Will Economists Replace Lawyers as First Against the Wall?

The field [economics] is filled with anxious introspection, prompted by economists’ feeling that they are powerful but unloved, and by robust empirical evidence that they are different.
The Superiority of Economists, by Marion Fourcade, Etienne Ollion and Yan Algan.

In this post at Naked Capitalism, I explain that one big reason normal people don’t love economists is that they refuse to take any blame for causing the Great Crash. As a group, economists insisted that it would be great to tear down the New Deal financial regulatory system, without ever considering the potential costs of a crash. It wasn’t just that their models didn’t predict the Great Crash, it’s that their models won’t ever predict crashes. Until someone got around to tweaking them, their models did not even predict the damage a crash might cause. They had no way to evaluate the costs of crashes, but they ignored those costs, mostly on ideological grounds. They insisted to policy makers, legislators, regulators and politicians, and not least, their wealthy supporters, that things would be great if we just got rid of regulation. They were proven absolutely wrong. Then they insisted that more of the same garbage was the right solution, and their supporters agreed. And so it came to pass that we got a lousy recovery that only benefited their patrons. But that’s hardly the only reason people don’t love economists.

You’d expect some self-criticism from even the most narcissistic economists in the wake of their utter failure, but that didn’t happen. Here’s an interview of Gary Becker of the University of Chicago in December 2010 by economist Catherine Herfeld who begins by asking him whether the economics profession is in crisis. No, says Becker. Economists might begin to consider some mildly different problems, maybe, but no. Models can’t be expected to predict crashes, he says, and people respond to incentives. Economists already knew those things, so the Great Crash has no lessons for them.

Almost all economists agree with Becker’s two points. Their models and their methodology are not a problem, and do not require major changes. One crucial assumption of economists is that consumers are rational actors. When Herfeld presses Becker on the issue of the validity of that assumption and the risks that assumption entails, Becker explains so what? What’s your theory? “You need a theory to beat a theory,” he says. Policy advice based on Becker’s theories has been tried out. That advice sucks. We’d have been better off doing nothing than crashing the economy as an empirical test of his assumptions and the theories based on them. So, no. You don’t need a theory to beat a theory. Adults change their minds when their ideas fail. That’s another reason people despise these guys.

But that kind of intellectual arrogance is typical of economists, as we learn from The Superiority of Economists, by Marion Fourcade, Etienne Ollion and Yan Algan. The authors show that as a group economists are known for their absolute confidence in their ability to understand the economy and prescribe for us lesser mortals. They also show that economists are an insular group, not much interested in the work done in other fields of study. Here’s a demonstration of that. Herfeld asks Gary Becker this question:

[R}ationality is a concept that originated in philosophy and its various economic formulations and uses have been discussed extensively in the philosophical literature on the methodology of economics, such as by Alexander Rosenberg, Philip Mirowski, D. Wade Hands, and Mark Blaug. Were you ever interested in that literature? Or where did you get inspiration from when thinking about improving how rationality is conceived of in economics?

[Becker] Primarily, I get inspiration from my own discipline, economics. For example, I wrote my doctoral dissertation on racial discrimination. …

Becker can’t see any reason to learn what scholars in other fields think of rationality, or, apparently, racial discrimination, or anything else, for that matter, because, you know, he was a student of Milton Friedman, and he read Popper and Carnap. The rest of this answer and the next few show how Becker conceives of the intellectual life. It is exactly what Fourcade et al. describe, insular, hierarchical and to me at least, undeservedly arrogant. They describe the influence of economists in a lengthy section including this:

The upshot of economists’ confident attitude toward their own interventions in the world is that economics, unlike sociology or political science, has become a powerful transformative force. Economists do not simply depict a reality out there, they also make it happen by disseminating their advice and tools. In sociological terms, they “perform” reality. Aspects of economic theories and techniques become embedded in real-life economic processes, and become part of the equipment that economic actors and ordinary citizens use in their day-to-day economic interactions. In some cases, the practical use of economic technologies may actually align people’s behavior with its depiction by economic models. By changing the nature of economic processes from within, economics then has the power to make economic theories truer. Cites omitted.

