Have Economists Failed to Keep
Us Safe from Economic Chaos?
Edward J. Dodson
[November, 2008]
In this time of severe economic stresses, our public officials are
certainly listening to economists for constructive policy direction.
At the same time, it is clear that few economists forecasted the
current crisis. We might ask: "What is it about our economic
system that is so difficult for so many highly-trained individuals to
grasp?
As a starting point, we might benefit from an objective discussion of
what economics professors and economists actually do. Their
predecessors, the political economists, sometimes acquired a position
of influence because of they took strong positions on public policy,
based on some combination of their empirical work and an expression of
their personal moral perspectives. They were, as a result, not always
objective or scientific in their analyses, but they identified with
the role of either change agent or defender of the status quo. Today,
there are economists who also accept - even pursue - one of these
roles. The public generally assumes - if they assume much at all about
economists, that they are both objective and scientific. It is
appropriate to ask whether this public trust is warranted.
The first thing I will say in the interest of full disclosure is that
some of my best friends are members of the economics profession. I
admire and respect these individuals for their efforts to discover
truth and to challenge conventional wisdoms when the logic and
evidence dictate such a course should be followed. However, in my
experience, theirs are voices in the wilderness. This does not
mean that everyone else who teaches economics or performs economic
analyses for a living is of one mind. Economists align with one
another or are in disagreement with one another over critical
theoretical issues and policy questions. This has been the case from
the early decades of the profession.
Thinking about all this, I vaguely recalled the rather remarkable way
Harry Gunnison Brown began his Basic Principles of Economics,
first published in 1942 (confirmed by searching out the original
text):
"Economics is concerned with the problem of 'getting
a living'. It deals, therefore, with an important phase of the
'struggle for existence'. Unfortunately, this fact operates to
prevent unprejudiced investigation of its laws and of the effects of
various economic policies. An examination that would show the
effects of various policies form which a part of the public was
benefiting, to be injurious to the remainder, might not be an
examination which those who were profiting by the policies in
question would desire to have made. And if such an examination were
made, acceptance of its inevitable logical conclusions would
probably be vigorously opposed."[1]
Coming from within the discipline, Brown's indictment of his fellow
practitioners could not have gone over very well. Some would have
been quite uncomfortable, some defensive and others angered. The
nature of the problem, which he described as "a bias of special
and class interest and of political affiliation" was a bias he
was certain "most teachers of economics know from personal
experience."[2] Some would examine Brown's own body of work and
question whether he lived up to his own admonition:
"The student of economics who would serve well his
country and the world, needs most of all, perhaps, an enthusiasm for
disinterested inquiry. He must seek above all things to avoid
prejudice in his thinking, to think clearly, to acquire information
of scientific value and to use it logically."[3]
That particular question is beyond the scope of this brief
commentary, but it is fair question. Remarkable for its inclusion in
a basic text, Brown also challenged his colleagues to be willing to
take action, to be heard, when their analyses identified "relationships
of cause and effect in the economic realm an understanding of which
can help to solve the problems of economic society and to further
[the common] welfare."[4]
Brown's book was not widely used as an introductory text and
certainly not read outside of the small community of professors (of
economics and other social sciences) who likely shared his views and
were within his inner circle of professional colleagues. It is also
worth noting that his economics was sufficiently orthodox that his
text did not even include mention of John Maynard Keynes, and he
continued to believe the central cause economic depression was "born
of currency deflation"[5] even though he was a consistent
defender of the central arguments made by Henry George.
Harry Gunnison Brown was fighting a losing battle against the
coming Keynesian revolution. His was clearly a voice in the
wilderness. As young men and women emerged from their formal
university studies in the 1950s, they were welcomed into business
and government circles to an extent few professors of Brown's
generation ever thought possible. Increasingly, economists were
sought out for their opinions by the popular media. Some became the
official spokespersons for their government agency, industry
association or think tank.
The mixed economy, with a balance of political and economic power
shared by business, government and labor, seemed to be running well
enough, its downturns and inflationary moves softened by timely
applications of fiscal and monetary policy tools. By the 1970s,
however, the world had changed considerably, and the warnings of
dissenters within the economics discipline became more pronounced.
The momentum was shifting away from Keynesian perspectives in favor
of a repackaged body of so-called conservative thought on economic
affairs. The result would be calls for less taxation, less
regulation, less bureaucracy and freer trade.
As the voice of the Right acquired political standing, from
the Left came many responses, one of which was offered in
the book Economists at Bay (1976) by an economics professor
named Robert Lekachman. Lekachman taught economics from a Marxist
perspective at Lehman College of the City University of New York.
