Capitalisn’t: Has ‘Thinking Like an Economist’ Distorted Our Politics?
- April 20, 2023
- CBR - Capitalisnt
Public policy in the United States is conducted in the language of budgets, models, and cost-benefit analyses. But how accountable are the ideas of economics and economic efficiency to the public?
University of Michigan’s Elizabeth Popp Berman is a sociologist and historian of economic thought and the author of the book Thinking Like An Economist: How Efficiency Replaced Equality in U.S. Public Policy. On this episode of the Capitalisn’t podcast, she joins hosts Bethany McLean and Luigi Zingales to discuss economics’ history as a pervasive influence in the halls of political power.
Elizabeth Popp Berman: I think if you just say, “Oh, we should treat these as rational decisions and not political ones, or else we find ourselves in dangerous territory,” I mean, what else is politics for? Fundamentally, politics is about people trying to change somebody’s lives in some particular direction.
Bethany: I’m Bethany McLean.
Phil Donahue: Did you ever have a moment of doubt about capitalism and whether greed’s a good idea?
Luigi: And I’m Luigi Zingales.
Bernie Sanders: We have socialism for the very rich, rugged individualism for the poor.
Bethany: And this is Capitalisn’t, a podcast about what is working in capitalism.
Milton Friedman: First of all, tell me, is there some society you know that doesn’t run on greed?
Luigi: And, most importantly, what isn’t.
Warren Buffett: We ought to do better by the people that get left behind. I don’t think we should kill the capitalist system in the process.
Bethany: It’s hard to think of something more central to capitalism than economics. It’s economic thinkers like Adam Smith who gave capitalism its rallying cry: the invisible hand. It’s economic thought that legitimizes markets as the most efficient allocator of resources, and it’s that core idea of efficiency as gauged by economic models that underlies many political decisions.
As the New Yorker put it: “Economists influence the way that children are cared for and schooled; the way that citizens are housed, treated in hospitals, and policed; the way that countries regulate industry and manage climate change. Public policy is now conducted in the language of budgets, cost-benefit studies, regulatory impact analysis, and mathematical models of dazzling beauty and complexity.”
Luigi, I didn’t know you made models of dazzling beauty and complexity.
Luigi: I’m not so sure I do, but some of my colleagues do. But you are right that economics is so woven into the fabric of modern life. It seems almost inevitable that this is the case, and you might think that this was always the case, and it is actually relatively recent. One of the benefits of this new book by Elizabeth Popp Berman, called Thinking like an Economist, is that it describes the history of how economic thinking became more and more pervasive throughout Washington and, basically, in every policymaking circle.
Bethany: Berman also argues that the consequences of all of this have been devastating for progressives, and in her view, progressives need to reclaim the right—literally the right, not the right of the political spectrum—to advocate for policies based on something other than economic analysis, or as one reviewer wrote about her book, “The problem is far more fundamental: a dangerously simplified version of microeconomic ideas is legally and institutionally woven into the very fabric of American governance, largely invisible and unaccountable to the public.”
Luigi, one of the things this book made me think about is the difference between microeconomics and macroeconomics. I thought it’d be interesting to start with you helping to educate me and maybe some of our listeners about the difference, and how you think about the spheres of influence of those two different parts of economics.
Luigi: I’m actually glad that this book popularizes this distinction because this has been going on in economics for, I would say, the last 30 years, the debate between monetarists and Keynesians, between freshwater economists and saltwater economists.
Bethany: You’re going to have to answer this. You can keep going, but you’re going to have to tell me what a freshwater economist is versus a saltwater economist.
Luigi: Oh, basically, freshwater economists are from Chicago and Minnesota, next to the lakes, and the saltwater economists are on the two coasts, but mostly on the East Coast. That’s the distinction. This was very important in the ’70s, but by the ’80s, I think there was a beginning of a synthesis, so that most economists, especially macro, are fairly similar.
Now, the big revolution that took place, starting in the late ’60s, but mostly in the ’70s and ’80s, was the fact that a common microeconomic framework emerged. The idea was that we differ on our preferences, but there are certain efficiency considerations that we all need to pay attention to.
Liberals might want to have a bit more spending and conservatives less spending, but when it comes to the importance of incentives, the importance of budget constraints, the importance of trying to maximize clear objectives, we are all the same.
Bethany: Economics, in my view, has always masqueraded as a science, pretended to be a science. Maybe it is a science, and yet economists themselves seem to not resist the labels of being right or left, being progressive or conservative.
