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  • The Transformation of Economics.

    Posted by Michael Kennedy on March 1st, 2016 (All posts by )

    A great piece in the Wall Street Journal today about what has happened to Economics and Economics education.

    I took an Economics class in college in 1957 and it changed me to a Republican. My first vote was for Richard Nixon in 1960. My family was furious as they thought we were related to the Boston Kennedys and they had always been Democrats. I wonder if an Economics class would have that effect today?

    And that political economy and my assessment of it has changed over a career spanning more than half a century. Here are five developments I would emphasize:

    I agree with his appraisal.

    1. Diminishing returns to research. A core economic principle is the Law of Diminishing Returns. If you add more resources, such as labor, to fixed quantities of another resource, such as land, output eventually rises by smaller and smaller amounts. That applies—with a vengeance—to academic research. Teaching loads have fallen dramatically (although the Education Department, which probably can tell you how many Hispanic female anthropologists there are teaching in Arkansas, does not publish regular teaching-load statistics), ostensibly to allow more research. But the 50th paper on a topic seldom adds as much understanding as the first or second.

    This has been characteristic of Medicine, as well as other academic subjects.

    Emory University’s Mark Bauerlein once showed that scholarly papers on Shakespeare averaged about 1,000 a year—three a day. Who reads them? How much does a typical paper add at the margin to the insights that Shakespeare gave us 400 years ago?

    That isn’t all he has shown.

    The attitude touches the President’s favorite pastime. Tevi Troy reported in Commentary how much Obama enjoys television, particularly SportsCenter and the middlebrow series Homeland and Mad Men. The New York Times added Breaking Bad and The Wire in its article “Obama’s TV Picks: Anything Edgy, with Hints of Reality,” and while it warned of the foolishness of “psychoanalyzing” a president based on “the books he reads or the music he listens to or the television shows he watches,” the story mentions not a single book. One would expect Marxists, feminists, queer theorists, post-colonialists, anti-imperialists, and media theorists to chide Obama for his bourgeois, masculinist taste, but as far as I know they have remained silent.

    Obama’s taste runs more to sports and rap music.

    Nobody who has paid attention to the deterioration of the humanities should be surprised at this evolution from principled objection to the canon in the 1980s to informal disregard in the 2010s. The process has unfolded through a deceptive dialectic of hard radicalism and soft liberalism among the professorate. The first group denounced the standard literature course as racist, sexist, and imperialist, assailing Eurocentrism, Western Civ, Great Books, and the Canon as gross political formations. Their in-your-face accusations demanded vast multiculturalist adjustments in syllabi, the major, and humanities research, and they wore the “tenured radicals” label with pride. Seeing them exposed and ridiculed in the public sphere, however, another faculty contingent arose, moderate and broad-minded, who claimed that multiculturalist revisions weren’t hostile or negative at all. They marked an opening, an enrichment, so they said: Shakespeare and Alice Walker. These learned liberals objected merely to the hegemony of Dead White Males, not to literary-historical tradition and great art.

    Now, the “science” of Economics follows.

    2. Economics as ideology in camouflage. Economists who achieve fame for genuine intellectual insights, like Paul Krugman, sometimes then morph into ideologues—predominantly although not exclusively on the left. The leftish domination of American academia is partly explained by economics. Federal student-loan programs, state appropriations, special tax preferences and federal research-overhead funds have underwritten academic prosperity, even at so-called private schools. The leftish agenda today is one of big government; academics are rent-seekers who generally don’t bite the hand that feeds them. The problem is even worse in other “social sciences.”

    Global Warming comes to mind when thinking of rent seekers.

    3. A disconnect between economic reality and public policy. Three examples come to mind. First, the Keynesian orthodoxy of fiscal stimulus of the 1950s and 1960s, with its Phillips curves and the like, was shown to be spectacularly wrongheaded. The U.S. experience of the 1970s and the Japanese “lost decade” of the 1990s are two demonstrations. Second, centrally planned authoritarian states with no private property or free markets (e.g., the former Soviet Union or North Korea) have been shown to be monumentally inefficient and not permanently sustainable. Third, nations with some free-enterprise capitalism but with growing redistributionist welfare states start stagnating economically—Europe beginning after 1970, the U.S. after 2000. Yet many economists (including at the Federal Reserve) still champion Keynesian policies and welfare-state expansions such as ObamaCare.

    One would think the “lost decade” of Japan, which seems to never end, might bring some humility to Keynesians.

    4. The rise of the nonuniversity research centers. A reaction to the liberal ideological orientation and inefficiencies of colleges has spawned this phenomenon. When I was attending college around 1960, the Brookings Institution, National Bureau of Economic Research and the Hoover Institution were among relatively few major independent think tanks. Today there are many, especially ones funded on the right to provide intellectual diversity, including nationally or regionally oriented centers such as the American Enterprise Institute, Cato Institute, Heritage Foundation, Heartland Institute and the Independent Institute, as well as dozens of state-policy think tanks.

    I agree this is largely the result of academic programs becoming irrelevant. When Marx rules academia, practical people begin to look elsewhere for solutions. Obama hired Alan Krueger, an economist who wrote a weak paper advocating higher minimum wages, as his Chair of Economic Advisors.

