Economics is having an identity crisis

It has become commonplace for news reports to refer to almost any civic unrest, or even unusual patterns of voting, as evidence of ‘resurgent nationalism’ — implicitly suggesting a visceral hatred of foreigners and a desire to set the clock back to the glory days of racial homogeneity and casual homophobia. We should be wary of accepting this media trope: for one thing it may arouse far more fear than is warranted.

But apart from the needless fear it generates, it is also slightly dubious to suggest that it is the gilets jaunes or the Five Star Movement or the supporters of Brexit or even Donald Trump who are acting intemperately. It is perfectly possible to argue that these movements are a sensible, overdue reaction against governments that have imposed economic globalisation on the world at a pace that is entirely inconsistent with the human lifespan and the speed at which we can adapt to change. The free movement of people, the euro, large-scale immigration, the dissolution of the nation state — for that matter the admission of China to the WTO… all were imposed on the world by ideologically motivated elites with little public consultation. Regardless of whether you think they are good or bad, there is a perfectly sensible secondary question to be asked about whether they were too much too soon. Remember, such decisions are usually made by economists, who do not really understand either time or scale.

Nor does conventional economics take into account the importance of identity. Eighteen years ago, rather presciently, George Akerlof and Rachel Kranton suggested that economics is far too individualistic in its conception of human motivation. Identity Economics, as they call their theory, holds that people’s pride in their collective identity can be considered as a parallel form of wealth, which people seek to grow and protect every bit as much as the balance of their bank accounts.