The Priests Of Market Fundamentalism

November 6, 2019 9:01 AM

“The title of the book refers to a period that Appelbaum defines as being between 1969 and 2008. For him, this was a time when the policies that economists almost universally endorsed—tax breaks, austerity, deregulation, free trade, monetarism, floating exchange rates, reduced antitrust enforcement, low inflation, among others—were enacted. It is a period when market fundamentalism triumphed.” The Tyranny of Economists: How can they be so wrong, so often, and yet still exert so much influence on government policy? (New Republic)
posted by The Whelk (34 comments total)

When John Maynard Keynes wrote his tragically optimistic essay Economic Possibilities for Our Grandchildren, he thought that the automation of compound interest would create a swift-running river of capital that would be so deep and so wide that there would be no scarcity, and thus much less need for economists. Keynes thought that soon they might be about as important as dentists.

Well that hardly seems like a fair analogy. Dentists at least create something of value by inflicting pain on their patients. Your modern supply-side economist would provide value only if he were ground into fertilizer, and even then one would have to eye the resulting legumes with some suspicion.
posted by Mayor West at 9:25 AM on November 6, 2019 [32 favorites]

Should society invest all of the efforts of every doctor, every scientist, and every chemist in the world to cure Hutchinson-Gilford Progeria, a disease that affects approximately 1,000 people in the USA every year?

If you say no, then you are doing cost-benefit analysis. Anything further is just a debate over costs and a debate over benefits.

If you say yes, than I don’t know what to say.
posted by saeculorum at 9:40 AM on November 6, 2019 [7 favorites]

Your modern supply-side economist would provide value only if he were ground into fertilizer

In the immortal words of Max Webster, "pushing up wheat for the hungry'
posted by not_that_epiphanius at 9:54 AM on November 6, 2019

How can they be so wrong, so often, and yet still exert so much influence on government policy

This has the abstraction generation exactly backwards. Rich people > buy governments > that economists rationalize.

I thought this was canon by now? If anyone is going to put the economists out of business, it'll be the media/marketing folks.
posted by Reasonably Everything Happens at 9:59 AM on November 6, 2019 [31 favorites]

I would assume that people have a bunch of cognitive biases and therefore suck at predicting the future. Soviet economists didn't do much better during the period. And the timeline for capitalism's demise keeps stretching out more and more.
posted by zabuni at 10:24 AM on November 6, 2019 [1 favorite]

If you say no, then you are doing cost-benefit analysis.

If that's too abstract: Children sometime fall off of chairs (and beds, and couches). In a non-zero number of those cases, they suffer severe injuries and can even die. Are you going to rid your house of all chairs?

When a friend headed to law school, I asked if the world really needed another lawyer. His (very lawyerly) answer: "The world needs another good lawyer."

The world needs a lot more good economists.
posted by Mr.Know-it-some at 10:29 AM on November 6, 2019 [6 favorites]

Yeah, accurate cost-benefit analysis is a good thing. Even if you drop any attempt to monetize the value of a life saved, there's still a limited amount of resources that we can put into making things safer or developing new medicines. The problem is that the economic analysis used to drive lots of government and industry decision-making is driven by rich people’s motivated reasoning rather than anything that bears a glancing relationship to reality.
posted by Holy Zarquon's Singing Fish at 10:33 AM on November 6, 2019 [5 favorites]

I have nothing but contempt for most papers in economics. But, cost-benefit analysis seems like one of the very few genuinely valuable things economists have contributed to society. (Along with the idea that incentives matter and are worth thinking about.) Quantifying the benefits of a comfy chair and the real dangers of alternative chairs is a hard question. But, it's the relevant question. "Nothing dangerous is ever worth it" doesn't line up with the way any of us actually live.

I don't know what a human life is worth. But, I know that slightly increasing the chances that mine will end sooner than it might have is, in practice, less valuable than drinking a nice whisky or taking the highway instead of side streets to get to the airport. Talking about those decisions explicitly doesn't seem like a bad idea.
posted by eotvos at 10:35 AM on November 6, 2019 [2 favorites]

What is the alternative to having economists influence government policy? If you are in charge of the CPSC and you need to decide what product safety decrees to enact, you are acting as an economist -- the only question is what economic beliefs you have.

According to the linked WaPo article from 1987, it seems like an actually irritating thing about the CPSC's behavior in this era is that they frequently opposed warnings about slightly unsafe products, with the justification that they would cause more fear than they would benefit everyone. It's hard to imagine a typical economist convincing themselves of that!
posted by value of information at 10:40 AM on November 6, 2019

When it comes to human lives, I think that people get twitchy when the cost to save a life is very close to some vaguely perceived value of the human life, because that forces us to say that a life is worth about this many dollars. If you always work at the extremes ($10 to save a life? Easy, yes. $10 billion? Sorry, no) then you can avoid putting a stake in the ground and committing to a price.
posted by It's Never Lurgi at 10:48 AM on November 6, 2019 [2 favorites]

Monetarism didn’t curb inflation, lax antitrust and low regulation didn’t spur innovation, and low taxes didn’t increase corporate investment.

