In the current issue of the New York Review of Books (NYRB), I was pleasantly surprised to see an article about economics. Most NYRB articles cover topics like the history of Russian Liberalism or the opening of a new Franz Kafka exhibit at a museum, so it was nice to see something more in my wheelhouse. The article, Too Close for Comfort, is by Caitlin Zaloom, a “Professor of Social and Cultural Analysis at New York University and a Founding Editor of Public Books.” The article is ostensibly a review of three recent economics books. Like most NYRB writers, Zaloom combines a synthesis of the three books (none of which I’ve read) with her own opinions about economics. The article is unfortunately behind a strong paywall, but if you’re looking for a new magazine to read, I highly recommend the NYRB. It’s fantastic - some of the best writing around, albeit often aggressively esoteric. In the article, Zaloom takes on the entire discipline of economics, concluding it is responsible for many of the ills of the 21st century. Let’s dive in:
The [Council of Economic Advisers (CEA)] has been “almost always in favor of competition,” noted Joseph Stiglitz, one of President Clinton’s CEA chairs, in an end-of-tenure address. “We always talked about incentives, and we always promoted markets and quasi-market mechanisms like auctions and options.” How these policies might widen disparities in wealth and power was not a major concern.
In the late 1960s and early 1970s a group of Democratic senators, including Walter Mondale and Eugene McCarthy, raised similar criticisms. Mondale proposed creating a Council of Social Advisers, an assembly of diverse social scientists devoted to environmental, economic, and racial justice—an ideal of “social health.”
This is something I’ve seen time and time again. The claim that economists only care about economic growth, and ignore all other issues. First, this is a total strawman. Economists often focus on economic growth, they are economists after all, but it is not the be-all-end-all of the economist mindset. Second, non-economists like to conveniently ignore that their goals - a stable environment, a healthier population, etc., result from economic growth. The nations that American progressives cite as aspirational include countries like Sweden, France, Japan, Australia, etc. All those countries are wealthy. Third, people who resent economic models and claim they are too cold or omit important information or are unsatisfactory hide what they want the decision making process to be: one that dictates policy based on their feelings.
Since [2000], more and more white middle-aged Americans, especially those without a four-year college degree, have been dying from suicide or substance-related causes—more than 150,000 in 2017 alone, as the economists Anne Case and Angus Deaton argue in their 2020 book Deaths of Despair and the Future of Capitalism. They also provide a clear-eyed explanation: the “economy has shifted away from serving ordinary people and toward serving businesses, their managers, and their owners.”
The clear-eyed explanation isn’t a callous government or an economic shift “away from serving ordinary people and toward serving businesses” (I have no idea what that means). It’s drugs. Opioids followed by fentanyl. Without drugs, the massive increase in premature deaths does not happen.
…Glen Hubbard, a former CEA chair under George W. Bush who believed that health care should function as a consumer market and “give people a way to profit financially” from staying well; if they cannot avoid illness altogether, the sick should be rewarded for choosing inexpensive doctors and cheap tests.
That… make sense? Giving people a financial incentive to stay healthy sounds like a good system to me!
When [Angus Deaton] came to the United States, he was surprised to find that his interest in equity was considered “unprofessionalism”: how to create a progressive tax system that would “protect the budgets of the least well off,” for example, was thought to be “a totally uninteresting social problem.” He never really asks why in the US today economists are uniquely able to exercise such sway over the state, while philosophers, other scholars, or ordinary citizens who might be able to give Congress a sense of their own experiences and quality of life are not.
I can’t speak to Angus Deaton’s personal experiences, but since I’ve been practicing economics there has always been an interest in inequality. The question is whether it will last. During the 2014 midterm elections, inequality was one of the biggest social concerns of Americans. According to at least one poll, in 2024 it didn’t even crack the top 10. I’ve noticed the shift in my students. Not nearly as many are concerned with economic inequality, especially as racial equality has come center stage. Financial inequality was the buzzy issue, but it’s fading from the public discourse. Even Bernie Sanders has stopped railing against millionaires, in no small part because he became one. As to the idea that economists have great sway over the state, my only response is, “If only”.
Zaloom’s NYRB article later moves on to a third book, “Thinking Like an Economist: How Efficiency Replaced Equality in US Public Policy” by sociologist Elizabeth Popp Berman:
How did economic efficiency become an “insider consensus”? During the mid-twentieth century, Berman argues, many policymakers valued goals beyond efficiency—for example, protecting small businesses because they stabilized civic life in small towns.
