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We’ve reached the end of Logic of Life, Tim Harford’s engaging tour of economics and its lessons for everyday life. Harford ends the book on a highly speculative note about technology, economics, and growth. Tim does a good job summarizing the emerging consensus. The “normal” state of human life is poverty and near zero economic development. Once a community establishes reasonable institutions for commerce and trade, people can quickly produce and exploit technological advances. The effects are cumulative: once a nation allows markets to work beyond a certain threshold, the population experiences exponentially increasing benefits. The economists’ summary of world history is: “no capitalism = no growth, some capitalism = growth, growth, growth!!”
This discussion is interesting because of the connections to ideas outside the normal realm of economics, especially in areas like psychology and, my own area, sociology. Here’s just one example. Harford discusses the idea that population size should correlate with innovation. Simply put, if you have a hundred million people, you’ll get a least a few geniuses. The inventions of these geniuses can be mass marketed, which fuels later growth episodes. Fair enough.
But where do “geniuses” come from? Turns out, there is a fascinating literature on creativity and achievement. A few names: R. Keith Sawyer, a sociologist/psychologist, writes eloquently on the emergence of genius from networks and groups. Sociologist Randall Collins wrote a highly regarded book on prominent philosophers showing that “genius level” philosophers tended to be clustered in space and time, suggesting that genius is made possible by very specific kinds of “hot house” situations. Other research, pioneered by Florida State psychologist Anders Ericsson, shows that high level performance isn’t just a matter of talent. It’s also a matter of specific training techniques and immersion in a topic. Basically, it’s not just talent that leads to achievement, it’s also the right kind of social environment.*
What’s the point? It’s this: Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade.
However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.
* Author David Shenk nicely covers this research on his blog The Genius in All of Us.