Self criticism in economics
August 26, 2014Leave a commentGo to comments
from Peter Radford
This is a bit of a rant. Please bear with me.
I rarely do this, but here’s a link to one of my favorite economics blogs:
Unlearning Economics:Economists Dissing Economics
The problem with all this self-criticism is that many of the people doing the dissing are responsible for the disarray they are criticizing. A different view is that none of them saw fit to make enough noise to change things.
This may unfair of me.
Notice also that much of this criticism is dated. The wheels have been coming off economics for a long time, yet inertia is sufficient to prevent change.
This may also be unfair of me.
But, ask yourself: where else in our economy could so much analytical ineptitude be tolerated for so long? Where else could repeated failure be fobbed off so easily? Where else could so much fraction, discord, and general incoherence be treated as a “profession”?
If some of the so-called heterodox alternatives to the dominant theories were so compelling surely they would have been more widely accepted. It is not enough to carp about other people’s evident failings – and believe me, as a relative outsider those failings are glaringly evident – because I believe those who complain have a responsibility to build the better alternative.
Instead we are confronted repeatedly by the same old stuff. The same old utopian nonsense, or the same old half complete theories. For sure, around the fringes there are signs of progress, but mostly they, too, suffer from incompleteness, over reliance on formalism, and, unfortunately too often, a highly naive interpretation of reality.
There is a mass of work going on within economics. Well intentioned work. Brilliant work no doubt. But it isn’t advancing us. It is not penetrating the fog of complexity or uncertainty that real world people working in the economy take for granted as the basic condition they must deal with.
I am talking about the basic stuff outsiders would consider to be economics.
There is an issue here we need to be clear about: lots of economists don’t work on the economy. They work in obscure sub-fields of economics, so they think of themselves as immune to the criticism, post-crisis, that economics is a failed enterprise. They regard themselves as making progress, albeit in largely irrelevant and purely academic domains that will have only marginal – if that – impact on society. These people are not economists in any popular or vernacular definition of the word. They are technicians adept at analysis. They could be mathematicians just as easily. Or computing theorists. Or quasi-physicists. Or whatever. By and large they’re good with numbers. That’s it. As if that’s economics.
The problem is that at the root of their knowledge sits the same profoundly unreal and naive vision of humanity that infects and thus incapacitates mainstream economics. They propagate it unwittingly. They tolerate it.
It is one thing to stylize, synthesize, or otherwise simplify in order to abstract from reality. It is entirely another matter to obliterate reality along the way. Modern economics – most of it – just isn’t about the economy. It is self-perpetuating and self-regarding. It values itself above its value to society. And when confronted by the complex uncertainties of the real world it sets about the performative task of altering reality to fit its theories.
Economics is about bending the world to fit the theory rather than the other way around.
How else can you explain the profoundly anti-democractic nature of new classical thought?
Anyway, enough of my complaining. It is disheartening to come across lists like that at Unlearning Economics.
I hope you all can prove me wrong about economics.
I really do.
Intelligent sentiments, worth noting.
Probably true for many “professional” disciplines these days where Professing has become a standard of living with a price tag and a label. Market Professionalism was popularly denounced in the early part of the 20th Century but has been largely forgotten as a socially conscious attitude against elitism. anti-intellectualism and anti-establishment themes in the 50s and 60s can be refined to the “capture” of disciplinary conformity, but again…, largely lost to the labels of historicist and media names that obscure the critical and highlight the reductionism in favor of more of the same. When MONEY distorts, professionalism aborts any claims to saving truth or saving graces. Economics just tends to be the business front men to the mass media need to have institutional and authoritative control…even if it is a sordid fiction of self service.
I think Post-Keynesian economics and MMT especially, come close to collating a more realistic set of economic views, which can replace the current orthodoxy – do you think any of that, suffer from incompleteness?
I’m not sure what it is that is preventing those views from gaining more traction, but I have not yet seen any real criticism of those views, which actually undermines the theory put forward – usually just misinterprets it, or makes unbacked assertions about the effects of practicing it in reality.
