Capitalisn’t: Did Economists Ruin the Economy?

Luigi: Kate, let’s start today with a quiz. In a democracy, the ultimate responsibility for a country’s military strategy belongs to, hopefully, the civilian leader. What do you call a system where the military controls the political decisions?

Kate: A dictatorship?

Luigi: That’s fair. Now, we agree, and I think we agree, that in a democracy, the ultimate responsibility for a country’s economic policy should belong to the political leaders.

Kate: Yeah. I mean, if political leaders mean elected leaders, then, yes.

Luigi: Yeah. So, what do you call a system where economists control the economic policy decisions and not the elected representatives?

Kate: An economic dictatorship? I don’t know. I mean, I guess economists would think that was ideal, but other people might consider it fascism.

Luigi: From the University of Chicago, this is Luigi Zingales.

Kate: And from Georgetown University, this is Kate Waldock. You’re listening to Capitalisn’t, a podcast about what’s working in capitalism today.

Luigi: And, most importantly, what isn’t.

Today, to discuss the role that economists play in economic policy, we’ve brought a very, very special guest, Binyamin Appelbaum. He is the lead writer for the Editorial Board of the New York Times and the author of a book called The Economists’ Hour. Welcome to the show.

Binyamin Appelbaum: Thanks very much.

Kate: The full title of your book is not just The Economists’ Hour, it’s also got False Prophets, Free Markets and the Fracture of Societyin there. So, what was the economists’ hour?

Binyamin Appelbaum: My book is the story of a revolution that gets underway in policy making in the late 1960s and the early 1970s, where economists begin to exert profound influence over public policy, particularly advocating for a greater reliance on markets and for government to step back and allow markets to work. And over the next 40 years, these ideas become dominant and pervasive both in the United States, and then, to a considerable extent, in other countries around the world. The economists’ hour, in this telling, is a period from roughly 1969 to 2000 in which this approach to economic policy predominates.

I start my book with the story of a young economist working in the basement of the Federal Reserve in the early 1950s and feeling like there’s no place for an economist at the Federal Reserve, let alone in broader debates about public policy, going home one night and telling his wife that he needs to go work somewhere else because the Fed is no place for an economist. That guy’s name is Paul Volcker. By the late 1970s, he’s running the central bank. Today, the central bank is America’s largest employer of credentialed economists. And, as you say, economists are everywhere in our society. You can’t run a federal agency without them, you can’t have an antitrust trial without them, it sometimes seems like you can’t run a newspaper opinion page without having a couple of economists there to mouth off. They’re incredibly prominent in our public debates, and that transformation is very much the history that I’m telling in this book.

Kate: But the story of Paul Volcker sitting in the basement in the 1950s, what was an economist even in the 1950s? Because my understanding of economics back then was that we couldn’t really use the tools that we have today, because we didn’t have computers that could run regressions very quickly, or we didn’t have models that could be solved for easily. And if you look at the models that existed back then, they were quite simplistic, right? It would be a supply curve and a demand curve and a single linear equation.

Binyamin Appelbaum: What Paul Volcker was doing at the Fed in the 1950s was basically working as a human calculator, compiling the data, the economic statistics that policy makers wanted to make decisions. It’s absolutely true that one of the revolutions over this period has been an explosion in the availability of data and the power to analyze that data. When the first macroeconomic models are created in the 1960s, it takes days to do a run to get results, and those models are much more simple than what policy makers consult today. 

When GDP is first created as a measurement, and the guy who does it starts pronouncing about how in growing societies you’ll see declining inequality work over time, he’s basically working off of a couple of years of data, which is what they have at that point. Theory races way ahead of data, and then data slowly catches up and informs and alters theory, and this is all very much a part of the story of what’s happening in economics over that period.

And so, it is the case that economists were gaining influence in part because they were becoming more useful, and they were bringing more powerful tools to the table, and they had a greater ability to credibly pronounce on the likely consequences of particular policy choices, and all of that dramatically increased their relevance to policy makers.

Luigi: But isn’t the real question whether this was good or bad? We use more doctors in the 20th century than in the 19th century. Why? Because medicine has become so much better and so effective, and I don’t think that people complain very much that doctors have become more important in our lives, because our lives have become better. Now, what is your view about economists?