This replicates my earlier point about making decisions based on personal feelings rather than objective criteria. Do small businesses stabilize civic life in small towns? How would that even be quantified? Is a stable civic life necessarily a good thing? I would guess that in mid-20th century America, small towns with a single large employer, company towns, were the most stable communities. This approach came with some serious drawbacks, however, as many mining and factory towns found out in the last third of the 20th century. It’s easy to say small businesses stabilize civic life in small towns, but I don’t know that this is accurate or even a good thing.
But in the 1960s and 1970s, Democratic reformers such as Presidents John F. Kennedy, Lyndon Johnson, and Jimmy Carter decided to advance a “scientific” approach to governing, particularly around policies related to transportation, health care, poverty alleviation, and environmental protection. They sought experts to supply “neutral, technocratic answers” to questions about whether to break up large companies or to pursue a negative income tax. Objective analysts, they believed, could discover a correct way to govern that was divorced from particular interest groups and instead focused primarily on the costs of policies.
Again, that sounds good to me? The claim that objective analysts are inferior to subjective analysts is certainly an argument.
Policy schools and law schools were hiring economics Ph.D.s and adopting economic approaches where they’d never been applied before. Although professors may have conducted nuanced research themselves, they taught from textbooks that simplified economic ideas.
Now this is just silly. Yes, undergraduate courses teach different economic models than professors use in their own research. You have to crawl before you can run. Students are taught algebra before differential equations and Twain before Proust. Is Zaloom seriously advocating that college students are not taught the basics of a discipline, and are instead taught cutting-edge economic models?
Historians often place the rightward turn in American politics in the 1970s, when Republicans began to advocate a strict approach to government spending—fighting against the expansion of the national debt, for instance, by squeezing programs for poor and working-class people…Democrats, who have historically seen themselves as committed to equality, carry a quieter and perhaps more significant responsibility. They expedited the conservative shift by embracing economic reasoning—not instrumentally but as true believers.
This is totally divorced from reality. Spending on social spending has drastically increased since the 1970s. To say that programs for the poor and working class have declined is fantasy. Medicaid wasn’t established until 1965. It wasn’t available in all states until 1982. The Earned Income Tax Credit (EITC), currently one of the largest anti-poverty programs in America, and a program popular with many economists, wasn’t started until 1975 and was tripled under President Clinton. Food stamps, which also went nationwide in the 1970s, was a relatively small program until it exploded in popularity during the Great Recession.
This story gets repeated again and again and again. That America had robust social programs during the 20th century until a neoliberal coalition destroyed them. I don’t understand where it comes from. There would be riots in the streets if the government cut social safety nets back to anywhere close to what life was like during the 1950s or 1960s. Do these people really believe otherwise? Don’t even get me started on the claim that the government takes a stricter approach to the national debt today than it did in the 1960s. At this point, it is hard for me to see Zaloom as acting in good faith.
Zaloom goes on to claim that America would have passed universal healthcare in the 1970s if only “advocates of efficiency” working for the federal government hadn’t gotten in the way. Funny how both sides of the aisle conveniently see the deep state at work when things don’t go their way. Never mind that, as even Zaloom admits, a bill for universal healthcare never made it out of committee in the 1970s, let alone to the House or Senate floor.
In a critical 1983 National Academy of Sciences report, Changing Climate: Report of the Carbon Dioxide Assessment Committee, a group of prominent economists undermined their colleagues in the natural sciences by emphasizing the difficulty of making predictions about a world decades in the future. “Anticipating climate change is a new art,” wrote the Nobel Prize–winning economist Thomas Schelling. “In our calm assessment we may be overlooking things that should alarm us. But it is difficult to know what will still look alarming 75 years from now.”
I’m sounding like a broken record, but again this seems sensible to me. Find me one climate model from the 1970s or 1980s that has correctly predicted when global temperatures would change and by how much. It was eminently reasonable to say in 1983 that climate change is a new issue, and that it is no time to panic.