It seems more to me, that (among people – even novices, like myself – who have done their research) the solutions to our problems are all rather well known at an academic level, but just have almost zero traction at a political level (probably by design of the political system – as my cynical self, thinks it’s all more about seizing and holding undemocratic power, using corrupted economics as a weapon, rather than finding actual working theory).
Peter,
I really enjoy reading your posts, and most of the time I am in complete agreement with you. This post bothers me somewhat. I understand your frustration with the field, and the lack of progress. It boggles my mind that we are still debating things that were debated in the early 19th century.
However, I think you are missing what many in the profession are doing outside the academic world. It really is a shame there aren’t more opportunities for academic economists to interact more with economists who work in the government and the private sector to interact. Most especially, I wish professors were people who did other things first, and came to teaching after experience in the “real world”.
I am an economist who works for the U.S federal government, in an agency that focuses on a particular industry, though I have had experience in another agency. i don’t do modeling, I guess I am really a market analyst, but I do a variety of things. In this and the other position I have had to work with other professionals in interdisciplinary settings. There are many hundreds of us who do applied policy work.
While my area is not macroeconomics, it still have to grapple with theories that are unrealistic. I still have to make arguments (for example in rulemakings) where I have to present a position and defend it, and typically the argument in these cases is why the government needs to intervene in a real world situation that the theory says shouldn’t even exist. These arguments have to satisfy two or three rounds of economists who review this work before it goes public, with many of these economists being people who really believe in the free market position. The arguments, analyses and data are picked apart from divergent perspectives. But the work gets done (just very slowly).
My point is that there are economists who deal with real world things, and who don’t work with fancy mathematically ornate models, but who use logic and an understanding of the complexities of a market to analyze conditions, and also economists who work with other professionals in different disciplines, and even understand that the theory is a starting point of an analysis, not the fantasy world that we try to mold reality to.
The problem is they are not in academics.
I wish more of them were, but the way professors are hired needs to change. They could be brought on board after a career in a profession, and the reward system could be based on publishing articles on books on issues, not theory. I am not saying theory is irrelevant all the time, but it is when everybody wants to be a theoretician.
When I was in grad school, I knew I wanted to work in the government. But the attitude of the professors was that government jobs were for people who weren’t good enough for teaching. I did teach for a while, and the professors at the college (not just in economics) acted like the students were sub-par because so few of them went into academics.
Maybe academicians should look to ways that they can interact more with other kinds of professional economists, not just other professors. Maybe having more respect for those who choose applied work (I am not saying you are like that, but many are).
Are most of the economists on the board of the WEA academics? If so, maybe this is a group that could start a change in that relationship.
These are just my thoughts, and I hope they are helpful. That was my intent.
Thank you for your posts. I enjoy them very much.
Get real. The government of the usa has been 100% devoured by superwealth – all 3 branches are owned lock, stock, and barrel by wealthpower giants – CONgress has confessed it publically for heavensakes! – and its ‘particular industry’ is funneling wealth from the country’s working people to the gigarich and their leisure class heirs. It is a government of the gigarich, by the gigarich, and for the gigarich. That great experiment in democracy known as the First American Republic is DEAD: don’t let the twitching corpse fool you! Madison said the purpose of government is JUSTICE – so how can anyone even think or say we are ‘governed’ at all??! The usa government gets an “F” – just for signing its name at the top of the paper. Elections are now about this or that pandering politicians’ lucre-tive careers – they no longer have a thing to do with what is just or right or good for the working people who built a country. Can you say Liberty, Equality, Fraternity? Equal justice for all? Hah! All the people have in DC now is a bunch of elected and unelected self-serving rascals carrying water for superwealth – a treacherous club devoted to preserving and expanding the long list of legal thefts that comprise an economic dystem that stays on the job 24/7/365 robbing earners, shoveling the nation’s wealth to non-earners; the billionaires, the Kings of welfare.
