Economics from the Top Down

Welcome to the first post of ‘Economics from the Top Down’. This will be a blog about new ideas in economics and the social sciences. I use the word ‘economics’ in a liberal sense. Few trained economists will recognize what I do as ‘economics’. Perhaps a better word would be ‘political economy’. Or even better, just ‘social science’.

But before diving into the content of this blog, I should introduce myself. My name is Blair Fix. I’m a researcher living in Toronto, currently working outside academia. I have a PhD in Environmental Studies. What’s ‘environmental studies’, you ask? Good question — I still don’t know. For me, ‘environmental studies’ was a convenient way to study economics outside of an actual economics department. I am an outsider looking into the field. As an outsider, I feel free to point out the problems in the field. I write about economics, but I do not consider myself an ‘economist’. I’m a social scientist who is skeptical of much of the economics discipline.

I am a generalist by constitution. I once took a course taught by Jonathan Nitzan, and in the first 5 minutes, I knew I had met a kindred spirit. Jonathan began the lecture by reflecting on the meaning of an ‘academic discipline’. We usually think of a ‘discipline’ as a domain of knowledge. But Jonathan noted how the word ‘discipline’ also means to force people to obey a code of behavior. In this sense, belonging to a discipline means putting a straitjacket on your mind. True, some people naturally have a narrow area of interest. But to generalists like me, disciplines are stifling.

I have spent my life dancing between disciplines. I began my academic career as an engineer. But I didn’t last long. I soon dropped out of engineering school to study music (jazz of all things). For most of my early twenties, I thought I was going to be a professional musician. But it turns out that, while I enjoy playing music, I don’t like the lifestyle of a professional musician. This was a rude awakening when I finished music school.

And so, after college I found myself making money by working as a substitute teacher in Texas. Yes, in Texas they value public education so much that they let you teach without any training. But I digress. Since substitute teaching was not a demanding job, I had lots of time for reading. During this time, I discovered the Feynman Lectures. Richard Feynman was a theoretical physicist who was involved in the Manhattan Project. He later made major contributions to quantum mechanics. But first and foremost, Feynman was a free thinker. The Feynman Lectures were a series of lectures on physics that Richard Feynman gave to undergraduates at Caltech. I found Feynman’s approach to physics so joyful and inspiring that I decided to become a high school physics teacher. I moved to Toronto, went to teacher’s college, and eventually got a job as a high school teacher.

My path in life seemed set. Except that along the way I discovered economics. Perhaps I should rephrase that. Along the way, I discovered the embarrassment that is the discipline of mainstream economics. In my spare time, I was reading books by Steve Keen, Herman Daly, E.K. Hunt, and David Korten. These authors highlighted the absurdities that pass for scientific knowledge in economics.

Discovering the flaws in economics was a revelation to me, and made me want to do economics research. There is something liberating about discovering that a discipline is deeply flawed. In a discipline like physics, there is an immense amount of knowledge that is well tested. This means researchers must find the tiny cracks in existing knowledge and try to fill them in. But if, like economics, the discipline is full of dubious ‘knowledge’, the researcher is liberated to rethink the whole field. This is scary for some people. But I find it exhilarating. In the words of Shimshon Bichler and Jonathan Nitzan, it means we can opt for a ‘radical Ctrl-Alt-Del’. We can wipe the slate clean and start again. Or at least we can try.

Speaking of Jonathan Nitzan and Shimshon Bichler, their work will be an important part of this blog. One hot summer with no air conditioning, I read their seminal book Capital as Power. I’m not exaggerating when I say that this book changed my life. It made me realize that most concepts in mainstream economics are built on a foundation of quicksand. This cemented, in my mind, that there was very little in mainstream economics worth keeping.

Fast forward 8 years of grad school and here we are. I’m a researcher with a PhD in Environmental Studies who is determined to create a better way of doing economics. And since I have no bully pulpit in academia, I’ve started this blog.

What is ‘economics from the top down’?