Binyamin Appelbaum: That is the central question, and my view is that this economists’ hour has had a couple of clear consequences. Economists came into this and asserted that they should be prominent in policy making, arguing that if their advice was embraced, the economy would grow more quickly, the benefits would be broadly distributed, and even that democracy would be strengthened by a reliance on markets. Milton Friedman, another Chicago professor, was fond of arguing that democracy would get worn out if you basically had to get everyone together to make decisions about everything. If you could do some of those things through the market, it would save energy, basically, to deal politically with the things that couldn’t be handled through markets.

There was this premise that a greater reliance on market forces and on economists to guide policy would be really good for us, and it hasn’t been. Economic growth has slowed, the gains are distributed much more unequally, and even our democracy, I think, is being strained by that inequality. “We the people” is a concept that basically rests on some sense of community of “we,” and as our experiences diverge, it becomes much harder for us to make decisions in the collective interest.

Kate: Could you give us some specific examples of what economists did to necessarily bring about those consequences?

Binyamin Appelbaum: That’s a great question. Yeah, absolutely. So, one of the first examples, one of the first stories I tell in my book, which I find fascinating, is that economists played a very prominent role in ending military conscription in the United States. After World War II, the United States maintained a peacetime draft and every year brought tens and even hundreds of thousands of men into military service. Milton Friedman and other economists argued successfully that this was inefficient, that it would be better to pay people to be soldiers, to offer whatever wage was necessary to clear the market, to convince enough people to come be soldiers, and to let Sgt. Elvis Presley focus on his singing career instead. This is really the first great success Milton Friedman has in reshaping public policy, and I think that it is a harbinger of what follows, because it embodies the premise that using markets is going to be better for society, more efficient, that it will allow people to live lives closer to the lives that they want for themselves. 

It has the effect of creating a caste of soldiers. We know that today, people who enter the military are much more likely than ever before to have parents who are in the military. And it has the effect of straining our democracy, because wars are now just another line of business in which we engage, and the people we send to do them, we don’t even think about. This paradigm of substituting a market for something that previously was handled in other ways is then extended to all sorts of other areas. We get the deregulation of transportation and communications. We get a shift in the focus of the Fed’s monetary policy from minimizing unemployment to minimizing inflation. We get this embrace of trade with less developed nations with very little regard for the consequences for ordinary Americans whose jobs are lost as a consequence.

And one of Luigi’s favorite topics, antitrust, we get the substitution of a very narrow focus on consumer welfare for a much broader set of goals for antitrust policy. So, those are just a few examples.

Luigi: Wait a minute here. Are you in favor of a conscription army?

Binyamin Appelbaum: I think that we’d probably be better off if we drafted people. If we’re going to have a war, it ought to be the case that we engage it as a society.

Luigi: But you have not served in the army, right?

Binyamin Appelbaum: I have not. No.

Luigi: I did in Italy, and it was a freaking disaster, and I completely buy Milton Friedman’s argument, because when you have basically servants acting in that role, you treat them like servants, you treat them very inefficiently. I spent a day of my life carrying bedsheets from the ground floor to the third floor. Why? Because an elevator is expensive and I wasn’t. And so, they were kind of using me for the most stupid things on the face of the earth, exactly because I was cheap. At the very minimum, if you do a conscription army, you want to pay people a clearing wage, but how do you a clearing wage when this is mandatorily forced? It’s basically slave labor.

Binyamin Appelbaum: But I want to point out that the thing that you’re proposing to get more efficient at is fighting wars. I mean, it should be pointed out that Italy, for the most part, doesn’t send off its soldiers around the world to go fight in other countries, and maybe that’s because they’re bad at it, and maybe it’s good to be bad at it, and maybe a society should not prioritize making wars as easy to fight as possible.

Luigi: OK, but that’s a different argument.

Binyamin Appelbaum: It’s not, though. No. It’s very central to the question of efficiency, right? If your purpose in creating an army is to make it as easy to fight as possible, then you want to minimize the costs to the society, you pay the people who are willing to do it, you separate the risk to the population as a whole that their child’s going to be sent to war, and you end up in a place where it’s much easier to go fight wars and you’re better at it, and that’s wonderful if your goal is fighting wars. But if a society knows that it faces the risk that any one of its sons or daughters might be conscripted and sent off to that war, that is going to act as a constraint on their willingness to fight. They may reserve war for moments of genuine national purpose and emergency.

