Daron Acemoğlu & Martin Wolf – Socioeconomics of Disruptive Tech #001

Daron Acemoğlu & Martin Wolf – Socioeconomics of Disruptive Tech #001

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Koen Smeets: Welcome to the interview series  on the socioeconomic consequences of disruptive   technologies by Rethinking Economics NL.  In this first interview we will examine   the topic from a more general perspective,  for which I am deeply honoured to be able to   introduce two of the most influential economic  experts in the world. Firstly with us today   is Daron Acemoğlu. He is a Institute Professor at  the Massachusetts Institute of Technology, MIT.   He's one of the foremost living economist and also  one of the most cited. His work focuses on the   role of institutions in political and economic  growth, combining history with econometrics.  

In 2005 he received the John Bates Clark Medal,  awarded for senior economist under the age of 40   judged to have made the most significant  contribution to economic thought and knowledge.   He has written several books including "Why  Nations Fail" and "The Narrow Corridor",   some of my favorites. He has also written  several articles on the economic impact of   disruptive technologies as AI and robotics,  related to which we'll be focusing today. Also with us today is Martin Wolf. He's  the Associate Editor and Chief Economics   Commentator of the Financial Times. Known for his  independent, unique and insightful perspectives,   he is one of the most influential financial  journalists in the world. Related to this he was  

awarded the CBE, Commander of the British Empire,  in 2000 for services to financial journalism.   He has also been critical of the current  neoclassical and mathematical focus of the   economics education. He is the author of several  books including "The Shifts and the Shocks",   here, "Fixing Global Finance", and  "Why Globalization Works". Having   similarly an incredibly interesting perspective on  the current and future socioeconomic consequences   of disruptive technologies, this should  make for a very interesting interview. First question of today is for Professor Acemoğlu.   Considering your extensive research on how  disruptive technologies are affecting the economy,   could you tell us more about the past, present  and future consequences of this phenomenon? Daron Acemoğlu: Thank you Koen and thanks for  organizing it, it's a great pleasure to be here   especially with Martin, who is also my favourite  economics journalist, so it's a singular pleasure   and the topic is really close to my heart so I'm  really delighted to be part of it. Look, I think  

economic historians have done an amazing job of  documenting that almost every technology you can   imagine is disruptive. You know, disruption hasn't  been invented in the Silicon Valley and at some   level there isn't anything qualitatively different  about robots and numerically controlled machines   and even AI, compared to the disruptive  technologies of spinning and weaving that's   launched the British Industrial Revolution,  mechanization of agriculture, machine tools in   manufacturing. And they are  having very similar effects,   and that's where I depart from many  other economists and some commentators,   that those effects are always disruptive.  If you are a spinner at the end of the  

18th-century things are not bright for  you. If you're a telephone switch operator   as the automatic switches are coming in, in the  middle of the 20th-century things are not bright   for you. That's not different from the situation  that a welder is facing when robots are coming in. What has changed, in my opinion, and  what is qualitatively different today,   is that in the past, somehow, we managed  to have a broad portfolio of technologies   that as we were disrupting and destroying jobs   we were also creating jobs via other  technologies, new tasks, new industries.   That's the story of mechanization of agriculture  in the US and to a large degree in the UK as well.  

New jobs didn't come from agriculture, the share  of agriculture in employment went from you know   over 50 percent to less than 10 percent in the  course of four decades, but we generated a lot   of jobs via other technologies at the same  time and that's what we've stopped doing.   We have put somehow all of our eggs into  algorithmic and robotic automation and we're   not doing enough to generate jobs, especially  good jobs for people with diverse backgrounds and   different sets of skills today, that's where the  future really hangs on. Because if we keep on   doing this, we're going to increase inequality,  we're going to stop, we're going to continue to   have a pitiful growth for average and median  wages, and we're going to have lots of social   costs come from a growth model based on only  empowering a small fraction of the population. Koen Smeets: What I was curious about  is that a lot of economists seem today,   of your colleagues, seem to think that this is  just another technological change, that in the   end everything will be fine. There seems to  be a lot of division in the economics field   on the consequences of these technologies. What  I sometimes like to say, is it almost seems that  

everyone is really, really worried about these  socioeconomic consequences of these technologies,   except for most economists. How do you see this? Daron Acemoğlu: Yeah, I think that's, I think  that, you know, first of all I think economics   as always is a broad tent and there are many many  different views. You know what you characterize   is not the view of many economists I work with  and I interact with, but it is true that it's   it's probably the modal view among economists. And  I think it's based on a double misunderstanding.   The first misunderstanding is theoretical. Somehow  many economists have grown up with models, and I   grew up with those models and I included them  in my [inaudible], the main models of production   function, where technology just augments and  increases the productivity of labour. And if   you start with this perspective and if you impose  this perspective on the data, any productivity   improvement will ultimately flow to labour  indirectly, or sometimes perhaps directly.