On behalf of the welfare Kings, whose interests are diametrically opposed to the interests of the working people, this militarism-on-steroids ‘government’ roams the globe destabilizing and overthrowing any government that dares advance the interests of its people instead of cooperating with sacrificing them to the whips and chains of the global wealthpower giants. DC gets up every morning and asks itself “how can we make the weapons purveyors and the banksters and the corporado bandits that much richer today?” A government devoured by superwealthpowerful giants will never do anything else, can never serve the people. Thomas Jefferson and Ben Franklin spin so fast in their graves to see the pure criminal enterprise the usa “government’ now is – we could power the whole country if we could harness their spin-cycling!
Poor Bill Gates puts in the same hours of work I do, and he only has $73 billion – which he is using to, amongst other deplorable activities, rape Africa and completely undermine public education in usa; poor Bill; we need to reduce his tax-rate, obviously! Because there just aren’t enough homeless children yet (Mrs. Homelessshelter Lady, where can i build my volcano, my project for school?) – there just aren’t enough grandmothers choosing between eating and getting their medicine after a lifetime’s work doncha know!
If you ask me, any and every economist working for the usa ‘government’ ought to have their feet held to the fire to defend to the USAmerican people out loud and in public why this country EVER gave away the right to issue the nation’s debt/credit into the private hands of a few private banksters who get it paid back to them WITH INTEREST charged when that right JUSTLY belongs to the PEOPLE whose money it is! WHY isn’t the gov reversing that BLATANT evil unjustice when taking back its duty would immediately start un-doing legal theft?
It’s because, like I said, the ‘government’ has been utterly devoured by superwealth and therefore cannot help us now – that’s why. There is zero vigilance about the most important justice – pay justice – in the fed gov – and in the propaganda ministry for superwealth, otherwise known as the Economics Pofession.
(ps: Hello, just a lucky fool – you deserve a shout-out here.)
This place could use a quotations thread…
“The rich have given to the poor a little food, a little drink, a little shelter and few clothes – the poor have given to the rich, palaces and yachts and an almost infinite freedom to indulge their doubtful taste for display; and bonuses and excess profits, under which has been hidden the excess labour and extravagant misery of the poor” – Gilbert Seldes
‘If, while there is yet time, we turn to Justice and obey her, if we trust Liberty and follow her, the dangers that now threaten must disappear, the forces that now menace will turn to agencies of elevation. Think of the powers now wasted; of the infinite fields of knowledge yet to be explored; of the possibilities of which the wondrous inventions of this century give us but a hint. With want destroyed, with greed changed to noble passions, with the fraternity that is born of equality taking the place of the jealousy and fear that now array men against each other, with mental power loosened by conditions which give to the humblest comfort and leisure; who shall measure the heights to which our civilisation may soar?
“The rise of wages, the opening of opportunities for all to make an easy and comfortable living, would at once lessen and would soon eliminate from society the thieves, swindlers, and other classes of criminals who spring from the unequal distribution of wealth…
“Industrial changes imply social changes and necessitate political changes.
“Progressive societies outgrow institutions as children outgrow clothes.
“For every social wrong there must be a remedy. But the remedy can be nothing less than the abolition of the wrong.
“If there were but one person in the world, it is manifest that he could have no more wealth than he was able to make and save. THIS is the natural order.”
-Henry George 1839 – 1897
(and THAT is the good sense REALISM the richest have driven everyone so far from!)
“Trade is a social act. Whoever undertakes to sell any description of any goods to the public, does what affects the interest of other persons, and of society in general; and thus his conduct, in principal, comes within the jurisdiction of society.” -John Stuart Mill
“Rats and roaches live by competition under the laws of supply and demand. It is the privilege of human beings to live under the laws of justice and mercy.” – Wendell Berry
“Darwin’s theory of the struggle for existence and the selectivity connected with it has by many people been cited as authorization of the encouragement of the spirit of competition. Some people also in such a way have tried to prove pseudo-scientifically the necessity of the destructive economic struggle of competition between individuals. But this is wrong, because man owes his strength in the struggle for existence to the fact that he is a socially living animal. As little as a battle between single ants of an ant hill is essential for survival, just so little is this the case with the individual members of a human community.
