Of the organized belief systems in America today, economics is surely among the strangest – and economists themselves are even stranger. How such agile and ambitious minds could drift so far out of touch with daily reality, is a question which merits the attentions of our most astute psychologists. The profession is like a cult of the highly IQd, and I’ve always wondered about the strange rites and rituals that could enable their beliefs to persist.
So last winter, when I heard that the American Economic Association was holding its annual meeting around the corner from my office, I felt a little like an anthropologist who finds an encampment of aborigines in his back yard. Would anyone raise questions about basic premises, as opposed to the arcane mathematics of hypothetical markets and pecuniary gain? Would they talk about the actual experience of ordinary Americans, or only abstractions like “productivity” and “growth?” I never imagined they’d be talking about me. Several months before, the Atlantic Monthly had published an article by myself and two colleagues, Cliff Cobb and Ted Halstead, called “If the economy is up, why is America down?” The article explored the paradox that had befuddled the nation’s policy establishment during the 1992 Congressional campaigns. The economy was doing well, by the conventional reckonings – the GDP was up: people were supposed to be happy and fulfilled.
But they weren’t. In fact they were feeling pretty crummy. Alan Greenspan, America’s economic pontiff, expressed the high-level headscratching in a speech to a business audience in San Francisco. Despite the economy’s robust performance (again, as economists define it) he said, “there seemingly inexplicably remains an extraordinarily deep-rooted foreboding about the [economic] outlook” among the populace.
What was really “inexplicable,” we argued in the Atlantic article, was that Greenspan and other economists can’t see the obvious. Their reckonings are archaic; and their very language tends to barricade their minds against what is actually happening in the world. Prime evidence is how they measure economic well-being: the gross domestic product or GDP. As have countless others before us, we pointed out that the GDP is a Mad Hatter’s accounting system which adds but never subtracts. It lumps together just about everything that happens in the economy (the monetized portion, at least) under the archaic assumption that people become happier and better off whenever money changes hands. If you have been maimed in a multicar wreck, or gone through a grueling and costly divorce, or installed water filters in your home because the water supply is so bad, then please take a bow. You have caused economists to smile, and made your contribution to the GDP. These people can’t tell misery from well-being, only more from less. And on top of that, we observed, economists can’t even see the informal economies of family and community at all, because no money changes hands. The kitchen table becomes McDonald’s, the watchful eyes of neighbors become burglar alarms and police – the more the informal economy breaks down, and a monetized “service sector” takes its place, the more the GDP goes up.
Meanwhile, society is literally falling apart. We suggested that the American economy is approaching a turning point, if it hasn’t gotten there already. Increasingly the negative, or “illth,” side of GDP seems to be outweighing the wealth. The fastest growing portions of the US economy today include such things as crime and prisons, gambling, disease, and entertainment. Is it any wonder, then, that “growth” doesn’t always leave people feeling that life is getting better? Yet economists don’t even have a language by which they can acknowledge – let alone measure – this fact, which is obvious to just about everyone else.
There are economists who realize that the conventional belief system is crumbling. Several purchased bulk copies of the Atlantic article for their classes; one told us it prompted more class discussion than anything else on the reading list. But all were not pleased, especially at the upper levels of the profession, where stature and acclaim are bound up in the orthodoxies we had questioned. Or so I gathered at the AEA session I dropped in on that Saturday morning.
The session was called “Covering the Economy,” and featured a panel of reporters and the economists they often quote. It got off to a promising start. Louis Uchitelle of the New York Times said that journalists should endeavor to find out how people are actually faring in the economy, as opposed to what economists are saying. More, he wondered why reporters regularly quote Wall Street analysts without mentioning the financial interests of the firms they work for. Brokerage houses spin the economic news the way Newt Gingrich or the White House spin today’s Washington doings. Yet reporters treat them with a hushed and reverential awe.
Good question, I thought. I tried to imagine a story on energy in the business section of the Washington Post: one of those ubiquitous Wall Street “analysts” would be identified as, “affiliated with a brokerage house that recently shorted utility stocks.” That would rattle a few cages, I thought – as well as tell us readers the truth for a change. I started to think this session could get interesting, but not for long. A couple of other journalists spoke, less pointedly than Uchitelle. Then it was Paul Krugman’s turn.