Luigi: The argument you make in favor of conscription, it sounds very much like the argument that Republicans make in favor of making the state inefficient so that it will not raise a lot of revenues, it will not expand, that I didn’t expect.

Kate: I’m not going to lie. As soon as he mentioned conscription, I was like, “Oh, God. Luigi is not going to let you go on this one,” because I know that it’s an issue that he’s quite touchy about.

Luigi: It cost a year of my life. It was the worst year of my life. It was really painful.

Kate: I know.

Luigi: It made me unable to be in a regular job for the rest of my life, because I hate authority so much as a result that I can’t get a regular job.

Kate: I mean, maybe we should be thankful that you were drafted, because now we have the Luigi Zingales, the firebrand that we have today.

Binyamin Appelbaum: There is another good argument, not to mention that Italy is unable to fight wars.

Luigi: Thanks to me.

Kate: Let’s move a little bit more toward the topic that maybe we’re on the same page about. What was the economists’ view of antitrust that so radically shaped the nature of how we think about monopolies today?

Binyamin Appelbaum: I find this a fascinating story and one of the clearest examples of the way that economists have influenced public policy. The origins of antitrust in the United States are in the late 19th century in this concern about the rising power of large corporations, not primarily or even at all in terms of their effect on consumers, but in terms of their effect on smaller producers and on democracy. The people who created the first antitrust law, the Sherman Antitrust Act, argued explicitly that their main target, the Standard Oil Company, might be able to produce kerosene and distribute kerosene at a lower cost than its rivals but that that was not good enough. The fact that it was pushing smaller kerosene producers and distributors out of business was a public policy problem and a threat to the viability and the health of American democracy, and therefore the government should have the ability to break up a company like Standard Oil. So, that’s where it begins, is in a very uneconomic conception of what you’re trying to accomplish.

That basic framework remains in place for the first half of the 20th century. And it’s not perfect. It produces some really confusing results. Antitrust enforcement is enormously inconsistent in that period. Companies complain that they don’t know what’s legal and what’s illegal. There’s a very famous Supreme Court dissent in which the justice writes that the only consistency in antitrust enforcement is that the government always wins. It’s not a great model. And economists begin to argue that it should be replaced with a very simple focus, a simple measure of consumer welfare. The idea basically is if prices are going down or are not going up, then whatever the corporation is doing is fine. The only time you should be concerned as a government is if there’s a demonstrable harm to the interest of consumers.

This argument originates here at the University of Chicago and is propagated through the law school, where economists are teaching, somewhat unusually in that period, out through people like Robert Bork in particular, and later Richard Posner, and it is adopted by the Supreme Court by the late 1970s. And so, we have this clean substitution of an earlier paradigm of antitrust enforcement for this new paradigm of consumer welfare. And it takes place because economists conceived of a new standard, convinced judges—although never Congress, which has never rewritten the original law—that this standard was better and cleaner and more consistent with what they took to be the goals of public policy. More efficient, in other words, and it takes hold and we still live under it today.

Luigi: This is where I would like to divide two things, because I’m sympathetic to your criticisms that they kind of substitute a different goal, and as we were saying at the beginning with Kate, the goal should be politically determined, not determined by economists. On the other hand, I think that the criticism that the existing law was not administrable was a legitimate criticism. And as an economist, I like predictability, especially predictability of the law, but even as a citizen, I like predictability of the law. When the law is not predictable, it leads to arbitrary use of powers, and we don’t need to think about our current president to see how dangerous it is to have inconsistency in the use of power. So, I think that the economists at the time provided a reasonable solution to a real problem, and the problem is that nobody else did anything else. It’s not that the economists overdid it, it’s that on the other side, nobody fought back.

Binyamin Appelbaum: I think there are two points there. The first is that I absolutely agree and think I would make this point more generally. Our economic policies in the mid-century, certainly in the antitrust area and many other areas as well, were failing by the 1970s. There were real problems. There was a need for new answers to many old questions, and economists emerged with those answers, and nothing should diminish the fact that those problems were real. And then the question is, well, what do we think of the answers that they arrived at?