Earlier in his teaching career he taught at the State University of
New York at Stony Brook, L.I., Barnard College, Columbia College and
the Columbia School of Business. Upon his death in 1989, the
Chancellor of City University, Joseph S. Murphy, commented that
Lekachman's ''legacy of intellectually rigorous analysis of the
economy and the effects of government policy on the poor and working
class should strongly influence the way scholars study economics in
the future.'' Harold M. Proshansky, president of City University's
Graduate Center said this about Lekachman:
''He brought a liberal, left-wing, Marxist point of view
to economics, but he was in no sense an ideologue. He never argued
in generalities, and his openness and objectivity captivated even
those who disagreed with his basic positions.''
When Economists at Bay first appeared, it was reviewed in
Worldview Magazine by Paul Heyne, a professor of economics
at the University of Washington. Professor Heyne found Lekachman's
observations about other economists to be poorly supported by the
evidence provided. Heyne also pointed out that "criticisms
along the lines of Lekachman's are regularly published, read at
professional meetings, discussed among graduate students, and even
summarized in introductory textbooks." Heyne forewarned
potential readers that while Lekachman had listed all the ideas of
other economists with which he disagreed, he provided "no
answer to the crucial question" he raised; namely: "How
has the socialization of economists prevented the vast majority of
them from recognizing the distorting and limiting effects of thought
within which they work?" Indeed, this is an extremely important
and challenging question.
Professor Heyne does a credible job challenging Lekachman's
assertions of intellectual blindness endemic to the practitioners of
economics. He also questions Lekachman's familiarity with then
current critical work undertaken by many economists. One example was
the debate over the usefulness of the Phillips curve:
"Lekachman speaks of 'the persistent popularity of
the Phillips curve in the writings of mainstream economists'; but
the Phillips curve has been under a critical cloud for a decade now
and was attacked even before that by the 'Chicago' economists, whom
Lekachman especially despises."
And, in the end, Professor Heyne found little written by Lekachman
with which he could identify:
"There are a number of accurate observations about
economists' behavior in this book. The professional journals are
indeed, as Lekachman maintains, filled with matters of interest only
to economists. But does anyone complain if medical journals are
filled with matters of interest only to physicians? Lekachman fails
to point out that many eminent economists also write and lecture for
lay audiences. Fortunately, many of them have more respect for facts
and fairness when they do so than Lekachman displays in Economists
at Bay.
With Professor Heyne's comments as a forewarning to readers of this
paper, I want to take a second look at Robert Lekachman's book. It
was, after all, a sincere attempt to stir up the dust within the
ranks of economists. And, he does begin with an acknowledgement that
"most economists are individuals of good will, eager to
extirpate poverty, redeem the cities, diminish pollution, feed the
hungry, heal the sick, and house the unsheltered."[6] Yet, he
sounds a bit like we sound today when we diminish Thomas Jefferson
's contributions to the advance of democratic republicanism by
emphasizing his lifelong enslavement of people of color to provide
for his needs:
"In the good old days when capitalism was young and
John Maynard Keynes was unheard of, recurrent depression was
accepted even by its victims as an act of God.
Economists
pointed to the beneficial side effects. Depression shook the weaker
brethren out of the economy."[7]
We might be even more critical than Lekachman of the early
generation of economists who failed to grasp and embrace the
significance of Henry George's analysis of the causes of economic
depressions. But, then, we would be placed in a position of having
to include Harry Gunnison Brown in that group. Brown repeated his
essential view in an article published in 1961 by the Henry
George News:
"[I]t does not follow that even the adoption of a
perfect taxation system, involving the taking of all or practically
all of the rent of land, would guarantee us against distressing
depression. For a significant decrease of the volume of money and
checking accounts could bring such a depression."[8]
This is not the place for an analysis of Brown's position, other
than to suggest the appropriateness of a distinction between an
economic slowdown and a full-blown depression, the latter being less
likely absent a credit-fueled period of hyper speculation in land.
All that Lekachman adds in the volume under review is to remind
readers that it was "[m]assive military outlays" that
finally brought the Great Depression to an end. There were, however,
lessons to be learned from the war years and the economic expansion
that occurred thereafter:
"The moral appears to be that in conservative
societies dominated by corporate interest Keynesian measures operate
successfully during large and popular wars or
during spells
of economic growth rapid enough to offer a little something to the
officially poor who populate the bottom fifth of the income
distribution."[9]
And, it is with the concentration of income and wealth that
Lekachman is greatly concerned. He provides a long list of public
subsidies benefiting those at the top of the economic ladder at the
expense of the remaining population:
"Despite wars, a New Deal, a Fair Deal, a New
Frontier, a Great Society, and a New American Revolution; despite
civil-rights statutes and women's liberation, the distribution of
income, wealth, and power has been remarkably impervious to change."[10]
Defenders of the status quo, he points out, have been able to
maintain "the myth of unlimited opportunity
in the land"[11]
- so much so that "many or most Americans believe that the rich
deserve their riches."[12] Even thirty-two years later, my
sense is that this is still very much the case. Widespread
opposition to estate taxation is one clear indication that the myth
remains.
