Economics After Neoliberalism
The dead weight of decades of bad economics remains.The Economists for Inclusive Prosperity (EfIP) initiative is long overdue.
Today's leading scholars are at the cutting edge of a new era in economics research, one that casts serious doubt on the received wisdom that the economy functions best when left alone and that the "free market" should not be jeopardized through government "intervention." You'd be hard-pressed to find an academic economist in good standing now who doubts the essential contingency of economic outcomes. The discipline has largely rejected the simplistic "economics says" pattern of policy prescription—the idea that theory implies we must enact this or that (usually elite-favoring) policy. It was noteworthy that when Hoover Institute fellow Russ Roberts published his reactionary diatribe against empirical research in favor of received laissez-faire wisdom, it received no attention from scholars other than those already affiliated with his network of ideologically and politically motivated (and funded) collaborators.
The public has good reason to doubt what economists have to say.
But the dead weight of decades of bad economics—and of bad interventions by professional economists in the public debate—remains. In the late 1990s, leading economists advocated for financial deregulation. In the early 2000s, Federal Reserve chairman Alan Greenspan put his great, and unmerited, prestige to work advocating in Congress for regressive tax policy. More recently, in the financial crisis and the global recession that followed, leading members of the economics profession placed their prestige behind the idea that the main threat to the economy was spiraling government debt and a resulting spike in interest rates that would lead to the crowding out of private investment and a stagflation crisis of the type experienced in the 1970s. The fact that these dire warnings repeatedly failed to come true has not stopped a march of bad policies, such as misguided fiscal austerity, from being enacted by politicians who think they are doing what "economics demands" (or so they say).
Every new generation proclaims itself to have discovered empirical verification for the first time.
The public thus has good reason to doubt what economists have to say. They will find it hard to believe that we have finally learned our lesson, and they will understandably be reluctant to accord a new generation of economists the same level of prestige and deference in matters of expertise that got us into this mess in the first place—particularly if the argument we make about why we should be listened to rests solely on an overly optimistic narrative of scientific progress.
Such narratives have an unfortunate history in the discipline (perhaps in all disciplines). It seems that every new generation proclaims itself to have discovered empirical verification for the first time, and is thus in a unique position to enter the policy realm in triumph. In the conclusion to his presidential address to the American Economic Association in 1964, for example, George Stigler said:
The age of quantification is now full upon us. We are armed with a bulging arsenal of techniques of quantitative analysis, and of a power—as compared to untrained common sense—comparable to the displacement of archers by cannon. . . . The desire to measure economic phenomena is now in the ascendant. . . .
It is a scientific revolution of the very first magnitude. . . . I am convinced that economics is finally at the threshold of its golden age—nay, we already have one foot through the door.
The revolution in our thinking has begun to reach public policy, and soon it will make irresistible demands upon us. . . .
Our expanding theoretical and empirical studies will inevitably and irresistibly enter into the subject of public policy, and we shall develop a body of knowledge essential to intelligent policy formulation. And then, quite frankly, I hope that we become the ornaments of democratic society whose opinions on economic policy shall prevail.
Thankfully, Naidu, Rodrik, and Zucman aren't nearly as triumphalist as Stigler was. But still they—and the profession at large—must reckon with the significance of this posture. After all, Stigler's research and policy agenda is exactly what Naidu, Rodrik, and Zucman are saying has been shown to be a total intellectual dead end from which the field has only just extricated itself, and yet he refers to his agenda in substantially the same tone and rhetoric with which they refer to theirs. This fact tells us that that empirical verification and the narrative of progress cannot by themselves accomplish the substantial epistemological and coalition-building work that the EfIP authors seek to place on their shoulders.
"Tests" of economic theories are not simple reality checks. They are shaped by implicit and unconscious bias and a reflexive defense of orthodoxy.
The truth is that empirical methods are always laden with assumptions, both of the formal economic-theoretic sort and more "folk wisdom"-like traditions and methods associated with the discipline's most prominent and powerful members. "Tests" of economic theories are not simple reality checks. We must be on guard about the way they are informed by implicit and unconscious bias and a reflexive defense of mainstream orthodoxy.
Stigler is a case in point. Earlier in the same address, he eagerly anticipates the application of economics to the fields of antitrust and of common carrier regulation. Yet in the same speech Stigler also explicitly attacks the empirical work of the "German Historical" and "American Institutionalist" scholars, who had a great deal of sway over the introduction of regulatory and antitrust regimes during the New Deal. Scholarship in that tradition was in fact highly rigorous; it was just their ideas that motivated Stigler's criticism. He waged a career-long, successful campaign of vilification against Institutionalist economics, in fact, from the perspective of what he and his collaborators called "Price Theory."
When that approach finally made the leap from the academy and was brought to bear on antitrust and sectoral regulation, starting in the late '70s, Stigler's theory—that regulation served inefficient incumbents at the expense of innovative entrants, and that antitrust kept businesses who should properly go out of business in the market—had an enormous impact on policy: the deregulation of trucking and airlines in the late 1970s, of telecoms in the 1990s, and of finance in the 2000s, as well as the ongoing erosion of the antitrust laws at the hands of the federal judiciary, culminating most recently in the 2018 Supreme Court ruling Ohio v. American Express. Stigler's enormous intellectual and professional success—a lifelong campaign of academic imperialism, promoted and backed by a gusher of funding from right-wing interests seeking to roll back the New Deal—dealt immense damage to the body politic and to the public reputation of the economics profession.