And in the antitrust space, I’d say two things about the consumer welfare standard. The first is that it was sold on a lie. People like Robert Bork insisted that this had been the original intent of the law. He said so in as many words, wrote a very popular book making that case. It’s just a lie. It’s not true. And I think that there’s real value in making arguments on legitimate grounds.

The consistency argument was a good one. It could have been put forward. And I think if it had been put forward honestly, where you might have ended up is at a point where consumer welfare became a more dominant or larger part of the process, but other, older values, which had been part of the original intent, there was at least an effort to preserve them or a need to grapple with the extent to which we weren’t preserving them, instead of having them sort of written out of the law on the basis of a falsehood. So, I think that process took us to a different place than we might have ended up with a little bit more intellectual honesty, and that has been consequential.

But I do agree with you that once that transformation happened, it’s very interesting that there wasn’t a lot of pushback. We did not see people making the argument until very recently that this was going to be consequential for workers, or that this was consequential for innovation, or that it was consequential for small business. There was a real loss of purpose, and that’s not on the economists, that’s on our political system, that some of these values that had once been represented in the system had fallen so far out of public discourse by the time that these changes were being made that we ended up with a very consumer-focused antitrust standard.

Luigi: Not to deflect from Chicago, but I was at a conference that was discussing exactly this moment in history, and what I learned is that a very important role in the adoption of the so-called Chicago School of antitrust was actually played by Harvard faculty like Areeda and Turner. And they were mostly lawyers. They bought that. And the question is, did they buy it because they thought it was the right thing or because they were defending IBM at the time, and so it was a good way to make their case in the courts?

Binyamin Appelbaum: I mean, it’s a fascinating question. It gets to a broader issue about the interplay between the ideas of economists and the needs of political actors who take those ideas, maybe because they find them compelling, maybe because they find them convenient, and obviously, there’s a real interplay there. There’s a fascinating quote from Stephen Breyer, who in the early 1980s was talking about why he had adopted the Chicago School perspective on antitrust. And what he said was it provided us with firm ground. We didn’t have firm ground beneath our feet, and by adopting these ideas, it put us on firm ground. Not these were the best ideas, not these produced the best social outcomes, but where we were was untenable. We needed to get somewhere else, and this was the viable alternative that existed at that time.

I think that’s actually a very powerful model of how change happens in policy. You get into a moment of crisis and there’s a competition of available solutions, and the best one wins. And once the crisis has passed, it’s often hard to muster the necessary political energy to improve the decision that was made during that crisis period, and I think that’s very much what happened with antitrust.

Kate: I was wondering if you could talk about the counterfactual to the economist. Who would have been influential in policy if it hadn’t been for economists sort of infiltrating the system, and what sort of guiding principles would they have had?

Binyamin Appelbaum: I think the counterfactuals are fascinating and really difficult. We know what was replaced, and we’ve talked a little bit about the reasons that it was replaced. And so, for example, older traditions in antitrust, which had proven very inconsistent and which had frankly fallen out of step with the priorities of the electorate—for example, the emphasis on producers in a society that was increasingly focused on consumers—get set aside. And the question is, how might history have evolved differently? I think in the main, and you talked about this a little bit earlier when you were talking about the rise of data, the rise of computing power, some of this was inevitable in some form. We were going to see a more quantitative approach to policy making emerge during the 20th century. Where I think that you had an opportunity to have a different path of history is in some of the normative assumptions that underlay this new quantitative approach.

Economists really embraced an argument that efficiency came at the expense of equality, and conversely, that equality came at the expense of efficiency, that there was a trade-off there. This was embraced both by left-of-center and right-of-center economists. There was a basic sort of consensus around the existence of this trade-off. That was a very powerful premise that had no empirical foundation. I mean, at the extremes, it clearly does. You can imagine if you require everyone to turn in the income at the end of the day and hand it out equally to everyone, you will indeed enervate effort and no one’s here to dispute that, but the idea that we were operating on the margins of that trade-off had no real foundation. It was a normative judgment that economists imposed on the policy-making process, and it’s very easy to imagine a different group of quantitatively minded experts having moved into the policy space without that particular set of baggage in tow.