But that's not the only way we can  conceptualize technology and as I have   loosely argued a second ago, a lot of  technologies are of this replacing form that   displaced workers from the tasks that they were  performing. And the second misunderstanding is,   you know how really the adjustment took place.  It's a subtle misunderstanding in my opinion,   but it's a critical one. So, one way  you can think about it is to say,  

oh you know new technologies come in,  they are disruptive, but automatically   they will self-correct. And that I  think is the view that many economists   gravitate towards, partly because of the  conceptual framework that they bring to the table,   and partly because I think because they haven't  really studied the history of these adjustments as   much as they should have. Whereas the perspective  that I am bringing is, there's a disruption,   if you do the right things, both institutionally  and technologically, you can rebound and create   shared prosperity out of it, but there's no  necessity, there's no automatic process that will,   it will take work it, it will take work  from entrepreneurs, from innovators and from   politicians to build the institutions to support  it. And I think that's where we are failing and   that's why the automatic one will not happen,  in my opinion, unless we take drastic action. Koen Smeets: And on the other hand, we also  see technologists that sometimes are really,   really optimistic on the way that AI and robotics  will develop and change society, they really think   that, starting with society but then also our  economy will fundamentally change. How do you, why   do you think that their opinion often diverts such  an extent from some of the leading economists? Daron Acemoğlu: Well on this one, you know  I think there is a lot of uncertainty,   there are many data scientists, AI scientists,  computer scientists who are also incredibly   optimistic about what AI and future  technologies are going to do, you know   there are scores of books on singularity, great  abundance, incredible richness, superintelligence,   and you know, I mean I don't rule out that we may  at some point come to superintelligent machines,   but certainly, if you think of the current  technologies, they would be much more in the   in the category of artificial dumbness rather than  artificial intelligence, I mean they do a certain   number of things well, but they're not  intelligent and they're not amazing,   the productivity gains that they bring are very,  very small. I mean, you know, imagine automated  

checkout kiosks. I mean nobody would think,  would write a science fiction movie, book about   automatic checkout kiosks, and the productivity  gains that they are bringing are, you know, small. Koen Smeets: It's very interesting, I think it's  interesting to see the diverse uncertainty here.   Mr Wolf, I was very curious for your perspective  on this and for instance I saw an article from   you by in foreign affairs in 2015, labelled "Same  as It Ever Was: Why Techno-Optimists Are Wrong",   in which you argue that the socioeconomic  consequences of the technologies that we're   discussing here, are relatively  small compared to some of the   technologies of the past. Is this still  your opinion and could you expand on that?

Martin Wolf: Well I suppose  I think my perspective, which   actually rather surprises me is, similar to  Daron's. I believe they relate fairly well,   but I think he's far too optimistic. I'll try  and explain what if he's right what I mean.   I've been very, very influenced by in  particular the work of Robert Gordon on the   history of technology in the US. I tend to view  things historically and not so much in models.   And I think he tells a wonderful story which fits  very well I think with Daron's, although he may   disagree with that and I will interpret what Daron  said in Gordon style way of thinking about it.  

Which was that, for reasons which to me seemed  to me essentially to some degree accidental.   From the beginning of the Industrial Revolution  and particularly after the initial displacement   period, which was massively disruptive as Daron  explains and quite clearly worsened the lives,   particularly in Britain, of the industrial working  class, I won't go into the whole history of that,   and that seems to have gone on for something like  half a century, so that was a big deal! To put   it mildly, you know, half a century of a working  class in miserisation, though that's a complicated   story. But after that, we got, and Robert Gordon's  work describes this I think magnificently,   a vast range of disruptive technologies  which rather beautifully offset one another.  

And I think that is one way of putting  what Daron said. So, massive displacement   which was I think the biggest productive  revolution in human history, which was the end   of the mass agricultural labour force, which  was what everybody had done for like, you know,   since the agricultural revolution pretty well,  for you know since ancient Egypt and earlier.   So we got rid of the agricultural labour force,  but fortunately all the other technologies,   which developed, everything we can see about  modern life, modern urbanization, the factory,   the immense range of products could be produced in  factories because of the electricity revolution,   and the internal combustion engine, which of  course generated a massive investment boom, the   development of the chemical industry and with it  the pharmacy, and just an immense range of general   purpose technologies which drove growth for  let's say 80 years, roughly. And those generated   a whole range of new jobs which replaced the ones  that were being lost. So there was pull as well   as push, I think that's what Daron is saying,  you know farmers, workers fled the farms and   found lots of factory jobs and it also led to a  political revolution. The new industrial working   class, because of its hold-up power in factories,  was able to generate immense power, extract rents,   which were very important I think, and  generate by the middle of the 20th century   in our societies, the advanced societies, very  high incomes for a large part of the industrial   working class, which also generated with it  a political and social revolution which we   many of us, certainly in my age, I'm in  my 70s, look back to with some nostalgia.

