Posts Tagged ‘economists’


Mainstream economists, such as Harvard’s Gregory Mankiw, celebrate international trade (including outsourcing, which they argue is just another form of international trade) at every opportunity. But right now, voters—especially in the United States and the United Kingdom—aren’t buying what mainstream economists are selling. They are (as I’ve argued here, here, and here) ignoring the so-called experts.

That rejection clearly disturbs Mankiw, who just adds fuel to the fire by arguing that the more education people acquire the more they will eventually come around to his view. The implication, of course, is that being against free trade is a sign of ignorance.

We all know that Mankiw and his mainstream colleagues have spent an enormous amount of time and effort—in abstract modeling and lending their support to trade agreements, in the classroom, research, and the public arena—extolling the benefits of more international trade.


But it’s clear, not only from the Brexit vote and the rhetoric on both sides of the current U.S. presidential campaigns, but also from a survey earlier this year by Bloomberg, that many people remain opposed to free international trade: 65 percent favor restrictions on imported goods to protect American jobs, 44 percent think NAFTA has been bad for the U.S. economy, and 82 percent are willing to pay more for U.S.-made goods.

Clearly, mainstream economists’ campaign hasn’t worked. So, Mankiw turns to the research of two political scientists, Edward Mansfield and Diana Mutz (pdf and pdf) to find what he wants: anti-trade sentiments are positively correlated with isolationism, nationalism, and ethnocentrism and negatively with level of education. So, in his view,

there is reason for optimism. As society slowly becomes more educated from generation to generation, the general public’s attitudes toward globalization should move toward the experts’.

What I find interesting in Mansfield and Mutz’s research is actually something quite different: people’s attitudes toward international trade (including outsourcing) are not determined by narrow self-interest (such as their job skills or the industry within which they work) but, rather, by the “collective impact that trade policy has on the nation” (what they refer to as a “sociotropic influence,” because of the tendency to rely on collective-level information rather than personal experience).

That result is important because it suggests both mainstream economists and the general public, who may be and often are using very different representations of the economy, have an equally global view of the impact of international trade. Both groups are referring to and forming their judgements based on the nation as a whole. However, while mainstream economists tend to celebrate international trade based on the idea that the nation as a whole benefits (because of the efficient allocation of resources, cheaper imports, and so on), everyday economists may be emphasizing the fact that their nation is internally divided. Thus, in their view, many of their fellow citizens have been negatively affected by international trade and the only real beneficiaries are their employers. So, they continue to be critical of free trade and international trade agreements (such as NAFTA and the Trans-Pacific Partnership).

As I see it, more education won’t eliminate that critical view—as long as trade agreements are enacted within a profoundly unequal society and workers have no say in designing the policies that govern international trade.


Hans Haacke, “The Invisible Hand of the Market” (2009)

Mainstream economists have attempted to model and disseminate the idea of the invisible hand, especially in their textbooks.*

And, not surprisingly, many others—from heterodox economists to artists—have challenged the whole notion of the invisible hand.

But one of the best critiques of the invisible hand I have encountered can be found in Kim Stanley Robinson’s story, “Mutt and Jeff Push the Button” (which appears in Fredric Jameson’s recent book, An American Utopia: Dual Power and the Universal Army).

Here’s a longish extract:

“So, we live in a money economy where everything is grossly underpriced, except for rich people’s compensation, but that’s not the main problem. The main problem is we’ve agreed to let the market set prices.”

“The invisible hand.”

“Right. Sellers offer goods and services, buyers buy them, and in the flux of supply and demand the price gets determined. That’s the cumulative equilibrium, and its prices change as supply and demand change. It’s crowdsourced, it’s democratic, it’s the market.”

“The only way.”

“Right. But it’s always, always wrong. Its prices are always too low, and so the world is fucked. We’re in a mass extinction event, the climate is cooked, there’s a food panic, everything you’re not reading in the news.”

“All because of the market.”