    Although available research cannot precisely answer these questions, I am confident that a federal minimum wage that rises to around $12 an hour over the next five years or so would not have a meaningful negative effect on United States employment. One reason for this judgment is that around 140 research projects commissioned by Britain’s independent Low Pay Commission have found that the minimum wage “has led to higher than average wage increases for the lowest paid, with little evidence of adverse effects on employment or the economy.”

    His analysis of minimum wage raises in the fast food industry has been disputed rather convincingly.

    Back in 1994, Princeton economists David Card and Alan Krueger claimed that they’d looked at Garden State fast-food outlets in the wake of the state’s 1992 minimum-wage hike — and found that employment increased relative to similar restaurants in next-door Pennsylvania.

    But six years later, the Card & Krueger study was debunked in the same economics journal that originally published it.

    The Jersey study first gained notoriety when President Bill Clinton cited it in support of his proposal to increase the federal minimum wage in the mid-’90s. The economists’ work provided for a compelling story: Telephoning restaurants in New Jersey and Pennsylvania before and after Jersey hiked its minimum wage, they reported an increase in employment.

    But other economists were skeptical. After all, just over a decade earlier, a seven-volume report from Congress’ Minimum Wage Study Commission had established conclusively that each 10 percent increase in the minimum wage reduced employment for young people by as much as 3 percent.

    As it turned out, there was good reason to be skeptical. A team of researchers from the Employment Policies Institute (where I’m now research director) collected actual payroll data from 25 percent of the franchised restaurant locations that Card and Krueger had telephoned — and found that the hard info had little resemblance to what the economists (actually, students working for them) had gathered via phone interviews that used an ambiguous set of questions.

    Well, it was good enough for government work.

    5. A major cause of America’s economic malaise: the government’s war on work. My own research with Lowell Gallaway has stressed the importance of labor costs in explaining output and employment fluctuations. If the price of something rises, people buy less of it—including labor. Thus governmental interferences such as minimum-wage laws lower the quantity of labor demanded, while high taxes on labor reduces labor supply, as do public payments to people for not working.

    One reason living standards in the U.S. have stagnated: There were 12.7 million fewer Americans working in January than there would have been with the 2000 employment-population ratio. Disability insurance claims have roughly tripled in the past generation

    It goes on and on. Academia has become the rent seeker subsidiary of government and those seeking solutions must go elsewhere.

    Something similar has happened to other academic pursuits like Psychology.

    On January 27, 2011, from a stage in the middle of the San Antonio Convention Center, Jonathan Haidt addressed the participants of the annual meeting of the Society for Personality and Social Psychology. The topic was an ambitious one: a vision for social psychology in the year 2020. Haidt began by reviewing the field that he is best known for, moral psychology. Then he threw a curveball. He would, he told the gathering of about a thousand social-psychology professors, students, and post-docs, like some audience participation. By a show of hands, how would those present describe their political orientation? First came the liberals: a “sea of hands,” comprising about eighty per cent of the room, Haidt later recalled. Next, the centrists or moderates. Twenty hands. Next, the libertarians. Twelve hands. And last, the conservatives. Three hands.

    And so it goes.

     

    17 Responses to “The Transformation of Economics.”

    1. Michael Hiteshew Says:

      My first vote was for Richard Nixon in 1060.

      So, are you blaming Nixon for the Norman Conquest? Is that it?

    2. Robert Schwartz Says:

      My son majored in economics as an undergraduate, he also majored in Math. His favorite econ professor was an Austrian. He thought that macro-economics was an intellectual fraud when he was an undergraduate. After college he went to work at an economics consulting firm. He did very well there, and was making a whole lot of money, but he could not advance because he did not have a graduate degree in anything. He decided to go to graduate school in Applied Mathematics, because enjoys using math to solve real world problems. He decided against a graduate degree in Economics because he thinks that he was right about macro, and grad students spend most of their time and energy on macro.

    3. Robert Schwartz Says:

      The Wall Street Journal also published a book review: “The Progressive History of Eugenics: The trouble with reformers: They are so sure, and so wrong.” By Amity Shlaes on Feb. 26, 2016

      Ms. Shlaes, who wrote an excellent history of the Great Depression titled “The Forgotten Man”, reviews two books including: “Illiberal Reformers: Race, Eugenics, and American Economics in the Progressive Era” By Thomas C. Leonard

      Ms Shlaes focuses on Eugenics. The Amazon description of the book says:

      In Illiberal Reformers, Thomas Leonard reexamines the economic progressives whose ideas and reform agenda underwrote the Progressive Era dismantling of laissez-faire and the creation of the regulatory welfare state, which, they believed, would humanize and rationalize industrial capitalism. But not for all.

      Academic social scientists such as Richard T. Ely, John R. Commons, and Edward A. Ross, together with their reform allies in social work, charity, journalism, and law, played a pivotal role in establishing minimum-wage and maximum-hours laws, workmen’s compensation, progressive income taxes, antitrust regulation, and other hallmarks of the regulatory welfare state. But even as they offered uplift to some, economic progressives advocated exclusion for others, and did both in the name of progress.

      Leonard meticulously reconstructs the influence of Darwinism, racial science, and eugenics on scholars and activists of the late nineteenth and early twentieth centuries, revealing a reform community deeply ambivalent about America’s poor. Economic progressives championed labor legislation because it would lift up the deserving poor while excluding immigrants, African Americans, women, and “mental defectives,” whom they vilified as low-wage threats to the American workingman and to Anglo-Saxon race integrity.

      Economic progressives rejected property and contract rights as illegitimate barriers to needed reforms. But their disregard for civil liberties extended much further. Illiberal Reformers shows that the intellectual champions of the regulatory welfare state proposed using it not to help those they portrayed as hereditary inferiors, but to exclude them.

      I have purchased but not yet read the book. In the past, I have downloaded and read many of Leonard’s papers from his Princeton University web page. He makes it clear that the economics profession in the United States is rooted in progressiveism (a/k/a socialism). Classical liberalism did not come to American Economics until the Chicago School grew up around Friedman and Stigler. In particular Friedman’s polemical skills and ability to communicate with a popular audience promoted classical liberalism. Also important were the Austrian Refugees from Nazism including, Hayek and Meises. An important moment was Hayek’s founding of the Mt. Pelerin Society in 1947. But, all of that was well after the Progressive Era and the New deal.

    4. Robert Schwartz Says:

      Final Note: Richard Vedder, who wrote the WSJ article you linked is a good guy and has written a lot about what the Blogfather calls the Higher Education Bubble. E.g. “Going Broke by Degree: Why College Costs too Much” by Richard K. Vedder (AEI Press, 2004). Veeder has a group called The Center for College Affordability and Productivity. which many of you might find interesting.

    5. Mike K Says:

      “blaming Nixon for the Norman Conquest? Is that it?”

      The WordPress edit function defeated me again.

    6. dearieme Says:

      “A major cause of America’s economic malaise: the government’s war on work.” A second major cause: the government’s work on war.

    7. Robert Schwartz Says:

      ” the government’s work on war.”

      Clever phraseology, but you are wrong. The Defense budget as a share of GDP has shrunk pretty steadily for the last 7 years, and it has not done a thing to revive the economy. In the post WWII era the defense budget has often been a bout 2 or 3 times as high as it is now and those were much stronger growth years. I do not believe the Leninist cant that war is a boon to the economy. Peace is far better, but peace is maintained by armed strength.

      Qui desiderat pacem, bellum praeparat; nemo provocare ne offendere audet quem intelliget superiorem esse pugnaturem“.
      “Whoever desires peace, prepares for war; no one provokes, nor dares to offend, those who they know know to be superior in battle.”
      “De re militari” by Flavius Vegetius Renatus (390 C.E.)

    8. dearieme Says:

      But how much did you spend on the Iraq fiasco? Choosing 7 years seems designed to hide that.

    9. Robert Schwartz Says:

      The amount spent on Iraq was trivial in the context of the whole economy. 7 years is the tenure of the Obama administration and it is all but the first year of the Great Recession. No one, other than you, assigns it any role in the cause of the great Recession.

    10. Michael Hiteshew Says:

      Defense spending as a share of GDP since 1945: http://www.heritage.org/static/reportimages/55077CEFA5437851CDDF403A8DE280FB.gif

      Trends in U.S. Military Spending http://i.cfr.org/content/publications/July2014/011_national_defense_1988.png

      Where Did All the Money Go? http://www.heritage.org/~/media/images/reports/2013/08/sr140/cp-fed-spending-numbers-2013-page-1-chart-2.ashx

      Overall Spending Trends http://www.heritage.org/~/media/images/reports/2012/10/sr121/srfedspendingnumbers2012p12chart1.ashx?w=600&h=531&as=1

    11. Mike K Says:

      Defense spending follows the old rule that nothing is as cheap as being well prepared and nothing is as expensive as being unprepared.

      We will now go through another era of defense buildup. Sadly, Congress will see it as a pinata.

    12. dearieme Says:

      Are those figures legit? Do they include pensions for servicemen, VA hospitals, ….?

    13. Grurray Says:

      I would guess a chart showing entitlement spending as percentage of GDP would show the exact reverse as defense.

    14. steve8714 Says:

      Economists should realize that markets are infinitely complicated and that while you may be reasonably able to predict the direction a market moves, the amplitude of that move will always elude you. Think of the Earth’s weather as an online xbox game with 6 billion controllers and you have the macro market.

    15. jeff Says:

      look no further than University of Chicago economist Austan Goolsbee. He calls himself a “data dog”. He is more like a Democratic operative. I have never heard him critical of a Democratic policy. Too bad, because he hides under the Chicago moniker and people assume he is a Friedman like classical economist.

    16. Mike K Says:

      Goolsbee at least was honest when he told the Canadians that Obama was lying about his plans.

      He was also honest about Obamacare. It was about fooling the rubes.

    17. Jonathan Says:

      Agree with the comments about Goolsbee, but note that he is at the business school, not the economics department.