How can that be? How can those two things coexist, and has it always been so that economists have thought of themselves in overtly political ways even while stressing the common language of economics?
Luigi: That’s a good question. First of all, I don’t think that all economists profess themselves with a strong political affiliation. And some economists have a strong personal political affiliation, but they don’t necessarily fit the stereotype when they do their work. They might be very liberal, but in some aspects they are very conservative, or vice versa.
George Stigler can be, I think, considered a conservative economist, but when he won the Nobel Prize in 1982, he was brought into the White House, and a journalist asked him about Ronald Reagan’s economic policy, and he said that it was basically voodoo economics. And he was immediately chaperoned outside of the White House and forgotten, and nobody ever spoke with him again.
George Stigler is not a popular name in the way Milton Friedman is and was. Part of it is because I think he didn’t fit into the nice box that made him popular. And this was true in the ’80s when branding was less important. Today, it is all about branding, and so if you are off message, you are out. And so, the only economists you hear are the ones who are always on message because they, I think, prefer their message to their research.
Bethany: You’ve never been unwilling to question economics. I think of you as a skeptical economist, not necessarily a rabid believer that everything, every model produced by an economist, somehow holds the answer.
What do you think are the right questions to be asking about this history of microeconomics becoming so critical? What are the legitimate questions to ask about how this happened and where we are today?
Luigi: Being an economist, I think that there is a lot of value in using the economic language to attack certain problems. There are also some risks. Like all the languages, all the tools, they can be overused. Actually, let me give you an example that I learned in class. When I began teaching, I’m sorry to say, 30 years ago, one of the first classes I was giving was about how to calculate net present value, and one of the examples I was using was the value of investing in the MBA.
I was listing, asking the students, what are the costs and benefits of the MBA, and trying to put them first in a temporal framework. Some costs start now, and some benefits are in the future, so there is some discounting.
But pretty quickly, I realized that many of the MBAs have some nonmonetary costs and benefits. What I was teaching them was simply how to calculate the net present value between monetary costs and benefits. But the nonmonetary ones, first of all, are not easy to quantify and even less so to discount over time.
Especially teaching in the evening program, many were saying that one of the costs was having an angry spouse at night after they spent three hours in class. I learned to divide and say, look, what we are good at as economists is to factor in these monetary costs and benefits. What we’re not good at is evaluating the nonmonetary ones.
What you should do is calculate the net present value and then compare this net present value with your subjective view of your personal costs and benefits. And then the decision of whether it’s worth doing the MBA or not should not simply be based on the fact that the net present value is a million dollars. Is this million dollars worth having an angry spouse at night and maybe divorcing an angry spouse as a result?
I have no expertise, no competence, to answer that question, nor to help you answer that question. The only part I can do is to calculate well what you get, so that you know what you are getting or giving up on the monetary side. On the nonmonetary side, you are the king or the queen, and you should make that decision. All too often—in politics, for example—we push on the monetary costs and benefits, ignoring the nonmonetary wants.
The role of an economist should be the role of the guy computing the net present value, but also with the humility to say, “I’m not good at evaluating the rest. You person, you politician, should evaluate the rest based on some values which I will not opine over.”
Bethany: In an ideal world, what you’d like to see from Elizabeth’s book—tell me if I’m interpreting you correctly— is a sense of some ground rules about when we should use economics and when we shouldn’t use economics, when we should take into account nonmonetary value. But you’re not looking for a complete dismissal of an economic way of thinking. You’re looking for it to be contained and for a sense of how it can be contained.
Luigi: Absolutely. I would like, definitely, a when but also a why.
Bethany: This book is a wonderful history of microeconomic thinking and how it came to be so important in the halls of power. It’s also a recounting, in her view, of how progressives lost their way as a result of that. I think Luigi and I were both looking for some answers in this discussion that we’re not sure the book provided for, really, what’s the alternative? What do we keep and what do we throw out? Do you throw out the proverbial baby with the bathwater?
Let’s bring in the author herself, Elizabeth Popp Berman, to discuss her book and see if we can get some of those answers.
Luigi: Maybe because I’m an economist, so I feel involved here, but I would like to define what it means to think like an economist, and maybe because I do that naturally, it’s hard for me to disentangle. Let me try a classification, and one is what I call a rational approach, where when you see a problem, you think about what are the objective functions or function, and what are the constraints, and how to operate in a way to maximize something. That’s one way.