Krugman is an economist at Stanford University who is generally touted as one of the new stars of the field. Newsweek cast him recently in an adoring profile as a “great debunker” and “Nobel-bound.” (The Nobel in economics isn’t really a Nobel; it was created by the Central Bank of Sweden to sound like one.) Krugman is known as one who does not always suffer others gladly.
But with his restless mind and iconoclastic bent, I thought he’d be among the first to want to turn the orthodoxies inside out. Instead, totally out of the blue, he launched into a bilious tirade against the Atlantic piece, the magazine itself and journalists generally.
The strangest part was the reason Krugman gave for regarding us as “incompetents.” He didn’t address the major assumptions we challenged; for example, that more monetary transactions and more stuff sold automatically mean that people are better off, regardless what that stuff consists of and its effects on peoples lives. He didn’t try to explain why economists assume that more driving, say, counts as economic advance but more walking does not; that sales of white noise machines counts, but the serenity provided by parks and open spaces does not.
Instead, he took issue with a point of methodology, in our rough-cut alternative to the GDP: the way we had computed increasing inequity in the distribution of income. Geez, I thought, is this the way the profession works? Get into such a lather over one another’s methodology that you forget how to ask the basic questions? We never pretended that our draft alternative to the GDP – the Genuine Progress Indicator or GPI – was perfect. To the contrary, we said it was a first stab at trying to correct the egregious deficiencies of the GDP. Weren’t those worth at least talking about?
Economists may preach the rigors of competition and open markets for the rest of us. But they run their own profession more like a medieval guild. They determine which articles get published in the prestigious journals. They pass judgement on PhD and tenure candidates, and therefore decide who gets to teach. It’s a stitch listening to these people denounce “protectionism,” from the protected enclaves of their subsidized think-tanks and tenured chairs, in a profession that makes the Japanese retail market seem an exemplar of free trade by comparison.
Same thing with change. Economists may rhapsodize about its bracing winds and creative destructions. But their own conceptual apparatus is stuck deeper in the mud than a state-owned factory in the former Soviet Union.
Few fields that call themselves sciences have changed as little in their basic premises. Krugman chastised the media for accepting our analysis uncritically, the New York Times in particular. But that wasn’t true. A prominent Times business page columnist had raised a large eyebrow regarding our GPI, quoting a Harvard economist. The piece that riled Krugman was by Robert Hersey, an economics reporter, who went to Baltimore to see how the assumptions underlying the GDP actually play out in peoples’ lives. He found people doing important work that isn’t counted in the GDP because it’s unpaid; and others doing less important work in the monetized economy, who do get counted in the reckoning of progress and growth.
Wouldn’t it be something, I thought, if economists did that once in a while; that is, tested their assumptions by looking at the lives of ordinary people? Instead of just dumping on reporters.
A bit later, Lawrence Summers weighed in on Krugman’s side. Summers is a Harvard professor and an undersecretary at the US Treasury Department, and he gave the conventional wisdom case a revealing twist. The situation in economics today is much like that in medicine, he said. There are real doctors, and then there are “quacks,” and the media should do more to distinguish the one from the other. The Atlantic had become a particular fount of quackery, he said (though this might have been Krugman).
This crack was aimed not just at our piece, but also at previous ones by James Fallows. Fallows, who has a degree in economics from Oxford, spent several years in Southeast Asia studying the economies there. He came to the conclusion that to chastise Japan and other Asian nations for violating the principles of “free trade,” misses the point entirely. People there simply don’t recognize the belief system called “free trade” – or the dogmas that underlie it – as moral or scientific principle, he said. Fallows went further. What American writers glibly refer to as “economics,” he observed, is really just Anglo-American economics. Elsewhere in the world people do not regard Adam Smith and his intellectual successors as the fountain of economic truth. They are disposed to ask, “What will work for our nation?” rather than, “What did some dead British economist say?” Fallows was doing to conventional economics what anthropologists and sociologists did to Freudian psychiatry decades ago; he was showing that it is a product of a particular time and culture, rather than universal and irrefutable truth. This did not please the economics establishment; and Fallows took a pounding.