I mean we operate on a continuum don't we? Just speaking to the supposed end of 'Market Fundamentalism' in 2008, something like 70% of housing built was single family greenfield, which was most certainly due to a high regulatory environment that people now are just starting to push back on. It was not free-market consumer preference.

Just because economists were able to cut back on federal regulations doesn't mean they were able to cut back on regulations in general. Or that all regulations come from a 'market neutral' or tendency towards 'equality', after all 'economist' is a profession and people know what to say to remain employed.
posted by The_Vegetables at 11:04 AM on November 6, 2019

I can’t believe I made it to the end of the article, and it didn’t mention the collapse of the Soviet Union.

Economists weren’t these free market cheerleaders dragging America right against their will.

They were reacting, along with the rest of America, to an epic failure of economic planning. The US reacted much more strongly to this failure, because we have a much shorter history with a professional government. It wasn’t until the 1920s that we had a Congress composed of folks who treated Passing Laws as a full time job.

I appreciate Galbraith noticing that economists are advocating the benefit of the wealthy. But I see the causality as reversed. Economists became timid about market interference. But the wealthy could always find someone to agree with their political agenda, and elevate them to importance. There were, and still are, plenty more doing the empiric work to prove that markets are inefficient and identifying the policies that correct without collapsing the market.
posted by politikitty at 11:05 AM on November 6, 2019 [4 favorites]

In Hitchhiker's Guide to the Galaxy, Douglas Adams wrote:

“This planet has - or rather had - a problem, which was this: most of the people living on it were unhappy for pretty much of the time. Many solutions were suggested for this problem, but most of these were largely concerned with the movement of small green pieces of paper, which was odd because on the whole it wasn't the small green pieces of paper that were unhappy.”

End the tyranny of obsessing over small green pieces of paper (or the digital 1s and 0s that make up most of the money supply now) and who has them or who doesn't have enough of them.
posted by fifteen schnitzengruben is my limit at 1:12 PM on November 6, 2019 [2 favorites]

I've heard it defined that economics is the study of how people make decisions which seems like a reasonable thing to study. Game theory is economics. Data gathering for things like CPI is economics. Taunting small children with false promises of marshmallows is economics.

The study of how government should handle monetary policy is really just a subset of economics and yeah, people tend to get it more wrong than right, but what are you going to do, not study it?

From the conclusion of the essay: "Economists now have an outsized hand in running the government " - this is 100% pure tautology. If you have government administrators who collect data, study the data and make recommendations for policy, congratulations, you have an economist. What's the alternative? Not collecting data? I'm pretty sure that it's not really a better approach.
posted by GuyZero at 1:35 PM on November 6, 2019 [2 favorites]

Also if you, like me, had trouble figuring out what this essay was about, it's a book review.

Monetarism didn’t curb inflation, lax antitrust and low regulation didn’t spur innovation, and low taxes didn’t increase corporate investment.

So I feel like there should be two separate terms for "economists". One group is people who actually study stuff and the second is people who just propose government policies based on some theoretical framework. Anyone can say "cut taxes on the rich and it'll all trickle down," I'm not sure if all of them are actual economists.

Anyway, this particular passage is a weird gotcha because macroeconomists eventually did figure out how to curb inflation.

But it does seem like an interesting book albeit one that has a strong POV.
posted by GuyZero at 1:41 PM on November 6, 2019 [1 favorite]

Anyone willing and able to Punch Down will find employment in most any corrupted system.
posted by Heywood Mogroot III at 2:11 PM on November 6, 2019 [7 favorites]

macroeconomists eventually did figure out how to curb inflation.

If they did, they learned the wrong lessons. Paul Volcker is today lionized as the great savior of inflation but was actually one of the worst economic monsters of history. He single-handedly created the worst recession since the 1930s. Millions of lives were ruined and unemployment reached 11%, even worse than the recent Great Recession.

And it was all pitched as a Morality Play. Consumers needed to be punished for their profligacy and excess government spending.

But that wasn't the cause at all. It was mostly an oil crisis and embargo caused by US meddling in the middle east. The price of oil doubled almost overnight, and because the economy at that time was much more closely tied to energy, inflation soared.

We know this because countries all over the world experienced the same inflation and they didn't have the same excuses of war spending or excessive consumer spending. And countries all over the world had their inflation tamed as the oil shock subsided and they didn't need a monster at the Fed directing an impoverishing recession.

Economists have carried forward that same mistaken belief about inflation for decades, keeping interest rates too high, suppressing employment and suppressing wage gains.

And you can credit that same mistaken belief to helping Donald Trump into the White House when Yellen raised interest rates in 2015, slowing down what was already an inordinately slow recovery.

So, no, it doesn't seem that economists have figured out inflation unless you credit them with figuring out how to keep wage earners poor.
posted by JackFlash at 2:21 PM on November 6, 2019 [18 favorites]

So, no, it doesn't seem that economists have figured out inflation unless you credit them with figuring out how to keep wage earners poor.

I suspect they see this as a feature, not a bug.
posted by fifteen schnitzengruben is my limit at 2:57 PM on November 6, 2019 [6 favorites]

In my college Intermediate Microeconomics class, I was told to assume that people are rational. That’s when I got off the economics train.
posted by kerf at 5:46 PM on November 6, 2019 [3 favorites]

Much of the specific things this article focuses on, the very technocratic side of running a government, and the role a lot of these economists play is like consultant. Everyone in business knows one of the best use of consultants is to 'objectively' and 'impartially' suggest a policy you already want to carry out, and that's how a lot of politicians use their economists.

So of course they keep getting jobs.

Economics has failed to come up with an answer for a fundamental political question: What do we do about the losers?

This has always bothered me more than anything. Economists talking about trade say (correctly more often than not) that reducing trade barriers increases total wealth so you could redistribute the gains; the fact that there are losers shouldn't matter since you can make anyone better off. Redistribution is a normative question though and outside of their remit so they'll just say reduce tariffs (and non-tariff trade barriers of course.)

But if you ask for advice on efficiently redistributing gains the ones who do political economy will say (correctly more often than not) that this will lead to rent seeking and all sorts of other problems. So they'll say it's better to do nothing. In purely economic terms.

* * *

Flip side to my whinging:

(1) economists have gotten lots of non-intuitive things right too, like realizing nations don't get rich by having lots of gold or the stupidity of treating a modern government budget like household accounting

(2) If you get rid of economists because they are all lackeys of the rich the variable that changes with the replacements is "economists," not "lackeys of the rich"
posted by mark k at 9:28 PM on November 6, 2019 [2 favorites]

> low taxes didn’t increase corporate investment

The odd thing here is that most corporate tax schemes, at least the ones I've seen in the U.S., only tax profits. Or at least, they have some mechanism where if you reinvest your income back into the company that income either isn't taxed or at least you get some kind of tax break.

So follow my logic here:

• If you take money out of your corporation it is taxed, perhaps at a pretty high rate
• If you just reinvest your money back into growing the business, it isn't taxed at all.

So where is the incentive there? Yes, for reinvesting in growing your business rather than taking out profits.

And if you eliminate or drastically reduce the corporate taxes, how does that affect the incentives?

Yes, it dramatically reduces the incentive to reinvest in the company and increases the incentive to take out the profits.

Now read the last 45 years of U.S. economic history with that in mind and see the rather exact match.

This stuff isn't rocket science . . .
posted by flug at 10:23 PM on November 6, 2019 [3 favorites]

@flug: I think it's cost of capital.

But if you need to offer me, an investor, 6% per year on my investment to get me to invest, it's easier to do that if the government isn't taking a third of your profits. Easier means means there are more opportunities for investment that I am willing to fund, so my investment increases. And for the sake of this discussion it doesn't matter if "I" am a stock holder, a VC, or someone inside the company looking at cashflow and deciding what to do.

So the theory behind corporate tax cuts is fine, at least on its own terms. The practice, well, that's always the tricky part.
posted by mark k at 10:35 PM on November 6, 2019

Economics seem to have the problem astrology used to have before the 18th Century. It was a mix of sound observational science and bunkum. Eventually the scientists left and became astronomers, and left astrology to the bunkaneers. Maybe something similar needs to happen with economics.
posted by Kattullus at 5:32 AM on November 7, 2019 [3 favorites]

In my college Intermediate Microeconomics class, I was told to assume that people are rational. That’s when I got off the economics train.

Either you went to school a while ago, your prof wasn't very good, or you didn't listen to the rest of the lecture.

There's a subfield (that over the past few decades has become less and less sub) called behavioral economics, which, to quote Wikipedia, "studies the effects of psychological, cognitive, emotional, cultural and social factors" on economic decision making.

Economics has failed to come up with an answer for a fundamental political question: What do we do about the losers?

Thousands and thousands of economists have answers to this, e.g. But as the question notes, this is a political question.
posted by Mr.Know-it-some at 5:52 AM on November 7, 2019 [3 favorites]

Maybe something similar needs to happen with economics.

Empirical economists = "scientists" :P

So, no, it doesn't seem that economists have figured out inflation unless you credit them with figuring out how to keep wage earners poor.

The Inflation Gap - "We now have solid evidence that low-income families experience higher rates of inflation than high-income families; it's an effect of inequality, and also makes the lived experience of inequality far worse."