Back to the content of this blog. You might be wondering, what is ‘economics from the top down’? Let’s begin with what it is not. It is not about supply-side economics, which is sometimes called ‘top-down’ economics. This is an ideology first, facts second approach to economics that I want nothing to do with.

I use the phrase ‘economics from the top down’ in a very different way. For me, it has two meanings. First, ‘economics from the top down’ is a philosophical approach to how we study human society. It is an alternative to the ‘bottom-up’ approach that is most common in economics. Second, ‘economics from the top down’ is a reference to the top-down flow of power in a hierarchy. How humans organize into hierarchies will be a major theme of this blog.

Let’s start with the philosophy of studying things from the ‘top down’. It is a reaction to the ‘bottom-up’ approach favoured by most economists. In the bottom-up approach, we begin with postulates about individual behaviour. We then use these postulates to try to explain group-level behaviour. There is nothing wrong with the bottom-up approach, in principle. It would be a triumph of science if we could explain things like prices, business cycles, and income distribution in terms of the actions of individuals. The problem is that we are woefully far from this goal. To work from the bottom up, we have to have an accurate (i.e. predictive) theory of human behaviour. I don’t think we currently have anything of the sort. Our economic theories of human behaviour often make postulates (such as utility maximization) that are immune to evidence. More on this later.

The alternative to the bottom-up approach is to work from the ‘top down’. We admit that we know very little about the actions of individual people. We don’t even try to model this behaviour (although we do not rule out that it is possible). Instead, we focus on higher levels of aggregation. The group is our unit of analysis. We investigate patterns in group behaviour without needing to tie them down to axioms of individual behaviour.

While we can look at many different types of groups, I think we should focus on one particular form of organization: hierarchy. This is the second meaning of ‘economics from the top down’. It refers to the top-down chain of command in a hierarchy.

Why study hierarchy? As a human being, I have spent my life trying to avoid it. I find hierarchy to be soul crushing. But as a researcher, I have been driven to study hierarchy. In a sense, the data made me do it. My empirical research has convinced me that hierarchy plays a fundamental role in how we consume energy. And hierarchy also seems to be central to how we distribute resources. I will explore these connections in future blog posts. But for now I will say this: I think the evidence compels us to treat hierarchy as the primary unit of analysis in economics.

I will conclude this first post with the first piece of evidence that got me interested in hierarchy. Sometime in 2013, at the encouragement of Jonathan Nitzan, I was playing around with the Compustat database. This is a database of publicly traded companies. Jonathan Nitzan and Shimshon Bichler have pioneered the use of this database for studying what they call ‘dominant capital’. These are the largest firms that dominate our society.

I was playing around with the Compustat data. Amidst my frustration with trying to manipulate this large database with a spreadsheet (silly me), I discovered the following relation. There is a striking correlation between the employment share of the largest firms and energy use per capita.

Energy & Corporate Employment

Wanting to know if economic theory had anything to say about this relation, I posted it to the capitalaspower.com forum. No one could point to any relevant theory, so I decided to create my own. In my mind, this relation was about the growth of hierarchy. For some reason, the growth of energy use is associated with the growth of large hierarchical firms. But why? I still don’t think we have a complete answer. But I will explore the possibilities in future posts.

That’s it for this first post. Here is what you can expect me to write about in the future:

1. Research about hierarchy, energy, and inequality
2. The interesting ideas of other researchers who are trying to rethink economics
3. The ins and outs of empirical research, including databases and analysis using R
4. Problems in mainstream economic theory
5. Advances in open science and replication
6. The sociology of science


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Economics from the Top Down is where I share my ideas for how to create a better economics. If you liked this post, please consider becoming a patron. You’ll help me continue my research, and continue to share it with readers like you.

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10 comments

  1. Great initiative, and one you might find kindred spirits in The Swedish Sustainable Economy Foundation (http://tssef.se). In the meantime I can say that Swedish research shows that energy use by companies has more to do with ring fencing markets and keeping competitors out more than the so-called efficiency capitalism is said to produce. I blogged about this https://stephenhinton.org/2017/10/02/we-are-not-running-out-of-energy-capitalism-is/

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