Now, the revolution of our time, Robert points out  is narrow, in the sense that it's focused in one   set of technologies, basically computing and  communications [and] now AI, that so that we don't   have all these offsetting technologies and all  these offsetting industries that are exploding,   in fact we're basically pushing the displaced  workers into different forms of casual labor,   doing fairly menial tasks, looking after ourselves  as it were, in which it's very difficult to raise   technology, raise productivity, and we've got  a relatively limited number of huge winners,   I'm staggering with this and I think there are  other things. Now that's I think my description,   my story, is I think another way, Daron might  agree, of telling his story. But the point is,   Daron and this is where we agree and that's a  problem, because we've got one sector, or one   sets of technologies which are dynamic, efficient,  they're generating a lot of new opportunities,   but they are clearly getting rid of an awful  lot of employment. I mean an enormous amount   employment and they destroyed the industrial  working class, among other things, now well there   are other factors. Now where I'm less optimistic  is I don't think, it's not at least obvious to me   that we will generate these new opportunities  in any simple way without some corresponding,   economic stroke technological revolution. So  the narrowness of what we've got, generates both   relatively slow productivity growth overall  because what's left is so big and it employs   so many people and of course productivity growth  in all these labour-intensive sectors is pretty   miserable. So that gives us this weak overall  growth and we don't seem to be able to do much  

about, you know, caring for children is caring  for children, and technology doesn't help you   much with that, idem dito caring for old people.  And then, so it becomes very, very difficult to   generate productivity growth, so what I think we  end up with is massive disruption and no offsets.   Now that's the worst of both worlds, now when  I say massive disruption I actually think the   disruption itself is smaller than the Industrial  Revolution or the Second Industrial Revolution,   is the offsets we lack, and that's what makes  it so painful. So I actually think with Robert,   really it's quite a small beer thing. However,  and this is the final point which you raised,  

is I did raise the possibility, which  Daron just touched on, maybe at some point   these new machines will be intelligent and not  stupid. My main point was they're very stupid,   so overlap with Daron again, and maybe we will  find, half a century from now, that we've got   machines that can really think better than we can  and then maybe humanity goes the way of the horse,   we cease to be economically relevant to ourselves  and we have a completely and utterly different   society, but that's certainly not we are  where we are now. I think what I've just said,   at rather great length, I apologise, is a  journalist's way of saying, more or less,   what Daron said but I may be wrong, maybe  there's something I missed, but that's the story.

So the tragedy is, this is too narrow, we're  not distributing the gains from it widely,   pretty obvious, we have generated huge monopoly  power in the process, which terrifies me   politically and socially, I think that fits very  well with "The Narrow Corridor"-thesis, which I   buy, and I don't think we know how to generate  these new jobs. I'm writing about this right now   in a book I'm finishing on the crisis  of democratic capitalism and the core   is how do we generate these new good jobs which  generate lives, livelihoods, meaning for people   because to my mind, to bring it up today, it's our  failure to do so that delivered what we saw last   week in the Capitol. This is a massive political  crisis, generated by an economic failure, which   to my mind we don't have simple fixes for, other  than a hell of a lot of concealed redistribution. Koen Smeets: Yeah, perhaps of  importance to mention for those who are   viewing this now is that we're  recording this on the 11th of January.   So yes, but I think it is very interesting indeed  how the convergence of your stories, and indeed   I saw Professor Acemoğlu very often nod. So,  Professor Acemoğlu would you care to comment, and   how do you see this and what do you see as some  of the most important things in 21st century? Daron Acemoğlu: Yeah I would love to comment,  because, you know, yeah indeed as Martin said,   you know, our perspectives are surprisingly  well aligned, except that he puts it much more   eloquently than I do, so thank you Martin. And  I think, you know, even the words are really so  

similar, the word that you know Pascual Restrepo  and I, in our work we use "counterbalancing   technologies" and he used "offset" but I think  they mean the same thing, and and exactly the   way that Martin described it is beautiful. So 99  per cent we agree, I think there's one per cent   slight disagreement, but it's  useful to highlight it because,   not just to distinguish our perspectives, but I  think as a way of responding to your question,   Koen. I actually don't think that AI is narrow.  AI and digital technologies have the possibility   to be very broad, but they have been misused  in a narrow way, and that is the reason why,   I think exactly like Martin emphasises  the productivity implications have been   poor, and they haven't helped generate good jobs. Let me give you an example.   You know, the promise of AI, in some sense  is that it would affect many sectors,   but how and in what way, I think what we have  failed to do is to create good jobs in services,   as manufacturing employment has declined, in the  same way that, for example, we had managed to   create good jobs in manufacturing when agriculture  was declining. Take education, for example.  

I think everybody agrees education is critical,  and if you think of AI being used in education   there are so many different ways of using AI. For  instance, there is an growing body of evidence   from educational scientists, showing a lot of  children are left behind because they can't follow   some of the core subjects in which they  are being instructed. And that then has   huge consequences for their lifetime earnings,  participation in society and everything. But AI  

is a perfect technology for that: You can use  adaptive technologies to find out which parts   of the curriculum a student is having a hard  time with, change the method of instruction, find   the right remedial things targeted to  that student, student-centric teaching. So why aren't we doing that? If we did  that, what would we do? First of all,   we would actually increase good jobs in teaching,  because to do that, to use that technology and   to actually build on that technology and provide  more student-centric teaching, you would need very   well-qualified teachers. That's exactly which what  we should be excited about: generating new jobs in   a sector that's critical. But of course, there's  zero chance of doing that. Why, because if AI is   going to be used in education, and probably will  be in the next 10 years, we're going to do it in   order to reduce teacher salaries and teacher  employment, things like automated teaching,   automated grading, automated exam setting. So  it's a mentality of how we are going to use   the AI whether it goes in the narrow direction  or the broad direction. And that's why I agree   with Martin, that we need a technological and  institutional and I would say a vision revolution,   but I don't think it's impossible. What stands  in front of us, is actually first diagnosing the  

problem and finding a broad enough constituency  who understands it and pushes us in the right   direction. That revolution won't happen, if  a handful of companies and a handful of very   similarly educated, with very similar ideologies  managers are in charge of where our future goes. Koen Smeets: And then I would love  to hear Mr Wolf's response to that,   and I was very curious on how he  sees that we can tackle some of the   problems that are also I think underlying  this, such as the immense inequalit   and also other problems we've been generating  last fourty years such as the climate crisis.

Martin Wolf: Let's go to the point that Daron  just made, which sort of fits into another   strand of literature which he will of course  be incredibly familiar with, which is sort of   Baumol's law type stuff. Which is the notion that,  oh well, this has many aspects, but one notion is   that a lot of the sectors in which we would  like to see this enhanced productivity,   are sectors which are either directly part of  the public sector or are very heavily dependent   on payments from the public sector. So, to take,  here's one beautiful example, education, you know,   children don't have incomes of their own, and  many parents don't have very adequate incomes.   And that's pretty obviously one of the biggest  challenges of our society, of the inequalities   in our society, which is, a relatively small  proportion of parents have the resources   to provide their children with all the enrichment  possibilities he's just talking about, including   highly paid teachers, and many aren't. So if we're  going to do what he suggests, indeed pay teachers  

well, hire very highly qualified teachers who can  be augmented by technology rather, as we now see   fascinatingly, grand master chess players aha they  get better because they complement the machines,   then somebody's going to have to pay for  it. And the somebody is the taxpayer.   And the related point, which he didn't explore so  much, is how the distribution of gains come from   those activities in which, and they're clearly  very important activities, in which there is   a platform monopoly of some kind, which does  all the organisation, which may have just a   few hundred software engineers and and owners,  and then a very large number of casual workers.   So that this generates, obviously, you  can see it, just look at the stock market,   staggering rents, which go to a very  small proportion of the population.   So, and in a way that is similar to what happened  with the creation of the industrial working class,   the difference was that the industrial working  class, as I indicated to you and this was   what was seen as a "problem" in the late  19th-century, could organize itself and   fought very hard politically and economically to  get some of the rent for itself, and interestingly   all things there's a very good recent paper  co-authored by Larry Summers on exactly this   theme, about worker power. So this becomes, and  this is one of the many respects in which I've   become less of an economist quote unquote, this  is Marxist, you know, who gets the rent, is not   determined in economics. You know, the perfectly  competitive model, it doesn't exist, but it does.

So, I think one of the implications of this,  and I do think it is an important implication,   is that if we want to ensure that these  good new jobs and good new opportunities   are exploited properly, and health is  another sector, pretty obviously, okay,   and I'm sure there are many others that I haven't  mentioned, then we have to think about how these   activities, which are going to be so important  in future, culture, the arts, entertainment,   everything like this, it's going to generate  incomes, which are incomes that make people   feel they're generally part of society. And that  I think becomes politics. It was politics before,   but it's even more now, because these activities  are so centrally in the public sector,   or at least involve public sector, engaged  the public sector and so I now realize that   30 years ago or 25 years ago, when I was sort  of very supportive of the market revolution,   and in some respects still are, there is  something I got absolutely wrong, which is,   these things are not going to happen automatically  in a desirable way without an active public sector   engagement and without taxes. And they're going  to have to be paid, raised and that raises all   sorts of very profound issues about corporate  taxation and tax havens, and we can go on forever,   but I think we have to confront the reality,  which and again I think we align and I think   "The Narrow Corridor" is by that, that what  he refers to as the "civil society reaction",   is now desperately needed, because if we  don't have a right civil society reaction,   we're going to end up with civil war.  That's why I mentioned this recent events,   and it's a failure of economists, I think,  to recognize those dangers, because and here   again I think we agree, because there's a certain  blindness about the natural harmonies of economic   life and that comes from some very simplistic  assumptions about how production is organised. Koen Smeets: Professor Acemoğlu,  would you care to respond? Daron Acemoğlu: No, perfectly, I'm completely in  agreement and, you know, I think I was just going   to add something to what Martin said and and he  added it himself. But let me just elaborate on  

