Economics, but not as we know it

Cross a hard-boiled private eye pacing the mean streets of Los Angeles in the 1930s with the inexorable rationality of Mr Spock on the deck of the Starship Enterprise. Picture a world peopled by the joint imaginations of crime writer Walter Moseley and cyber-novelist William Gibson. This weird hybrid will give you an idea of the cultural development of many economists, and, worse, of the intellectual context of much of economic policy.

Economics sometimes seems to dominate modern politics. The Budget is one of the main events in the political calendar. Economists are re-engineering the welfare state. We all bow at the altar of globalisation, at the whim of the gods of the financial markets.

Yet it is a little-known fact that many of the finest minds in the economics profession, those who shape the subject and form the next generation of policy-makers, are hooked on detective novels and science fiction.

These two genres between them capture the two essential aspects of how economists assume people behave, and therefore shape the world view that in turn underlies important public policies. For the towering skyscraper of economic theory rests on twin foundations, the assumption that people act to maximise their economic gains, and the assumption that they act logically.

First of all, people's actions are seen to be fully explained by self- interest. The world of economics is an amoral place. What we spend and save, whether we have a job, where we live, how long we stay at school, even who we marry, economics explains it all in terms of personal financial gain. It is a natural leap for academics whose idea of R and R is reading about the money-driven world of crime, whether seeking the motive in a country house murder or exploring the murky deeds of the mafia.

It would be hard to invent a more upright, presbyterian sort of figure than James Mirrlees, joint winner of last year's Nobel Prize in economics. Yet asked about his interests, in the blizzard of questions he had to brave on the day of the news, he said, without hesitation, that he spent his spare time reading detective novels. Significantly, perhaps, he was awarded the prize for his work on explanations of economic behaviour when there is incomplete information.

Whether it is grainy classics such as the novels of Raymond Chandler, the country house mysteries of Agatha Christie or Margery Allingham, or modern authors like Sara Paretsky, the conventions of detective fiction hold a special charm for economists. For the world portrayed in these novels is, contrary to surface appearances, an extremely orderly one. People's behaviour has explanations - motives. Like homo economicus, the characters in crime novels do not do anything for no good reason. They act in order to further their own interest. The link is clearest in the many novels where the culprit turns out to be the person with the strong financial motive.

Even more important, the fact that crime novels always have a resolution affirms the economist's attachment to the notion of `equilibrium'. This notion underpins the subject's theoretical foundations. If there is no equilibrium, economists cannot predict how economies will behave. It is the idea that the separate decisions made by individuals add up to a coherent whole, that supply and demand will match. The alternative is chaos and unpredictability.

Similarly, classic crime fiction spurns randomness. The denouement is equivalent to an economic equilibrium. Like economics, crime fiction is not so much a mirror of the real world as a very stylised representation of it.

The powerful influence of crime on economic thought reached its apotheosis with the publication a couple of years ago of a textbook on The Economics of Organised Crime. The mafia run a multinational business which differs from others - mainly in having a higher cost base because so many of its activities are illegal. The bosses have to weigh up the extra costs of concealment and the risk of imprisonment when making investment decisions. But it is fundamentally no different from any other cost-benefit decision in the eyes of economists, and the theory is no different from that contained in any other economic textbook. To rub in the fact that to the economic mind crime is no different in essence from legal activity, one of the chapters is even called: `Rival Kleptocrats: The mafia versus the state'.

This equation finds its fictional expression in Michael Dibdin's novels about inspector Aurelio Zen. After all, the equation might well be a fair one in the case of Italy. The series of Zen novels traces that country's political upheaval as a result of the exposure of the tentacles of organised crime and corruption.

Science fiction novels share with detective novels the context of a self- contained and profoundly ordered world. The worlds of sci-fi are worlds where you can imagine the laws of economics applying.

For the second key assumption economists make about human behaviour is that people are fully rational. They assemble all the available information, they consider the possibilities, and they make the choice that maximises their own gain. Mr Spock, the Vulcan first lieutenant in Star Trek (traditional Vulcan greeting: live long and prosper), is the ideal economic agent. The profession assumes that we all think like Vulcans.