“Perfection of means and confusion of goals seem – in my opinion – to characterize our age.
“If we desire sincerely and passionately the safety, the welfare, and the free development of the talents of all men, we shall not be in want of the means to approach such a state. Even if only a small part of mankind strives for such goals, their superiority will prove itself in the long run.”
-Albert Einstein 1879 – 1955
“Man defends himself as much as he can against truth, as a child does against a medicine, as the man of the platonic cave does against the light. He does not willingly follow his path, he has to be dragged along backward. This natural liking for the false has several causes; the inheritance of prejudices, which produces an unconscious habit, a slavery; the predominance of the imagination over the reason, which affects the understanding; the predominance of the passions over the conscience, which depraves the heart; the predominance of the will over the intelligence, which vitiates the character. A lively, disinterested, persistent liking for truth is extraordinarily rare. Action and faith enslave thought, both of them in order not to be troubled or inconvenienced by reflection, criticism and doubt.”
“Emancipation from error is the condition of real knowledge.”
-Henri Amiel 1821 – 1881
WAKE UP, HUMANITY! You are sound-snoring asleep about money, work, and wealth and you are sleepwalking to utter catastrophe! Injustice drives violence! Equality breeds no strife! Equal pay for equal sacrifice to work is JUSTICE: invest in doing justice and reap the greatest-ever dividends! Don’t, and you get history on repeat on steroids KABOOM
Having suffered the profoundly demoralizing, even disgusting, experience of doctoral economics study and having had to effectively unlearn economics myself 20-25 years ago in order to understand how “the economy” ACTUALLY works, were I to have the power and discretion, I would simply shut down economics departments, toss econometrics into the dustbin, and advise economists to study accounting or teach math and statistics, and stay away from the “the economy” (not that there really is such a monolithic “thing” that can be accurately measured).
Economics is politics. Politics is war by other means. War is the business of empire, and war is good business (for imperialists). Therefore, economics is politics is the intellectual rationalization for imperial wars of conquest and plunder by the rentier corporate-statist imperialists at the expense of the rest of humanity and the global ecosystem.
Thus, most economists’ job, admit it or not, is that of state sophistry: devising dubious theories based on fallacious premises to construct irrelevant mathematical/statistical models to rationalize values, objectives, and actions of the Anglo-American rentier militarist-imperialist global trade regime.
“If some of the so-called heterodox alternatives to the dominant theories were so compelling surely they would have been more widely accepted.”
Why? As BC points out above the business of Big Time economics is sophistry. Surely you’re not drinking that “marketplace of ideas” kool-aide?
What a lot of truth distortion!. Of course the experts know best about economics and we poor ignorant people have no hope of entering into a field that is so well detailed and covered by such profound names.
Only trouble is that there is no space amongst all this spreading of superior knowledge for anyone to be able to get a word in edgeways. Who REALLY wants to know how our macroeconomics system ACTUALLY works? Obviously no one at all!!
Peter, following your link to Unlearning Economics, wasn’t it Boulding rather than Heilbroner lamented rigour mortis? And your own lament I don’t think unfair, but I do think it misses the point that generations have died in or become corrupted and grown rich through war without passing on the lessons learned from past failures. Who now reads Marshall’s ‘Economics of Industry’, 1898? This did not deny the Dickensian failures but rhetorically expected its readers to learn from John Stuart Mill’s reasoned morality.
In this from Marshall’s introduction, I would merely invite the reader to consider differences of ‘race’ as a euphemism for differences of personality and specialisation.
“Among races whose intellectual capabilities seem not to have developed in any other direction, and who have none of the originating power of the modern businessman, there will be found many who show an evil sagacity in driving a hard bargain in a market even with their neighbours. No traders are more unscrupulous in taking advantage of the unfortunate than the corn-dealers and money-lenders of the East. [NB. now globalized].