The second—which is not mutually exclusive, of course, those are different characteristics—is that we tend to monetize everything. Everything has a price, and we tend to ignore what is not monetizable like it doesn’t exist.
The third thing, which you emphasize, is this idea of efficiency. I like to call it a pie-ification because everything is a pie, and we maximize the pie as a sole objective. Once you focus on the pie, we displace any other thing. Which one of the three do you define as the economist, and which one prevails, and which ones do you object to?
Elizabeth Popp Berman: Yeah. I mean, I don’t object inherently to any of them, but I think my idea of thinking like an economist, what I call this economic style of reasoning, I’m really talking about what people are doing in these policy spaces: a very broad, Econ 101 sort of toolkit for thinking about problems. I do think that efficiency is one big piece of that—the various kinds of efficiency, thinking about the size of the pie, thinking about cost-effectiveness, all those pieces.
I think there’s a lot that is about an orientation towards policy problems that focuses on choice, incentives, competition, weighing costs and benefits. I think the other thing I would add that didn’t come up in your initial scoping is a deep respect for markets as efficient allocators of resources, to the extent that I think sometimes it can exclude attention to other factors.
I’m really interested in unpacking what it has meant for center-left technocrats with a particular orientation towards thinking about efficiency. People who aren’t antigovernment, people who just want to try to figure out how to make government better. Rather than telling a primarily Chicago School story, I’m telling a story that is really centered around people who saw what they were trying to do as make government work better and were trying to use the tools of economics in order to do that.
Luigi: This is a struggle I have because on one hand, I really appreciate the fact that you bring the microeconomic debate to a broader public. And the fact that you put, to some extent, the Harvard School in its place. The Larry Summers of this world are more responsible for this than the Chicago people. Not because the Chicago people were not pushing in that direction, but because the Harvard people were supposed to be the counterbalance, and they were missing in action.
I would like to distinguish between what I consider sort of more ideological or more temporary from what is fundamental. To what extent in the book are you mixing the two a bit and making one big picture versus saying there is a natural rationalization of the administration, for example, that once you deploy a lot of money into a sector, you need to make people accountable, you need to have objectives? Economics provides a very useful structure, and I don’t think that necessarily you want to throw that away. Or am I wrong?
Elizabeth Popp Berman: What I guess I would say is that, obviously, there are a lot of things you can do within this broad space of maximizing an objective function. I think where I would turn to think about the range of what is actually possible in practical reality versus in theory is what’s going on in the discipline at any one point in time. To the extent that the people who are operating in these policy spaces are there, at least in part, because they have some kind of legitimacy in academic spaces, they’re coming from well-known universities or they’ve got some sort of academic credentials, that’s how you make your way into those spaces.
But what the range of political space is going to be at any given time is going to also be shaped by what is the range of spaces that is acceptable within the discipline at any given time. I think there’s this way that the range of debate that’s happening and that’s legitimate at a particular moment within the discipline itself then creates the space of people who are there to draw on and who can be brought into government at a particular time . . . Even though, in theory, there could be a broader range of positions, in practice, that’s not actually what happens.
Bethany: If you had to answer as a sociologist why, is there some deeper human need for quantification? I think a lot about this desperate desire we all have to believe in models as a form of truth. And is there some deeper human need that this way of thinking addressed that is also part of the issue?
Elizabeth Popp Berman: Yeah. I mean, I do think the sociologists would point to Weber in this argument here, that there is this tendency in modernity to rationalize, and that that’s been going on for hundreds of years. I do think there’s a piece of this that is kind of inevitable, that it’s going to happen in some form.
I also think money is sort of a universal measurement that’s really powerful. Using it solves a lot of practical problems. It really helps you with making decisions, even though you know it’s got a lot of limitations to it, but it’s not obvious what the alternative would be. I think that’s a piece of it as well.
I kind of tell a story that’s very ideas-forward. It’s about experts and what they’re doing in government, but I do think that, ultimately, a lot of the changes that were taking place were made possible, the opportunity is there, because of larger things that are going on politically and economically at the global level. Had the US not being experiencing this period of stagflation, had the Soviet Union not been declining as a global threat, had you not had European countries becoming more serious competitors in ways that they hadn’t been for a couple of decades, I think those larger conditions created this space for this kind of change, and without them, you wouldn’t necessarily have seen the same kinds of dynamics play out.
