Could a Bit of Tolstoy and Austen Improve Economic Forecasting?

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centsandsensibilityBy allowing university humanities courses to slip into decline, society risks losing key tools that could help solve a host of ills — notably including economic ones, notes this op-ed by Gary Saul Morson, the Lawrence B. Dumas Professor of the Arts and Humanities at Northwestern University, and Morton Schapiro, a professor of economics and the president of Northwestern University. They are the authors of Cents and Sensibility: What Economics Can Learn from the Humanities, Princeton University Press, 2017, from which this essay is based. The authors were also interviewed about their book recently in this Knowledge@Wharton article, “Why Economists Must Go Beyond the Numbers.”

Economics is a powerful discipline. Its analytical rigor, focus on tradeoffs and efficiency, and policies aimed at improving lives, make it an unusually important and influential field. And in a world where alternative facts increasingly masquerade as real ones and many deny the existence of “facts” at all, the statistical tools of economics serve as an antidote to sophism and political rhetoric.

But, boy, is economics full of itself.  A survey of American professors found that fewer than half of economists believed they had something to learn from other fields.  Seventy-nine per cent of psychology professors and 73% of sociologists thought that an interdisciplinary approach made sense; 42% of economists.

That might surprise some.  Isn’t it the case that economists regularly look to other disciplines for their topics of study? Sure. But citation and similar data indicate that economists all too seldom engage with those disciplines in a serious way. Most economic models of human behavior disregard psychology, studies of the cycle of poverty ignore sociology and anthropology, and analyses of the past bypass historians.  It’s as if other fields have great questions, but economics has all the answers.

One might suppose that such arrogance is justified by a record of accurate predictions and effective policies.  If only. Quite the contrary, and yet failures seem to occasion no caution. After failing to anticipate the Great Recession, the long-term slowdown in labor productivity growth, the surprisingly sluggish nature of the last decade’s recovery, the surging U.S. stock market following the election of President Trump, and the increase in employment in the U.K. after the Brexit vote, one might suppose that economists have been chastened! Not that we can see. When you know some math and you have the ear of politicians and business leaders, it is hard to be humbled. Economists, no less than the rest of us, do what Jane Austen’s novels all warn us against:  they let their “pride and prejudice” block perception of contrary evidence and their own failures.

“Novels … should be considered not just a literary form, but also a distinct way of understanding the social world.”

Can we take the best of economics and make it less insular and more effective? We think so. And we don’t just mean incorporating the ideas of the qualitative social sciences, we mean reaching out to an area of study that seems especially distant – great literature.

Culture, Narrative and Ethics

Economic insights alone are insufficient when one considers how to foster economic growth in diverse cultures, the moral questions raised when universities pursue self-interest at the expense of their students, or deeply personal issues concerning health care, marriage, and families. In their passion for mathematically based explanations, economists struggle in at least three areas: accounting for culture, using narrative explanation and addressing ethical issues that cannot be reduced to economic categories.

To understand people as cultural beings, one must tell stories about them. Human lives do not unfold in a predictable fashion the way Mars orbits the sun. Unlike algebra and Newtonian mechanics, life displays “narrativeness:” It requires explanation in terms of stories. And the best appreciation of narrative, and of how different eras shape people of various inclinations, can be found in novels, which should be considered not just a literary form, but also a distinct way of understanding the social world.  Although the events that novels describe are fictional, their shape, sequence, and ramifications often offer the most accurate account we have of how lives unfold. And what they teach about right and wrong is invaluable. There is no better source of ethical insight than the novels of Leo Tolstoy, Fyodor Dostoevsky, George Eliot, Jane Austen, Henry James, and the other great realists. Their stories distill the complexity of ethical questions that are too important to be entrusted to an overarching theory – questions that call for good judgment. By its very nature, judgment cannot be formalized. Moreover, reading literature and identifying with characters involves extensive practice in empathy, placing oneself in another’s shoes. If one has not identified with Anna Karenina, one has not really read Anna Karenina.

When you read a great novel and engage with its characters, you sense from within what it is like to be someone else. You see the world from the perspective of a different social class, gender, religion, culture, sexual orientation, moral understanding, or other features that define and differentiate human experience. By living a character’s life vicariously, you not only feel what she feels, but also reflect on those feelings, consider the nature of the actions to which they lead and, with practice, acquire the wisdom to appreciate actual people in all their complexity.

Understanding real people is at least as important in economics as in any discipline. If you don’t understand what motivates people, how can you possibly predict how they will act? Sure, you can simply assume that individuals act rationally and in their own self-interest. But even the founder of modern economics, Adam Smith, rejected that notion. To fully understand his seminal The Wealth of Nations, one must also read his complementary volume, The Theory of Moral Sentiments, where Smith explicitly denied that human behavior could be adequately described in terms of people’s “rational choice” to maximize their individual utility. Not only do people often behave foolishly, their care for others is an “original passion” that is not reducible to selfish concerns. One needs a subtle appreciation for particulars, the sort of sensitivity that was dramatized a half-century after Smith’s moral treatise by Jane Austen and her successors.