“Exactly. It’s not just there are market failures. It’s the market is a failure.”

“How so, what do you mean?”

“I mean the cumulative equilibrium underprices everything. Things and services are sold for less than it costs to make them.”

“That sounds like the road to bankruptcy.”

“It is, and lots of businesses do go bankrupt. But the ones that don’t haven’t actually made a profit, they’ve just gotten away with selling their thing for less than it cost to make it. They do that by hiding or ignoring some of the costs of making it. That’s what everyone does, because they’re under the huge pressure of market competition. They can’t be undersold or they’ll go out of business, because every buyer buys the cheapest version of whatever. So the sellers have to shove some of their production costs off their books. They can pay their labor less, of course. They’ve done that, so labor is one cost they don’t pay. That’s why we’re broke. Then raw materials, they hide the costs of obtaining them, also the costs of turning them into stuff. Then they don’t pay for the infrastructure they use to get their stuff to market, and they don’t pay for the wastes they dump in the air and water and ground. Finally they put a price on their good or service that’s about 10 percent of what it really cost to make, and buyers buy it at that price. The seller shows a profit, shareholder value goes up, the executives take their bonuses and leave to do it again somewhere else, or retire to their mansion island. Meanwhile the biosphere and the workers who made the stuff, also all the generations to come, they take the hidden costs right in the teeth.”


*As I have discussed before, the invisible hand is a powerful metaphor “for which neoclassical economists have worked very hard to invent a tradition beginning with Adam Smith.” Smith himself only used the term twice in his published writings—once in The Theory of Moral Sentiments and again in The Wealth of Nations—and never to refer to a self-equilibrating market system, which is the way the term is used by mainstream economists today.


As if in direct response to one of my recent posts on “ignoring the experts,” the best mainstream economist Noah Smith can come up with is there is no single, unified elite opinion—perhaps on Brexit but not on most economic issues.

The “elite” isn’t a single unified bloc. There are many different kinds of elites. Politicians, bureaucrats, wealthy businesspeople, corporate managers, financiers, academics and media personalities can all be labeled elites. But there are huge fissures and rivalries both within and between these groups. They are almost never in broad agreement on any issue — Brexit was the exception, not the rule.

That’s not saying much. Of course, elites and elite opinions are divided. They have always have been and certainly are now.

The issue is not whether different groups or fractions within the elite hold different opinions, but the limits of those differences and the views that are marginalized or excluded as a result.

Consider the views of mainstream economists (which is really what my original post was about). They hold different views about most economic issues—from labor markets to international trade—but the range of differences is very narrow. As I explained back in January:

while conservative mainstream economists believe that efficiency, growth, and full employment stem from allowing markets to operate freely, liberal mainstream economists argue that markets are often imperfect and therefore the only way to achieve (or at least approximate) those goals is to intervene in and regulate markets. Those are the terms of the mainstream debate in economics, from the origins of modern economic discourse in the late-eighteenth century right on down to the present.

Think about it as the difference between the invisible hand and the visible hand.

Liberal mainstream economists, of course, hotly contest the free-market doctrine of their conservative counterparts. But notice also that they hold in common both the goals and the limits of economic policy with conservatives. Liberals and conservatives share the idea that the goals of an economy are to ensure efficiency, growth, and full employment. And they share the idea that economic policy should be limited to tinkering with capitalism—in the direction of more regulation or, for conservatives, more free markets—in order to achieve those goals.

That’s it, the limits of the mainstream debate.

Mainstream economists use different theories and promote different policies within those narrow limits. What they exclude are theories and policies that fall outside those limits—and thus, in their view, don’t deserve a hearing.

Their expertise ends when it comes to theories that focus on such things as the inherent instability of capitalism or the role of class in determining the value of goods and services and the distribution of income. And they exclude policies that either change the fundamental rules of capitalism or look beyond capitalism, to alternative ways of organizing economic and social life.