So, there’s a third reason to loathe economists. They think human nature can and should change to match their models and their value systems, which are based on economic efficiency and unfettered markets. I don’t agree. Among other things, as I discuss in detail here, markets deal only with short run decisions, not with the long-term consequences of those decisions, which can easily lead to disastrous results. Just ask yourself how markets will allocate precious ground water in California, and ask how many almonds and how much cheap oil today are worth the end of the water supply that grows much of our food.

Here’s the fourth reason. Of course people respond to incentives, though that’s just one of a large number of influences on decisions. The question is who comes up with the incentives. Becker points out that people who took out subprime loans were responding to incentives, as if those borrowers caused the Great Crash. Who set those incentives up? Was it the poor people who got clobbered by those loans? Of course not. It was the lenders who were freed from all restraints by economists and their enablers among the rich and the politicians. Those economists who provided the policy justifications had no conception of the risks they were encouraging others to take while they pocketed their consulting fees. And after the crash, they, and specifically Becker, defended themselves by blaming the victim.

No wonder normal people don’t care for these people.

13 replies
  1. bloopie2 says:

    I know you’re competing against the NFL draft with this post, but good luck anyhow. I will say that this is a very nice post, thank you. “Arrogance” seems to be the right word for these people.
    Here’s an article about economic cartels,. how they came to be government sanctioned. Very little proselytizing, and very well written. “Tesla and the Texas Tea Party How lawmakers championing states’ rights and small businesses came to endorse government-sanctioned cartels”. Recommended reading.

  2. allan says:

    “Economists do not simply depict a reality out there, they also make it happen by disseminating their advice and tools. In sociological terms, they “perform” reality.”

    For some reason, this reminds me of

    “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create our own reality. And while you’re studying that reality—judiciously, as you will—we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors…and you, all of you, will be left to just study what we do.”

  3. Bill Michtom says:

    You only mention a UChicago guy when they are known for their right-wing arrogance. This is not true of Dean Baker, Paul Krugman and several other well-known economists.

    As Krugman has noted, the UC folks are in the “freshwater” school, folks known for reality-free economics.

  4. der says:

    The same elitist arrogance can be said of the generals and “war planners” (haven’t won anything) in the Pentagon, the “diplomats” in the State Department, the “makers” on Wall Street, the “serious” politicians on the Potomac.
    “They think human nature can and should change to match their models and their value systems, which are based on economic efficiency and unfettered markets.”
    Financially speaking if your yearly income is above $150 thousand you’re in the upper classes (10%), everyone of those mentioned here see the world from that level, their nature changes everyday to match their model of makers being takers, the poors are an uncouth, unsophisticated bewildered herd who need taming. Send in the cops.
    Led by fools. Deflation coming, bury your cash.

  5. phred says:

    There is an old adage in my corner of the hard sciences that says “the only person who believes a model result is the person who wrote the model, and the only person who doesn’t believe a measurement is the person who made that measurement”. In other words modelers routinely underestimate the limitations of their models, while the instrument people fret endlessly about accuracy and precision. With the implication of course, that both groups are excessive in their over- and under-confidence.
    Unfortunately where modelers of economics are concerned, their mistakes inflict damage on a global scale these days. It is no wonder they are unloved, especially when they foist the blame for their own incompetence onto the public they have harmed.