that. You know I think the role of civil society  is really critical here, because I don't think   this transformation that Martin is talking  about can happen by government fiat,   because we have enlightened people in government.  First of all it won't happen if it's just left   to government officials for a variety  of reasons, which we can get into.   But second even if it did happen it would  lack legitimacy and it wouldn't happen in   the right way unless society got involved,  and to illustrate that let me actually   give you one example which Martin didn't  talk about but you hinted at, is climate. You know it's another one of our urgent  challenges, I really think we have very little   time left, but on the other hand I also think  that there is an inspiring studies, this story   from the climate change response over the  last 40 years, you know in the 1980s, there   was no way that any renewable technology could  be used, anything close to cost-effectiveness. So despite the fact that government responses  have been, to put it mildly, half-hearted and   we don't have a carbon tax in the US, we don't  have a global carbon tax which are, you know,   musts, you know, we've seen an amazing surge  of technological creativity that have brought   renewables, to cost-effectiveness with fossil  fuel-based technology. How did this happen?  

Well it happened exactly through that civil  society prodded government action. First, a   significant fraction of the population understood  the facts, understood the urgency of the issue,   and started being mobilized on it. They started  talking about it, they started writing articles,   they started changing their consumption patterns,  for example towards cleaner products recycling,   you know, hybrid cars rather than gas guzzlers,  and they started putting pressure on governments,   which then did something critical:  they started giving research support,   and that's where the technology nexus is  critical as we were talking on the earlier   issue of job creation, they started giving  technological support to clean technologies.  

And even though that wasn't, you know, anything of  the order of a New Deal or anything like that it   was transformative. It's just solar panels, wind,  geothermal, carbon sequestration, all of these   things improved so rapidly in about 25 years,  and we are now in a position that with really,   quite feasible action on the part of governments  we could actually turn the corner on climate   change, all we need is continuation of the  research support and a meaningful carbon tax,   and accordingly international coordination.  Not easy but but certainly feasible,   something that would not have been feasible in  the 1980s. So that's why I think civil society   is really critical moving forward and the  climate response demonstrates that in my opinion. Koen Smeets: Mr Wolf, are we still in agreement  or did we reach a point where you diverge? Daron Acemoğlu: My optimism might  have gotten in the way. [Laughter]

Martin Wolf: No this is a subject on which I agree  very strongly. So I have been thinking, so Daron   raised two issues. One touched on something I said  and this is as it were how politics works. Now,   it's pretty easy, and perhaps I'm guilty of this,  to get pretty depressed about some aspects of how   politics globally and in the developed world  have been going. Particularly if, like me,   you are rather a passionate believer, as I  think Daron is from everything I know about   him in the ideas and ideals of democracy, and of  a democratic society. It's pretty obvious that   some quite some things have gone quite badly wrong  in many parts of the world, including in Daron's   home country and in his prison country and in  my country. [Laughter] So, widely shared, and   this has a lot to do with these failures and  challenges, and to put it very brutally, I think,   although this is a more complicated story,  because bringing Turkey and the US together is   a difficult thing that won't go but anyway,  part of it is clearly elite failure and an elite   rent extraction, I'd be brutal about it, and the  great upheavals of the middle of the 20th-century   led to at least a temporary resolution  of that problem in many countries,   which has been unwound, always being unwound.  So this very big story worries me a lot,  

I mean terrifies me actually, and I could go into  that much further. But there are stories where   civil society responses work very well, and it's  interesting to think why and who they are, because   it's both a good story and a bad story. I think  it's absolutely true, that civil society pressure   has led governments to do some things,   but also scientists and technologists themselves,  have been influenced and business people have   been influenced, by what they see going on around  them. And then there's China, let's remember China   has been a big deal in all this, because of the  sheer scale of what it's done in some areas, like,   you know, when the Chinese decide to do something  they do it the way the US used to do it, right, in   the middle of the 20th century, with solar panels.  So these things together have brought about a   technological revolution in renewable  energies, which I have to say and I've   been following this very closely for  nearly 20 years, has surprised me,   really surprised me, and I believe it surprised  most people, how far the cost curve has got. If you go back to the famous Stern report  of I think 2007 or 2008, I mean he was   much less optimistic and that was based on the  technologies of the sky. So this is a tremendous  

progress, and I think we may get this revolution,  despite the backlash which we're seeing, have been   seeing in the US. And the interesting question  is, what this tells you about what bits of   civil society work. So basically, this is why, I  think this is fair, this is a young middle class   movement. Educated people, mostly graduates or  people who are soon going to be graduates, like   Greta, I think we can be safe ensure that, who are  clearly the driving reforming radical group in our   current society. You can see this in things like  this, where I agree with them and things and other   areas where I disagree with them less, of what's  sometimes called the woke agenda, but these are   mobilized, they get together, they make things  happen, and they're a very, very important group   in civil society. The problem with this group,  is whom exclude. So basically they are completely   separated from and completely uninterested  in the old working class and it's plight,   they are quite interested in some other causes,  but the core causes their own. And this is related  

