« My Life | Main | My Health »

November 29, 2006

Economics As Religion

Mark Thoma approvingly quotes a Stephen Gordon arguing that laymen don't understand economics in precisely the same way the don't understand evolution -- they're too quick to believe in an intelligent designer.

Intelligent Design as applied to economics takes pretty much the same form as it does with biology: "What we observe couldn't have just happened; it's obviously the work of some Greater Power." When it comes to evolution, the Greater Power generally takes the form of an omnipotent diety. The counterpart in economics is the 'economic elite': the existence of inequality is interpreted as evidence that those who have done well did so by design.

This seems almost indescribably bizarre. What does the last sentence even mean? That those who've done well have done so by accident? That wealthy elites -- yes, there are such people -- don't work to influence public policy in such a way that they become richer? And that wealthy elites are thus not rational economic actors who work to maximize their utility? That marginal tax rates, Fed policy, and distributionary decisions are set according to natural law? How does Gordon respond to the work of economists like Saez and Piketty? Robert Gordan and Ian Dew-Becker?

There are few disciplines I find one-tenth so valuable as economics. But this is theological thinking, not empirical exploration. And it's done to shut down, not open up, discussion. Gordon is angry that non-economists don't understand him. Reading this, it would appear that "non-economists" don't agree with his assumptions. And so he's arguing his interlocutors are little more than savages. It reminds me of this article (and the ensuing debate) between Bob Kuttner and Paul Krugman, which dealt with Krugman's tendency to argue -- and dismiss -- solely through expertise. Well worth a read, particularly given that the last decade has proved Kuttner rather prescient, and many top economists -- Krugman included -- now profess significant agreement with Kuttner's labor-liberal critique, a critique they once derided as nothing more than "economist-bashing."

November 29, 2006 in Economics | Permalink


I always used to say that, for many, economics is precisely a religion, with Free Market as the deity. It even has an Invisible Hand. This is mostly a disease of libertarians, but I've found economists themselves to be very touchy. Even though they know damned well that Econ 101 is so simplistic as to be BS, they act as if questioning those simplistic assumptions is tantamount to, well, questioning evolution.

Dismal, indeed.

Posted by: JRoth | Nov 29, 2006 10:32:46 AM

I would go further. Most people on the right economically in this country are free market fundamentalists, with all the detrimental behaviors that one would think this label implies.

Posted by: akaison | Nov 29, 2006 10:37:59 AM

Ezra, How does either Piketty & Saez or Gordon & Dew-Becker help your point. They both just say that rising nominal income inequality is not fully accounted for by SBTC. G&D point to the rise of "winner-take-all" superstar markets--jocks, media celebrities, and CEOs--,which have absolutely nothing to with the economic elite rigging the system to their advantage. Cite one paper by a serious economist that attributes rising nominal income inequality to political manipulation by economic elites.

Posted by: Will Wilkinson | Nov 29, 2006 11:30:03 AM

what's a "serious economist"?

Posted by: akaison | Nov 29, 2006 12:15:41 PM

Well, Paul Krugman comes to mind. Of course, I'm sure that Will is playing with a variation of the "no true Scotsman" fallacy here, so no answer would satisfy him.

Posted by: firebug | Nov 29, 2006 1:02:35 PM

precisely my point

Posted by: akaison | Nov 29, 2006 1:34:26 PM

No, I'm not playing the no true Scotsman game. Krugman is obviously a serious economist. But he is also a part-time hack. I meant: a paper by an economist in a well-regarded peer-reviewed academic journal (i.e., the kind that counts in favor of tenure in about any econ dept--AER, JPE, QJE, etc. [http://www.in-cites.com/research/2006/june_5_2006-2.html]). So, cite a paper by Krugman in a peer-reviewed journal arguing political manipulation by economic elites and I'll concede the point. It stands that the papers Ezra cites simply don't support his thesis.

Posted by: Will Wilkinson | Nov 29, 2006 1:48:13 PM

so what will means is that anything that disagrees with him is hackery and not serious

Posted by: akaison | Nov 29, 2006 1:59:55 PM

You really aren't listening, are you? Krugman won the Clark medal. He's a serious economist! Yes. And he also frequently writes seethingly acrimonious newspaper columns that have everything to do with narrow partisan ideology and little or nothing to do with his expertise. Hackery! I'm just saying, "show me the research." It is not too much to ask that Ezra cherry-pick studies that actually support his point, especially when he's claiming to take economics seriously.