Psychological studies have actually shown that economics students are more rational, or coldly logical if you like, than the population at large. Confronted with a series of problems, they far more often made the rational choice, the one that will maximise their financial gain rather than, say, making them most popular with their fellow students.

It is not known whether ferociously logical people are more likely than others to choose to study the subject, or whether absorbing its assumptions makes them more like the imaginary economic agents they study, but those cub economists go on to project their own behaviour onto everybody else.

If proof is needed that economists are different from the rest of us, consider this description by an earlier Nobel Laureate, William Sharpe, of how he came to choose his speciality. "At many points in my decision tree, fortune decreed that I should take the branch on this path rather than another. To get here, one must have the good luck to draw a great many favourable random numbers." Perhaps the professor was being consciously ironic, but, knowing many economists, I can report that this is how they really think. The voice of Mr Spock reverberates here.

Indeed, it is a voice that overlaps with that of some of the best-known fictional detectives. Remember Sherlock Holmes's injunction that when whatever is impossible has been eliminated, whatever remains, however improbable, must be true. Or the impossibly orderly Hercule Poirot's emphasis on his grey cells. One can easily imagine the little Belgian detective getting on like a house on fire with the Vulcan starfleet officer. They speak the same language. Characters like these represent the ideal of homo economicus.

However, it is from the hippest branch of science fiction, cyberpunk, that economics is drawing some of its fresh inspiration. Danny Quah is a London School of Economics professor who specialises in the economic implications of new information technologies. He turns to science fiction for creative thought about how the fully computerised world will look. High on his course reading lists are novels such as William Gibson's Neuromancer, Bruce Sterling's Islands in the Net and Neal Stephenson's Snow Crash.

This is not just a lonely eccentricity. A recent special issue of Forbes, the US business magazine, on the silicon rather than steel based economy featured a short story by Stephenson. And Wired magazine is fascinated by what has become known as the "new economy", the post-post-industrial technological potential of countries like the US and UK. So is Federal Reserve Board chairman Alan Greenspan, a well-known follower of the sci- fi writer and ultra-individualist Ayn Rand, author of The Fountainhead.

Professor Quah explains that this kind of science fiction takes current trends in technology and society and extrapolates them to or even beyond their logical conclusion. The cyberpunk world is an extreme vision of how the world's advanced economies might look in a few decades' time. It offers clues to researchers trying to think about future economic trends.

He is upfront about borrowing ideas from science fiction. Others hide their debt, or are perhaps unconscious of it. But many of the voguish, dystopian predictions about the prospect in a globalised world of social tensions, extremes of poverty and wealth, and cultural uniformity - the emergence of the "McWorld" feared by many academic opponents of globalisation - are direct descendants of this genre. Cyberspace represents the ultimate in globalisation.

For instance, the now-commonplace idea that multinationals are more powerful than governments? In fiction the idea dates back a decade. In his 1988 novel, Sterling has one corporate executive overrule a colleague with scruples about bypassing the rule of international law: "A treaty is only a contract. You're talking like my grandmother. It's our world now ... Why work through governments any more? Let's cut out the middleman." Somebody should tell the alarmists that this is still only fiction before they start pontificating about the dangerous new technology of beaming people up onto space stations and down again anywhere else in the world.

Critics of economics would argue that it is a serious matter that the profession whose influence dominates public policy is awash with Trekkies and people who fantasise about being Raymond Chandler's Philip Marlowe. And economics certainly has plenty of enemies who accuse it of being out of touch with reality.

They are wrong, of course. Their typical recreational reading is a useful source of inspiration for economists. I must end with a confession. I trained as an economist. I devour detective novels and have been a Star Trek fan since childhood. And I would argue that economics has a far more solid analytical foundation than any of the other social sciences precisely because of those weird assumptions about how people behave. They are not meant to be slavishly realistic, but to provide a powerful means of interpreting the world and making testable predictions. After all, every discipline draws strength from cultural sources, and uses metaphors in its interpretation of events. Science and crime fiction are a lot more fruitful than gritty social realism.

The economic model of human behaviour is of course obviously incomplete. Any parent, for example, could tell you that they value their children far more than the future income they might one day derive from them. Still, economics achieves surprisingly useful results by visualising people as characters in pulp fiction.