Don’t Think Like an Economist

Here’s Tyler Cowen over at Marginal Revolution:

Larry Summers is my favorite liberal economist because even while maintaining his liberal values he never stops thinking like an economist. That makes him suspect among the left but it means that he is always worth listening to….

Summers on the Wealth Tax (Marginal Revolution)

No, that’s precisely what makes him NOT worth listening to (he’s—surprise, surprise!—opposed to the tax). Listening to arrogant Ivy League hyper-elite technocrats like Larry Summers is exactly why the Democratic Party is in the pathetic state its is in, and continually loses elections, even to incompetent morons like Donald Trump. If Larry Summers is a representation of “liberal values” than God help us all.

Summers was Obama’s economic advisor, the same Obama who refused to jail a single banker or financier for their role in the housing collapse, no matter how blatant their malfeasance. But the most telling example about how Larry Summers “never stops thinking like an economist” (a good thing in Cowen’s estimation) is the infamous Summers memorandum, where he argued that—according to economic logic—Africa was tragically underpolluted, and that needed to be rectified.

Summers, an enthusiast for the [World] Bank’s policy of encouraging poor countries to open their borders to trade, went on to explain why he thought that it was legitimate to encourage polluting industries to move to poor countries. ‘The measurement of the cost of health-impairing pollution depends on the forgone earnings from increased morbidity and mortality,’ he wrote. So dangerous pollution should be concentrated ‘in the country with the lowest wages’.

He added: ‘I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that.’

He also introduced the novel notion of the ‘under-polluted’ country. These included the ‘underpopulated countries in Africa’ where ‘their air quality is probably vastly inefficiently low compared to Los Angeles’. His point was that since clean air, which he calls ‘pretty air’, is valuable as a place to dump air pollution, it is a pity poor countries can’t sell their clean air for this purpose. If it were physically possible there would be a large ‘welfare-enhancing trade in air pollution. . .’ he says.

Summers admits in his much-faxed memo that there might be objections to his case, on moral grounds for instance. But he concludes by saying that ‘the problem with these arguments’ is that they ‘could be turned around and used more or less effectively against every Bank proposal for liberalisation’.

‘What he is saying,’ comments British environmentalist Nicholas Hildyard, ‘is that this argument represents the logical conclusion of encouraging free trade round the world.’

Why it’s cheaper to poison the poor (New Scientist)

He never stops thinking like an economist!!! Um, yay?

The sociopathic logic above is the “logical” outcome of doing a cost-benefit analysis involving “tradeoffs” – the stock in trade of economics as a governing philosophy, which we’ll look at more closely in a bit.

Here are some more of Larry Summers’s greatest hits:

Fresh off his success in Lithuania, Summers moved to the World Bank, where he was named the chief economist in 1991, the year he issued his famous let’s-pollute-Africa memo. It was also the year that Summers, and his Harvard protégé Andrei Schleifer (who worked with Summers on the Lithuania economic transformation), began their catastrophic “rescue” of Russia’s crisis-ridden economy. It’s a complicated story involving corruption, cronyism and economic devastation. But by the end of the 1990s, Russia’s GDP had collapsed by more than 60 percent, its population was suffering the worst death-to-birth ratio of any industrialized nation in the twentieth century, and the financial markets that Summers and Schleifer helped create had collapsed in what was then the world’s biggest debt default ever. The result was the rise of Vladmir Putin and a national aversion to free markets and anything associated with Western liberalism.

The Summers Conumdrum (The Nation)

Behold, the results of “liberal” economists. My core point is this: this kind of autistic “economic thinking” is the very reason why the voting public believes there is no substantial difference between the Republicans and the (Neoliberal) Democrats. And they’re right! It’s also worth noting that Professor Cowen has let the cat out of the bag, tacitly admitting that the very discipline of economics is inherently right-wing (it makes him suspect among the left…). Yet it still masquerades as ideologically neutral!