“Again, the modern era has undoubtedly given new openings for dishonesty in trade. The advance of knowledge has discovered new ways of making things appear other than they are, and has rendered possible many new forms of adulteration. The producer is now far removed from the ultimate consumer; and his wrong-doings are not visited with the prompt and sharp punishment which falls on the head of a person who, being bound to live and die in his native village, plays a dishonest trick on one of his neighbours. The opportunities for knavery are certainly more numerous that they were; but [now the encouragement!] there is no reason for thinking that people avail themselves of a much larger proportion of such opportunities that they used to. On the contrary, modern methods of trade imply habits of trustfulness on the one side and a power of resisting temptation on the other side, which simply do not exist among a backward people”.
My own reaction to that is to consider as backward people the sort of people who take advantage of or promote the dishonesties of securitized IOU banking and automated stock market gambling. They have forgotten the gains Marshall goes on to describe: how under the Teutonic races which overthrew the Roman Empire [before the Reformation and after it through non-Conformists],
“the Christian religion was proclaiming the dignity of honest labour and the dignity of man as man. By slow degrees power passed into the hands of the industrial classes; and their well-being began to appear to the ruling classes as an important end in itself, and not merely as a necessary condition of political and military strength”.
What was it the statisticians of Citibank argued? As the 1% have 99% of the money, the 99% don’t matter any more.
http://goo.gl/keevh0
“. . . What is the secular basis of Judaism? Practical need, self-interest. What is the worldly religion of the Jew? Huckstering. What is his worldly God? Money.
Very well then! Emancipation from huckstering and money, consequently from practical, real Judaism, would be the self-emancipation of our time.
An organization of society which would abolish the preconditions for huckstering, and therefore the possibility of huckstering, would make the Jew impossible. His religious consciousness would be dissipated like a thin haze in the real, vital air of society. On the other hand, if the Jew recognizes that this practical nature of his is futile and works to abolish it, he extricates himself from his previous development and works for human emancipation as such and turns against the supreme practical expression of human self-estrangement.
We recognize in Judaism, therefore, a general anti-social element of the present time [1843 Europe], an element which through historical development – to which in this harmful respect the Jews have zealously contributed – has been brought to its present high level, at which it must necessarily begin to disintegrate.
In the final analysis, the emancipation of the Jews is the emancipation of mankind from Judaism.
. . . The Jew has emancipated himself in a Jewish manner, not only because he has acquired financial power, but also because, through him and also apart from him, money has become a world power and the practical Jewish spirit has become the practical spirit of the Christian nations. The Jews have emancipated themselves insofar as the Christians have become Jews.”
Even more the case today than 170 years ago.
I don’t like the tone of this, BC, indiscriminatingly blaming the whole for the defects of a part. You are quoting, I know, but let’s keep this in proportion. The twelve tribes of ancient Israel were the first victims of the hubris of “the Jews”. I suspect this term ‘Jew’ originally applied to their leaders , i.e. about 1% of the 1%, with the innocent 90% or so of their 99% following their leaders like sheep, as ours did into world war.
Just going to bed, I had not followed BC’s link to see it was Marx speaking. Fascinating (a Jew having more right than most to criticise his own kind and aware of the difference between catholicism and a “chosen race”), but in 1840 ignorant about the evidence for the Big Bang, genetics and evolution (hence unavoidable imperfections in Jewish and Christian practice as humans), the meaning of the word ‘religion’ (i.e., having been freed from mental enslavement by fraudulent “hucksters”, following the liberator freely and gratefully); and hence of the doctrines of catholic Christianity (as against the “laws” of the ungrateful alpha male descendents of Abraham and Moses).
