Forum Final Response
Economists should be enablers of democratic priorities, not oracles channeling a supply-and-demand deity.
March 26, 2019
With Responses From
Mar 26, 2019
7 Min read time
Rather than oracles channeling a supply-and-demand deity, economists should be enablers of democratic priorities.
The responses in this forum are too insightful to engage with adequately in such a small space. In our attempt to try, however, we have separated the comments into three groups: those that want post-neoliberal economics to be more explicitly normative (Robin, Satz, de Mesquita); those that ask for greater methodological and institutional pluralism (Complexity, Steinbaum); and those in defense of some version of neoliberalism in the interest of the global poor (Peters, Easterly, and Subramanian).
Alice Evans’s essay resists this categorization, but we think it exemplifies the rich institutional and political economy analysis that economists can undertake when they no longer act as public cheerleaders for every form of globalization. We had hoped to spur precisely this kind of thinking about unions, global incentives, and corporate accountability as complementary institutions to promote improved labor conditions in global supply chains and poor countries—though we are perhaps less optimistic than Evans that external forces can be as effective as domestic factors.
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We want economic arguments to be less pivotal in public discourse, but we do still think economists are a valuable expert community.
Turning to the first group, these writers all identify a tension in our project: we want to promote economists as players in progressive politics, but we never fully articulate a public philosophy to frame and orient the requisite economic analysis. They are right. We want markets to be less hegemonic as institutions and economic arguments to be less pivotal in public discourse, but we do still think economists are a valuable expert community. Rather than oracles channeling a capricious supply-and-demand deity that constrains what democratic government can do, we see economists as enablers of democratic priorities.
We agree with Corey Robin that neoliberalism was created through an intellectual move—one that made the market the arbitrator of all other values (e.g., concretely installed in cost-benefit analysis of regulations). If we remove that arbitrator, then economists no longer have any particular advantage in divining the values that all members of a society agree on. We fully accept that as economists we need to be “modest at the level of public philosophy” (Robin) and to cede ground to our colleagues in other disciplines who have wrestled with complex normative questions (Satz). We recognize that empiricism cannot substitute for normative theoretical frameworks (De Mesquita). Economists must be more explicit and self-critical about their normative assumptions and, alternatively, not shy about articulating the values that animate their work. There is nothing in mainstream economics that stands in the way of this.
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The next group of writers asks economics to be both methodologically and institutionally diverse. In response to the Complexity Economists, we would say that many of their criticisms have already penetrated mainstream economics. Economists are integrating new approaches to human behavior (from neuroscience to networks to norms) with models of economic decision making, and they are incorporating a wide variety of heterogeneity into economic models. Heterogeneity has proven central for “noising up” models of general and partial equilibrium to allow them to account for real-world phenomena. Heterogeneous and distributional impacts of policies (e.g., fiscal and monetary policy, unionization, or taxes) are regularly studied, and macro implications are considered.
We suspect what the authors don’t like is the particular analytic tools that economists currently use to handle these issues. Although economists have adopted evolutionary game theory and have incorporated a wide variety of behavioral features into standard models, the benchmark models almost always incorporate agent optimization in some form or another; explicit out-of-equilibrium dynamics are rarely considered. Seeing everything through the lens of constrained optimization is, well, constraining. But it is also quite powerful for thinking about the kinds of intentional behavior that are distinctive to human interactions. We do not claim that mainstream tools are superior or the only valuable ones—merely that they are useful. We are open to policy analyses that are produced using “complexity economics,” and we hope that members of the group will join us in producing them.
We can be committed to the possibility of a pragmatic social science and still see it as a valuable tool for democratic polities.
As for their charge that mainstream economics is not engaging in “systems thinking,” we are doubtful that this is correct. Is everything connected? Yes, obviously, and economists’ general equilibrium analysis makes this plenty clear. Indeed some of the most beautiful economics comes from finding unanticipated connections between social phenomena. Is the best way of analyzing such complicated systems to build computational models with chaotic dynamics? Are there important and well-documented strange attractors in the real economy? We are not sure, but we think it is possible to build on the insights from existing economic models, in addition to developing new frameworks of the “systems”-type.