Which brings me to a topic I’ve wanted to mention. A new book by New York Times economic columnist Binyamin Applebaum explains how this kind of “economic thinking” has come to dominate the actions of the world’s governments in place of all other social factors. But it wasn’t always so. Quite the opposite! In fact, economics…

…was not always the imperial discipline. Roosevelt was delighted to consult lawyers such as [Adolf] Berle, but he dismissed John Maynard Keynes as an impractical “mathematician.” Regulatory agencies were headed by lawyers, and courts dismissed economic evidence as irrelevant. In 1963, President John F. Kennedy’s Treasury secretary made a point of excluding academic economists from a review of the international monetary order, deeming their advice useless. William McChesney Martin, who presided over the Federal Reserve in the 1950s and ’60s, confined economists to the basement…In the 1950s, a Columbia economist complained he made as much as a skilled carpenter.

How Economists’ Faith in Markets Broke America (The Atlantic)

But it was not to last. Applebaum’s book details how economists became the de-facto technocratic rulers of society, supplanting all other notions of good and effective governance. The story begins, ironically, with Roosevelt’s New Deal, which…

…created a new need for economists. [It] inflated the size of the federal government, and politicians turned to economists to make sense of their new complicated initiatives and help rationalize their policies to constituents. Even Milton Friedman, the dark apostle of market fundamentalism, admitted that “ironically, the New Deal was a lifesaver.” Without it, he said, he may have never been employed as an economist. From the mid-1950s to the late 1970s the number of economists in the federal government swelled from about 2,000 to 6,000. The New Deal also gave rise to cost-benefit analysis. Large projects, like dam building or rural electrification, needed to be budgeted and constrained…

The Tyranny of Economists (The New Republic)

This gave rise to the kind of cost/benefit analysis described above, where absolutely everything—human life, the ecosystem, labor, healthy communities, etc.—had its price, and that price became a part of painful-but-necessary “tradeoffs”; a totally new way of thinking about how to govern society. This concept of a cost/benefit analysis, even though it produced distinctive winners and losers, wasn’t seen as a problem, because…

…the government could theoretically redirect a little money from the winners to the losers, to even things out: For example, if a policy caused corn consumption to drop, the government could redirect the savings to aggrieved farmers. However, it didn’t provide any reason why the government would rebalance the scale, just that it was possible.

What is now called the Kaldor-Hicks principle, “is a theory, “ Appelbaum says, “to gladden the hearts of winners: it is less clear that losers will be comforted by the possession of theoretical benefits.” The principle remains the theoretical core of cost-benefit analysis, Appelbaum says. It’s an approach that sweeps the political problems of any policy—what to do about the losers—under the rug.

The Tyranny of Economists (The New Republic)

In fact, many of the proponents of global “free-trade” openly acknowledged that there would inevitably be “winners” and “losers” from such policies. But, they claimed, some of the gains of the winners could be easily siphoned off to compensate the losers, making everyone better off in the long run. Win-win thinking at its finest.

It should be obvious by now what kind of a sick joke that was. It should also be proof positive just how drastically economic theory never matches the reality.

It was also World War two that ushered in the concept of Gross Domestic Product, or GDP (originally Gross National Product, or GNP), which was designed to measure total national output for the war. Even the economists (Kuznets, et. al.) who created it explicitly warned that it was not to be taken as a be-all and end-all measure of societal health or well-being. It was designed to manage the War Economy, and its continual increase was not to be regarded as an end in itself.

Yet that’s exactly what it became thanks to economists.

It was the ultimate triumph of “market society” as Polanyi described it. Markets and money were now the sole governing principles. Political decisions were reduced to simply a series of cost-benefit analyses, freeing politicians from any moral culpability for their decisions. Governing society was no longer about increasing the general welfare as the Framers of the Constitution imagined—it would now be simply about increasing GDP and making the necessary “tradeoffs”.

With the Neoliberal revolution, economists emerged from the basement and took over the place:

Starting in the 1970s…economists began to wield extraordinary influence. They persuaded Richard Nixon to abolish the military draft. They brought economics into the courtroom. They took over many of the top posts at regulatory agencies, and they devised cost-benefit tests to ensure that regulations were warranted. To facilitate this testing, economists presumed to set a number on the value of life itself; some of the best passages of Appelbaum’s fine book describe this subtle revolution. Meanwhile, Fed chairmen were expected to have economic credentials. Soon the noneconomists on the Fed staff were languishing in the metaphorical basement.