Lekachman deserves admiration for his early expressions of concern
for the health of our physical environment, earlier than many other
economists:
"Climatologists warn of long-run weather shifts
adverse to food production. Overfishing has diminished the
potentiality of the oceans as a protein source. Miscellaneous
environmental hazards: pollution, damage to the ozone barrier, and
lowering of water tables among others, threaten, to an extent not
yet thoroughly understood by the experts, the future of the human
race."[13]
To what extent he thought economists could reach consensus over
environmental policy options and work to see them implemented he
does not say. He does call for economists "to rethink old
assumptions, old certainties, and old emphases."[14] What
prevents too many economists from this course of action, he asserts,
is that "common-sense dismissal of treasured theoretical
propositions is profoundly unsatisfactory to those who live by
abstractions."[15] And, perhaps even more important, Lekachman
believes "economists accept the major features of an economy
which has rewarded them quite amply."[16] Later on, he added
that a graduate education in economics "enables its survivors
to rise above the common sense with which no doubt they were endowed
at birth."[17] He is clearly laying down a set of challenges
regarding the manner by which his discipline had grown.
What is certainly true is that economics professors who teach those
aspiring to enter the profession tend to have a lasting influence on
the thinking of their students. Young minds are molded by mentors.
This begs the question of whether individuals attracted to economics
as a discipline and profession are more prone than others to accept
what they are taught without the skepticism associated with
scientific discovery. The sarcasm deliberate, Lekachman said it was
"a tribute to the intelligent realism of most students that few
of them take more than a single introductory course in economics."[18]
Students drawn to a particular university, where economics is known
to be taught from a given perspective are already predisposed to
accept and absorb what the great minds of that school of thought
deliver as truth. Only the foolish or truly courageous would venture
into the belly of the beast eager to take on those with whom
disagreement is a certainty. As Lekachman puts it:
"A twenty-four-year-old degree candidate in
economics at a good university has been well-trained in a cluster of
fashionable mathematical and econometric techniques. Unfortunately
youth and training conspire to render him ignorant of the central
economic institutions of his society."[19]
Could these shortcomings be overcome? Not every likely. He observed
that graduate programs in economics turned "thoroughly
socialized young practitioners into institutional conservatives,
wary of structural change, dependent upon official sources for data,
and skeptical of inquiry into emerging institutions and impure
issues which combine politics and economics."[20] In the real
world, he knew, separating economics from politics was not possible;
politics dictates economic outcomes. Lekachman argues for greater
equality in the distribution of wealth, which in his mind equates to
greater justice. He chastised "liberal economists" for
their "lapses during the Kennedy years when growth superseded
distribution as the target of national policy."[21] This
reflected a regrettable "infatuation with competitive markets"
to the detriment of "democratic planning."
Lekachman was writing at a time when many cities in the United
States were losing population and suffering from a decaying
infrastructure, aging housing stock and high levels of social
problems. In response, he called for economists to devote far more
of their intellectual capacity to develop and advance policies that
would reverse these trends. He reminded his fellow economists that
cities potentially offered tremendous cultural and economic
efficiency advantages:
"As the cities became safer, cleaner, and more
convenient, population migration to suburbs and exurbs would slow,
stop, and ultimately reverse itself. The role of the automobile at
that happy moment would permanently decline. Cities are more than
traditional centers of intellectual originality and aesthetic
excitement: they are potentially the thriftiest institutional
mechanism for supporting large numbers of people."[22]
Lekachman reached back to the political economists, and to John
Stuart Mill in particular, for insight into proper government
intervention on behalf of the common good. He drew on Mill to
support his own view that the rights of the individual to claim
property in land were limited. "The claim of the landowners to
the land is altogether subordinate to the general policy of the
state," Lekachman quoted from Mill. Many of us would prefer the
use of the community as opposed to the state, but
the sentiment is one that carries a strong moral weight.
We also get from Lekachman a common sense criticism of the way
economists have measured economic growth, a criticism I believe
brings attention to the reason why the general public is so
misinformed about what is really happening:
"The oddities of GNP include its recorders'
disposition to lump together good things, bad things, and
indifferent things.
