy, and so we need state intervention on a massive scale. That just gets assumed as the basis for public policy, as Milton would say, without serious inquiry. Milton was an empiricist. He was not much of a theorist, to tell the truth.August Baker:
Yeah, I understand that.Deirdre McCloskey:
He was a fact guy and he kept wanting to test things. Now, I think some of his tests were silly, and some of them were wonderful. His greatest book is a book called A Theory of the Consumption Function, which he wrote in the 1950s. And no economist can read that book without knowing that he's in the presence of a master.August Baker:
Yeah.Deirdre McCloskey:
It's extraordinary book. And it's got some theory, but mainly it's got, okay, now let's see, cross section savings rate and time series savings rate. What's going on here? They're not the same. And so he was an empiricist.August Baker:
Well, this is the quote I wanted to get at, the sort of gossip. You say that... You refer to The Methodology of Positive Economics, 1953. You say, "A paper Friedman told me that he later regretted." I wanted to ask you about that.Deirdre McCloskey:
Yeah. I have it somewhere in my files. I'm going to be going... Having moved, I had to move all my files, because we didn't have time to go through them and throw most of them away. But there is a letter in some file. I've shown it to some people, but it hasn't got into the public sphere very much. It's not that I'm secretive about it. It's there somewhere. Where he wrote to me when I had sent out a... I guess it was after the publication of the original article on The Rhetoric of Economics that Milton wrote to me and said, "I agree with what you say mostly. And I have regretted doing that methodological paper." His lifetime enemy, they didn't hate each other or anything, but opponent is a better word, Paul Samuelson, had the same methodology and wrote at the same time, circa 1950, wrote in favor of this kind of methodology.August Baker:
Right.Deirdre McCloskey:
Paul Anthony Samuelson, by the way, was my mother's longtime mixed doubles tennis partner. A fact that everyone should know.August Baker:
Yes. No, it's important. How did that happen?Deirdre McCloskey:
Well, they were in the same tennis club. I didn't know Samuelson.August Baker:
Okay.Deirdre McCloskey:
I think when I was undergraduate, he came to Adams house and I heard him talk to us. But yeah, that's all I ever knew of Samuelson. But my parents were close friends of him and Marion, his first wife.August Baker:
Interesting. Then the last part I wanted to get to were some of these things that you say that one is not supposed to say. I'll just read off some of them.Deirdre McCloskey:
I'm in Washington, and the great Washington hostess of an earlier generation, Alice Roosevelt Longworth, had a pillow on her settee embroidered with, "If you haven't got anything nice to say about anyone, come and sit beside me."August Baker:
I love it. All right. "I await testing refutations, but it seems to me on the basis of existing empirical studies," and I won't read all of them, but some of them, "that the following propositions are factually true, inequality since 1800 has fallen, not risen." Another one, "Imperialism was not profitable for the countries conquering others."Deirdre McCloskey:
Yeah.August Baker:
"Unemployment is caused as much by government interference, such as interference in the wage bargain as it is by inherent flaws in market economies." Here's one, "That consumers are irrational does not imply that markets are."Deirdre McCloskey:
Yep.August Baker:
"China and India broke out of the vicious and allegedly unbreakable cycle of poverty. Foreign aid has not saved the poor of the world, but has enriched elites and financed impoverishing projects." And then the last one, "Global warming is a... Or the last one I'll mention, "Global warming is a crisis, but not an existential one."Deirdre McCloskey:
Yeah. I think all those are true, and there's a lot of evidence for each of them. I could go... You can choose one and I'll at least be able to refer to.August Baker:
Yeah. How about the global warming? Can you do that?Deirdre McCloskey:
Well, the most famous calculation within the little group of economists about this is one that Bill Nordhaus at Yale did, where he pointed out that if income per head continues to grow at the rate that it is now and has been for 40 or 50 years, as the World Bank, for example, thinks it is, about 2% a year, if that's the case, then in a century, income per head in the United States, I mean in the world, in the world now, will be four times what it is now in the United States. And there's no good reason from a technological point of view that that can't go on happening. Some people say, "Oh, we've made all the inventions we can." Bob Gordon says this, and I don't believe it. But anyway, suppose. In that case, the reduction of income from bad climate will, for one thing, have millions, billions of engineers working on it, engineers and entrepreneurs from this immensely enriched world. And the hurt will reduce income, what, 20%?August Baker:
Fascinating.Deirdre McCloskey:
Well, out of 400%, 20% is not that much. So this idea that we're doomed and so on is not terribly plausible. Now, look, I'm not a climate scientist. But I do know, as everyone knows that looks into it at all, that these climate models are very uncertain. And that doesn't mean they're stupid or shouldn't be done, or these people are liars, but it does mean that we can't panic and do terrible things that impoverish the world now. We should probably have a certain optimism about the enriching world that we face if we don't screw it up. Now, we're very good at screwing it up, so maybe we will. If we follow the advice of Swedish schoolgirls instead of very wise, 80-year-old economic historians we're going to get in trouble.August Baker:
There you go. I'm with on that. Well, Professor Deirdre Nansen McCloskey, Beyond Positivism, Behaviorism and Neoinstitutionalism in Economics, and a lot of other great books, including the great Rhetoric of Economics, it's been such a pleasure to speak to you today. Thank you so much for joining me.Deirdre McCloskey:
Thank you. I've enjoyed it. I love speaking to philosophers. It often gives me a headache, but I love...August Baker:
There's a lot of similarities between economics and philosophy, really.Deirdre McCloskey:
There are. And some of them are not too flattering to the economists. There's this phrase that Bob Heilbroner made famous, worldly philosophers.August Baker:
Yes.Deirdre McCloskey:
And that's right. We are worldly philosophers. Sometimes we're too much philosophers and not enough worldly.August Baker:
No, I remember in the worldly philosophers, he was speaking about how he came up with that word. It was going to be the money philosophers or something. And his editor said, "Worldly. That's the word you want." Perfect.Deirdre McCloskey:
Yeah. Well, I became an economist because of that book.August Baker:
Interesting.Deirdre McCloskey:
I was a history major, and I found that as a history major, you had to read a lot of tiresome long books. And I found this very irritating.August Baker:
Well, you said-Deirdre McCloskey:
And now I write boring, long books.August Baker:
Right. No, not boring at all, fascinating.Deirdre McCloskey:
But still, I look, and my father was in government at Harvard. That's political science. So I couldn't do that. That would've been a natural major for me.August Baker:
Right, right.Deirdre McCloskey:
I think Dad even told me, "No, you can't major in government." So I said, "Oh, well." Over the summer after freshman year, I read Bob's book and it just fascinated me. And ever since, I've been in love with economics. Then I tried to use the book, and of course, I went back to it, this is, I don't know, 40 years later. But gee, maybe I should assign it in my... I was assigned to teach the history of economic thought, which I hadn't done. So that was nice. So I looked at Bob's book and it's terrible.August Baker:
Yeah. It didn't age well.Deirdre McCloskey:
It's not good history. It's not good intellectual history. It's very bad. It's charming and well-written. But I grew to admire Bob on other grounds. For example, and this is one test I use, he was smooth as silk about my gender change. No problem. So was Milton Friedman, for that [inaudible 00:53:26] Rose.August Baker:
Of course. Yeah. I would've expected that. Right.Deirdre McCloskey:
That's right, but even from Bob. And Bob, late in his life said, "Capitalism has won." He said, "Look, if you want to have a rich country, you better adopt capitalism." Now, as you know, in orthodox Marxism, that's actually orthodox Marxism.August Baker:
Right.Deirdre McCloskey:
That the fruit of the bourgeois era will be taken by the dictatorship of the proletariat and the withering of the state. And then we'll have this wonderful anarchist situation. But you need to go through the capitalism.August Baker:
Right.Deirdre McCloskey:
But still, he was a charming man.August Baker:
Yeah. No, I thought it was interesting that you listed him among your favorites. And also that you talked about wishing you had worked at the new school since he did. Not because of that, but...Deirdre McCloskey:
The reason for that is that new school kids don't learn what we called in Chicago price theory.August Baker:
Price theory, yeah.Deirdre McCloskey:
So Mariana Mazzucato is a completely incompetent economist because she doesn't know supply and demand. Now, you can be a Marxist and know supply and demand. I know people that do who are, and that's fine.August Baker:
Right. Sure.Deirdre McCloskey:
I don't blame David Harvey because he doesn't claim to be an economist, but Mazzucato does.August Baker:
Well, thank you so much for speaking with me. It's really been a pleasure.Deirdre McCloskey:
Okay, dear.August Baker:
I'm a big fan of yours for a long time.Deirdre McCloskey:
Thank you very... Well, don't be a fan. Send money.August Baker:
I buy the books. That's something.Deirdre McCloskey:
Buy the books. Buy the books. Okay, dear.August Baker:
Goodbye.Deirdre McCloskey: