The Economist has published an article by the inditing title ‘What went wrong with economics?’ (July 16, 2009).  What is more interesting than the argument – that economists have made mistakes leading up to this economic crisis – is the argument’s form: the first two paragraphs go to great lengths to portray the economist as a heroic (male) figure.

Even if economic statements are ‘performed’ as the performativity thesis argues, their entry into theaters of action inevitably (as with all technological innovation) generates phenomenon that the statements themselves do not predict.  A theoretical statement issued by an economist might be a starting point of a process of ‘economicization’ or ‘marketization’, but it must pass through layers of development and implementation as it is disseminated. These lengthy and intervening processes modify the statement and are as important to generating the content of downstream action as the original utterance.  This is what the sociology of innovation means when it refers to the phenomenon of ‘translation’.

The Economist suggests that economists should have become whistle blowers as their insights were being ‘misused’.  This argument implies that a) economics and finance professors have actually been correct all along; and b) they are able to monitor the every day details of financial activity.  Part of the problem of course, is that nobody – least of all economists wrapped up in quantitative models – seems to have understood how distributed financial activity was unfolding on the ground. Nobody was really studying the insides of mortgage finance; it was just… happening, in the wild.

Denouncing which economists got it wrong and heralding those who ostensibly got it right only reinforces an individual centric analysis, which obfuscates how, both in boom times and in failure, financial markets are a fundamentally social achievement. If crises such as the current one are caused by collective action then the image of the economist fails not only because the discipline has not lived up to its own projected heroism as omniscient overseers, but also because the notion that desirable economic action depends upon the word of a few sage individuals – that is, the very centrality of the economist – has perhaps been overblown.

The economist has been discredited. Ok. What is more important to understanding contemporary economic conditions is to discredit the very idea that their disappointing performance should dominate the discussion.

An article in this week’s Economist suggests that buy-out firms, flush with ambition and capital, yet a dearth of opportunities in which to invest, might turn their attention towards capital and liquidity stretched banks.  Given the positions of the two parts of this equation, the newspaper suggests that “It does not take a billionaire buy-out barbarian to put two and two together.”

Despite the logical ease with which the connection is made, the article does go on to point out some serious hurdles to its own main proposition, that private equity firms might move from owing banks to owning them.   For one thing, “Control of a bank brings responsibilities—more supervisory oversight and the “source of strength” obligation that can require a holding company to inject capital into ailing bank subsidiaries. No private-equity firm wants to sign a blank cheque, and few would welcome regulators crawling over their books.”

The framing of this piece, which appears at a moment when action has not yet come to fruition, bears within it many of the analytic tensions faced in the social sciences.  First and foremost, there is the tendency towards logical positioning – i.e.that  the conditions were such at moment [t] that it made sense to do [x].  Thus, if private equity does succeed it would be argued that this occurred because it was the obvious move to make.  Yet if private equity does not succeed in buying over banks the argument through classic binaries might go that: it made sense in theory, but was prevented by laws in practice.

The problem with this analysis is that although it makes an equation like statement (A-B=C), it can only construct this statement retrospectively.  Is regulation an insurmountable problem or not to the take over of banks by private equity?  This is the billion dollar question, it is the as yet unknown; and the answer can not be produced until a tentative is made, until the qualities of the regulations and of private equity firms are put to the empirical test.

Taking uncertainty and the uncertainty qualities of agents seriously is one of the virtues of much of the work that has been done from an STS perspective within SSF.  Rather than presuming that a financial situation does or does not make sense; rather than presuming a divide between theory and action, rather than claiming to know what banks or regulations are capable of in advance; these types of analyses have show how, out of positions of sheer uncertainty, work is done to make new positions of certainty emerge.   It is through work that clarity regarding the ability of private equity to become bank owners (and under what conditions) will be achieved.

Both outcomes – success and failure – will involve a) the initiation of action; and b) tracing the detailed shifts and/or the rise of new technical platforms that that set up the conditions by which the test of that action will be carried out.  Thus in the case at hand, it seems as though we will have to watch and see whether the tentative by private equity is made and on what grounds (i.e. what changes to the laws will be made to accommodate them, or what organizational innovations are made to help them navigate the extant laws).  We will also have to observe whether they will be met by the formation of new groups/agents that challenge them (i.e. with the proposition of additional laws).

Can the (as yet to be determined) outcome be accounted for by a reading of static factors existing at time [t]?   From a position that privileges innovation the answer is a resounding no.  Neither the actors working in the moment nor the analyst looking back on the past, can make this determination in the absence of the activites that are to come in [tà…].  The outcome and the qualities of the agents with regards to this problem (the ownership of banks by private equity) will be shaped by factors and agents that precisely do not exist at time [t] (because of they did exist then there would be no uncertainty).  It is only once new tools and their accompanying agents are actively produced forward in time that the players in time [t] will be extracted from the situation of uncertainty and moved towards a position of knowing…

The economist ran an article last week pushing the idea of financial literacy.[1] 

 

The article features ‘Nudge’ a book by economist Richard Thaler and legal scholar Cass Sunstein[2] which suggests that policymakers should focus on designing ‘choice environments’ that make it easier for people to be steered towards the ‘right’ decisions.[3]  When in comes to financial literacy, Thaler suggests that the emphasis should be on “building “sensible default options” into the design of financial products, so that the do-nothing option is “financially literate”.” 

 

Let’s nudge the new-fangled economic ideas on choice, aside for a moment. 

 

There is a long tradition in consumer engineering of making products user friendly as part and parcel of the making mass consumption possible.  This has not come without high industry investments and resisted costs.

 

Ralph Nader’s ground breaking work ‘Unsafe at any speed’[4] which earned him his reputation as a ‘muckracker’ and consumer advocate, is an excellent example of the political work involved in making automobiles safe products.  Nader painsteakingly documented the design defects in cars such as the 1960-63 Corvair, which was prone to flipping over due to a swing in the axel at ‘critical speeds’.  Nader argued that “the connection between design effects and driver misjudgment or uncontrollable vehicle behavior is so subtle that neither the accident investigator nor the operator is aware of this connection in collisions.” (p 56) 

 

“The men who headed the Corvair project” said Nader, “knew that the driver should be given a vehicle whose handling is both controllable and predictable.” (p 28)  Although he does not say it, the evidence he lays out is clear: The problems of cars with difficult handling fell disproportionately on certain categories of consumers such as women drivers who were more likely to loose control of vehicles that lurched forward suddenly in garages and out of parking areas, killing pedestrians, spouses or themselves (p 57).  If any idiot can drive today (which they can and do) it is due to the efforts to make cars as safe and as easy to use as possible, that is, within the limits of average human capabilities.  This has included everything from making dashboards dark to reduce glare, to making sure that a truckdriver can break without having to shift gears first.

 

Today, human-centered design is an enormous industry.  You can follow one such Nokia anthropologist in this article in this week’s New York Times, as he zips around the globe observing cell phone users and generating design ideas for his company.

 

Beyond financial literacy, financial product design just could be the next big thing.  It will have to be if financial products are to continue their metamorphosis into genuine consumer consumption goods.  The question is: How and in what ways will the social studies of finance be equipped to contribute to human-centered investment product design?


[1] In case you didn’t know, in 2007 Congress declared April, Financial Literacy Month. The bill was introduced and passed in a single day.  For Democratic race junkies, Mrs. Clinton was part of the team that submitted it.  Mr. Obama was not.

[2] Member of the Obama team.

[3] One scheme they endorse is paying teenage mothers of one a dollar a day to stay un-pregnant.

[4] Nader, R. (1965). Unsafe at Any Speed. New York: Grossman Publishers.