But, in the wake of the Powell Memorandum, the biggest beneficiaries were big business, who soon poured bottomless amounts of money into economics departments (such as the one that employs Cowen as well as Summers’s Harvard) and a dizzying array of “think-tanks” which employed the ever-expanding number of economics graduates. Economics soon went from virtual obscurity to one of the most popular majors at American universities, especially for children of the affluent. In the 1980’s, big corporations and the wealthy…

…soon found a powerful ally in economists, a vast majority of whom opposed regulation as inefficient. Corporations began to argue that if the cost of compliance to a new regulation (say seatbelts or lead remediation) exceeded the benefit, it shouldn’t be implemented. The government, starting at the end of Nixon’s administration and continuing to this day, agreed.

Cost-benefit analysis hinged on an ever-changing calculation of the monetary value of a human life. If a life could be shown to be expensive, regulation could be justified. If not, it would be blocked or scrapped. The EPA, in 2004—to allow for more lax air pollution regulations—quietly sliced eight percent off their value of human life, and then another three percent in 2008 by deciding to not adjust for inflation. The fluctuating value of life was a seemingly rational but conveniently opaque method for making political decisions. It simultaneously trimmed away the gray areas of political discourse by reducing the debate to a small set of numbers and obscured the policy in hundreds of pages of statistics, figures, and formulas. This marriage of rational simplicity and technocratic complexity provided cover for regressive policies that favored corporations over taxpayers. Economists reduced a question that dogged political philosophers for centuries—about how much harm is acceptable in a society—to a math problem.

The Tyranny of Economists (The New Republic)

Here’s another particularly vivid example of the results of that type of thinking:

In June of 1985, the Consumer Product Safety Commission issued a “national consumer alert” about the type of sofa chair that strangled [two-year-old Joy] Griffith. But the commission still needed to decide if they would require design changes. So Warren Prunella, the chief economist for the Commission, did some calculations. He figured that 40 million chairs were in use, each of which lasted ten years. Estimates said modifications likely would save about one life per year, and since the commission had decided in 1980 that the value of a life was one million dollars, the benefit of the requirement would be only ten million. This was far below the cost to the manufacturers. So in December, the commission decided that they didn’t need to require chair manufacturers to modify their products. If this seems odd today, it was then too—so odd, in fact, that the chair manufacturers voluntarily changed their designs.

Prunella’s calculations were the result of a growing reliance on cost-benefit analysis, something that the Reagan administration had recently made mandatory for all new government regulations. It signaled the rise of economists to the top of the federal regulatory apparatus. “Economists effectively were deciding whether armchairs should be allowed to crush children,” Binyamin Appelbaum writes in his new book The Economists’ Hour. “The government’s growing reliance on cost-benefit meant that economists like Prunella were exercising significant influence over life and death decisions.” Economics had become a primary language of politics.

The Tyranny of Economists (The New Republic)

And this how we got to the polices of today, where, as Margaret Thatcher confidently declared, “there is no alternative”:

“The United States experienced a revolution. No gun was fired. No lives were lost. Nobody marched. Most people didn’t notice. Nonetheless, it happened.”…what Appelbaum presents could be seen as a picture of a dramatic class-war, a conservative counter-revolution in reaction to the New Deal government, duplicitously legitimized by a regressive political theory: economics. Or as a more bracing economics writer, John Kenneth Galbraith, once put it: “What is called sound economics is very often what mirrors the needs of the respectably affluent.”

The Tyranny of Economists (The New Republic)

To reiterate, Larry Summers was Obama’s (a Democrat) chief economic advisor. What, then, is the difference between the two major political parties again?

…a 1979 survey of economists that “found 98 percent opposed rent controls, 97 percent opposed tariffs, 95 percent favored floating exchange rates, and 90 percent opposed minimum wage laws.” And in a moment of impish humor [Applebaum] notes that “Although nature tends toward entropy, they shared a confidence that economies tend toward equilibrium.” Economists shared a creepy lack of doubt about how the world worked.