to a profound social change, which i don't think  we discuss enough, and I've only begun to realise   in the nature of our society, which is for the  first time in the whole history of the world,   we have societies in which close to half  of the population has been to university,   has been in tertiary education, there are a few  developed countries which are there and some that   are getting very close to it. And that creates  a much more profound class rift than I had ever   realized, and it comes again all the work done  by Anne Case and Angus Deaton on life expectancy,   this is all divided by education, it's as if  though, so we focus very much on the top one   percent and that is actually I think quite  important, the rent extractors as it were,   but there's this bigger rift, so  what Daron is saying is I think,   that group, the university educated are becoming  a very powerful, mobilizing, culturally dominant   group and they will and they are mobilized  and mobilizable and they will get their way,   and I think climate is a success  for this reason. Unfortunately,   it leaves a very large part of our  population out, and they are clearly feeling   deeply displaced in this, because in addition  to having no jobs and very poor incomes and   no real prospects, they also feel profoundly  disrespected by these people, because,   to quote one famous politician, "they're  deplorable". And, so, I would just say  

Daron has described absolutely correctly what  I think is a very important social development,   which is also very positive social development,  but one of the reason Trump got the support,   is because he put two fingers up to these  very climate conscious, climate mobilizing,   middle class and upper middle class,  university-educated people, it's our new,   deep social rift. And the Democrats obviously  represent them, and the Republicans nowadays,   you know, there's almost nothing I agree with Josh  Hawley on, nothing except the correct statement   that, which is incredible if you believe you look  at what it's proposing, that the Republicans and   our conservative party and other examples are  now working class parties. So there's a very   important positive thing and there's something  negative. The most important point about what   he's, Daron's saying is that what I'm saying is  that all these really big issues are politics.   You can't separate our discussion of economic  issues and economic policy from politics,   and i think one of the tragic mistakes of  economics, and Daron has done something remarkable   in his academic career and bringing this back, and  there are a few others, Douglass North and others,   was this separation of economics from politics,  which in a part was a reaction against what Marx   tried to do, and I think now, I didn't think  this 50 years ago, that was a tragic error.

Koen Smeets: I would love to move towards  the way to economics education afterward,   but before that I would love to hear what  professor Acemoğlu thinks of what you said. Daron Acemoğlu: Well this is going to get boring,  but Martin and I again completely agree, I think   he again amazingly eloquently explained it and I'm  really, you know, in awe of Martin all the time,   but, you know, he put it so  succinctly and what strikes me,   is that what Martin explained isn't the  conventional wisdom. It's actually a very   scantily heard story. The person, I  think, who captures some of the ideas that   Martin said and I've been impressed by  him because he says something that's not   in the conventional wisdom, is Michael Lind, who  wrote a couple of articles and a new book that,   sort of, perhaps puts it somewhat differently than  Martin and my perspective is closer to Martin,   but I think Michael Lind as well as Martin gets  a lot of credit in my mind for capturing this.   And I also think that Martin's story,  really, gets to the heart of why nationalism   has been so resurgent, because when faced with the  exclusion of the more educated and vocal classes,   and faced with the globalization's  discombobulating effects, nationalism   has become a very powerful, potent force for  the people who felt, who feel left behind.  

But that's exactly why, I think, the role of  civil society moving forward is not an easy one,   but is a feasible one. It's because if we really  start having a conversation about what's going on   in our society, why it's very much in grave  danger of fissuring, because of the effects   of technologies, but that we also have a  saying where these technologies go, I do,   perhaps optimistically believe that the educated  classes that have taken up causes that are not   relevant for the other half, may actually take  up causes that are relevant for the other half.   It's perhaps a dream, but I don't think it's  infeasible because it has happened in the past.   You know, in the British Fabian society tradition,  the most elite have sometimes been a very good   conduit for the plight of the less fortunate, and  I think, moving forward I don't see any reason why   it couldn't happen if we start having the right  conversations and if we free media from the   many problems that it has, that's another topic  that we probably don't have time to get into,   but I think the media really deserves  some responsibility here as well. Koen Smeets: I think it's very, very interesting  to go into all of these areas and that we could   keep doing this for hours, and I think I  might have now a question which may cause   some disagreement. Mr Wolf, you've been also  quite critical on the economics education,  

especially its lack of, for instance,  political considerations and focus on   neoclassical, mathematical models. Could you  tell us more about your criticism of this? Martin Wolf: Well, probably being unfair because,   let's be clear, I've been outside the academic  community, though I'm a consumer of course,   an avid consumer and moderately wide reader but  not at the most technical stuff, but I've been   out of it since 1971, which is a very long time.  So I'm probably going back to my own education, or   failures of education maybe, I'll  make just two points. One is, I think,   sort of relatively straightforward and I  suspect there will be no real disagreement.  

