Rethinking Economics: Breaking Out Of The Mold

An Economist With Opened Eyes (Rare)

As many of my long-term readers know, I am an economist by training.

By this, I do not mean that I simply studied econ in college (even though I did), or that I achieved an advance degree in economics (which I also did), or that I dived in deep on my own time (of course I did), but that I actually spent a significant chunk of time employed as an economist. Even today, I still work peripherally related to that field and I am always in contact with economists in my day-to-day work.

I learned it; I walked it; and I lived it. I still do.

Which is why rethinking traditional economics was something that was so hard for me to do once I started to find the truth. But it was an essential step on my path to becoming a dissident.

I call out the Market God so much because I once put markets above God. I’ve been there.

So, when I find other trained economists like me that broke out of the hivemind even though they used to buy into the prevailing economic narratives (of both the mainstream and Austrian counter-mainstream schools), I get so much joy.

One recent news story is exactly that.

Angus Deaton, an Ivy League economist who received a Nobel Prize in Economic Sciences, has recently broke out of the mold:

RETHINKING MY ECONOMICS

Economics has achieved much; there are large bodies of often nonobvious theoretical understandings and of careful and sometimes compelling empirical evidence. The profession knows and understands many things. Yet today we are in some disarray. We did not collectively predict the financial crisis and, worse still, we may have contributed to it through an overenthusiastic belief in the efficacy of markets, especially financial markets whose structure and implications we understood less well than we thought. Recent macroeconomic events, admittedly unusual, have seen quarrelling experts whose main point of agreement is the incorrectness of others. Economics Nobel Prize winners have been known to denounce each other’s work at the ceremonies in Stockholm, much to the consternation of those laureates in the sciences who believe that prizes are given for getting things right.

Like many others, I have recently found myself changing my mind, a discomfiting process for someone who has been a practicing economist for more than half a century. I will come to some of the substantive topics, but I start with some general failings. I do not include the corruption allegations that have become common in some debates. Even so, economists, who have prospered mightily over the past half century, might fairly be accused of having a vested interest in capitalism as it currently operates. I should also say that I am writing about a (perhaps nebulous) mainstream, and that there are many nonmainstream economists.

• Power: Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.
• Philosophy and ethics: In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency. We get little training about the ends of economics, on the meaning of well-being—welfare economics has long since vanished from the curriculum—or on what philosophers say about equality. When pressed, we usually fall back on an income-based utilitarianism. We often equate well-being with money or consumption, missing much of what matters to people. In current economic thinking, individuals matter much more than relationships between people in families or in communities.
• Efficiency is important, but we valorize it over other ends. Many subscribe to Lionel Robbins’ definition of economics as the allocation of scarce resources among competing ends or to the stronger version that says that economists should focus on efficiency and leave equity to others, to politicians or administrators. But the others regularly fail to materialize, so that when efficiency comes with upward redistribution—frequently though not inevitably—our recommendations become little more than a license for plunder. Keynes wrote that the problem of economics is to reconcile economic efficiency, social justice, and individual liberty. We are good at the first, and the libertarian streak in economics constantly pushes the last, but social justice can be an afterthought. After economists on the left bought into the Chicago School’s deference to markets—“we are all Friedmanites now”—social justice became subservient to markets, and a concern with distribution was overruled by attention to the average, often nonsensically described as the “national interest.”
• Empirical methods: The credibility revolution in econometrics was an understandable reaction to the identification of causal mechanisms by assertion, often controversial and sometimes incredible. But the currently approved methods, randomized controlled trials, differences in differences, or regression discontinuity designs, have the effect of focusing attention on local effects, and away from potentially important but slow-acting mechanisms that operate with long and variable lags. Historians, who understand about contingency and about multiple and multidirectional causality, often do a better job than economists of identifying important mechanisms that are plausible, interesting, and worth thinking about, even if they do not meet the inferential standards of contemporary applied economics.
• Humility: We are often too sure that we are right. Economics has powerful tools that can provide clear-cut answers, but that require assumptions that are not valid under all circumstances. It would be good to recognize that there are almost always competing accounts and learn how to choose between them.