Policies for addressing climate change were uncertain, too; carbon taxes were a promising way to stop polluters, but they would be expensive and hard to enforce. Anyway, the Yale economics professor William Nordhaus wrote in the same report: Whether the imponderable side effects on society—on coastlines and agriculture, on life in high latitudes, on human health, and simply the unforeseen—will in the end prove more costly than a stringent abatement of greenhouse gases, we do not now know.
Based on these doubts, they advocated for politicians to “wait and see.” Which is precisely what happened.
This is a very, very odd fight to pick. First, again, it’s unfair to say that economists should have seen climate change as an existential issue in 1983. Reasonable people disagree on whether it should be seen as one today. Second, William Nordhaus has arguably done more than any other person to incorporate environmental concerns into economic models. He literally won the Nobel Prize for it! Third, economists, for decades now, have been the strongest proponents of carbon taxes. An atypical coalition of environmentalists and pro-business interests is why no serious progress has been made on a national carbon tax. To blame William Nordhaus and economists here is just bizarre.
When citizens and their representatives oppose received economic wisdom, they can count on being dismissed as ignorant, irrational, or silly. This can also happen to economists who do not conform. Deaton recalls the pitchforks hoisted against the economists David Card and Alan Krueger when they disproved a basic economic assumption about the minimum wage that benefited the fast-food industry… Rather than accept that evidence, other economists heaped abuse on Card and Krueger. Finis Welch, a professor at Texas A&M, mocked them for concluding that “the laws of gravity had been repealed.”…Deaton reports (one assumes based on personal experience) that colleagues of Card and Krueger could expect to be treated as if they were “the friends and defenders of child molesters.” “What was at stake,” Deaton concludes, was “the theoretical incorrectness of the evidence.”
This is mythmaking. David Card and Alan Krueger did publish a paper that found that an increase in minimum wage did not result in a decrease in employment, as economic models predict, but an increase in employment. Zaloom, however, acts like Card and Krueger were cast out of the profession for such blasphemy. Nothing could be further from the truth.
Their paper, “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania”, is one of the most cited publications in all of applied microeconomics. It is taught in graduate programs across the country. It helped make natural experiments a useful tool that economists use to find cause and effect. Was it controversial? Absolutely. The finding makes no sense. Why would fast food restaurants employ more people when wages went up? That’s what Finis Welch means about the laws of gravity. Claiming that a business will buy more labor when the price of labor rises is like saying gravity no longer exists. Many, many papers have since been written on the effects of minimum wage. Some have agreed with Card and Krueger’s finding, others have disagreed. But Deaton’s claim that Card and Krueger were ostracized is a complete fabrication.
Card was appointed co-editor of Econometrica, one of the top five journals in all of economics, while the fast food paper was being written. Eight years later he was named co-editor of the American Economic Review, another top-five journal. He then received the Nobel Prize for his work in labor economics in 2021. Alan Krueger had a similarly distinguished career. After the paper was published, he served as chief economist in the Department of Labor. He later served as assistant secretary of the Treasury and was then chair of the Council of Economic Advisors. After his death in 2019 he was universally lauded by economists. The larger point is that Card and Krueger were not shunned by the discipline for a heterodox finding. On the contrary, they have been celebrated both within and outside the economics discipline.
Secondly, Card and Krueger’s paper did not “disprove a basic economic assumption”. Their paper is important and has influenced the discussion about minimum wage, but it was also a case study. A case study that looked at how roughly 400 New Jersey fast food restaurants reacted to a new state law in 1992. Claiming that one study that consisted entirely of a few hundred businesses in one state in one year disproves, or proves, any theory is wishcasting and terrible science rolled into one. No case study can prove or disprove a theory - it can only provide evidence for or against a theory. Decades later, most minimum wage papers disagree with Card and Krueger’s finding. Hardly any find that minimum wage increases result in an increase in employment. That doesn’t mean their finding was wrong, just that it may have been the result of some second policy shift or alternate trend. Proving or disproving an economic theory is done by dozens, if not hundreds, of studied. Not one. It worries me that Zaloom doesn’t know this.
Accurate criticism does not need to come from within a discipline. On the contrary, anthropologists should criticize economists, philosophers should criticize health professionals, and lawyers should criticize biologists. Every discipline has its blind spots. Those who do criticize another discipline, however, need to be careful. Repeating false shibboleths that don’t stand up to scrutiny, drawing massive conclusions from a single case study, and advocating for subjective criteria over falsifiable models is ultimately going to stymie progress.