Monday, January 11, 2010

No, We're Not Myopic

. Monday, January 11, 2010

I recently read Benjamin Cohen's evisceration of American IPE in a recent issue of International Interactions (non-gated pdf here). Cohen has spent much of the past few years distinguishing between the American and British schools of IPE, first in this RIPE article [pdf] and later in his intellectual history of IPE, both of which I strongly recommend. In the International Interactions piece, however, Cohen goes beyond sketching out philosophical differences in the British and American schools and suggests that the recent financial crisis demonstrates that the American school has got it all wrong. I have a great deal of respect for Cohen, but I beg to differ.

It's worth mentioning Cohen's priors before getting into the specifics of the article. He sees American and British IPE as distinguished by differences in epistemology: American IPE is motivated primarily by envy of neoclassical economics and so emphasizes rigorous quantitative and formal testing of mid-level theories; British IPE, on the other hand, is more concerned with big-picture dynamics and power structures. Another way of phrasing the distinction is between positivism (for American IPE) vs. normativism (for British IPE), although I doubt practitioners of either school would be happy with that classification. I prefer to think that the American school emphasizes the scientific method, whereas the British school emphasizes more traditional concerns of political economy such as inequalities, power asymmetries, theories of justice, and structural dynamics.

These are generalizations, of course, and there are certainly scholars in both American and Britain (and elsewhere) that stand on either side of that fence or straddle it. I know that Emmanuel, for instance, can read a regression table, just as I am happy to discuss applications of Mill's conception of liberty in the context of international power dynamics. American IPE has normative priors, and British IPE makes positive assumptions. The two are inseparable; it's more a question of relative importance.

So I'm willing to walk this far down the road with Cohen. The problem is when he says that the recent financial crisis is a strong indictment of the American school. Near the beginning of his essay Cohen asks "Would this median [American IPE] scholar ... have been been given any reason in recent years to anticipate that we all would be soon engulfed in the worst financial crisis since the Great Depression? The answer is No. The question is: Why?" Cohen's answer is that American IPE scholars are asking the wrong questions, while British IPE scholars are asking the right ones. In his view, American IPE suffers from "A Grave Case of Myopia" (the title of his piece). He is wrong.

Why do I say so? Cohen begins by arguing that the median American IPE scholar would not have been able to predict the financial crisis. This is undoubtedly true. But the median American IPE scholar likely has no special knowledge of finance, regulatory structures, MBS, CDOs, CDS, risk-weighting of capital and its relationship to regulatory guidelines, the Recourse Rule, the incentives to regulatory arbitrage in international regulatory regimes, or the social construction of asset-price bubbles. All of these would be necessary to accurately predict the type, scope, and timing of this event. Very few people have that level of knowledge, and even fewer of them (perhaps none of them) are political scientists, since we study politics rather than exotic financial instruments that are difficult for even their creators to fully understand. Even among those who do have such knowledge, very few of them were able to predict the way this crisis occurred and when it would occur. Layna Mosley (of UNC) and David Andrew Singer make a similar point in another essay in the same volume as Cohen's piece: political scientists see the study of finance as having large barriers to entry, as it involves a language that they generally do not understand. This is true, but it's no more true for political scientists as it is for economists, sociologists, or other social observers.

In any case, it's simply not true that American IPE scholars were too busy learning how to panel-correct standard errors to make observations about pressures on the global economy. Many warned about global macroeconomic imbalances that were threatening the stability of the international system; others observed that this period of financial internationalization has led to greater volatility than earlier periods. These concerns were influenced by empirical work on financial history, exchange rates, sovereign debt, hegemony, currency crises, and regulation. All of these issues contributed to the fundamental causes of the crisis, and without prior empirical work the current crisis would be much more of a mystery than it now is (more on that point below).

It is true that not many (any?) American IPE scholars were able to predict the proximate causes of the crisis: the securitization of subprime mortgages, and mispricing of the underlying risk of those mortgages, that spread risk throughout the financial system. The lack of transparency in the financial system made it very difficult for anyone to see what was going on. But this blindness is not limited to IPE scholars operating in the American tradition; no British IPE scholars were able to predict the proximate causes of the crash either (and very few finance or economics academics or professionals performed any better). As Cohen writes, "This does not mean that British scholars were particularly prescient. Predictions were loosely framed and often maddingly imprecise. Few analysts foresaw the specific sequence of events that unfolded; many were downright wrong about the details; certainly none got the timing right." How is that something worth emulating? Is Cohen arguing that it is better to predict and be completely wrong in all particulars (as he claims the British school did) than to realize the limitations of one's capabilities and refrain from wild speculation (as the American school did)?