Luigi: I actually slightly disagree that that’s the emphasis. I think that something else that is very important is neoclassical economics basically completely separates efficiency from distribution. It’s not a coincidence that our field was called political economy until Marshall came about, and Marshall wrote Principles of Economics. There was no political anymore because distribution was out the window. OK? And I think that the attitude that most of us were trained with is we actually solve allocation problems per given preferences, the preferences that are given by somebody else, and our model shows that we can achieve any distribution we want with a proper sort of tax or whatever, and that’s a political decision. We only focus on how to increase the overall size of the pie. That’s what economists are about. And in the process, we’re a bit too optimistic about being able to achieve whatever distribution you want, and, two, we started increasingly to substitute the political preferences with our own preferences.

But I think that one story, and I don’t know which one you like, but one story is simply the economists became needed or the data arrived at the time in which economics was focusing on particular assumptions, and that’s the economics that became popular at the time. So, it was a coincidence of factors. It’s a little bit like why Spanish is spoken in Latin America. It’s because the Spanish arrived there at that time and not the Italians, and so they don’t speak Italian. 

Another interpretation is, no, no, this was more like a plan, because at the end of the day, some of these ideas might help one side or another more. It’s a bit like the Turner and Areeda story, this is helpful to big corporations, and so that is what has been pushed.

Binyamin Appelbaum:I think that it is important to acknowledge that the influence of money, of increasingly large corporations, of shifts in the political landscape, all played a very important role in the evolution of American policy making in the mid-century. I don’t think there’s any question that the shift in the antitrust paradigm was not just useful to an increasingly large corporate sector, a corporate sector comprised of increasingly large actors, but was actively pushed by those corporations. 

There’s a guy named Henry Manne, another University of Chicago graduate, who was a law professor who created a course for federal judges, and he goes to major corporations and says to them, “Will you provide the funding for this reeducation camp?” And he says to them, “And I want it only on a yearly basis. I want to be held accountable to the market.” So, here’s a guy basically going to big corporations and saying, “Pay me to reeducate the federal judiciary. On a yearly basis, I’ll be accountable for my results.” And, of course, the corporations are very happy to do that.

There’s actually an amazing quote from a CEO at one of these companies, saying, basically, “I hadn’t really appreciated the immense opportunity in the antitrust space until this guy came along. But, yeah, what a great thing to invest in.” So, clearly, you’ve got American corporations explicitly investing in teaching the federal judiciary to allow them to engage in a broader range of previously prohibited activity. You don’t want to claim that the ideas are the only thing going on there, because clearly, the corporate power is expressing itself. This is real and it’s clearly part of the story. 

So, I don’t think it’s just a question of a particular set of ideas happening to be in the water at the moment that the sun shines down on the pond. It is the case that there is an intentionality to some of this. At the same time, I think that the ideological development is important, too. I don’t think that these ideas were inevitable. I think that some of them reflected the genius, if you’ll forgive that word, of particular individuals confronting particular circumstances in ways that were idiosyncratic and that had consequences.

Luigi: But the interesting thing is that in those classes, as you mentioned, Paul Samuelson was also teaching, so it was not just, if you want, right wing—

Binyamin Appelbaum: And one of the judges actually says afterwards, he goes up to the instructor, he goes up to Manne, and he says, “I don’t understand. I can’t tell the difference between Paul Samuelson and Milton Friedman. You told me one was a liberal and one was a conservative, and they sound the same to me.”

Luigi: But isn’t that a bit of a responsibility of the countervailing powers, including the press, not to have emphasized this tension? Because all the debate, until very recently, all the debate was between monetarist and Keynesian, and this debate was very important in the ’70s, but it’s long gone. There wasn’t really somebody to say, “Wait a minute. Is it problematic that these judges spend a lot of time with one side, or is there something that needs to be analyzed or is the difference something else?” Why was there not more scrutiny on that?