Efficiency is such a keyword anymore. When you hear that at the forefront of an argument, you almost instantly know you are speaking to someone that places econ above all else.

Yet these people can never seem to break out of the mindset that we are a people; we are not simply an economic zone. This country is not inhabited by robots to be jammed full of convienence stores and Walmarts. We are a people, and efficiency does not matter if we lose our humanity (or our demographics) in the process of becoming more efficient.

In that regard, Deaton nails it. But the article gets even better.

Next, he moves on to his newfound understanding of the lies of free trade and immigration, something that takes much courage to admit on the IMF website itself:

I am much more skeptical of the benefits of free trade to American workers and am even skeptical of the claim, which I and others have made in the past, that globalization was responsible for the vast reduction in global poverty over the past 30 years. I also no longer defend the idea that the harm done to working Americans by globalization was a reasonable price to pay for global poverty reduction because workers in America are so much better off than the global poor. I believe that the reduction in poverty in India had little to do with world trade. And poverty reduction in China could have happened with less damage to workers in rich countries if Chinese policies caused it to save less of its national income, allowing more of its manufacturing growth to be absorbed at home. I had also seriously underthought my ethical judgments about trade-offs between domestic and foreign workers. We certainly have a duty to aid those in distress, but we have additional obligations to our fellow citizens that we do not have to others.

I used to subscribe to the near consensus among economists that immigration to the US was a good thing, with great benefits to the migrants and little or no cost to domestic low-skilled workers. I no longer think so. Economists’ beliefs are not unanimous on this but are shaped by econometric designs that may be credible but often rest on short-term outcomes. Longer-term analysis over the past century and a half tells a different story. Inequality was high when America was open, was much lower when the borders were closed, and rose again post Hart-Celler (the Immigration and Nationality Act of 1965) as the fraction of foreign-born people rose back to its levels in the Gilded Age. It has also been plausibly argued that the Great Migration of millions of African Americans from the rural South to the factories in the North would not have happened if factory owners had been able to hire the European migrants they preferred.

His evolving thoughts on free trade and immigration are exactly parallel to my own.

I even have recent articles on both of these:

• Free Trade: The Failure Still Loved By All
• Legal Immigration Is The Problem

Yet, the best is saved for last.

His ending sounds like a chorus to the rest of us recovering economists:

Economists could benefit by greater engagement with the ideas of philosophers, historians, and sociologists, just as Adam Smith once did. The philosophers, historians, and sociologists would likely benefit too.

That really is the key. Economics is a tool. If it is used in a vacuum without consideration for philosophy, history, and the society as a whole, it is completely useless.

Efficiency is, at best, a tertiary consideration. Long after both nation and culture.

Smart nations start with identity, history, tradition, culture, biology, and then move on to economics. Not the other way around. Only a fool begins with Mammon and expects a good outcome.

Because if you start with econ, all the rest will get sidelined in a significant way. This exact situation clearly happened to the modern West. It is why we are where we are now.

In many ways, the globalist/libertarian economic lie is one of the worst and most pervasive of the Enlightenment lies, because it targets both the left and the Right equally. It distorts the minds of both groups by making them both focused on the material instead of the spiritual.

You find just as many libertarian “right-wingers” as you do globalist leftists. Both believe in the same root error.

This corruption worked wonders damaging Western Civilization. We sold our entire birthright and heritage for a little temporary prosperity. But sadly for us, that bill is quickly coming due. The “free trade” and “free immigration” will prove not to be free at all. It cost us our heritage, our demographics, our trust-based society, our children’s country, and our collective soul.

The globalist, libertarian economic world has been being tested worldwide since the World Wars. It is demonstrating its failures every day. This system will collapse. It is not if, but when. Because it is based on a lie, and that lie is that economics should prioritize itself over nation, which is something only Satan himself could devise.

Deaton has quite a way to go on his journey, but he has clearly been on it for a while.

It takes a lot of courage for an IMF writer and a man of his reputation to admit his errors on these essential topics, however. So kudos for that.

Now…If only we could get the rest of the economist world to open their eyes, as well.

One can dream, I suppose.

Read Next: On Specialization: The Globalist & Libertarian Love Child

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