The world needs a lot more good economists.

This new way of taxing multinational companies would change the face of globalization, annihilating tax competition

The super rich elite have more money than they know what to do with - "While the working class and the impoverished families of America — half of our country! — have less real wealth than they had 20 years ago, the super rich top 1% have doubled theirs in a generation, according to a new data set recently released by the Federal Reserve... the distributional financial accounts, which provide a timely snapshot of how changes in finances and balance sheets are affecting different demographic groups."
posted by kliuless at 6:11 AM on November 7, 2019

But as the question notes, this is a political question.

just grow poor countries into rich countries: "The real answer to the conundrum is creating inclusive and egalitarian political institutions. Nothing going on in experimental political science or economics is adding much to what we already know about this."
posted by kliuless at 6:19 AM on November 7, 2019

Imagine if most of the climate science jobs were at oil and gas companies......
posted by interogative mood at 6:49 AM on November 7, 2019 [1 favorite]

Maybe something similar needs to happen with economics.

There's these two lists from a previous kliuless post, from rishabguha and kristi as well as a lot of other heterodox economics linked in the thread. There's no shortage of radical economic thought out there. Also Amartya Sen comes to mind and isn't in either list, although mark k mentions him in that thread. Also Sujatha Fernandez.
posted by Acid Communist at 7:15 AM on November 7, 2019 [2 favorites]

It’s absurd to think the field of Economics isn’t currently interested in making the world a better place. The John Bates Clark medal is awarded to the most exciting researchers under the age of 40. So not just amazing people doing amazing work, but folks elevated as leaders and celebrated by the entire field.

Among them, Raj Chetty is currently focused on economic mobility. Emmanuel Saez is currently on a book tour with Gabriel Zucman on their work on progressive taxation, and advocates for using taxes to dismantle wealth inequality. Esther Duflo just won the Nobel Peace Prize for her work on effective poverty programs. Her book with Abhijit Banerjee is fantastic debunking the ideas that poor folks make bad economic decisions that contribute to their poverty.

Now I realize that this is all post 2009. But they didn’t come out of nowhere. They build on the work of other economists. But looking at the economic devastation of the USSR, it’s understandable the field became timid. Those that backed free markets became overly confident and elevated, while those who believed in market interventions became more technocratic. Only push small interventions that make minor adjustments.

One of my favorite bits of economic history is a series of lectures Ronald Coase (Origin of the Firm) gave about becoming an economist at the very beginning of the USSR. He discusses colleagues trying to give advice to Trotsky on how to mimic supply and demand in a planned economy. Decades of the west not knowing whether this grand experiment was working, and work he did to try and guess at it’s success by understanding the planned economies of large American corporations.

It paints such a vivid picture of how devastating it would be to suddenly find out a planned economy was so vulnerable to agency capture, and the terrible cost paid by the lowest in society who were starved by this incompetence and greed. And feel the weight of importance in getting market interventions right in the future. In his work, I see so much evidence that there’s a need for governmental intervention. Yet he was so traumatized, after that he never pushed for it. He regularly agreed with conservative fears that intervention could easily be abused and go too far. So it was safer to step back.
posted by politikitty at 1:54 PM on November 7, 2019 [3 favorites]

semi-interestingly, there was a mutual appreciation between china and coase in coase's later years. with transaction costs plummeting -- and negative interest rates common -- due partly to technology/the internet, some speculate about the theory of the firm -- and its inversion -- suggesting _an_ era of 'efficient' (centralized) social calculation could be at hand:
kantorovich's red plenty! like in the US taking the form of amazon, or tech platform monopolies generally, and in (why nationalization isn't always great) china, the state :P
posted by kliuless at 6:59 AM on November 8, 2019 [1 favorite]

like re: AI (writ large) vs. markets
-Law and the Wealth of Nations (via)
-Global Think-in: The Code of Capital
-New Complexity Economics (thread-reader)
-Frances Coppola on the Macroeconomics of Helicopter Drops[1]
-Will AI Enhance or Hack Humanity? - Fei-Fei Li & Yuval Noah Harari[2,3]
-The 'Three-Body Problem' Has Perplexed Astronomers Since Newton Formulated It. A.I. Just Cracked It in Under a Second.
posted by kliuless at 7:10 AM on November 9, 2019

I was listening to a Talking Politics conversation with Esther Duflo only last week.
posted by Grangousier at 7:17 AM on November 9, 2019

And in my recent activity, I realize I conflated the Peace and Economics Nobel. Just calling myself out before anyone else feels the need to.
posted by politikitty at 8:51 AM on November 9, 2019

-David Graeber: Against Economics (via)
-Capital scarcity, like inflation, seems to be a thing of the past (via)
posted by kliuless at 4:50 AM on November 15, 2019