By Goodwin Ginger

We are all familiar with the star system in Hollywood. Less so are we familiar with the star system in the rarefied halls of the academy and even less so when it comes to profession of academic economists. Nowhere is this more true than in the United States where a rigid hierarchy of Universities combines with a heavily policed star system. Within the economics profession this produces a small and cloistered group of individuals who occupy the top tier of the profession. Inside of this tiny world, economists beaver away on those abstract models so loved by the profession and so detested by reality. And whats more, they all have a self-understanding as a community of technocratic geniuses sans any ideological bias: just the facts ma’am.

 

When outsiders accuse them of been heavily implicated in a form of ‘group think’ they are more than often met with silence and sometimes with outright scorn. Anyone suggesting that they are all of an ideological type is told that “they obviously are not familiar with the diversity of methodological approaches within the profession,” or that “they obviously have not taken a higher level of training than intro to undergrad economics and as such are not able to distinguish the difference.” There is of course little truth to the first claim and some good degree of truth to the second claim.

 

But let us stay with the first claim for now. There is only a narcissism of small differences within the top tier of US economists (increasingly so in Canada we would argue). There is not really any ideological dispute within this top tier: they are all good liberals (non-US usage).  At best there are disagreements about which models and which assumptions to invoke and sometimes which policies are best to pursue in light of their preferred models. They all agree that free markets provide the best of all possible worlds and disagreements on this question are simply about which policies might make markets better. So strong is this ideological center of gravity that even when self described New Dealers (sic) like Samuelson do construct models of free trade which demonstrate absolute and permanent job losses they are quick to argue that nonetheless governments should pursue free trade without remedial action.

 

To get a sense of just how bizarre and ideologically cloistered this top tier is we need look no further than John Williamson’s incredulity that someone might call him a “market fundamentalist.” John Williamson is the US economist which compiled the consensus of economic opinion which has become famously known as the ‘Washington Consensus’. The Washington Consensus represented, at that time, the state of the art policy recommendations flowing from Washington (the Treasury, the IMF and World Bank) to the periphery (Latin and South America). This consensus which was forced on countries via structural adjustment policies via the IMF and apparently technocratic assistance of economists at the World Bank eventually came under heavy criticism not just from radicals but from a Don within the top tier of the US economics profession itself: namely, Joseph Stiglitz one time head of the World Bank. Stiglitz charged:

“The international financial institutions have pushed a particular ideology–market fundamentalism–that is both bad economics and bad politics; it is based on premises concerning how markets work that do not hold even for developed countries, much less for developing countries. The IMF has pushed these economics policies without a broader vision of society or the role of economics within society. And it has pushed these policies in ways that have undermined emerging democracies.”

 

In Williamson’s 2000 paper for the World Bank he exclaimed his perplexion at being called a market fundamentalist by the likes of Joseph Stiglitz. Indeed Stiglitz’s critisism must have stung for every single upper tier economist clings to his (and they are almost always he) self-understanding as a non-ideological technocrat. Williamson wrote:

“My original paper (Williamson 1990) argued that the set of policy reforms that most of official Washington thought would be good for Latin American countries could be summarized in 10 propositions: (1) Fiscal discipline; (2), A redirection of public expenditure priorities toward fields offering both high economic returns and the potential to improve income distribution; (3), Tax reform–to lower marginal rates and broaden the tax base; (4), Interest rate liberalization; (5), A competitive exchange rate; (6), Trade liberalization; (7), Liberalization of inflows of foreign direct investment; (8), Privatization; (9), Deregulation–to abolish barriers to entry and exit; (10), Secure property rights.”

Following this list Williamson asks:

“How is it that a term intended to describe a technocratic policy agenda that survived the demise of Reaganomics came to be used to describe an ideology embracing the most extreme version of Reaganomics? The closest I can come to understanding this is to note that my version of the Washington Consensus did indeed focus principally on policy reforms that reduced the role of government, such as privatization and the liberalization of trade, finance, foreign direct investment, and entry and exit.”

 

A narcissism of small differences indeed. All these measures are supply side measures, save for perhaps the competitive exchange rate regime, and the tax recommendation looks quite Reaganomic to the (un)trained eye. All of this leads us to the second claim about the uninitiated: “those that do not have a enough training cannot see the ray of light seeping through the tiniest of cracks.” You see Reagan’s tax plan lowered marginal tax rates the most on high income earners. But Reagan also eventually extended the tax base. That is apparently all that separates  the original Washington Consensus from Reaganomics: an across the board decrease in marginal tax rates and a competitive exchange rate regime. Although, given there is and was a notorious problem of tax collection in Latin and South America it is probably the case that the  taxation aspects of the Consensus were in practice far more regressive than Reagan’s market fundamentalism!

 

Don’t you just wish you had received a graduate degree from Ivy league economics department so that you would understand the true degree of ideological pluralism at play in those departments? It takes a Jewler’s eye indeed. But this is as it is constructed to be; as Samuelson once remarked economists are like dogs they run in packs. But perhaps this is too harsh and hasty of a conclusion. Clearly good New Keynesians like Stiglitz can at least tell when the markets are not working while his New-Classical brethren seem struck by cognitive dissonance.

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