Thursday, January 08, 2009

Diane Coyle, The Soulful Science

Diane Coyle's goal in writing The Soulful Science was to explain why economics is relevant and to convince readers that the bad rap that economics seems to carry is undeserved. She argues that modern economics studies important topics like the causes of growth and of happiness, and thereby provides important clues as to how we can relieve poverty and increase personal well-being. I think the book is a good introduction to the economic way of thinking that might draw a more humanistic audience into the field.

Coyle's approach is non-technical and engaging. The book has only a few graphs and charts, and I don't remember seeing any equations. Coyle tells the story of the people who made the advances that interest her and what their results imply about how we should organize society, what society can and cannot accomplish, and how these advances in knowledge affect our lives.

The first two-thirds of the book contains most of the meat. Part one talks about what economists have learned over the last several decades about what makes economies grow, and by implication, what we can do to reduce poverty where growth is still sparse. She starts out this section with a chapter extolling the virtues of the economic historians who have dug into obscure archives and surprising sources to collect detailed data about how people lived before record keeping was as persistent and consistent as it has become. This work required a fair bit of inference and a lot of perseverance, but in the end, we have a good view of how well people got on in different times and places. This data can tell us a lot about how quickly growth occurred in different circumstances. From this we can deduce a fair bit about when and where progress flowered, which shows some facts that seem to nearly always be true beforehand. (Protection of property rights, respect for education) But the inconsistencies; other societies that seem to have all the prerequisites, but don't enjoy the growth that occurred elsewhere show that it's an incomplete model.

In her chapter on alleviating poverty, Coyle admits that we don't have a formula that works reliably, but argues that we have identified some policies that are worth encouraging and we have learned about some approaches that don't work. If developmental economists and leaders of underdeveloped countries pay attention to these lessons they'll be able to lay some groundwork that will put them in a better position to take action as we continue to learn more. It'll also stop people from hoping for quick results from ideas that we now know don't work (natural resource discovery and exploitation seldom leads to improved living conditions for the populace.)

The second part of the book focuses on people, usually the province of microeconomics. But Coyle focuses instead on recent advance in personal happiness and work on rationality and biases. She does a thorough job of presenting an overview of the implications of recent research for how to live your life, and on what interventions actually make people happier. She also talks about how people behave in markets, and what the economists have figured out about our behavior based on theory and experiment. Theory has filled in the consequences of asymmetrical information: how it affects negotiations and outcomes, and how people gain an advantage in business or politics by controlling access to information. Experimental economics has taught us a lot both about how people actually act in market environments as well as what kinds of institutions and frameworks make markets more effective at allocating goods and how to reduce undesired outcomes like pollution.

The final section addresses larger topics that have been attracting economists' attention recently: how evolutionary and chaos theory can be used to enhance classical economics' approach to the emergence of behavior from collections of interacting agents, and public choice theory's observations about how incentives on bureaucrats as individuals reduce the effectiveness of government as a tool for effecting change. This section is interesting, but doesn't get into a lot of detail.

Overall, The Soulful Science is a well-written non-technical introduction to the most interesting fields in modern economics. Coyle is an insider and quite familiar with the personalities in the field and she presents recent findings well while giving a sense of how economists work together to develop and explore these ideas.

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