  6. Alan says:

    Greenspan and others cite Adam Smith (invisible hand, free market, laissez faire, blah, blah, blah) as one of their authorities for the deregulation of banking. Here’s what Adam wrote about risky “promissory notes” in 1776:

    To restrain private people, it may be said, from receiving in payment the promissory notes of a banker, for any sum whether great or small, when they themselves are willing to receive them, or to restrain a banker from issuing such notes, when all his neighbours are willing to accept of them, is a manifest violation of that natural liberty which it is the proper business of law not to infringe, but to support. Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed. (Emphasis added)

    But I suspect neos are so enamoured of numeracy that their literacy might be a little lacking. Not only do they not care for other disciplines, they don’t much care for reading the history of their own.
    In Becker writes:

    It is because of government regulatory failures failures that I believe the best hope for preventing banks and households from excessively expanding their debt in the future lies in rules, like capital requirements, rather than in greater discretionary power to regulators. Regulators misuse discretionary authority because they often get caught up in the same euphoria that banks and households succumb to. In addition, they sometimes get “captured” by the banks and households they are regulating, and end up being cheerleaders for these sectors.

    There is a lot of weaselling going on here. Government regulation gets treated as “discretionary power” and rules are somehow not regulation? And who writes the rules and how are the rules enforced? If you look at the history of what happened there were rules and they were undone by the economists, who have been very adept at spinning through the revolving door of financial institutions, government, and academia. Who does he think was running the Fed? The regulators, the ones who “misuse discretionary authority” and were “caught up in the same euphoria” as the banks,  were the economists! And the economists were both the regulators and employees of the banks.
    Wealth of Nations was a long rant against mercantilism, the collusion of government and merchants against the public interest. If Smith was writing today, he’d be writing about the collusion of financial institutions and government against the public interest, facilitated by economists.

  7. Jim White says:

    Since we’re unlikely to have a trash talk thread this weekend and since the NFL draft has already been mentioned, I have to throw this out there.
    I predict that Belichick will use his final pick of the draft on….Zombie Aaron Hernandez. He will say that once Hernandez has been executed, he will have paid his debt to society and will then fit perfectly among the rest of miscreants on the team.
    This will be contested by Rick Pitino, who will make the valid claim that as a member of the undead himself, he gets first pick of all zombies. Furthermore, he will point out, Hernandez has used none of his college basketball eligibility, even while living, and fits just as well among Pitino recruits as Belichick choices.
    Sorry for the distraction from Ed’s terrific post…

  8. Rocky says:

    It was the government’s fault for offering a housing finance program without making an effort to maintain underwriting standards.

    The housing crisis in the 2000s was caused by Clinton-Bush and the lackeys in Congress and HUD.

    • Ed Walker says:

      Rocky, you’re new here. You get to post exactly one AEI/Fox News yammer. After that, either keep up with the class or don’t expect to see your comments on this site.

    • John Casper says:


      Why hasn’t your guy, Obama, indicted even one Wall Street CEO?

      Wall Street owns the SEC and DOJ, ” Why I let Wall Street walk:
      Justice Department prosecutor Lanny Breuer gives an unapologetic exit interview to Dealbook. ”


      Rocky, why didn’t you mention all the welfare both parties are still shoveling at Wall Street to make bets on interest rate swaps and currency swaps?

      “Bank Of America Dumps $75 Trillion In Derivatives On U.S. Taxpayers With Federal Approval”


      To put $75 trillion in perspective, US GDP in 2012 was around $16.5 trillion. We blew a lot more than the $6 trillion they’re claiming in Iraq and Afghanistan. Social Security’s Trust Fund is around $2.3 trillion. Bank of America is just one Wall Street bank. They all have derivative exposure. I’ve seen estimates of $700 trillion, but I don’t think anyone knows.

      Rocky, it’s because of folks like you that Wall Street can continue to “socialize” their losses onto the taxpayers while privatizing their stolen profits.

  9. earlofhuntingdon says:

    Shorthand version of Gary Becker: “We predict what our patrons want predicted. Every economist knows that. Move along now.”
    Who could predict that Mr. Becker works at Chicago?

  10. earlofhuntingdon says:

    Mr. Becker intentionally confuses selecting from available options with choice. Not much choice when the options all lead down the same road. It’s like choosing among the costly or the expensive burial boxes, caskets in the jargon preferred by morticians, that is, layers out of the dead. Ms. Mitford would see the likeness, I’m sure.

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