Bethany: You give so many examples of the ways in which economic thinking has pervaded so much decision making. Was there one, as you worked on the book, that particularly stood out to you, that surprised you, that shocked you? And if so, what was that? And just as an aside, I just have to say this is so delightful because almost always there’s a third economist on the show, so I feel like we get to gang up on Luigi a little bit. This is very exciting.
Elizabeth Popp Berman: I think the example—which is maybe not the most shocking example, but the one where I really see economic reasoning as having been really pervasive and critical—is in how we think about healthcare. In the 1960s, at the point in time where Medicare or Medicaid are being created, there wasn’t really health economics. This really wasn’t yet a subfield. People didn’t really see medicine or health as being a market or an industry in the sense that they would today. And so, it was really kind of a long, slow process to get people to think, OK, well, healthcare is a market, and we should think about that, and part of what government should be trying to do is create conditions that are going to promote competition and enable choice and so on.
And that really shifted towards thinking about insurance in terms of, well, what kinds of incentives are we creating here? Should we have cost sharing so that people aren’t incentivized to use more care than they actually need? Should we offer some means testing because we don’t want this program to cost more than it has to? And those were just very different ways of thinking about the whole space than had really existed before.
Luigi: Before the introduction of Medicare, the healthcare sector was minor in terms of the size of GDP and the sum of money that was spent, et cetera. As an enormous amount of money is poured into the sector, I think it’s only natural that we try to rationalize. This is, again, where I am struggling. Are you complaining that we use economic methods to evaluate the efficiency of the system, or are you complaining about the fact that we push too much market in the place versus other characteristics? Ken Arrow was in support of universal healthcare, and I think that most economists today would probably say that universal healthcare is the most efficient way to do it.
Elizabeth Popp Berman: I think there’s a lot of ground in there. I think there’s definitely a thread through this story that a lot of what happened was you had a big expansion of government in a lot of different areas in the 1960s, and that was both in the social-policy end of things and also in the regulatory end. It understandably created a desire for some kind of rationalization, some kind of way to think about how to better make these decisions, and how to better manage the spending that we’ve decided that we’re going to do.
I do think that even if it hadn’t been economics that came in and played that role in the context of the US government, you would have had some kind of expertise in that space that would have been trying to do something broadly along the same lines. I do think the details of what type of expertise actually entered that space matter because the types of experts who then ended up being put into place then shaped down the road the kinds of conversations that were possible.
What I would argue is that I would like more attention to a couple of things. I think one is to the politics that are going around these questions as well as the economics. Understanding that . . . And, again, talking about the ’70s, not talking about the present, but when you move away from saying, “We’re going to focus on trying to have universal healthcare,” to saying, “OK, we’re going to try to do something that covers a subset of the population who really can’t afford it,” there can be political consequences to that as well.
There’s definitely a case to be made that broad-based programs tend to be more politically resilient, and I think those kinds of factors tend to get set to the side. I also think politics in a smaller, more micro sense can be ignored. Just to pick a totally different example, the rise of cost-benefit analysis in regulatory policy, clearly there was an argument to be made that nobody was really thinking about the costs of regulation as well as its benefits, but the people who were really true believers in, let’s try to weigh the costs and benefits of everything, tended to ignore the details of how that process worked and the fact that it created new kinds of spaces for industry to intervene and to work to manipulate those numbers in their favor. It ignored the fact that cost-benefit methods themselves have certain assumptions baked into them.
For example, this is changing now, but historically there wasn’t much of a focus on distribution in cost-benefit analysis, and people would just say, “Oh, well, let’s just bracket distribution. We’ll think about that later.” It’s sort of this inattention to the small-p politics of large-P Politics that I think is one key thing that I would push against.
The other probably is more willingness to entertain the idea that second-best or less than economically ideal solutions can sometimes be the most workable. I think here maybe one place you could think about this is in arguments over cap and trade historically. Until relatively recently, people saw cap and trade as being the solution to climate change. It makes a lot of sense. There are a lot of good arguments for why it should work, and yet it doesn’t seem to be working in practice.
I think at some point you have to be willing to say, OK, well, this is great, but this is just not something that seems to be actually doable, and perhaps something that is achievable but maybe is a second-best solution can actually be more effective in the long run.
