Research has shown conclusively in the past that those who undergo mainstream economics training are more selfish, less co-operative, less honest and less generous than other groups. These insidious qualities are reinforced and strengthen over the course of their undergraduate years. There has also been conjecture about the political role played by conservative economists – that is, that they provide authority for the industrial and financial elites to lobby politicians to introduce policy regimes that create the conditions whereby these groups can appropriate an ever increasing share of real income. They have been used to perpetuate the myth that the “business cycle” was dead and hence governments should have limited involvement in the “market economy” which was promoted as being self-regulating and capable of maximising wealth creation for the benefit of everyone. It was clear that this was always a sham and ideologically based rather than ground in any theoretical legitimacy or evidence-based standing. The fact that the mainstream failed to predict the crisis and have no tools in their models to provide a solution to the dramatic private spending collapse reinforced the notion that mainstream economists were ideological warriors. But new research has provided another clue – their brains are thinner!
I have written before about how the mainstream macroeconomists declared the business cycle to be dead. Please read my blog – The Great Moderation myth – among others for more discussion on this point.
After two decades or so of constant attack on what had become known as Keynesian macroeconomics (the view that governments could use fiscal and monetary policy to achieve low rates of unemployment and price stability), the mainstream (free-market) lobby who hated this conception declared victory.
The OPEC oil price hikes had undermined the so-called Keynesian consensus which had trouble dealing with the coincidence of inflation and unemployment (stagflation) which bedevilled capitalist economies in the wake of the oil price rises. The Keynesian view was that inflation was a sign of excess aggregate demand which was would also manifest as low unemployment whereas high unemployment was a sign of deficient aggregate demand which was deflationary.
They never considered in any detail supply-side causes of inflation (via cost shocks). You may also like to read this blog – Those bad Keynesians are to blame – which explains flavours of Keynesians to understand how a Keynesian can be a mainstream neo-classicist. They are the worst by the way!
The neo-liberals (free market lobby) had been frozen out of this macroeconomics consensus since the end of the Great Depression as governments achieved full employment states with robust economic growth using active fiscal and monetary policy interventions to stabilise aggregate demand. But the dislocation that followed the oil crises in the mid-1970s gave the neo-liberals their opportunity to declare Keynesian economics dead and to push the resurgence of their paradigm that had been discredited during the Great Depression as inoperable.
So the period from the mid-1970s in many nations saw this resurgence translate into an evolution of policy which included substantial deregulation of financial and labour markets, large-scale privatisations, the primacy of monetary policy to fight inflation with fiscal policy being demoted to become the passive partner in the “inflation-first” policy strategy.
The result was that most economies laboured under conditions of persistent aggregate demand deficiencies with the resultant high unemployment becoming the norm. The rhetoric turned to fiscal consolidation (read: budget surpluses) and tight monetary policy (read: use interest rate rises to create unemployment which disciplined the wage demands of workers).
The deregulation of the labour market meant that real wages growth has been very subdued and in most countries has lagged well behind labour productivity growth (prior to this period the two moved in lock-step) which resulted in a substantial redistribution of national income to profits away from wages. Please read my blog – The origins of the economic crisis – for more discussion on this point.
The deregulation of the financial markets allowed the “speculator banks” to get hold of this redistributed real income and launch a speculative binge that finally came unstuck in 2007.
The point was that there was an overwhelming belief that markets if left alone by government would self-regulate and produce optimum growth rates and maximise wealth creation.
As this agenda unfolded, the mainstream macroeconomists became increasingly cock-sure and started to declare the business cycle dead – that is, the inflation-targeting monetary regimes with tight fiscal policy had created stable conditions where the only interesting questions left were to detail further “micro” reforms (read: deregulation, welfare retrenchments etc) that would further free up private entrepreneurship so that capitalists could get on with the task of creating wealth.
You could see this cock-sureness in the published work that began to emerge in the last decade.
In 1987, an article appeared in the New York Times (January 11, 1987) – The business cycle rolls over and plays dead – and noted that:
NOT so long ago, an awesome force known as the business cycle drove the economy along much as the moon drives the tides and the sun the seasons. It was almost always there, a perpetual motion machine that propelled the nation through booms and busts. Yet for more than a couple of years now, the cycle has been dormant, with the economy moving listlessly month after month.
“It ain’t there,” says Albert T. Sommers of the Conference Board, a cycle-wizened veteran in economic forecasting. “There’s no glimmer of cyclical behavior out there.”
In 1997, the Federal Reserve Bank of Boston staged its 42nd Annual Economic Conference – Beyond Shocks: What Causes Business Cycles? – and the agenda was motivated by “the surprising suggestion that we have conquered the business cycle”.
As one of the keynote introductory papers noted:
In the summer of 1997, when the Federal Reserve Bank of Boston selected the topic for its forty-second annual economic conference, many pundits were asking: “Is the business cycle dead, or at least permanently dampened?” By the time the Bank’s conference convened in June 1998, the same pundits queried: “What caused the massive recessions in Asia?” and “Can the United States remain ‘an oasis of prosperity,’ as Fed Chairman Alan Greenspan termed it, while economies worldwide are under siege from financial crises?” How quickly things change!
In a 1998 speech the then US Federal Reserve Chairman Alan Greenspan declared that the US was an oasis of prosperity under the new paradigm.
Even in spite of the Asian crisis, this gem appeared in July 1999 – An Oasis of Prosperity: Solely An American Phenomenon? – which was published in The Regional Economist, a publication of the St. Louis Federal Reserve Bank. This article was among many that declared the business cycle dead.
I could cite countless articles and public speeches during this period that crowed about how successful the mainstream policy agenda had been. You need to note that they ignored the persistently high unemployment, dismissing it largely as voluntary and/or the product of flawed government intervention.
This theme gathered pace during the 1990s. I have previously cited this quote from Robert E. Lucas, Jnr of the University of Chicago, which was from his presidential address to the American Economic Association in January 2003:
My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades. There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and to save, not from better fine tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply side policies exceeds by far the potential from further improvements in short-run demand management.
The dominant policy agenda was represented by the 1994 OECD Jobs Study which underpinned the era of “microeconomic reform” read – attack workers’ rights, try to eliminate trade unions, and cut welfare entitlements. The catch cry of the neo-liberals was that if the unemployed are desperate they will work at any price and if the workers are continually under threat of dismissal they will work at lower prices.
This was the era of the The Great Moderation myth which was the title of a speech made on February 20, 2004 by the current US Federal Reserve Bank chairman Ben Bernanke. He celebrated the success of economic policy making which had rendered the business cycle benign if not dead.
The message was clear – the neo-liberal resurgence had eliminated the need for active macroeconomic policy making except for monetary policy adjustments to keep inflation within certain low bands. The problem of growth was considered to be now outside the domain of macroeconomics and squarely in the realm of micro reform – read deregulation etc.
The welfare-to-work reforms, cuts to pension entitlements, work tests, privatisations and the rest of the policy efforts during this period were in earnest. Meanwhile the lack of attention to macroeconomic policy and dismantling of regulative frameworks were setting the scene for the GFC. But to the arrogant mainstream economists all was well.
In August 2008 as the financial crisis was ripping through the global economy, the IMF Chief Economist (and MIT professor) Olivier Blanchard published the The State of Macro. The paper was published by the NBER but they charge you for access so the link provided will give you free access via a Brazilian site. I find it incredible that anyone would want to pay for a “product” that was so deficient in features!
In that paper, Blanchard describes the period beginning with the abandonment of Keynesian thinking to 2008 and wrote:
The theme is that, after the explosion … of the field in the 1970s, there has been enormous progress and substantial convergence. For a while … the field looked like a battlefield. Researchers split in different directions, mostly ignoring each other, or else engaging in bitter fights and controversies. Over time however … a largely shared vision both of fluctuations and of methodology has emerged. Not everything is fine. Like all revolutions, this one has come with the destruction of some knowledge, and suffers from extremism, herding, and fashion. But none of this is deadly. The state of macro is good.
Blanchchard actually details two or more decades of macroeconomic model building by mainstream economists (rational expectations, real business cycle theory, endogenous growth theory, new keynesian economics and all the related strands) which he claims finally constituted this “substantial convergence”.
While the paper was written just as the financial crisis was unfolding there is very little recognition of the failure of this mainstream activity to sense that the crisis was coming. In fact, if you read the mainstream textbooks that ruled during this period and out of which the vast majority of macroeconomics students acquired their “conceptual training” (euphemism for mindless indoctrination) you won’t find anything that would predict the crisis nor anything that would allow the government to solve it.
Once the crisis hit this theory was abandoned by treasuries very quickly as they realised that they were facing a major private spending collapse not to mention the solvency of the entire banking system. None of what followed would have been indicated by the current breed of text books which lauded the proposition that the business cycle was dead.
We already know that economics teaches students to be non-cooperative, more selfish and less honest. We learn that “students of economics are indeed much more likely to free-ride in experiments that called for private contributions to public goods” (see Marwell, G. Ames, R. (1981) ‘Economists Free Ride, Does Anyone Else?’, Journal of Public Economics, 15, 295-31).
Further, economists were found to be more selfish and less co-operative than others (see Carter, J, and Irons, M. (1991) ‘Are Economists Different, and If So, Why?’, Journal of Economic Perspectives, 5).
In an interesting 1993 study – Frank, R., Gilovich, T. and Regan, D (1993) ‘Does Studying Economics Inhibit Cooperation?’, Journal of Economic Perspectives, 7(2), 159–71 – download we read that:
Economists appear to behave less cooperately than noneconomists along a variety of dimensions.
See also this synopsis of the research.
Frank et al. then tried to work out whether “this difference in behavior” was the result of “training in economics” or “might exist because people who chose to major in economics were different initially” or whether it was “some combination of these two effects”. After appropriate controls in their experimental analysis they concluded that:
Thus, for students in general there is a pronounced tendency toward more cooperative behavior with movement toward graduation, a trend that is conspicuously absent for economics majors. On the basis of the available evidence, we are in no position to say whether the trend for noneconomists reflects something about the content of noneconomics courses. But regardless of the causes of this trend, the fact that it is not present for economists is consistent with the hypothesis that training in economics plays at least some causal role in the lower observed cooperation rates of economists.
They also considered the question of honesty. They concluded that
… students completing an introductory course in mainstream economics were far more likely to be less honest at the semester’s end than were students completing a course in astronomy.
So economists tend to be less honest.
Frank et al did a follow-up study in 1996 (“Do Economists Make Bad Citizens”, Journal of Economic Perspectives, 10(1), 187-192) – Download which
As well as their previous findings they re-iterated that economists gave “less to charity than others with similar income” and were “more than twice as likely as members of any other group to report giving no money at all to private charity”
So economists are meaner than other groups.
You also might be interested in reading the papers that were given at the Third Conference on Law and Mind Sciences which had the theme – The Free Market Mindset: History, Psychology, and Consequences.
The Conference sought to “explore why free markets have been so alluring to economists, scholars, and policy-makers even amidst the current financial turmoil”.
The paper by Stephen Marglin – How Thinking Like an Economist Undermines Community – was very interesting.
In his 2009 Conference paper, Marglin is talking about the resurgence of neo-liberal thinking after a brief (40 year) Keynesian lull. He wrote:
Economics has since reverted to its market-friendly form with a vengeance. Since my own student days, graduate study in economics has focused more narrowly on technique, on making students ever more sophisticated in terms of mathematical ability. In the process, students are taught to put aside large questions, which inevitably take them beyond mathematics, in favor of smaller, more manageable problems. The narrowing of the economic mind has approached its inevitable limit: the present generation of economics students, I fear, doesn’t even begin with large questions. Students’ eyes are focused on the prize of career advancement from the get-go, and large questions would only get in the way.
Marglin then argued that by relying on “value judgments implicit in foundational assumptions about the self-interested individual, about rational calculation” etc, and “it is these assumptions that make community invisible”:
In arguing for the market, economics legitimizes the destruction of community and thus helps to construct a world in which community struggles for survival.
So mainstream economists actively promote policy agendas that undermine what other social scientists have found to be binding constructs for happiness and social stability – families, collectives and communities.
But as I noted above, in addition to all these foibles, economists just plain missed the boat on predicting the crisis.
As Paul Krugman noted in his article (September 2, 2009) – How Did Economists Get It So Wrong?:
Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy.
The reason for this blindness?
Krugman, echoing Marglin’s point about being slaves to mathematical models of little substance, said:
As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth. Until the Great Depression, most economists clung to a vision of capitalism as a perfect or nearly perfect system. That vision wasn’t sustainable in the face of mass unemployment, but as memories of the Depression faded, economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations … Unfortunately, this romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation.
There is a debate about whether all this “ignorance” was due to their desire to impose ideological values supportive of the power elites onto the rest of us. In other words the entire neo-liberal agenda has been a deliberate strategy to provide authority to the power elites (capital) to appropriate ever increasing shares of real income for themselves.
How better to achieve that than to promote the self-regulating free market myth which then leads to policy positions that attack and weaken (if not destroy) the very institutions that protect vulnerable workers’ rights (for example, welfare systems and trade unions).
I have sympathy with that view and see it manifesting in the blind loyalty to fiscal austerity at present when it is clear that this policy approach is likely to be highly destructive (and is demonstratively so in Ireland, Latvia, Greece, etc). It is clear to be that the mainstream economists are right behind the austerity push because it will undermine and/or eliminate regulative structures and the protective institutions and allow more real income to be redistributed to the elites.
But it is so destined to fail and leave millions impoverished and angry and more likely to eschew IMF-style interventions and other “free market” solutions that one also cannot dismiss the ideology being blind – like a religion.
I don’t care to comment on religious beliefs here other than to say that they seem to suspend all the precepts of knowledge accumulation that we accept elsewhere. When it comes down to a debate about “belief” logical and evidence-based argument is abandoned and we are told “it is all a matter of faith”. Okay, that style of reasoning reflects stupidity in my view and a desire to fill in what we don’t know (yet) with a bunch of assertive statements that have no empirical or logical backing.
I see mainstream economics in a similar light. The training that economists receive via the mainstream schools – and the characteristics (noted above) that economists demonstrate in public life – provide support for the conjecture that they are actually not very bright at all.
And now we know …
The BBC Radio 4 show Today ran a story yesterday (December 28, 2010) – How political is grey matter? – which reported “on an experiment in which Labour MP Stephen Pound and Conservative MP Alan Duncan go under the scanner, to see if it is possible to predict an individual’s politics from the structure of their brains”. You can listen to the segment at that link.
But the program was following up on research done at the University College of London which was outlined in this December 28, 2010 media release – Left wing or right wing? It’s written in the brain.
The UCL press release said:
Liberals and conservatives may find themselves disagreeing on issues as wide-ranging as the future of the NHS, the UK’s involvement in Afghanistan and whether students should pay tuition fees at university, but could these differences be a result of different brain structures? … [researchers at the UCL Institute of Cognitive Neuroscience] … analysed the brain structures of ninety young adults who had reported their political attitudes on a scale from ‘very conservative’ to ‘very liberal’. They found a strong correlation between an individual’s view and the structure of the brain, particularly two regions.
People with liberal views tended to have increased grey matter in the anterior cingulated cortex, a region of the brain linked to decision-making … Previous research showed that electrical potentials recorded from this region … were bigger in people who were more liberal or left wing than people who were more conservative.
Conservatives, meanwhile, found increased grey matter in the amygdala, an area of the brain associated with processing emotion. This difference is consistent with studies which show that people who consider themselves to be conservative respond to threatening situations with more aggression than do liberals and are more sensitive to threatening facial expressions.
The research was also referred to in this Sydney Morning Herald article (December 29, 2010) – Brain thickness determines political leaning: study.
The “amygdala” is a “primitive part of the brain”.
So the conclusion – Conservatives are more emotional and have thinner brains (less capacity) in areas that determine decision-making capacity than left-wing liberals.
From which we conclude: right-wingers and conservative economists are dumb and become emotional when confronted with challenges! (-:
We knew that all along! Devious, non-cooperative, selfish, religious and dumb!
So we have finally discovered the underlying source of all this – right-wingers are an emotional lot with thinner brains. We knew it already!
Tomorrow we will explore the balanced budget multiplier.
That is enough for today!