The Tyranny of Economists (The New Republic)

No wonder Cowen (who manages the Koch-funded Mercatus Center at George Mason University) is such a fan! And thus you get his laudatory praise of how Summers is always “thinking like an economist” despite his alleged “liberal values”.  So when you are urged, for example, to “think like an economist” you are all but guaranteed to come up with conclusions which overwhelmingly favor the rich and powerful and screw over the rest of us. And all of this is presented as totally nonpolitical and “just common sense!”

Isn’t it funny how “bad economics” is anything that helps labor and the working class?

However, this kind of quasi-religious faith in free trade and free markets has shown a remarkable and disastrous lack of effectiveness in the real world:

Inequality has grown to unacceptable extremes in highly developed economies. From 1980 to 2010, life expectancy for poor Americans scandalously declined, even as the rich lived longer. Meanwhile, the primacy of economics has not generated faster economic growth. From 1990 until the eve of the financial crisis, U.S. real GDP per person grew by a little under 2 percent a year, less than the 2.5 percent a year in the oil-shocked 1970s.

How Economists’ Faith in Markets Broke America (The Atlantic)

…the theories often demonstrably did not do what they were supposed to do. Monetarism didn’t curb inflation, lax antitrust and low regulation didn’t spur innovation, and low taxes didn’t increase corporate investment. Big economic shocks of the 1970s, like the befuddling “stagflation,” provided reasons to abandon previous, more redistributive economic regimes, but a reader still burns to know: How could economists be so wrong, so often, and so clearly at the expense of the working people in the United States, yet still ultimately triumph so totally? It’s likely because what economists’ ideas did do, quite effectively, was divert wealth from the bottom to the top. This entrenched their power among the winners they helped create.

The Tyranny of Economists (The New Republic)

And this type of thinking has now permeated the entire world as Neoliberalism encircled the globe, from Chile to China. And as a result, we see the entire world burning down – metaphorically in the case of places like Chile, Lebanon, Syria, France, Spain, Russia, Indonesia, Hong Kong, and even New York City; and literally in places affected by climate change like California. It’s also led to the majority of the world’s population living under some kind of strong-man authoritarian rule, with surveillance states expanding daily and democracy under dire threat everywhere.

New Delhi now has to distribute gas masks to students for them to even go outside. Isn’t it time we stopped listing to the economists, even the allegedly “liberal” ones like Larry Summers as well as overtly pro-corporate Libertarians like Cowen? In reality, they are all of a piece, and it’s time for these sociopaths to go into the dumpster of history where they belong. John Maynard Keynes himself hoped that economists would eventually become “about as important as dentists.” But that’s drastically unfair to dentists—they are far more useful and have done far less harm to civilization! Carpenters and dentists provide real benefits to society. Economists, however, should probably be treated the way witches were treated in Medieval Europe. To paraphrase Diderot: Man will never be free until the last CEO is strangled with the entrails of the last economist.

3 thoughts on “Don’t Think Like an Economist

  1. Crazy: when I saw that NewScientist quote was from 1992 I had to look on my bookshelf for the original. Turns out I had stopped subscribing six issues earlier because it was starting to get kinda weird. It’s not the rag it used to be 🙂 (Quanta Magazine online is my source of science news these days – no affiliation.)

    Money and lives are not commensurate – you just can’t value lives in money. I mean, you can try, but you’ll be wrong. Wasn’t one of the early cases a major car manufacturer with exploding fuel tanks? They had their knuckles rapped, if I remember right. Probably get off with a caution now.

    Just remember all the money is trying to go home.

  2. Question for a first timer to this blog…have you ever mentioned the word “Jews” even once?

    And no, I’m not a fascist right winger, but choose to observe the world just like you do. Isn’t it interesting how this small minority somehow seems to accumulate billions, trillions, even while ordinary Americans of all stripes fall further and further behind? Is that not worthy of analysis?

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