Luigi: I think that the point you’re making that cost-benefit analysis makes it easier to lobby, I think it is very important and very often ignored by economists, even in their analysis. The paradox is that you think about efficiency, but part of efficiency is the lobbying and the subversion that takes place. But conveniently, this is ignored. Also, the fact that there is a political undertone in every technical decision, and ignoring it is really wrong.
I think that the economists have been affected by too much hubris that they could do everything, and as a result, they overextended, and they created a backlash. And my fear is that the backlash will not only fix the wrong parts but will eliminate even the rational approach and thinking about cost, which is, in my view, very, very important.
Elizabeth Popp Berman: Yeah. I guess I’m not too worried at this point that economists are going to be squeezed out of policy spaces entirely, but I do see what you’re saying in that by sort of saying that here’s a cluster of concepts and ways of thinking that have to go together and not being attentive to how things could be otherwise within that same framework might lead people to reject it. Maybe that’s the case if I’m trying to reach economists as the primary audience, but I think what I’m trying to do here is in part really capture something that I do think a lot of people who work in policy spaces have felt and have had a hard time articulating that, for some reason . . . People have this sense that certain kinds of progressive policy solutions have been very hard to advocate for a very long time, that they’ve been pushed off the table, that they’re seen as unreasonable and nonsensical.
Part of what I’m trying to do is put a name on this broad phenomenon, to scope out where it came from and what its implications have been. This is why a certain set of a certain range of solutions is seen as being kind of reasonable and on the table and part of the conversation, and this is what’s outside of that. Maybe it’s a question of audience as much as anything.
Luigi: You said that there is no risk that economists are squeezed out in the public-policy debate. I will disagree because if we look at the big choices that have been made recently, these seem to fly in the face of every economic reasoning.
Think about the third stimulus package created by Biden when he was just elected. I think every sensible economist basically said, “This is a bad idea.” Now, we are at almost double-digit inflation. The second is the cancellation of student debt. I think every economist worth anything will say that this is a bad idea, but he went ahead. And I still, maybe because I’m an economist, think it is a bad idea.
I would like to see what your reasoning is . . . Help me understand from a sociological point of view why giving money to, basically, most of the time, privileged people instead of underprivileged people is the right thing to do.
Elizabeth Popp Berman: Yeah. I think the student-debt example is a great one where I completely agree. This is clearly a policy that came from a very different place. There are economic arguments as to why this shouldn’t be the case. From my perspective, why something like loan forgiveness might be a good policy decision is really about what it opens up. If you believe that there should be some kind of public higher education that’s widely available, if you believe that we’ve kind of moved in the wrong direction by having a very high price tag attached to higher education, then I think politically what you’re looking to do is to do something that’s going to put some kind of crack in that edifice.
I think there are ways to structure it, and in fact, I think it has been structured so that the benefits are going more predominantly to middle- and lower-income people than they would be if you just did a broad, hundred percent, across-the-board cancellation.
It’s not just about, well, when we actually do this policy of, if we forgive $10,000 of debt, who does that go to? What’s their income? Can they afford to pay it back? What are the distributional effects here? It’s the whole broader political space that it plays into that I think is the better argument for why it’s a good policy. And maybe that’s an illustration of the larger argument that I’m trying to make, that it’s not that I would disagree with you within the scope of how you define the problem that student-loan debt might not be a first-choice policy if you’re trying to just improve the social safety net somehow. But when you think about all the things that it might potentially open up space for down the road, I think then the calculus becomes very different.
Luigi: Sorry, if I can follow up on this, because this probably is a very interesting illustration of our divide. Maybe because I’m an economist, I think about the opportunity cost. What could have been done with this half a trillion dollars that would help people more? And you’re saying, “I don’t care because what I care about is reaching a certain objective, and I’m prepared to sacrifice this in the name of a greater good.”
Elizabeth Popp Berman: It really is. It’s a nice encapsulation because I think the question isn’t, is this the most optimal way we could spend half a trillion dollars? The question is, what else would actually happen in reality? Where would this money actually be going if this were not happening? Even if, in an ideal world, it might not be the first thing that I would throw a big pile of money at, I think it will actually help real people. I think it will make a difference in many people’s lives, and I think it’s something that there is a political opening for at a particular moment in time.
Starting with the position that, well, we could spend half a trillion dollars on some other kind of imaginary policy that would be better is not really the choice set that we’re looking at. We’re looking at doing this or not doing this.