Posted by: Will Wilkinson | Nov 29, 2006 2:21:58 PM

yeap scotsman game

Posted by: akaison | Nov 29, 2006 2:35:18 PM

"That those who've done well have done so by accident?"

Pretty much, altho "accident" may be the wrong word. Not thru the winners own efforts or influence. But yes, there has been discussion recently about how much effect the public policy has really had on inequality (very little);where the inequality is concentrated (athletes, entertainers, Silicon Valley), etc.

I stand with Will, Thoma, Krugman in that what is said by Gordon is pretty much mainstream economics; I remain open and working on determining whether the economists or their critics have unrecognized irrationalities in their understandings and analysis.

Posted by: bob mcmanus | Nov 29, 2006 2:50:52 PM

I guess I am not serious about economics. Certainly part of Lebron James relative income is derived from his own effort. But I might contend that the majority of James status, or in increase in salary relative to the rest of us, is not due to his work habits, "rigging the system", or some conspiracy...but due to market changes far outside James' control.

Or maybe I just can't write. Or think. Wilkinson can do both very well, and with a little charm and patience could find a more receptive audience.

Posted by: bob mcmanus | Nov 29, 2006 2:57:28 PM

or maybe the problem is treating it as the individual rather than the impact of the class that is the super rich

Posted by: akaison | Nov 29, 2006 2:59:49 PM

"Cite one paper by a serious economist that attributes rising nominal income inequality to political manipulation by economic elites."

However, this is somewhat a strawman. If I am required to prove with evidence in a peer-reviewed economic paper that for instance the capital-gains tax cuts of the last generation was due to "political manipulation by economic elites" and only that manipulation, I would have huge difficulty. And that is only part of my problem, for then I would have to prove that the tax cuts were an important cause of the inequality, and I am not sure I even believe that. Wilkinson sets a high bar.

My personal belief is that the statement at the top of this comment is true; that the major players in the conspiracy include Friedman and Greenspan; that among the tools used were monetary policy and tax/fiscal policy.

But I am in no way equipped to prove it to Wilkinson's satisfaction. And I also believe that some of the accepted wisdom of economists, for instance, Friedman's seminal paper on inflation and unemployment, increase the difficulty of making the case.

Posted by: bob mcmanus | Nov 29, 2006 3:19:29 PM

Hell, Friedman's paper on "Positive economics" purt near makes discussion impossible. Any refutation of a model is a good thing, improves the model, and doesn't matter anyway, since a model is "proved" by its usefulness. Economists are a trip.

Posted by: bob mcmanus | Nov 29, 2006 3:24:52 PM

Have you ever actually read Piketty and Saez? They believe the prime mover was post-war tax policy.

Posted by: Ezra | Nov 29, 2006 3:36:54 PM

Meanwhile, I literally don't understand the resistance to this point. You can't possibly believe wealthy and powerful elites don't try to "maximize their utility" within the system, can you? That this is all natural law stuff, and nobody is working to influence public policy in order to grab more of the pie?

Meanwhile, here's Saez:

"A second view [he just dismissed SBTC] claims that impediments to free markets due to labor market regulations, unions, or social norms regarding pay inequality, can keep executive pay below market. Such impediments have been largely removed in the United
States but still exist in Europe or Japan, explaining the trends."

That's manipulation by political elites. So, by the way, are labor unions political manipulation with a different end. But to pretend this stuff is natural rather than intentional is absurd.

Posted by: Ezra | Nov 29, 2006 3:42:41 PM

Meanwhile, here's Gorden and Dew-Becker:

"We argue that economists in their
explanations of growing income inequality have placed too much emphasis on “skill-biased
technical change” and too little attention to the “economics of superstars,” i.e., the pure rents
earned by the top CEOs, sports starts, and entertainment stars. This source of divergence at the
top, combined with the role of deunionization, immigration, and free trade in pushing down
incomes at the bottom, have led to the wide divergence between the growth rates of
productivity, average compensation, and median compensation."

It's fun to accuse me of not reading studies, but the reason I used these two is they both place great emphasis on the roles of deunionization, trade, and tax policy. Say what you will about the merits of the operative legislation, but to suggest that political elites haven't had a hand in the process is absurd.

Posted by: Ezra | Nov 29, 2006 3:47:21 PM

no you are wrong because only serious economists understand self interest.

Posted by: akaison | Nov 29, 2006 3:50:14 PM

look at David Cay Johnston's book, Perfectly Legal, for a good take on how elites- the super rich- rig the system for their own benefit.

