The Miasma School of Economics

I’ve been reading Steven Johnson’s The Ghost Map, about the London cholera epidemic of 1854, and one passage reminded me exactly of today’s economics discipline.

The sense of similarity was heightened because I also (instigated by Nick Rowe) happened to be reading Mankiw’s micro textbook section on the rising marginal cost of production — a notion that 1. is ridiculous on its face, 2. is completely contrary to how profit-maximizing producers think, and 3. is based on just-plain incorrect math.* It’s just one of many central pillars of “textbook” economics that are still being taught with a straight face, even though they been resoundingly disproved by the discipline’s own leading practitioners, on the discipline’s own terms, and using its own language, constructs, and methods. These zombie ideas just won’t die. (Or to quote my friend Ole, “People never learn, and they never forget.”)

Economics today has a profound resemblance to medicine before the germ theory of disease.

Lots of people in 1854 were trying to figure out what caused cholera, and how it was transmitted. The dominant theory was “miasma” — basically bad air emanating from smelly, unsanitary conditions, especially in poor areas with lots of leaking, overflowing basement cesspools full of shit. These were contaminating the water supply, of course, so the real transmission mechanism was people drinking the effluent from previous victims.

The solution to the miasma problem? Empty the cesspools into the Thames — systematically poisoning the water supply. Yes, that’s what they did.

The miasma theory had incredible staying power, even though it was clearly and patently disproved by the thousands of Londoners whose vocation was slopping through the sewers, day and night (presumably in the thickest of possible miasmas), searching for anything valuable that they could sell. They didn’t get cholera or die at any greater rate — perhaps even less.


Why was the miasma theory so persuasive? Why did so many brilliant minds cling to it, despite the mounting evidence that suggested it was false? … Whenever smart people cling to an outlandishly incorrect idea despite substantial evidence to the contrary, something interesting is at work. In the case of miasma, that something involves a convergence of multiple forces, all coming together to prop up a theory that should have died out decades before. Some of those forces were ideological in nature, matters of social prejudice and convention. Some revolved around conceptual limitations, failures of imagination and analysis. Some involve the basic wiring of the human brain itself. Each on its own might not have been strong enough to persuade an entire public-health system to empty raw sewage into the Thames. But together they created a kind of perfect storm of error.

Miasma certainly had the force of tradition on its side. … Just about every epidemic disease on record has been, at one point or another, attributed to poisoned miasma. …

But tradition alone can’t account for the predominance of the miasma theory. The Victorians who clung to it were in almost every other respect true revolutionaries, living in revolutionary times: Chadwick was inventing a whole new model for shaping public health; Farr transforming the use of statistics; Nightingale challenging countless received ideas about the role of women in professional life, as well as the practice of nursing. Dickens, Engels, Mayhew — these were not people naturally inclined to accept the status quo. In fact, they were all, in their separate ways, spoiling for a fight. So it’s not sufficient to blame their adherence to the miasma theory purely on its long pedigree.

The perseverance of miasma theory into the nineteenth century was as much a matter of instinct as it was intellectual tradition. Again and again in the literature of miasma, the argument is inextricably linked to the author’s visceral disgust at the smells of the city. The sense of smell is often described as the most primitive of the senses, provoking powerful feelings of lust or repulsion…

I think it’s worth pointing out here the work of Jonathan Haidt et al showing that conservatives have a big “purity” and “disgust” dimension to their moral roadmap, a dimension that is largely absent or far more muted among liberals. Which leads to…

Raw social prejudice also played a role. Like the other great scientific embarrassment of the period – phrenology — the miasma theory was regularly invoked to justify all sorts of groundless class and ethnic biases. … The predisposing cause lay in the bodies of the sufferers themselves. That constitutional failing was invariably linked to moral or social failing: poverty, alcohol abuse, unsanitary living. One alleged expert argued in 1850: “The probability of an outburst or increase during [calm, mild] weather, I believed to be heightened on holidays, Saturdays, Sundays, and any other occasions where opportunities were afforded the lower classes for dissipation and debauchery.”

So disease epidemics are clearly the result of the 40-hour work week. You can find the modern-day equivalent in John Cochrane and Casey Mulligan’s assertions that today’s unemployment has nothing to do with the high job-seeker-to-job-opening ratio (caused by lack of demand for producers’ goods, and their ensuing non-need for more workers), but rather results from workers being unwilling to work at low wages (and being coddled by government programs).

Like much of the reasoning that lay behind the miasma theory, the idea of an inner constitution was not entirely wrong; immune systems do vary from person to person, and some people may indeed be resistant to epidemic diseases like cholera or smallpox or plague. The scaffolding that kept miasma propped up for so long was largely made up of comparable half-truths, correlations mistaken for causes. Methane and hydrogen sulfide were in fact poisons, after all; they just weren’t concentrated enough in the city air to cause real damage. People were more likely to die of cholera at lower elevations, but not for the reasons Farr imagined. And the poor did have higher rates of contagion than the well-to-do, but not because they were morally debauched.

Likewise, there are many valid and semi-valid ideas, theories, and constructs floating around in the world of textbook economics. But they are so intertwined with, caught up in the miasma, or phlogiston, or epicycle theories that today constitute mainstream economics (think: equilibrium, rational expectations, etc.) that it’s hard for even the clearest-eyed economist — much less the everyday person or Washington staffer, legislator, or policy wonk — to tell the shit from the shinola.

Without trying to take the metaphor too far, I’d like to suggest that today’s austerians are in favor of emptying the cesspools into the water supply — based on similarly loopy reasoning.

* The rising marginal cost theory is ridiculous on its face because it assumes that producers add one factor of production at a time — hire more workers, for instance, without renting more space for them to work. (This is exactly what Mankiw describes in his textbook; see “Thirsty Thelma’s.”) Voila! Each worker’s productivity declines. This is of course not what producers do, which is why only 11% of top-corporation execs say they face rising marginal costs of production. (I’m wondering if that 11% made the mistake of taking an intro econ class in college.) For a nice recap of that executive survey, and the faulty math of rising marginal costs, see here (PDF).

Cross-posted at Asymptosis.