If
mills discharge chemical wastes
into hitherto clean streams, GNP will certainly expand both because
of the mills' increased output and because other enterprises and
municipalities downstream from the polluters' headquarters are
compelled to invest in cleaning devices designed to restore the
water to usable condition."[23]
Lekachman's conclusion was that "the national income measures,
crown jewels of economic statistics, are almost trivial indicators
of anything worth measuring" and "ignores the costs,
psychic and financial, of crowding, pollution, urban disorder, and
the sheer pressures of humans upon each other."[24]
GNP has been displaced by GDP as the standard measurement regularly
reported on by the mainstream media. Critics have argued that
economists discard GDP because of its indiscriminate inclusion of
all forms of spending as positive inputs in the calculation.
Interestingly, Lekachman offered no alternative, although in a
footnote he pointed to work being done at Yale University by William
Nordhaus and James Tobin "to measure the disamenities of
economic growth and subtract them from GNP."[25] Their proposal
for a new Measure of Economic Welfare (MEW) was actually made public
in 1972, and it was a dramatic improvement over the unadjusted
GNP/GDP measurement. Another alternative was put forward in 1995,
the Genuine Progress Indicator, by Redefining Progress.
Importantly, what the GPI showed was that real economic growth began
to stagnate in the 1970s.
What is equally or more important to those of us who look to Henry
George's political economy for guidance is the failure of too many
economists to recognize that land is the source of capital
goods but is not a capital good. From our perspective,
then, land must be treated as a common good from which private goods
are produced. Lekachman touches on this dilemma but does not pursue
either the moral or theoretical issues:
"Property in land, personal possessions, cash,
securities, or other forms is aseptically taken as the fruits of the
efforts and ingenuity of employees and entrepreneurs now alive or as
inheritance from ancestors similarly engaged. By heavy implication,
the existing pattern of ownership is accepted as at least tolerable
if not equitable."[26]
Apparently ignorant of the reforms advanced by George, or even
Harry Gunnison Brown and other economics professors who embraced
Henry George's main proposals, Lekachman looks to democratic
planning (i.e., social democracy) and the safety net of social
welfare programs to mitigate distribution problems:
"What has cushioned many Americans in modest
financial circumstances against the full force of the worst
depression since the 1930s has been the existence of a set of
entitlements which were a political consequence of the horrors of
the Great Depression: retirement on increasingly liberal social
security pensions; unemployment compensation benefits; food stamps;
and even, despite its humiliations, public welfare."[27]
CONCLUSION
Our experience in the United States since the Reagan presidency, in
the United Kingdom since the Thatcher government, in Australia since
the Hawke government and elsewhere around the world, supports
Lekachman's conclusion, in my view. The concentration of income and
wealth ownership has increased the most where deregulation,
deunionization of the work force and dramatic reductions in the
marginal tax rates on income and so-called capital gains have been
adopted as the new economic faith. The central problem, of course,
is the failure to socialize the rental value of locations (in cities
and towns), natural resource-laden lands, the broadcast spectrum and
others sources of income gained by the issuance of licenses over the
control of nature.
Economics as taught today continues to have its critics - from
within and outside the discipline. Our voices - the voices of those
who have accepted as our own the political economy taught by Henry
George - remain voices in the wilderness. However, common sense
messages (as we believe our message is) are finding there way to a
broader and broader audience around the globe. We are beholden to
the technical wizards who developed the internet and the personal
computers and software that allows us to communicate so easily with
one another. A few decades ago our message could be broadly conveyed
only by the publication of books and periodicals (such as Progress)
that reached hundreds or a few thousand readers. Today, Progress
can be read online by millions of people. The English language text
can be converted into other languages using inexpensive software
programs. Our fellow world citizens are desperate to find their way
out from under severe economic and social problems. Our economists
(and their economists) are, for the most part, blinded by their own
formal education and training. We are no longer the remnant;
we are the vanguard of change.
REFERENCES
- Harry Gunnison Brown. Basic
Principles of Economics and their Significance for Public Policy
(Columbia, MO: Lucas Brothers, 3rd edition, 1955. First published,
1942), p.3.
- Ibid., p.4.
- Ibid., p.8.
- Ibid., p.8.
- Ibid., p.109.
- Robert Lekachman. Economists
at Bay (New York: McGraw-Hill Book Company, 1976), pp.1-2.
- Ibid., p.23.
- Harry Gunnison Brown. "Keynesian
Depression Analysis versus a Money and Credit Approach," Henry
George News, September, 1961.
- Robert Lekachman. Economists
at Bay, p.161.
- Ibid., p.58.
- Ibid., p.69.
- Ibid.
- Ibid., p.37.
- Ibid., p.38.
- Ibid., p.39.
- Ibid., p.57.
- Ibid., p.108.
- Ibid., p.177.
- Ibid., p.184.
- Ibid., p.270.
- Ibid., p.287.
- Ibid., p.78.
- Ibid., p.113.
- Ibid., p.122.
- Ibid., p.123.
- Ibid., p.135.
- Ibid., p.159.
|