But back to Summers. The medical profession was an odd choice for comparison, I thought. The conventional medical paradigm of high-tech “intervention” isn’t exactly without critics these days – including increasing numbers of MDs themselves. It is becoming a mounting financial burden with no end in sight. Is that the best model for economics? Or is it really the social status of doctors that economists find appealing? Then it struck me: the road to this particular poorhouse is paved with “GDP.” Coronary bypass surgeries add significantly to the GDP, compared to the simple diets and healthful living that help prevent them. Prozac adds to the GDP, while eliminating the sources of depression in our lives might not. It’s understandable that economists would like a system like that; it is the mirror image of their own assumptions.
By the same token, some of the most promising advances in healing have been outside the conventional paradigm – and not coincidentally, also outside the GDP. The evidence is growing for example, that nonphysical factors weigh heavily in what people experience as bodily health – and especially relationships with other people. Study after study has shown that people who care about others, have good marriages, get involved in their communities and the like, tend to live longer and experience less disease. Dean Ornish, a prominent heart specialist at UCLA, instructs his patients to do acts of kindness for one another. To restore a healthy heart, in other words, they should strive to live in a good-hearted way. “Anything that promotes a sense of isolation leads to chronic stress and often, to illnesses like heart disease,” Ornish has written. “Conversely, anything that leads to real intimacy and feelings of connection can be healing in the real sense of the word: to bring together, to make whole.”
Consider that in relation to the conventional economic model. The good-heartedness and sense of community that are crucial to health, barely exist in mainstream economic thought. The basic molecule of that thinking is homo economicus, the isolated little integer of self-seeking, who strives to get as much as possible and give as little in return. What is called “market economics” is really just the study of transactions between such hypothetical integers – that is, between selfish strangers – for money. It is the study of the kind of behavior which, if people like Ornish are right, tends towards disease.
As Margaret Thatcher put it famously, expressing the fundamentalist market view, society “does not exist.” She really meant should not exist, because people who don’t relate as strangers, concerned only for their own personal gain, impede efficiency and economic advance, as conventionally reckoned.
When Summers compared economics to medicine, I thought he was revealing a lot more than he intended. The conventional economic model turns a description of a hypothetical state of affairs into a prescription for an actual one. It encourages a society in which people deal with one another increasingly in this very way. The social cohesion of Main Street gives way to the isolated consumerism of the Mall. The sense of connection between locally owned firms and their communities gives way to the abstracted calculations of global corporations. Shared civic spaces turn into the solipsistic enclosures of television. Loneliness becomes epidemic in an era that provides more means of supposed “communication” than any in history. And loneliness makes people buy. Most people don’t go to malls to buy particular items; they go because it’s a way of “alleviating loneliness,” “dispelling boredom,” and “relieving depression,” according to a survey of studies in the Wall Street Journal. Economics becomes the means of creating the hunger that cannot be filled; and economists, the ideological apologists for this process.
Could it be that in industrial societies, human distress is increasingly a form of iatrogenic disease – the doctors in this case being economists? Could it be that the growth engine that pulls nations out of poverty, can start to turn on itself and create new problems? Has the whole enterprise of economics become a rigid calculus for solving yesterday’s problems in a way that helps create tomorrow’s?
New problems, such as those of affluence, require a new calculus and higher goals. Just maybe, I thought, economists are going to do some changing, along with the rest of us. As the need for more stuff becomes less urgent and the need for qualities such as stability and social cohesion become greater, economists are going to have to outgrow their obsession with pecuniary accretion – just as the factory workers they preach to will need to learn new skills.
Edward Luttwak of the Center for Strategic and International Studies, a conservative think-tank, broached this point recently in a panel discussion in Harper’s. “When a country is as rich in GNP and as poor in social tranquillity as the United States,” Luttwak said, “it makes no sense to purchase more GNP through deregulation and increased efficiency, at the expense of tranquillity. It’s like a man with 24 ties and no shoes buying himself another tie.”
I sat there in the audience trying to formulate a reply along these lines. But it was a large ballroom, with no mikes on the floor. It would have been difficult to get a single point across, let alone a whole argument. So I approached Krugman afterwards – taking a certain delight, I’ll admit, in introducing myself as one of the “incompetents” he had spoken of. (He didn’t know I was there.) “Well, I’m sorry,” he said, in a way that made me wonder.
“But it’s true.” I tried to engage him in discussion, but he hurried off. “I’m sorry, but I have to go to an interview,” he said.
Jonathan Rowe is policy director of Redefining Progress in San Francisco and a contributing editor of the Washington Monthly.