Summarizing, the Christian doctrine – from the beginning recognized as vain unless Christ’s Resurrection actually happened – is that God exists, is a kindly rather than a vindictive father (seeking rather than demanding our love), but that his human family is designed to work together like the parts of a human body, and will succeed only insofar as the different parts are allowed and indeed helped by each other to do their own job and make good their inevitable errors. The job of the Christian establishment is not the running of the State but the forgiveness of sins: analogous not to muscular powers but to developing immune systems. (My own right to answer Marx as a studious catholic insider has been developed by computer work with error correcting logics and family problems with immune systems).
from the devil’s daughter’s dictionary:
Economist: a person who is employed to exhaust ingenuity constructing plausible-sounding material answers to what are ethical questions
Why Free-Market Economics is a Fraud
from Ian Fletcher
If there’s one thing everyone in America knows, it’s that free-market economics is true and free markets are best.
After all, we’re not communists, are we? They starved and lost the Cold War because they believed otherwise. And their watered-down European cousins the socialists? More of the same, only less so. Even liberals get this nowadays. All hail the free market!
Trouble is, things “everyone” knows are often wrong. And this is no exception.
It’s time to start getting honest about a very simple fact: Nobody, but nobody, really believes in free markets. That’s right. Not the Republican Party, not the libertarians, not the Wall Street Journal, nobody.
Here’s why: a truly free market is a perfectly competitive market. Which means that whatever you have to sell in that market, so does your competition. Which means price war. Which means your price gets driven down. Which means little or no profit for you.
Oops!
Naturally, businesses flee perfectly competitive markets like the plague. In fact, the fine art of doing so is a big part of what they teach in business schools.
That’s why businesses use strategies like product differentiation, so their competition is no longer selling the exact same product they are. That’s why they use strategies like branding, so their buyers don’t think the products are the same.
Businesses will, in fact, do almost anything to get out of the hell of pure head-to-head competition.
They don’t do it because they’re crooked; they do it because they have an intrinsic economic incentive to. Always.
This is part of the innate essence of capitalism. It is not a flaw or a defect. It is part of what makes the whole system go. It is part of what makes capitalism capitalism.
People are the same way. Consider your own career. Why do you get paid more than the minimum wage? (I’m hoping you do.) Probably because you have some skill that everybody else doesn’t have. So you don’t have to bid against every unemployed person in your area to hold your job. Just a few of them. Which pushes your wage above the legal minimum.
That skill of yours is what economists call a “barrier to entry”—entry into the market for your job, that is. And if you’re anything other than a damn fool, you’ll cherish it like your very life.
I sure do.
Now let’s consider the other side of the equation. We’ve looked at free markets in things you sell. Now let’s consider free markets in things you buy.
Here everything gets turned around. If I’m buying something, I want the freest possible market in that product.
I don’t, to take an example recently on my mind, want there to be only one market for live Christmas trees in my town. I want there to be two (or more), and right next to each other so I can easily comparison shop. And I want to shop for more-easily shippable goods on the Internet, if possible, where I can potentially find the lowest price in the entire world.
I want, in other words, every seller’s nightmare. Which every smart seller will use every legal trick in the book to avoid.
As a result, nobody with any wits about them really believes in free markets. People believe in them when it’s in their interest, but not when it’s the other way around.
This is a systemic, structural condition, so anyone who tells you they believe in “free markets” is either lying, stupid, or hasn’t thought the whole concept through properly.
The latter category is quite common. Many people do their thinking about political ideology in an entirely different—and dreamily disconnected—mental space than they use for managing real life.
Frankly, everyone I’ve ever met gets the truth well enough in practice, in their own personal life or in how they run their business, so I just don’t believe anymore that anyone does believe in free markets.
Like any rational person, I’m open to counter-examples if anyone can show me any. But I’ve been asking around for a while on this, and haven’t come up with much.
This is not just an esoteric point, still less yet one more example of the familiar fact that people are hypocrites in politics.
Here’s why it matters. The political players in America today who claim to support free markets don’t. They support free markets in the things their backers buy, but maximum barriers to entry in the things their backers sell.
For example, one of the great unnoticed achievements of the Republicans (and their Democrat collaborators) from Reagan onward has been to gut U.S. antitrust law. Having a monopoly, or a cozy oligopoly with friendly rivals, is one of the best barriers to entry around.