Luigi: But I see the direction you’re going as making it even more difficult to have a common ground. You are saying we should look at the decision not from a point of view of cost-benefit. We should look at how they might help change the world in the direction of what we want it to be. The fact that now people in the future are going to take on debt under the expectation that it is going to be forgiven. In Italy, we forgive tax liability every three or four years, and people don’t understand that it’s a repeated game, and people anticipate it, and they don’t pay taxes, knowing that there will be forgiveness sooner or later.
This kind of strategic, I would say Machiavellian, political approach becomes irreconcilable because if one side plays this game, the other side has to play that game, too. And so, there is no way to reconcile on any trade-off or common package.
Elizabeth Popp Berman: I think, though, that what we’ve seen in practice is that one side has been playing this game for a long time, but the other one hasn’t to the same extent. If you look at what Republican administrations have done when they’ve been in power, they’ve been much better at taking economic advice when it seems like it’s in line with underlying values and setting it aside when it doesn’t.
For example, in the Reagan administration, you see that he was able to advance the use of economic expertise in areas like antitrust where it was, at the time, aligned with Reagan’s broader goals of deregulation and less intervention in markets. But in areas like social policy, where he just wanted to have less social policy and not to optimize it in any way, you see economic expertise really being slashed. I think that has not happened, at least until the last few years, on the Democratic side of things. I think one consequence of that has been that I think it has contributed to this ratcheting of policy to the right over time.
Bethany: I do think it’s an interesting point—and tell me if I’m misinterpreting what you said—but I was thinking back to the discussion about healthcare, and then I was thinking about Hillary Clinton’s efforts to achieve universal healthcare when Bill Clinton was president, and I was thinking this might encapsulate what you’re talking about, in that the whole thing got mired in the numbers instead of it being a discussion about the universal right to healthcare, and would this make us a healthier democracy and a stronger country? Democrats didn’t fight that battle. They tried to fight it on the numbers instead like good little schoolkids.
And then, when similar things have happened to Republicans—used loosely—but for example, the global financial crisis, where banks needed a gigantic taxpayer bailout, somehow that never ends up being a challenge on the numbers to the accepted way of thinking. We just sort of skirt by that. Does that make sense?
Elizabeth Popp Berman: Yeah. I think that does make a lot of sense, and I think that it’s been very good Republican strategy to try to make changes because they’re going to have some kind of long-term consequences. You cut taxes, even though you don’t know where the revenue is going to come from because you’re hoping it’s going to shrink government down the road.
I guess on the one hand, you could say, well, that’s a bad idea because in the long run, that created all sorts of problems. But on the other hand, it’s been a fairly effective strategy at actually limiting the growth of government. And so, sometimes, I think these second-order consequences can be really important, and while, obviously ,there are a lot of risks when you’re talking about second-order consequences—you don’t know what the world is actually going to look like at that point—to pretend that they’re not actually part of the equation is also sort of a blind spot of its own.
Luigi: You said it perfectly. I think it’s despicable that the Republicans behave in that way. I think it’s really started to undermine democracy, and your response is the Democrats should do the same because it works. And my predicted consequence is that it’s going to get even worse. Now, I understand your frustration, but I think it’s a very dangerous path to go down.
Elizabeth Popp Berman: I think we’re already on a pretty dangerous path, and so I guess I’m at a point where I’m willing to take a position that seems higher risk because I think that continuing with what the status quo has been is also quite dangerous. I think it’s a calculated risk, in my view, but I think it’s one that is justifiable.
Bethany: Thank you so much, Elizabeth. I thought that was a really interesting discussion.
Elizabeth Popp Berman: Thanks. That was a pleasure.
Luigi: Yeah, I completely agree.
Bethany: Luigi, what did you end up thinking? Did you end up thinking that she offered a legitimate critique of economics through the framework that you laid out, or did you end up thinking that she was throwing the baby out with the bathwater?
Luigi: I’m afraid that she threw away the baby with the bathwater. I think that it seems to me a bit like I fight against gravity because my scale tells me that I’m too heavy, and so I reject the gravity equation because I don’t like the consequences. And you might not like that you are overweight, but I don’t think rejecting the gravity equation will help you one way or another. Maybe politically it will help you not even mention that you are overweight.
But it is not the right way to reject something, especially because I think there are a lot of reasons to limit the impact of economic thinking. But if you reject it simply out of the conclusion, you are really playing into the hands of the people that say, no, you have to have some discipline. You don’t want to reject the budget constraint because you don’t get the policies you like. That’s not the way to think. And if you do so, I think you are justifying even more application and now application of the economic thinking.
