Economics are performative – needs solvency/link explanation in context of a speech Boldyrev & Svetlova 16

We bet notable macroeconomists, Alan Blinder and Charles Wyplosz, never heard of the ‘performativity of economics’ when they stated that ‘the main purpose of central bank talk is to help markets “think like the central bank”’ (2004, 7). It is, however, striking, that so many differ- ent aspects of what is commonly called ‘performativity’ are entangled in discussing central bank communication—a theme which is currently at the heart of macroeconomic debates. All our intuitive notions—to be explained below—are here: the context of economic governance, the inherent sociality of language, the role of explicitness, the importance of signification, and the enactment of ideas and theories. For successful performance of a central bank, successful communication is crucial. To govern, one has to use the resources of language, to create a community of those who comprehend one’s message, to make explicit one’s com- mitments, and, finally, in and through communication, to enact the very economic theory stating that central bank communication is essential for channeling economic agents’ expectations and eventually for the proper functioning of this institution. This is of course only one example of economics not merely describing or explaining, but also actively shaping the economies—this is how performa- tivity is most commonly understood. The recent emphasis on economics in the performativity debate is not surprising: many studies document how a very—perhaps, the most—influential social science participates in build- ing up social reality. The performative move thus refers to the venerable epistemological question of the relation between ‘reality’ and ‘theory,’ but goes beyond the traditional idea of economics describing more or less adequately some supposedly ‘real’ processes. This performative turn took place at the beginning of the new mil- lennium and culminated in books such as An Engine, Not a Camera (MacKenzie 2006) and Do Economists Make Markets? (MacKenzie et al. 2007). Afterwards, the performativity research proliferated. However, these new studies were not a replication of the essential work on perfor- mativity: We could clearly observe the drift toward a new understanding of the concept. In this new—‘after-the-turn’—research, the focus has been shifted from the investigation of the one-way link ‘theory→reality.’ The search for a general proof that this link exists—in more or less strong form—was recognized by many as futile. Today, the performativity con- cept moved from the theoretical debate about the link between abstract theories and economic reality toward empirical studies of how this link works in various applied fields. There was a drift toward investigations of performative practices. This shift had consequences. On the one hand, the proliferation of empirical studies diluted the term ‘performativity’ often reducing it just to a ubiquitous catch-all concept. One might deplore the limited theoretical advancement in the field. On the other hand, what we can state with certainty is that, in the last years, performativity became a part of the DNA in the social studies of economic phenomena. The performativity program delivered a framework for the discussion of what economic professionals do and, more generally, of what happens in economics. In fact, it is now well established that economic theories of various kinds define standards of rationality and categories of risk, determine the rules undergirding investment decisions, influence macroeconomic expec- tations, and formulate microeconomic incentives. The performativity per- spective also pertains to the phenomena of marketization, indoctrination, diffusion of theoretical knowledge via expertise, creation of new languages and ideologies. Economists formulate the norms for reconfiguring markets (Garcia-Parpet 2007; Holm and Nielsen 2007) and set criteria of efficiency (Breslau 2011, 2013); manage identities and produce subjectivities—be it through business education (Ghoshal and Moran 1996; Ghoshal 2005) or consumer testing (Muniesa 2014); they also specify policy agendas and generally play a crucial role in institutional design both by directly inter- vening and by providing a relevant ‘cognitive infrastructure’ (Ferraro et al. 2005; Friedman 2010; Hirschman and Popp Berman 2014). Choosing a pension plan in the US pension system with the mechanism of choice devised by experimental economists (Thaler and Sunstein 2008); taking part in the auctions following the rules formulated by the teams of game theorists and economic experimentalists (Guala 2001; Nik-Khah 2008; Boldyrev 2012, 2013); investing in index funds as embodiments of efficient market hypothesis in financial economics (MacKenzie 2006); establishing incentive systems inspired by microeconomic theory (Dix 2014; Herrmann- Pillath, this volume); confronting people with questions they never thought of before and thus constructing their preferences (Kahneman and Tversky 2000; Muniesa 2014); using a micro-credit scheme in Bangladesh or India on the terms proposed by experimental development economists (Banerjee and Duflo 2011; Favereau and Brisset 2013; Davis 2013)—all these actions suggest the ways economics helps in creating its own realities and attempts to make the agents, material infrastructures, and knowledge converge and mutually stabilize each other. Small wonder that in the postcrisis neolib- eral era, the role of economists in facilitating (or neglecting) major eco- nomic instabilities sparks controversies (Krugman 2009; Hodgson 2009; Caballero 2010; Mirowski and Nik-Khah 2013). The interest of performativity lies precisely in its radical stance: in blur- ring or at least questioning the boundaries between research and its object, in focusing on knowledge and its pragmatic realizations, we both chal- lenge traditional epistemology and address the very texture of social life. That is why clarifying the meaning of performativity eventually matters for understanding the social. The studies on various ‘performative practices’ imply that the link between ‘theories’ and ‘economic reality’ cannot be understood in terms of a mechanical, one-way influence. It could be empirically demonstrated that clear distinction of this kind is often not possible. ‘Realities,’ while being theoretically assembled, also shape theo- ries (via statistical data or observations).