In his response, Marshall Steinbaum argues that claiming the scientific method as our ally makes us sociologically vulnerable to hierarchical “harmful pathologies” that are embedded in the profession. The elevation of human capital, tastes, and biological comparative advantage in 1960s economics, for example, made it a fertile garden for all of Hirschman’s Rhetoric of Reaction, with an endless stream of arguments for why attempts to improve the lot of the poorest (or non-white people or women) are doomed to fail or backfire. Not unrelatedly, in socializing prospective economists, economics fetishizes a combative attitude, mathematical prowess, and cultural signifiers of “smarts” in graduate students, creating inhospitable environments for underrepresented minorities and women. This should all be fixed, both institution by institution and in the field as a whole.
But we think the profession’s attachment to empirical results is real. The testimonials to the deeply missed Alan Krueger reveal how recent and radical this attachment is. Even as some tributes to Krueger resist his findings (with David Card and Lawrence Katz) that minimum wage increases may not curtail employment, they all acknowledge how deeply influential these findings were for the profession. Earlier economists were not as principled in their commitment to empirical evidence, as evidenced by George Stigler’s 1947 dismissal of Richard Lester’s survey work on the minimum wage.
Today, theories about how humans interact do not have to be ideological posturing for rich donors nor succor for partisans. We can be committed to the possibility of a pragmatic social science and still see it as a valuable tool for democratic polities. An economics anchored on a diversity of models, with evidence used to sort among them, is better economics. It is not an obviously ideological project. There will be empirical evidence that is inconclusive or eventually proved wrong, and there will be findings that are uncomfortable for both left and right. As with any historical science, economics needs a proper balance between theory and empirical evidence. The recent movement towards greater empiricism strikes us as moving the discipline closer to the right balance.
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Portraying China and India as neoliberal success stories hides more than it reveals.
Our last group of commentators offer a perspective from economic development and global inequality. While neoliberal economics may be obsolete in the advanced countries, some argue that its basic policy messages have proven to be effective in bringing large groups of desperately poor people into the global middle class. India and China have shown the power of liberalized markets and international trade. Might we be killing the golden goose by suggesting that this was a mistake?
In our view, portraying China and India as neoliberal success stories hides more than it reveals. The key reforms in these cases are reconfigurations of state–economy relationships, which is very far from neoliberal prescriptions. Indeed, if these countries had been failures, there would be no shortage of neoliberal takes today as to why that is so: the state is still too powerful, there is too much industrial policy, trade is not free enough, and so on. Our main argument is that very little of why the policy changes worked can be understood with textbook economics or the first-best benchmarks of the neoliberal economist. One needs to account for pervasive market failures and apply the economics of the second-best.
Margaret Peters pushes us the furthest here and in a most welcome way, articulating the view that (trade and immigration) policy should not be set only in the interest of citizens of rich countries. We wouldn’t want a post-neoliberal economics to become an ideological tool for defending the rents of the rich citizens against incursions by the poor. We agree with Peters in particular that there should be an increase in low-skill labor flows. But we would also like economists to understand that economic integration is a means and not an end, and that a panoply of institutional arrangements are needed to manage it and keep it politically sustainable. To that end, Rodrik’s anti-social dumping proposal (which Peters criticizes) is designed to increase the public legitimacy of trade with developing nations. It is not meant to protect jobs or increase manufacturing employment in the advanced countries. To insist on free trade at all costs would be a pyrrhic victory if it ended up unleashing a wider backlash against economic openness.
All of this amounts to the beginning of a much longer conversation—one we look forward to continuing within the Economics for Inclusive Prosperity (EfIP) network, with these respondents and others.
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March 26, 2019
7 Min read time