What that means, concretely, is mainstream economists tend to minimize the damage—to different groups of people and to society as a whole—of existing economic arrangements. Just as Paul Krugman minimizes the loss of jobs from deindustrialization (“we’re talking about 1.5 percent of the work force”), Smith understates the disruptive effects of globalization (in referring to “some economic setbacks” for the middle-class of rich nations while presuming everyone else has gained).

So, yes, mainstream economists (like the elites whose position they never contest) often find themselves disagreeing among themselves about theories and policies. But it’s precisely because the limits of their disagreements are so narrow, there’s always a surplus of meaning that falls outside of and escapes their purview. That’s when alternative theories and policies flourish—and all mainstream economists can do is invoke their self-professed expertise to attempt to quash the alternatives and relegate them to (or beyond) the margins.

Sometimes, of course, it works and non-elite opinion falls in line. But other times—after the crash of 2007-08, in the lead-up to the Brexit vote, and so on—it doesn’t and the narrow limits of expert opinion are challenged, parodied, or ignored. And other possibilities, always just below the surface, acquire new resonance.

Elites, who simply can’t or don’t want to understand, suggest the masses just eat cake (or, today, crack)—and, like Smith, hide behind the idea that “there are no easy answers to the challenges of the modern global economy.”


David Howell is right: attempts to raise the federal minimum wage in the United States (from the current $7.25 to, say, $12 or $15 an hour) have been stymied by a no-job-losses rule—the idea (promoted by mainstream economists and employers alike) that the minimum wage should be set so that there are no job losses for anyone anywhere in the country.

Determining a suitable federal minimum wage based solely on a zero job loss rule is a public policy straightjacket that would effectively rule out any significant raise of the wage floor above that which already exists. Yet from a historical perspective, strict adherence to such policymaking criteria would have also made it impossible to ban child labor (job losses!), as well as many critical environmental and occupational health and safety regulations. It would also foreclose any consideration of policies like paid family leave, which exists in every other affluent country.

As Howell correctly explains, the possibility of some job losses—for some workers, in some places—as a result of significantly raising the minimum wage can be countered by a combination of “emergency relief” (like extended unemployment benefits) and creating new jobs (e.g., through expansionary fiscal policy and public works programs).

So, what stands in the way? Howell focuses on methodological problems (“because the identification of the wage at which there is expected to be zero job loss must be evidence-based, there is no way to establish the higher nationwide wage floors necessary for empirical tests”) and misplaced priorities (such as forgetting about “the moral, social, economic, and political benefits of a much higher standard of living from work for tens of millions of workers”).

Both are valid points. But I’d point to a third: profits. The fact is, when employers threaten to let workers go (or not hire additional workers) if the minimum wage is increased (or mainstream economists make the argument for them), they’re attempting to protect their bottom line. If they kept their existing workers, so the argument goes, their profits would fall; and if they wanted to maintain their current level of profits, they’d have to fire some of their workers and replace them with one or another form of automation. It’s all about pumping out the maximum profits from their employees.

Profits also enter the story in a second way. Private employers see the possibility of compensating for minimum-wage-related job losses—by offering workers public relief and by creating new jobs through public programs—as a challenge to their existing control over workers, jobs, and ultimately profits. That’s the second reason they oppose an increase in minimum wage, because they know full well society has the means to make up for their willingness to eliminate jobs. But then their own role in the economy and the profits that come from that role are called into question.

For both those reasons—the threat to fire workers and the threat to their monopoly as employers—profits are the real obstacle to raising the minimum wage.

There’s no getting around it. We have to challenge the sanctity of private profits, presumed and promoted by both employers and mainstream economists, in order to guarantee American workers a decent minimum wage.


Chris Dillow’s latest post reminds me of a point I overlooked in my own post yesterday on the public’s declining trust in the expertise of mainstream economists: the effects of inequality.