And one is much more profound,  but maybe impossible to deal with. So the the one that is pretty  clear, that when I was being taught,   which was sort of as Keynesianism  was dwindling, we had   not just a political but an academic resurgence  of pretty simple-minded free-market thinking.   I think that would be fair, you think of rational  expectations, real business cycle theory,   some of them were simple-minded, what was come  to be called market fundamentalism. And I mean   looking back on that, it seems pretty obvious that  these were embarrassingly simplistic ideas about   how economies work. Now here, the point I would  make is, in order to do social science at all,  

which i think is a very different activity from  the physical sciences, and particularly you know   the canonical physical science physics,  you have to do heroic simplification.   Economic models involve heroic simplification,  and the question always is how misleading   are your heroic simplifications, and I  think we got to a stage in which the model   of humanity, the models of human beings, the model  what matters to them, the models of technology,   assumptions about society, were just hopelessly  naive and therefore profoundly misleading.   And I think most economists who I respect,  well all the economists I respect would   agree with that, and economics has done a  fairly good job of rectifying some of that,   by a combination of the immensely detailed  empirical work, model-based empirical work of   people like Daron, and by introducing new ideas,  like behavioral economics and all the rest of it.  

So I think that, the way professional economists  approach things is less bad than that,   right, quite a bit less bad than that. Of  course, the consequence is that it's much   more difficult to be confident when you're talking  about economics, but it's at least more realistic.   So that's, so I think there are improvements, I  still think they didn't go anywhere close, far   enough and I've discussed that my "The Shifts in  the Shocks" in relation to the financial sector.   I mean, which is pretty obviously a  very, very big and well-known problem,   but economics has made, there's a bigger problem  and I don't know what to do about this and   it relates to your second question, which  is politics, but it's not really politics.   It's the question to which I haven't got an  answer, but I have been spending four years   now on this sort of big political economy  project of mine, trying to relate what the   Greeks thought about democracy to what we think  about the economy how does all this fit together.

In order to make social  science work, our forebears   back basically in the 19th-century, Schumpeter  has a wonderful discussion of that in his "History   of Economic Analysis", one of the books that's  had tremendous influence on me. Our forebears,   divided up society as it were vertically.  They said, we're human beings,   so we've got this cultural aspect of humanity,  and there's the political aspect of humanity,   and then there's the social aspect, and then  there's the economic aspect of human behavior,   human life, and we'll have studies of each  of these. We'll have political scientists and  

political theorists, and we'll have sociologists  and social anthropologists, and we'll have,   so I haven't even put in human beings, so, and  we'll have psychology and psychiatry, and then   we'll have economists looking at economics, and  we will behave, because we are proper academics,   as if the bit of humanity that we're looking at  can be looked at all independently of the others,   but that's complete nonsense, isn't it? It's  not how the sciences work, the sciences work   levels up. Chemistry is based on physics,  chemistry is a form of applied physics.   Biological sciences are based on chemistry  and physics. So their model works. Now I think, I don't have any  answer, solution to how to do this,   none. But I think the basic way we went about  this, sliced up humanity and human society in a   way that obviously is bound to lead to grotesque  outcomes. Because as it were, we did econ - I'll   give you one very quick, I know it's gone  on for too long, but one wonderful example.  

Economists, I was one of them, went to the former  Soviet Union and talked about economic reform.   Did we start off by saying, well how does  a legal system operate in this context?   How, in a society which has gone through the  soviet system for 70 years, how does law work?   And how can we discuss economic reform we can't  answer that question, which we didn't even ask?   With very few exceptions, I could  give you many, many other examples.   So the problem is, I have come to the view,  and Daron's work with this, particularly with   his colleague, in these works, is a wonderful  example because he's got people with two different   expertise to do this. I'm doing this crazily on  my own, but the only excuse I give for myself,   is I spend a lot of time doing classics and  politics, so I know a bit about that, I read   a lot of literature in that area, before I ever  started economics, which is why I'm a very bad   economists who can't do math properly. But anyway,  the point is, there's a deeper problem, I think,   which is that, which is I don't think we have a  good model for studying society. And that goes   back to the invention, the separation out, in 1800  people didn't think these were separate subjects.  