The field has been turned into a safe space for rich white people to justify and naturalize the status quo.
But, it turns out, the scholars Stigler vilified were right about how the economy worked. This is but one example of a pattern repeated through the history of the discipline. Economists have drawn and re-drawn disciplinary boundaries to exclude anything that challenged incumbent wealth and power, including marginalizing the contributions of scholars and would-be scholars from under-represented communities. The result was to turn the field into a safe space for rich white people to justify and naturalize the status quo.
Another stark example comes from the work and career of the ground-breaking mid-century black economist Abram Harris, who wrote about the banking sector's segregation and discrimination against black borrowers—including on the part of black bankers—as a key source of ongoing racial wealth inequality. As a professor at the University of Chicago in 1961, Harris proposed to teach an undergraduate course in market power, monopoly, and antitrust policy, and sought to have it listed in the economics department. In response, Stigler privately told the department chair that "the new course . . . arouses no enthusiasm on my part. It sounds like a protracted bull session, in which large ideas are neither carefully analyzed nor empirically tested. . . . My own inclination would be (1) to list it, with explicit proviso that it is only for as long as he teaches it, and (2) advise our majors to forget it."
Anyone familiar with the language elite white insiders use to marginalize and exclude the work of outsiders will see it reflected in spades in Stigler's attitude to Harris and his scholarship. Stigler would say his problem wasn't with Harris but with the sloppy quality of the ideas. But this overlooks the ease with which a scholar like Stigler could treat his own research and insights as mainstream and those of someone like Harris as inherently biased and motivated.
Unfortunately, jettisoning Stiglerian methodology is not nearly sufficient to overcome this history of marginalization. For example, in the last several years, a controversy has played out over the impact of so-called "ban the box" regulations, which seek to counter discrimination against the formerly incarcerated by restricting employers (usually in the public sector) from asking about criminal history as part of the job application process. Such legislation draws substantially on the work of the late sociologist Devah Pager, who documented labor market discrimination against those tainted by past experience with mass incarceration and the larger criminal justice enterprise. Given the high rates of incarceration among young black men, the result is not just individual but group-level discrimination, lasting for a lifetime.
Despite the so-called "empirical turn," harmful pathologies remain embedded in the economics profession.
In response to the introduction of such policies, several economics researchers concluded that they reduce employment opportunities for black men who had never been incarcerated, because in the absence of information to the contrary, employers assume such applicants do in fact have a criminal record and therefore eliminate them from hiring pools. This finding received wide attention in the media and from leadingthink tanks, fitting as it did into a narrative of misguided do-gooder regulation shown to be counter-productive for the very populations it was designed to help.
But this revisionist scholarship, which is every bit a part of the empirical revolution Naidu, Rodrik, and Zucman laud, has problems of its own. There is no reason to think "ban the box" inadvertently depresses the hiring of black men. Research by the black economist Terry-Ann Craigie shows it operates as intended.
This episode reveals that despite the so-called "empirical turn," harmful pathologies remain embedded in the economics profession: the marginalization of under-represented scholars who work outside the fanciest institutions; the assumption that economists clean up the mistakes made by social scientists from other disciplines, who are tacitly assumed to be left-leaning and whose scholarship is therefore suspect; and the eagerness to believe that egalitarian labor market regulations backfire against those they are intended to help. All of these interlinked tendencies don't dissolve just because we have learned how to run experiments and quasi-experiments, and there is simply no basis in the history of science to think that they would. Justifying racial inequalities and other retrograde scholarly tendencies have always found ways to propagate themselves within whatever the dominant scientific paradigm might be, so economists had best be on the lookout as they wheedle their way into contemporary empirical research.
Institutional privilege is real.
A final word of caution should inform the work of EfIP: institutional privilege is real. These scholars operate in elite departments, where support for their work is abundant and where threats to their academic freedom may feel remote. That is an increasingly rare thing in U.S. higher education, where successive rounds of state funding cuts have transformed public universities into vulnerable hosts for right-wing parasites. In the face of cuts, administrators go looking for other funding sources to sustain them, and at least in economics, the open hands tend to come from business funders and right-wingfoundations with an agenda of instituting curricula of their own making and of hiring scholars they know will toe the line. Such instances have arisen across the landscape of higher education and increasingly high up in the ranks of economics departments, as one department after another finds reason to compromise its principles in exchange for life-saving, or merely footprint-expanding, support. I fear that scholars without direct experience of this will be too eager to look to the bright future of a newly enlightened economics profession flush with sophisticated empiricism, without recognizing the threat this right-wing takeover poses to the work of less well-appointed scholars and departments trying to educate the broad mass of students.
I do not mean to detract from the importance of the initiative Naidu, Rodrik, and Zucman have launched. Economics desperately needs a fresh outlook after a decade that has not been kind to our public reputation. Too many economists have reacted defensively to that public condemnation, but these three point in a new and more promising direction: acknowledge that our first loyalty must be to truth, and our second to the public and its welfare. The will to wealth and power has acted on us and on our discipline for too long, and the changing winds are all to the good. Hopefully, when we look back at this moment a decade from now, we will be able to see this as one of a series of steps we took to set the field on a better course.
Harpers Ferry, WV
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