Bethany: Yeah. As did you, I really liked the history in the book. As a noneconomist, I find every time I read something like this, I learn a little bit more. It’s interesting for me because I’m not an economist, and when you’re not familiar with something, it can infiltrate your thinking all the more than when you do know it because you find yourself just absorbing what’s in the ethos. And certainly, the ethos of business journalism, the ethos of Fortune magazine, where I worked in the late ’90s and 2000s, up until the global financial crisis, was very much one of belief in all these things that she talks about. It’s interesting to see the intellectual history of that.
I also like this theme of cynicism or skepticism running through her book about numbers and how they don’t represent truth and how they can be made to say different things to back up different points of view and that Republicans . . . And I think she’s right in this, although it would be very interesting to do a more systematic critique that Republicans have been more able to play the game of using numbers to support their thinking when they want to and then tossing that out when they don’t want to, whereas Democrats have more often been the good little boys and girls. They got sucked into, essentially, arguing the numbers, and now they still do.
I don’t know if that’s true. That appealed to me on some level, but I don’t know if she’s right. But I found that really interesting, too. But I still think, as you’re saying, that really big question, well, what do we do instead? If we throw out economics, if we throw out the language of money, aren’t we just in a Tower of Babel where we’re all shouting past each other? Then how do you evaluate ideas, other than, I think I’m right because this is what I believe?
Luigi: I have to say that, to her credit, there are certain things that we should value regardless. We’re not disputing slavery in terms of economic costs and benefits. Not having slavery, as a principle, basically is priceless.
So, she’s right. There should be some things that have these characteristics. Now, of course, if you make everything fit into these characteristics, then you have no trade-offs, you have no compromise, you have no policies, and you can pretty quickly go to disasters in terms of the decisions you make.
Basically, I’m restating what you said that we need to have a method to say when we adopt this language and when we stop that language. I think where she’s right is that the major responsibility of the lack of a limit to this language belongs to the left. They were the torchbearer for a long time of these values. If they stop carrying them, it’s very hard to imagine that the other side will start doing it.
The enablement of the left with the economic language and, to some extent, the implicit economic values is part of what brought us to a one-dimensional world. And I think that she’s trying to recover a more complex world. I’m not so sure that she’s going the right way, but that’s my personal opinion.
Bethany: I always find it interesting when I look back on our podcast, and we’ve had people from very different parts of the political spectrum who nonetheless end up agreeing on certain points. She and Vivek Ramaswamy, oddly enough, meet in the same place, in a way, which is that his argument is there are spheres of life in which capitalism doesn’t belong. I was thinking that, in a way, her argument is there are spheres of life in which economics doesn’t belong. In a way, that’s an interesting common theme that I’m seeing in some of our guests that come on the show.
Why do you think it is that the left lost its way on this and became so devoted to models? Was it a need to justify the moral beliefs, which in the end shouldn’t necessarily have to be justified?
Luigi: Actually, before I answer that question, which is a very good question, let me alert our listeners that Vivek Ramaswamy is running for president of the United States. So, we have the credit of having discovered him early on and brought into the . . . like we did with Lina Kahn. We interviewed her when she was a nobody, and now she’s head of the FTC. Maybe Vivek Ramaswamy will be the next president or vice president of the United States. Who knows?
I think that you caught a very important point by linking it with Vivek Ramaswamy because I feel that, ironically, today it is the right that is rediscovering values over economics rather than the left. The left has abandoned the values so much that it’s the right that says, no, no, we should protect workers even if this is not in the economic model of free international trade, or we should protect values like the family, like religion, when this is not in the perfect economic framework, and so on and so forth.
In a sense, the consequences of the abandonment of these values by the left is that the right ended up picking them up. And this makes your question of why the left abandoned them even more important. I’m a little bit cynical, as you can imagine. My view is that with the Reagan revolution and, most importantly, with the fall of the Berlin Wall, much of the left realized that there wasn’t a lot of future in a radical position. And so, they tried to embrace a technocratic version that would be more palatable for them.
At the same time that the left became technocratic, this is the time where the old, traditional Democrats are replaced by the so-called Watergate Democrats, the ones that got appointed after Watergate. These are young people who identify being Democratic with being against the Vietnam War. They don’t identify with unions. They don’t necessarily identify with the struggle of the middle or lower class, but they identify a lot with civil rights and a lot with antiwar.
