The Impotence of the Economists

16 October 2008 at 9:06 pm 7 comments

| Peter Klein |

My friends in sociology don’t like being ignored by politicians and by the general public. Well, one thing we’ve learned over the last several weeks is that academic economics, too, has virtually no influence on public policy. It’s increasingly clear that the majority of academic economists oppose, often strongly, the AIG rescue, the Paulson plan, the Fed’s move into the commercial-paper market, the Treasury’s acquisition of equity stakes in large banks, and the new round of financial-market regulations that’s just around the corner. Even Greg Mankiw, who sort-of favors the bailout, worries that his pal Ben hasn’t worked hard enough to convince his fellow academic economists.

What do we learn from all this? That economists are poor communicators? That economics is an inherently difficult subject? Or that politicians and special-interest groups willfully ignore what economics teaches about scarcity, tradeoffs, incentives, and the general welfare?

Surely the poor state of economics education plays some role. I’m not an admirer of Paul Krugman’s newspaper columns, but I respect the fact that he’s willing to write for the general public. (If only his columns had some economics in them!) Very few elite economists concern themselves with public education. Ultimately, however, the blame rests with politicians — that uniquely vile breed of humanity — and the special interests they serve. Maybe Albert Jay Nock had it right after all. Economists keep thinking, writing, and teaching, not because anybody in power is listening, but in hope that somewhere out there is a Remnant, however small, keeping the flame alive.

Entry filed under: - Klein -, Bailout / Financial Crisis, Public Policy / Political Economy.

Strong-Man Economics Blame Basel, Not “Deregulation”

7 Comments Add your own

  • 1. david  |  17 October 2008 at 1:15 pm

    This was basically the topic of Stiglitz’s 1998 JEP piece where he reflects on his stint from DC. I particularly liked this observation:

    When I was in the lawyer- and politician-dominated White House environment, I often felt that I had arrived in another world. It was not just that another language was spoken. I understood and expected that; every culture (including that of economists) creates its own language to set itself apart. It was that often another system of logic, another set of rules of reasoning, applied. I had expected lower standards of evidence for assertions than would be accepted in a professional article, but I had not expected that evidence offered would be, in so many instances, so irrelevant, and that so many vacuous sentences, sentences whose meaning and import simply baffled me, would be uttered. A so-called foreign policy expert would claim with fervor that we must maintain our ‘‘credibility.’’ Surely, no one would dispute that. The issue was, what was the theory and evidence concerning the relations between particular actions and ‘‘credibility,’’ however that was defined. What credibility meant and how it was established seemed issues beyond rational inquiry. Empirical evidence—at least beyond an anecdote or two—and theoretical analysis should have been able to shed light on the merit of alternative policies. While that is where the conversation should have begun, it almost never got that far.

  • 2. Brian Pitt  |  17 October 2008 at 2:59 pm

    Professor Klein,

    I say yes to all of your questions. Economics is an inherently difficult subject. Math whiz or not, economics is not a subject that can be leisurely studied. (Many) Economists are horrid communicators. And scarcity, gains from trade, utility, production possibilities, incentives, etc., for politicians, is much less important that vote-tallys.

  • 3. Rafe Champion  |  17 October 2008 at 6:48 pm

    Bill Hutt wrote several books on these themes – especially “Politically Impossible: An Essay on the Supposed Electoral Obstacles Impeding the Translation of Economic Analysis into Policy” and “Economists and the Public: A Study of Competition and Opinion”.

    He liked long titles for his books. Like “The Theory of Collective Bargaining: A critique of the argument that trade unions neutralise labour’s ‘disadvantage’ in bargaining and enhance wage-rates by the use, or threat, of strikes”.

  • 4. bee  |  18 October 2008 at 9:37 am

    Economics is ignored because economist long ago sold their souls to political causes or fame. Just look at the current battle between Obama and McCain’s economic whores. It is a terrible cat fight where facts and reason are left at the door.

  • 5. Robert Higgs  |  18 October 2008 at 2:55 pm


    Besides having been a member of academic faculties for 26 years, I have been a consultant on a number of occasions in regulatory and legal proceedings. My own close-up experience has persuaded me that everything economics has to teach people about how the world works is completely irrelevant to the actors in these proceedings. They are engaged in determining the division of the spoils or in attempts to despoil others or to escape spoliation themselves.

    Clausewitz said that “war is a continuation of politics (Politik, or state policy) by other means.” In my view, politics (state policy making) is a form of warfare. All sides strive to get hold of the biggest gun (control of the state’s coercive power as it is brought to bear in the relevant place). The people who routinely engage in politics understand the tactics and strategies that hold the greatest promise of producing victory for their side in the fight. What can they possibly gain from economics?

    If anyone cared about gains from specialization and exchange, about “efficiency,” about system-wide productivity, about anything in the whole A to Z of economics, they would act differently. But they are not engaged in that sort of endeavor. They are at war.

    Worse, besides everybody’s looking out strictly for number one, political actors often–far more often than political scientists acknowledge–act as they do not simply to help themselves, but also to hurt their enemies. These enemies may include anybody from fellow politicians to hated groups or persons in the wider world. Mushy thinkers often talk as if politics were a realm for the expression of “caring” or “compassion.” But one who sets out to care or to show compassion does not begin his journey at a gun shop. I am not merely ranting when I say that government officials are, quite literally, out to get you (regardless of which “you” you happen to be, somebody in a position of government power wants to see you ruined or dead).

    Economists who fancy that economists can “contribute” to public-policy debate fail to recognize that they are brought into such debates in official proceedings, public hearings, and the like solely as prostitutes–to give propaganda cover to what the actual power wielders are attempting to do. Ever wonder why Austrian economists do not receive invitations to testify on monetary or tax policy? It’s not that they have nothing relevant to contribute, it’s that the people running these charades do not want their farcial proceedings marred by anything that detracts from their scheming and posturing.

    Bob Higgs

  • 6. Fred Thompson  |  18 October 2008 at 7:54 pm

    “It’s increasingly clear that the majority of academic economists oppose, often strongly, the AIG rescue, the Paulson plan, the Fed’s move into the commercial-paper market, [and] the Treasury’s acquisition of equity stakes in large banks.” Maybe, that’s so. But that isn’t the opinion of most of those I know or work with. Most of specialists in financial economics, money and banking, and international finance, I have talked to support, often strongly, the AIG rescue, the Paulson plan, the Fed’s move into the commercial-paper market, and the Treasury’s acquisition of equity stakes in large banks. Actually, the biggest criticism I have heard from my colleagues is that Paulson/Barnanke were wrong to let Lehman go down.

  • 7. simon  |  19 October 2008 at 9:24 am

    As an economist it is worth noting that Kling makes the distinction between Motive and Theory based arguments. Essentially one can argue the motive of the policy maker or the theoretical cause and effect they are presenting. I think one needs to accept that we are often living in a world where both are at play in any argument or proposal. Thus, I would go a step further and suggest that we look at the role (in system), motivations and incentives that animate a decision makers in assessing their respective POVs.

    I too have heard the same comments from my friends who play on Wall Street. Interestingly I do detect a difference of opinion between those who have played the game for a long time versus a short time (less than 3 years). Those who have been in the game for a short period of time are far closer to the academic view.

    As for me, I am one who has played Finance (after my academic training) not on Wall Street but in Industry. Many like me side more often than not with the economists who question the intervention. We see the government picking winners and losers. We ask why is this acceptable for the government? What do they know about this question? What about the conflict of interest?

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