Political economy included everything we would  now include, including Loki and psychology and   [inaudible], they did everything, Hume did  everything. Can't do that now. I think that   is an incredibly deep problem, which makes it  very difficult for us to talk intelligently   as academics and journalists, for that matter,  about society and we're struggling with that. Koen Smeets: If I can ask a  very short follow-up on that - Martin Wolf: I apologise for  being so long, I really do. Koen Smeets: I thought it was  an amazing answer and I really,   really agree with you, but I was wondering,  what could we practically change? Is that   including more interdisciplinary  or are you thinking something else? Martin Wolf: Is that for me or for Daron? Koen Smeets: If you have, like,   a couple of thoughts? Martin Wolf: I  have no idea, except, well I do think,   that the idea you can take an 18-year-old  from a school, give him pure economics,   which is basically a lot of maths, mass  models, nothing else, knows no history,   no psychology, no philosophy, no political  science, no sociology, no anthropology,   I think you're producing somebody  who cannot deal with nearly all the   problems that will be actually faced  in doing economics well in the world. I would go for a broader education and  then, of course, you would have to accept   that many people will have to, if  they're going to be a real economist,   they're going to be even longer as a graduate  studies and that probably doesn't work. But  

at the moment I feel a lot of economist, Daron  is a great exception, there are a few others,   the most brilliant ones actually,  who are just ludicrously narrow. Koen Smeets: Professor Acemoğlu, do you agree  on this, and how do you view Mr wolf's comments? Daron Acemoğlu: Well, these are very deep and  challenging topics, but I'm going to be brief.   First of all, I agree with Martin. There are  deep issues and I don't know the answers to them.   I also agree with him that there are serious  problems in the instruction of economics.   I wouldn't put the blame on mathematics. The way  I see it, simplifying it and making it brief,   since I know we're running out of  time, there's the good and the bad,   hopefully not the ugly of economics. The  good is that it's a doggedly empirical,  

sceptical, fact-driven profession, and I think  mathematical-statistical training is critical   for that. It's also a broad tent, you know, all  of the issues that Martin has raised are correct.   But economics is a very broad tent, people do  many different things and in some way that makes   it much more open-minded, in a way. You know, you  cannot imagine, you know, things like behavioural   economics, political economy, institutional  economics, social economics, spreading so rapidly   in many other disciplines as they did in economics  within the course of about 20 years or so. On the other hand there is the bad. The bad is  both at the graduate and the undergraduate level.   There are many studies that  show, and I'm doing some myself,   that people with economics  education or business education   are less cooperative, they're stingier,  they're tougher managers, they cut wages.   And I think some of that is selection,  perhaps different people are attracted   to economics, but it is a problem, that  is related to what Martin pointed out,   that many economic students at the  undergraduate and the graduate level   learn from economics a type of vulgar market  fundamentalism, selfishness, greed is good,   you don't need government, you don't need  redistribution, the invisible hand works, and the   wilder the better. And I think it is a failure of  our instruction, but it's got nothing to do, in my  

opinion, with mathematics, because there are  graduate students who get the very mathematical   version of economics who end up with that  vulgar market fundamentalism, and there are   many, many more undergraduates who don't get the  mathematical, especially in the US, completely   non-mathematical undergraduate education  and they end up with the same conclusion. I think we have to have a rethink  about how do we communicate the beauty   of economics, as envisaged by Adam Smith, but  also with the nuance that Adam Smith himself   understood about the invisible hand, and its moral  foundations and its limits. And how do we do that   without sacrificing the good of economics,  I think that's an open question, certainly a   broader set of perspectives would be useful,  but I'm not sure whether that would be by itself   enough. I think we need to do much more soul  searching and people like Martin, from a broader,  

different perspective, sort of coming up with  ideas and criticism, I think that's super useful. Koen Smeets: I think we're running out of  time, I think we could do this for hours, but   my main question, my closing questions  in the interview series is the following:   If there's one thing you could say to students  in economics watching related to the topics we   discussed today, what would that be?  And I think it will ask the question   first to Mr Wolf and then to Professor  Acemoğlu and then we'll have to close. Martin Wolf: So I think I'll just have  two words, three. Rigour is important.   So Daron is completely right. The rigour of  economics is wonderful. Scepticism is crucial.   You have to ask yourself, does this simplification  actually work in the real world and why might it   not? I mean, that's very important, we know  much less than we would like to know. And the   third thing is, I would say, and this may be a  private thing, is try to be as broad as you can.  

Economics is a social discipline, which means it's  a moral discipline. It's a political discipline.   You must not allow yourself to become  narrowed away from that awareness   of what it means to be human  even if you're an economist. Koen Smeets:   Professor Acemoğlu, what will be for you - Daron Acemoğlu: Again, I agree with Martin,   I would say question, question,  question. Question conventional wisdoms,  

question the boundaries, question authority, but  also question yourself. I think that last one,   perhaps also questioned the boundaries which  has led to narrowness, I think are the two   that we haven't done enough and we have to do  more. So question yourself in economics means,   you know, question all of the assumptions that we  have come to make about markets, about individual   motivations, about social cohesion. Many  times these assumptions may be okay but there   will be many, many instances in which they are  inappropriate and that can really lead us astray. Koen Smeets: I think that it is a beautiful way to  close this interview. Over the next weeks we'll be  

posting the rest of the interviews in this series,  thank you so much for your time. Daron: Thank you   Koen. Martin: Great pleasure. Daron: It was great  pleasure to have the stage with Martin. Martin:   Great pleasure for me too, I learned a lot.  It was very inspiring. Koen: Thank you.

2021-04-08 18:32

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