Posted by: dale | Nov 29, 2006 4:02:08 PM

Look at Marx's Capital. I know, I know. But his points about how capitalism (and the political econmists who study it) hides political domination behind seemingly objective, almost nature-like, economic relations is important, relevant, and largely true.

Posted by: dale | Nov 29, 2006 4:26:09 PM

I think James Galbraith's Created Unequal: The Crisis in American Pay (1998) is a good book by an economist. And this book shows how political manipulations by elites have contributed to the increased inequality in wages in the U.S.A. Since publication of this book, Galbraith has also looked at other countries.

Posted by: Robert | Nov 29, 2006 5:22:17 PM

Ezra, Political elites have a huge amount to to do with policy, of course. And many of them agree with you about policy! But you started out talking about "wealthy elites," which I took to mean "rich people" or, as a I put it "economic elites." As it turns out, lots of those people agree with you about policy too!

Your burden is to provide evidence that the explanations for things like deunionization, immigration, and trade aren't mostly due to some combination of aggregated decentralized choices in response to dynamically shifting incentives and the general atmosphere of democratc opinion, but are instead due to certain segments of the income distribution successfully pushing through policies intended to benefit them.

In the passage you note, P&S says "these impediments have been removed." They don't say by whom, and don't conjecture. Are you suggesting that, say, American "social norms" about CEO pay are due to some kind of manipulation by the rich? American labor regs were never as strict as Japan & Europe's, and unions have been eroding without much change in policy. What's the story?

In the G&D-B passage, the mention supertar markets and later mention that this has to do with the advance of mass media technology. Clearly a decentralized affair.

In the unlikely event your favored story about mechanisms is true, you'd still need to show that those policies aren't in the public interest, or that they have unjust distributional consequences.

I would be the last person to dispute that interest groups seek political rents. In fact, my own pet theory is that rising income inequality has a great deal with the union strangle-hold on education. But I don't pretend that I can find evidence for that in the current economics literature.

I didn't accuse you of not reading the papers. I accused of you of either not understanding them, reading your pet theories into them, or both.

Posted by: Will Wilkinson | Nov 29, 2006 5:30:01 PM

Clearly, this guy doesn't understand either evolution OR God.

God is omniscent, omnipotent, and unselfish. If he designed the world, he did it with perfect knowledge, total power over outcomes, and not for His own benefit.

Saying that liberals are equating economic elites with the "intelligent designer" is flat-out insane. Not one person in the history of liberal economic criticism has ever suggested that the economic elites are omniscent, omnipotent, OR unselfish. What liberals have, in fact, said is that economic elites are powerful, aware, and self-interested players in the system who will change or game the system to protect their own interests as they see them.

In fact, it's CONTRARY to evolution to suggest economic elites wouldn't try to rig the game in their favor. I mean, frigging BEAVERS have evolved to rig the evolutionary game in their favor--they don't accept the "natural world" as it is. They cut down trees, and make ponds. Yeah, bad for trees and grass and deer and wolves. But good for beavers. So they do it.

Frankly, if there's an "intelligent designer" in economics, it's the bloody "invisible hand of the market." I am so tired of being told how smart the market is, and how everything would be fine and dandy if we'd just stop interfering with "the market."

An unfettered free market isn't a libertarian paradise, it's an anarchist state where the strong devour the weak, short-term considerations outweigh all, and we're far more likely to jump on a self-reinforcing cycle that leads to collapse and ruin than one which leads to progress.

To reason by analogy, evolution didn't evolve corn. Artificial selection did. Likewise, an unfettered free market didn't magically make America's economy great. It was a lot of things, among them a regulated market and appropriate government influence and non-influence over various parts of the economy. For example, a government that would issue patents (thus interfering with the market) but which didn't make them conditional on creating something the government thought was "worthwhile" (thus not interfering with the market).

Ugh, I am so sick and tired hearing how freaking smart "the market" is. It's not smart. It's just what works right now. The market doesn't favor what's "best," it's heavily influenced by chance and initial conditions and by what's "fittest" for this moment.

The invisible hand of the market is NOT the hand of God. It won't save you from your mistakes.

Posted by: theorajones | Nov 29, 2006 5:31:37 PM

Are you suggesting that, say, American "social norms" about CEO pay are due to some kind of manipulation by the rich?

Good lord, yes. Are you seriously suggesting they're not?

Posted by: djw | Nov 29, 2006 7:46:37 PM

The comments to this entry are closed.