I think that the language of economics really appeals to this younger, more technocratic, and more educated side of the Democratic Party, and also it was appealing that it was leading to a lot of powerful and well-compensated jobs. I don’t think that this is in contradiction with the fact that we start seeing Democratic or left-leaning presidents, prime ministers, selling themselves—in most of the cases, after they finished their job; in some cases, even while they were still doing their job—to industry.
Think about Bill Clinton, Tony Blair; in Italy, Matteo Renzi. They all moved fast from being leader of the center-left to being consultants for the worst corporations in the world.
Bethany: Yeah, that’s an interesting analysis. I’ve thought of it as the left becoming almost bloodless in a way. I remember a friend of mine telling me a story about the trade unions going to DC during the Obama administration to be heard about all their concerns and sitting in a meeting with a young kid who is on his or her Blackberry, not looking at them, not talking to them, because the new left wanted nothing to do with the ugly residue of really working-class America.
At the very same time that the bloodless version of the left became predominant, the right started to reclaim the sort of blood and guts and emotional appeal of the whole thing. And you’re right, that’s a really interesting piece of things, but I think it maybe ties into Elizabeth’s argument in an interesting way, in that the right has been willing to use numbers and economic models when it serves and willing to walk away from it when it doesn’t, whereas the left became more proselytized or more bound to the economic model somehow.
Luigi: But the left did not really have an alternative economic model. The left was defined as mostly civil rights, which are very important, so don’t take me the wrong way, but they don’t have anything to say about economics. It is easier for them to adopt their neoliberal language in economics, and then you sprinkle it with a bit of civil rights, and you feel that you are progressive, and you get the top jobs in consulting, and blah, blah, blah.
You have the best of both worlds. You feel good because you love the poor in Africa, but you don’t have to deal with the blood and sweat of the unions in your backyard.
Bethany: I have rarely heard you in a podcast that we’ve done as . . . upset is not quite the right word, but you were quite offended by her point of view, and I think we both agree that we really admired her for sticking to her guns. But what do you think it is about her point of view that upset you in particular, that offended you, or that you found, I think the word you used when we were interviewing her was “dangerous”?
Luigi: What I call the Machiavellian use of politics that leads to radicalization and disaster. I’ve seen that play out in Italy for a long time. When I came here more than 30 years ago to the United States, it was not as prevalent here. Unfortunately, the United States is copying Italy in that, and it is going down a very negative path. And finding an academic who vindicates that. If you tell me, “Look, I’m sick and tired of losing, and that’s the only way I can win an election is by doing that,” I might understand it.
But it’s a bit like some Democrats ended up financing super radical, right-wing primary candidates in the Republican Party, so that it was easier to defeat them the second time around. And they succeeded. From a Machiavellian point of view, it is absolutely the right thing to do, and the reason why we’re going down the drain politically is because people are willing to go so low.
Bethany: It’s interesting. I approach it from a slightly different perspective, which is the longstanding debate, at least going back to the Romantic period and the Enlightenment, between thinking and feeling. I thought it was a quote from Jane Austen, but I’ve never been able to find it again. Maybe one of our listeners will know who said it, but I thought it was Jane Austen who said, “Let there be no emotion untempered by logic.”
I think about that all the time that this world of prizing feelings—I feel this, I want this, this is the right way—untempered by any kind of logical framework is actually a step backward. The step forward is to take into account both feelings and logic. Her argument, to me, came close to throwing out the logic, which is that things do have a cost, and how do we think about what they cost? While giving her full credit for stating that the way in which we measure that cost is heavily influenced by lobbyists in itself, not truth with a capital T, as I often say about models. But still, we need a common language. We need a way of tempering what we feel with what we think and with a factual framework. Does that make sense?
Luigi: Absolutely. You said it beautifully.
Bethany: If you lose the agreement that we’re going to find a common language for thinking about things, then the world devolves into a, “But I feel this and I feel it strongly, so therefore, I’m right.” And there’s something unsubstantiated about that.
I agree with your sense that it’s dangerous. While I appreciate so much of what she did and so much of what she pointed out, I’m not sure I like her solution. I’m not sure I like the ultimate place that she gets to, but maybe that’s exactly it. She might say that’s exactly the problem. I want something more moderate. And she doesn’t want to be moderate because she’d argue that’s the whole problem to begin with, perhaps.
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