But if literature is so valuable, why is its study and that of the humanities more broadly, in decline?  University enrollments and majors continue to plummet, and their professors feel under siege. Many fault the students – “all they care about is money,” “Twitter has reduced their attention span to that of a pithed frog.” Economists are understandably skeptical of explanations for declining markets that blame the consumers’ bad taste.

“There is no better source of ethical insight than the novels of Leo Tolstoy, Fyodor Dostoevsky, George Eliot, Jane Austen, Henry James, and the other great realists.”

We tell a different story. For decades, many literature professors have argued that there is no such thing as “great literature,” but only things called great literature, because hegemonic forces of oppression have mystified us into believing in objective greatness. But if Shakespeare, Milton and Tolstoy are no more important than any other writing, why invest the considerable effort to read them? Paradise Lost is difficult; War and Peace is long. Many students leave secondary schools without having any grasp of what reading great works entails. Their exams test knowledge of facts about literature, not actually understanding it. They are taught to hunt for symbols, to judge writers according to current values, or to treat masterpieces as mere documents of their times. And that approach is commonly repeated at the college level.

Too Simplistic

A clear sign that something has gone astray is that a story is reduced to a simple message. Only mediocre literature can be read that way. Otherwise, why not just memorize messages? Love your neighbor (A Tale of Two Cities); help the unfortunate (Les Misérables); child abuse is wrong (Jane Eyre and David Copperfield); Do not kill old ladies, even really mean ones (Crime and Punishment); first impressions can be misleading (Pride and Prejudice); don’t give in to jealousy (Othello); obsessions can be dangerous (Moby Dick); stop moping and do something! (Hamlet); there’s no fool like an old fool (King Lear).

If you can’t provide a compelling reason why brief summaries will not do, and why it is important to read it attentively, then you have not really taught, or learned, literature. When we argue that economics can learn from novels, we approach great literature as a source of wisdom and insight that cannot be obtained, or obtained so well, elsewhere.

Examples abound.

In 2014 when the U.S. placed sanctions on Russia after Russian troops seized Crimea from the Ukraine, how did President Putin respond? By imposing self-sanctions, banning imports of many agricultural products from the U.S. and Europe. Economists might be baffled by such an “irrational” act. But read the classics of Russian literature and you are not surprised. Westerners typically assume the state exists to serve individuals, Russians, often enough, the reverse. People come and go, but Russia remains. Far from unwelcome, sacrifice and suffering for the nation can justify lives and be deliberately embraced.

What about the shock of the Brexit vote or the election of President Trump? Weren’t many of those voters actually voting against their own economic self-interest? That is heresy for economists! Maybe some of these voters were, as Dostoevsky wrote so brilliantly in Notes from Underground, deliberately acting against their self-interest precisely to show that they can be unpredictable. The choice being made is to exercise the right to act against our interests since that action “preserves for us what is most precious and most important – that is, our personality, our individuality.” Perhaps pundits and professors should get out more – meet those who are angry about feeling disenfranchised, listen to what they actually say, and read their stories as they, not their cultural betters, would tell them. In retrospect, the clues were there.

“Before you dictate policy, gain an appreciation of a nation’s attitudes, politics, religion and history – all that a nation’s literature is best able to provide.”

And of all the areas of economic policy that have disappointed, it is probably the limited impact of well-meaning investments in the developing world that has been most painful. “Getting the prices right” by reducing government subsidies for key consumer items might make sense in the classroom, but the real world demands nuance and cultural understanding. Can you reasonably expect that what works on one continent or in one country can simply be transferred to another? Before you dictate policy, gain an appreciation of a nation’s attitudes, politics, religion and history – all that a nation’s literature is best able to provide.

A final example where literature might improve policy: Enrolling more low-income students in elite colleges and universities. Despite various outreach efforts and substantial reductions in price, “undermatching” persists, where talented students from limited means attend open enrollment or modestly selective schools rather than the prestigious institutions eager to enroll them. But put yourself in the place of those students, worried that they have the wrong accent, beliefs and manners to thrive at an Ivy League school or at Oxbridge. And one way to do exactly that is to read any number of great novels where young men and women from the provinces try to succeed in the big city. From Balzac to Dickens to Chekhov, the reader inhabits the space of someone struggling to fit within “proper” society.  As literature makes clear, matchmaking, whether by friends, grandparents, or college admissions officers, is not easy, as Jane Austen’s Emma Woodhouse repeatedly discover. Class differences run deep, and matchmakers are apt to assume their own preferences in trying to ensure a happy pairing. Once they appreciate that, schools might develop more programs that allow students from disadvantaged backgrounds to feel that an elite school doesn’t just want them there for its own sake, but is willing to make them feel at home. Providing need-based financial aid helps, but there is much more to belonging than affordability.

Will taking literature seriously transform the field of economics? Of course not. But we believe that learning from literature, philosophy and the other humanities, along with history, sociology, anthropology, psychology, political science, religion and the like, may lead economists to develop more realistic models of human behavior, increase the accuracy of their predictions, and come up with policies that are more effective and more just. After all, what do we have to lose?

As Andy Haldane, chief economist of the Bank of England, put it recently when considering the failure of the Treasury, the IMF, and the OECD to anticipate employment and investment growth after the Brexit vote as opposed to their forecast of a recession, “Out of this crisis, there could be a rebirth of economics…” Perhaps that rebirth can begin in the library.

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