Apparently. Cohen insists that despite the easy "comparisons with the boy who repeatedly cried wolf," British IPE scholars performed better because the sense of a looming crisis was "palpable". I'll say: the sense of a looming crisis has rarely been absent from scholars in the British tradition. Cohen cites Susan Strange's 1986 book Casino Capitalism and the stream of literature predicting an imminent crisis it spawned over the following decades. Eventually they were bound to be right, as even a stopped clock tells the right time twice each day. But is that really to their credit? Tellingly, Cohen does not cite a single article or book from the British school that accurately described the circumstances leading up to this crisis, or the consequences of it. (He does mention some suggestive historical analyses by Blyth, Langley, and Watson, against whom I'd happily stack Eichengreen, Kindleberger, Reinhart/Rogoff, Leblang/Satyanath, Simmons, Singer, and others.)

Meanwhile, there is a question about what changes to the international system will come from the financial crisis. Cohen implies that these changes will be profound, and many in the British school have made similar claims. His indictment of the American school is that we don't think enough about dynamics. He compares the financial crisis to the sudden end of the Cold War. But is that an appropriate criticism? Does this financial crisis represent a systemic shift of that magnitude? While the events are still underway, I do not believe it is too early to declare some victories for American IPE orthodoxy. This crisis has not led to a collapse of the global capitalist system; on the contrary, the neoliberal institutions in place since the end of WWII have demonstrated amazing resilience. The crisis has not led to a replay of the chaos of the interwar years. No state has repudiated capitalism as a fundamental feature of their economy or shut off capital flows. Perhaps the most surprising response is the lack of major trade disputes and beggar-thy-neighbor policies.

So while there will be some tweaks to the system on the margin, it now seems clear that the structure will hold.

Between the American and British schools, which would have best predicted that?


Emmanuel said...

...and I can run and interpret structural equation models, too!

But seriously, Cohen has been banging on this too long already:

(1) In all of this debate, there is little discussion of using the appropriate method for the research question at hand. See, for instance, the first RIPE issue of 2009. Like they teach you in basic research method classes, you should clearly identify your research question before figuring out how to answer it.

(2) It's fun to have this so-called transatlantic debate but the larger point is that no one outside of the field seems to be listening. At least in economics, Krugman can annoy Chicago School folks and amuse a decent-sized audience among non-economists.

While I too like poking fun at "rat-choice envy", it would please me much more if IPE of whatever provenance gained wider attention in academic and general circles.

While my own blog ranks pretty high in terms of IPE search results, I can assure you that my audience is quite limited in comparison to what top economics blogs draw. Admittedly, mine is not even a "pure" IPE blog. Still, it has always made me wonder why IPE bigwigs don't have blogs of their own to help the field attract wider recognition online. Surely they can draw a larger audience via name recognition, but so few try it out and many just stick to publishing in IPE journals.

I got my start online commenting on the Roubini and Setser blogs (Setser has an IR PhD). They, of course, long predicted that a crisis was imminent. In this sense, IPE does need to engage more with the blogosphere which is emerging as a more immediate alternative to traditional publications.

Let's face it: having quarrels in RIPE may be fun, but at the end of the day, RIPE has an impact factor of less than 1. Seen in this light, I am far less concerned about methodological quarrels than having more people know about IPE. Like in most academics, it's a question of marketing, and I'm afraid IPE hasn't made much of an effort in this respect on either side of the Atlantic.

IPE@UNC should be commended for fighting the good blogging fight, though :-) There are bigger fish for us to fry IMHO as methodological plurality is a minor consideration for the field's continued health compared to reaching a wider audience.

Kindred Winecoff said...

I, too, am a methodological pluralist. And I think nearly everyone is! But I don't think this was so much about what methods should be used to answer research questions as what research questions should be asked. Here, too, I am a pluralist and I think that Cohen is too, which is why this particular piece aggravated me so much. From his previous work and everything I know about the man I think his true belief is that IPE is about all sorts of issues, big and small. But he doesn't come across that way in this particular essay.

I also think our efforts should be primarily directed at spreading the IPE word. Which, as you say, is what this blog is about. I don't write these kinds of posts every day of course.

But I also think some self-examination is important every once in awhile, so I'm willing to have these kinds of conversations in certain contests. I think there's value in questioning and defending broader paradigms.

I completely agree that more IPE bigwigs should blog, especially since they all talk about the need for broader public engagement and blogging is one of the easiest ways to do that.

No, We're Not Myopic




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