The argument I made was that, because mainstream economists relegate issues like power and class to the margins, they literally don’t see (for themselves) or show (to others) the unequal distributions that are either presumed by capitalism or that follow from capitalist ways of organizing economic and social life. Therefore, many members of the public who are affected by and/or concerned with such issues have become more likely to ignore and even challenge the self-professed expertise of mainstream economists.

What Dillow adds to this is the idea that trust itself has declined with growing inequality (which, as it turns out, I wrote about back in 2014).

As a way of expanding my original argument, we may be witnessing a self-reinforcing vicious cycle: the policies promoted by mainstream economists have led to increasing inequality, which mainstream economists tend to overlook or ignore. That growing inequality has, in turn, decreased the level of trust in the wider society, including trust in so-called experts. Together, the falling level of trust and the fact that mainstream economists literally don’t see or show the distributional consequences of the policies they support have propelled the larger public to question the presumed expertise of mainstream economists.

And rightly so. As Bob Dylan once sang, “You don’t need a weather man/To know which way the wind blows.”


Mainstream economics has clearly had a great fall.

Just two days ago, I argued that—after the crash of 2007-08 and, now, Brexit—mainstream economists have had “nothing to offer, either in terms of insight or a path moving forward.” Also recently, Antonio Callari challenged Brad DeLong’s attempt to reduce economics to the mainstream debate between supply-siders and demand-siders and his argument that there’s no room for economists as public intellectuals.

Now, Mark Thoma has stepped forward to explain why it is that “in recent years the public has lost faith the in the economics profession.” And since by the “economics profession” Thoma is essentially referring to mainstream economists, he’s absolutely correct.

One reason for the lack of faith is the failure to predict the Great Recession, but the public’s dismissal of macroeconomists is based upon more than the failure to foresee the dangers the housing bubble posed for the economy. It is also due to false promises about the benefits to the working class from globalization, tax cuts for the wealthy, and trade agreements – promises that were often used to support ideological and political goals or to serve special interests.

Even more, mainstream economists simply don’t have “a solid understanding of the mechanisms that drive the economy.”*

Therefore, in Thoma’s view, economists need to exercise more humility and flexibility:

more humility about what we do and do not know, more willingness to change our minds when the evidence disagrees with our favorite theoretical model, and the willingness to acknowledge disagreement within the profession. But most of all we need to take a strong stand against those inside and outside the profession who misuse economic theory and empirical results for political and ideological purposes.

I’m all in favor of theoretical humility and flexibility. I certainly do not hold to the idea that our processes of producing knowledge can, or even should aim to, give us access to a complete or definitive model of the world. And I’m quite willing to admit—against the pretensions of most mainstream economists—that all we have (and can have) are partial and local and incomplete knowledges, which themselves are always changing.

But, while a good start (given the arrogance and rigidity with which much mainstream economics has been and continues to be produced and disseminated), that’s not enough. The real challenge, it seems to me, is to go beyond that and criticize both the theoretical models utilized by mainstream economists and their self-identified status as scientists who are somehow outside and independent of the world of politics and ideology.

There are, according to all three of us (Callari, Thoma, and myself), good reasons why mainstream economists have fallen in the eyes of the public. And try as they might, it’s doubtful “All the king’s horses and all the king’s men” can or should put mainstream economics back together again.

What’s needed is a fundamentally different way of doing economics and of thinking about the role of economists—economic theories that focus on issues of power and class (instead of relegating them to the margins) and a conception of economists as real public intellectuals (who play “a galvanizing role in the production of public knowledge and policy, where ‘public’ means not just ‘for’ the public, the people, but also ‘of’ and ‘by’ the people”).

I recognize that’s a radically different way of defining economics compared to the mainstream tradition. But, as it turns out, it’s a move Humpty Dumpty himself would have recognized.

“The question is,” said Alice, “whether you can make words mean so many different things.”

“The question is,” said Humpty Dumpty, “which is to be master—that’s all.”


