Economists, Methods and Government

Ezra has a post up about how Economists tend to run most of the government, including things that aren’t economics. Ryan Avent has a good follow-up, talking about how cost-benefit analysis is a clean and efficient way to get a strong data point into the public debate over policy and government actions. I think it goes further than just a method. I was talking with a sociology graduate student recently, studying economic sociology, who talked about a “credibility gap” between sociologists and economists, even when they deploy the same methods, when it comes to the public debate over the issues we face.

This is something I’ve been thinking about, as I’ve tentatively accepted an offer to start a PhD program in economics this fall, though I am strongly debating not showing up for it. It seems like there is too much work to be done to donate the next couple of years to reading Mas-Colell page by page. I’m also a little old for it I think. Though on the other hand, I’d know exactly the questions I’d want to research on day one. (I’m going to drag the decision out over the summer in case you can’t tell.)

There’s a credibility about having the Economics PhD with government circles that you don’t get otherwise. I think that can lose real knowledge as economists substitute in for financial experts. But I think there’s a deeper philosophical issue here as well. I’ve been looking for an excuse to link to this, for a while now, so I’ll post it here. From Crooked Timber’s Review of Steven Teles’ “The Rise of the Conservative Legal Movement” by Henry Farrell:

Bob Litan is a genuine slightly-left-of-center moderate Democrat…Litan (if he is not being misquoted here, and the quotes certainly seem consonant with what I think he believes) seems to espouse two positions that would likely not have been espoused by left-of-center types thirty years ago – (1) That the market needs to be protected against regulation, and (2) that this is a politically neutral position that should be obviously true to both left and right. The preponderance of these two mutually reinforcing beliefs among ‘moderate’ left of center in this country – represent, in my view, an emphatic and important victory of the law and economics movement. If you win the technocrats (and law and economics arguably has won the technocrats), then you very nearly have won the entire game.

I think I detect in Litan’s viewpoint (and I surely detect it in many other emanations of sort-of left of center moderation) an implicit set of normative assumptions about what politics (and in particular political economy) involve. These assumptions stem from the belief that the market, when it works properly, is the best possible way of achieving essential human freedoms…

This is one plausible account of how the political economy should work. It is certainly the account that we see in much of the law and economics literature, which certainly has a clear anti-regulatory bias. But it is not, contra Litan, a politically neutral account. It prioritizes some values over others. It makes some kinds of distributional arrangements more likely, and other kinds of distributional arrangements less likely…

And here, I suspect (though I certainly can’t prove) that law and economics has played a very significant role indeed in taking these debates off the table. It offers an apparently neutral technical apparatus for analyzing the relationship between laws, regulations and market outcomes. However, it is skewed in practice by a pronounced pro-market bias, starting, as it usually does, from the assumption that the market is the most efficient way of achieving individuals’ desires and needs…

Law and economics, as it is theorized in the legal academy and applied to regulatory politics is a diluted form of the pure libertarian variant of public choice (which was far more pronouncedly hostile to the very idea of the federal government than law and economics as a whole). But precisely because it is so diluted, and because it appears technical and uncontroversial, it has a much wider influence than an overtly libertarian political program would have. Smart liberals (Cass Sunstein is the most obvious example) think in ways that are profoundly structured by their exposure to law and economics. Sometimes this may be salutary (there are real insights in law and economics and in libertarian thought). Sometimes (in my view), not so much. But whichever which way, it isn’t politically neutral or anodyne at all. Instead, it is a real political position, which has significant normative consequences, and should be debated as such, not merely accepted as a commonplace.

And a certain type of bias beyond cost-benefit it does have. I was at the open house for the economics program, talking to some younger folks, go-getter change the world types, about what what we did for a living and what they want to study and what I wanted to study. They said they weren’t sure. I asked “what kind of economics interest you?”

Between them, “Economics of health care. Economics of education too.”

I followed, “Does any kind of economics not interest you?”

“Oh Finance. And Business. That kind of stuff. It’s too, I don’t know, kind of conservative.”

Hmmm. To push them, “Really? I find finance to be interesting, and it is what it is. CDOs have to get priced, the bond market needs to be analyzed, Shakespeare’s got to get paid. But I find the economics of health care and education to be too conservative. For health care your central idea is risk homeostasis; with the central principle being that people shouldn’t wear bike helmets since it’ll just cause cars to drive closer to them. And with education it’ll all be human capital, education as service to industry, and how public colleges should charge more since they are giving a sweet deal on the cheap.”

It was a cheap shot, but I wanted to see their reaction. I think it is fair to say they were caught off guard, to say the least, by the financial engineer bringing their approach into question in this specific manner. But I do think the methods here predict a large chunk of the answer.

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One Response to Economists, Methods and Government

  1. Pingback: The Hegemony of Neoliberalism | Marching Under Banners

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