As recently documented in Barry Lynn’s fine book Cornered: the New Monopoly Capitalism and the Economics of Destruction, American industry is now concentrated as it hasn’t been since before the era of Teddy Roosevelt and his trustbusters. (There’s a different kind of Republican for you, by the way. These truths are not liberal or conservative.)
Most Americans don’t realize this has happened because, unlike in the old days of Standard Oil, oligopolies today are cunning about masking their existence.
To take just one example, America’s eyeglass frame industry is now dominated by the conglomerate Luxottica. That’s why frames are so expensive. And any company, like Oakley the sunglass maker, that tries to break into the market? They find themselves shut out of a Luxottica-controlled distribution system. And retailers are now afraid to receive distribution from anyone else, lest they be cut off.
It’s a remarkably well-oiled scheme, and it has its parallels in many other industries. But the average consumer has no idea about this, because the range of brands, if not suppliers, in optical shops remains diverse.
We’re fat, dumb and happy. We’ve been fooled. But behind the smiling mask of a hundred labels smirks a single monopolist.
But aren’t there laws against this sort of thing?
Well, there sure used to be, enforced by unsung lawyers and bureaucrats (horrors!) at the Justice and Commerce Departments. Whom nobody considered very glamorous, but who were doing the rest of us a big favor. Talk about forgotten wisdom!
Consider some other examples:
The number of problems caused by letting monopoly power—whose key consequence is known as “pricing power”—is astonishing.
For one thing, this is a huge part of what ails American farmers. Family farmers are caught between the agribusiness monopolies who push up the price of their inputs (feed, seed, fertilizer etc.) and the agribusiness monopolies who push down the price of their outputs. (The economists’ term for the latter is “monopsony,” with an “s,” but it works the same way as monopoly.)
It’s the perfect racket.
And it’s no surprise that on the other side of the equation, “free” market politicians are very diligent in imposing genuinely free markets where this suits the interests of the multinational “American” corporations that fatten their campaign coffers.
This is done, of course, as a matter of high principle and sophisticated economic rationality. It’s remarkably easy to make wonderful after-dinner speeches about free markets.
Let’s start with labor. Post-Nixon Republicans have genuinely supported just about every policy designed to weaken the pricing power of labor. This starts with weakening unions and letting the inflation-adjusted minimum wage fall, but it doesn’t end there.
You think Ronald Reagan got in 1986, and George W. Bush wanted in 2007, amnesties for illegal immigrants because they were nice, compassionate people? To ask the question is to answer it. Whatever the ultimate merits of amnesty as policy, for them it was about cheap labor, plain and simple.
The reality is that the past prosperity of America has never been based on pure free markets—starting with the fact that we had the highest average income in the world in 1776 because the colonies had structurally tight labor markets due to the open frontier. (Europeans and other Old World peoples were trapped by the iron law of wages because they had nowhere to go.)
Free, or nearly free, markets do have their rightful place in many parts of the economy, and it would be foolish to sabotage them. But in other areas—above all, in labor markets—our prosperity was based on pricing power.
A number of areas other than labor also worked better thanks to a healthy dose of pricing power. Try advanced technology, for a start. The patent system, which is not natural, is a fairly recent invention, and does not de facto exist even today in much of the world, is one. Innovation doesn’t come cheap, and without pricing power for innovators, few companies could afford it.
Even the existence of scale economies, which are intrinsic to modern, large-scale, capital-intensive industry, implies markets that are less than free. Why? Because scale economies intrinsically imply a small number of large producers and thus give rise to oligopoly, with the consequences mentioned earlier.
This is why most other industrialized nations aren’t romantics about free markets, are honest about their frequent nonexistence, and focus their policies on taming the negative effects of oligopoly while capturing the positive ones. They understand, for one thing, that big corporations are necessary but often pirates, and focus on making them share their loot with their crews.
We, on the other hand, live in a state of denial about the piracy.
So the next time someone tells you to believe in “free” markets, just tell them you’ll believe as soon as they do.
When pigs fly.