*Thoma’s list of issues on which mainstream economists simply don’t have answers includes the following:

  • Why has productivity fallen? Will it stay low in the future?
  • What has caused the decline in labor force participation?
  • How strong is the economy’s self-correction mechanism in recessions, and how does it work?
  • Is there a Phillips curve (i.e. a reliable relationship between inflation, inflation expectations, and unemployment)?
  • How are expectations formed, and do they converge to rational expectations over time?
  • What is more important in the determination of wage and capital shares of income, marginal products or bargaining power and other institutional features of labor markets?
  • What frictions should we focus on? Price and wage stickiness? Financial frictions? Both? How do these frictions vary over the business cycle?
  • How high can the minimum wage be raised before there are significant employment effects?
  • What is the cause of inequality? Is it baked into the capitalist system, or is it the result of political and institutional forces?

And, according to Thomas, “that’s nowhere near a complete list of the things we don’t fully understand. We don’t even agree about what caused the Great Recession.”


American voters are clearly angry. At least it’s clear to me—for example, as reflected in the success of the Donald Trump and Bernie Sanders campaigns (and in the evident dissatisfaction with Hillary Clinton, Congress, and Wall Street).

But it’s not clear to many economists, who cite rising average incomes, a relatively low unemployment rate, and other aggregate indicators. For them, the economic situation is improving and there’s really no reason for Americans to be angry.*

And then there are the philosophers, like Martha Nussbaum, who think anger is itself morally bad.

You can be dignified, you can protest, you can say this is outrageous, but you don’t have to do it in a way that is angry or seeks payback.

But the fact is, even with slight improvements in the overall economic situation in recent years, many Americans remain financially stressed and are angry that most of the gains that have been achieved since 2009 have been captured not by them, but by a tiny group at the top.

The financial stress underlying the anger is evident in the latest Report on the Economic Well-Being of U.S. Households in 2015 issued by the Board of Governors of the Federal Reserve System (pdf).

The word cloud above is a good place to start. Each cloud includes the 75 most frequently observed words in the description of individuals’ challenges, with the size of the word reflecting its frequency. Thus, for example, among low-income respondents, “bills” and “money” are the most commonly reported words, while for those in the middle, the most common words are “insurance,” “health,” “money,” and “retirement.” For those earning more than $100,000, the emphasis shifts to worries about “retirement.”

The report offers plenty of additional evidence about the financial stress experienced by many Americans. For example, just under one-third of respondents report that they are either “finding it difficult to get by” (9 percent) or are “just getting by” (22 percent) financially. This represents approximately 76 million adults who are struggling to some degree to get by.


And while individuals are 9 percentage points more likely to say that their financial well-being improved during the prior year than to say that their situation worsened, it is still the case that 46 percent of adults reveal they either could not cover an emergency expense costing $400, or would cover it by selling something or borrowing money.

That’s 46 percent! To cover a $400 expense!

So, although there’s been some improvement in recent years when looking at aggregate-level results for the U.S. population as a whole, the fact is most of the improvement has occurred at the top (especially for college-educated, white Americans). The rest of the population (black, white, Hispanic, without college degrees) continues to be financially squeezed. And it’s that difference—between improvement for a few and stress for everyone else—that means lots of Americans are angry right now. And, yes, they want payback.

The mainstream economists and politicians who say that people should not be angry, that they should be content with their lot, are wrong. So are the philosophers who argue that anger and the desire for payback are morally suspect.

As I see it, the American working-class is justifiably angry and they clearly want to see some kind of payback. The real questions are, who is standing in their way (and thus whom should they be angry at) and what kinds of fundamental changes in the economic system are necessary to improve their situation (and thus to achieve the appropriate payback)?


*To be fair, Jared Bernstein himself looks behind the aggregate numbers, which leads him to understand “why some people are unsatisfied with the economy and beyond. Growth hasn’t reached all corners by a long shot, and policymakers have too often been at best unresponsive to that reality and at worst, just plain awful.”