Binyamin Appelbaum: I think that there is undoubtedly a need for journalism to accept responsibility for the absence of diversity in some of these debates, no question. But it is the case, in 1987, the New York Times Editorial Board editorialized against the minimum wage on the grounds that they had gone out and surveyed economists and they couldn’t find anyone who thought the minimum wage was a good idea, and so they’d concluded that the minimum wage must not be a good idea. I mean, at a certain point, you search for the diversity, maybe it’s not there and you need to accept, if these are the guys who are in charge of telling you if the minimum wage is a good idea, and they all say it’s not, what are you going to do?

I’ve had the experience personally, and I’ve been an economic journalist long enough that I was doing it before the crisis and now I’m doing it after the crisis, and I can well remember the cold certainty with which economists used to tell you that we were in this period of moderation and that it had been achieved because of an unrelenting focus on low inflation and that anyone who said the contrary was crazy. One of your colleagues at the University of Chicago got spanked publicly by Larry Summers for daring to suggest that in 2006. I assure you that the way that economists talked to reporters was even more high-handed than the way that they talked to other economists.

Luigi: So, if you were God and you could change the way economists are trained or think—

Binyamin Appelbaum: Wow. This is quite a question. OK.

Luigi: —how would you go about doing that?

Binyamin Appelbaum: I have been doing these book interviews for several months now. It’s the first time anyone has begun a question, “If you were God.” I don’t know. Those would be big shoes to fill. I think that there are areas in which economics strikes me as needing to look a little harder in the mirror. One is the prioritization of things that can be measured over things that cannot. There’s been a real denigration of other types of value beyond things that can be put into dollar terms, and I think that that has been immensely harmful. It has contributed, for example, to the willingness of economists to denigrate unions, which have value as forces for integration, as expressions of political will, that standard economic treatments of unions essentially ignored or downplayed. Just one example. I think that’s one way in which economics has struggled.

In general, the notion that we’re all out there expressing our preferences through our behavior is not consistent with my life experience. Perhaps you’re a better person than I am, but I’d encourage economists to think a little bit about the implication of that type of assumption. In general, what I’d say is that economics would really benefit from re-associating itself with other domains of inquiry. Political economy was, I think, a useful rubric for the field, because it suggested the contextual nature of a lot of economics in a way that I think is sometimes lost.

Kate: What do you think, Luigi? How would you change economics?

Luigi: I like the idea of broadening our training. When Roosevelt had to decide whether to get off the gold standard, all the economists told him unanimously, “You shouldn’t do it.” And, actually, he learned or listened to, of all people, an agricultural economist who was in charge of taking care of the trees in the White House, and he said, “Get off,” and he did and it was a great success. So, we economists tend to suffer from a sociological failure, which is groupthink. The economic orthodoxy, I think, is too strict, and if you don’t belong to that, you can seem like a pariah and, basically, your life is miserable. And I experienced that a little bit in Europe because I am not so passionate about the euro. I think that there are some benefits and also a lot of costs, and the fact that I could challenge this and I was coming from a reputable place so that I could not be dismissed as a complete bozo, made me persona non grata in Italy.

And studying a bit of history and especially the history of science, when a doctor in Austria found that germs can cause diseases, he was ostracized because he did not have the right theory. And rejecting data with theory is the worst of what we can do. What about you, Kate?

Kate: I think I’m generally on the same page as the both of you, especially when it comes to accepting other ways of thinking. I’m always shocked at how much other professions know about economics, how well versed they are, in at least the fundamental economic principles. If you talk to lawyers and psychologists and sociologists and historians, they all have some sense of how economics works, and yet I think that we are quite dismissive of some or all of those other professions and not really incorporating any of their core principles into our fundamental economic curriculum. And so, I think that’s one problem. 

I also think that another issue that isn’t discussed enough is that there’s often this tension between theory and data, and I actually think that there’s a third group, experience and institutional knowledge. And I don’t think that that gets enough credit.

I care a lot about institutional knowledge, and I maybe care more about it than the other two categories, but people often say at conferences, “Oh, you really focused a lot on the institutional details there.” And what they mean in saying that is that they’re trying to insult me. They’re trying to tell me that I wasn’t really focusing enough on techniques or a complicated theory. And I don’t take it as an insult, but I get extremely annoyed that people are trying to insult me with that, and I think that you can claim that data is objective, and data always tells the truth, and that there’s this elegant balance between data and theory, but data is incredibly subjective.

Luigi: Maybe it’s the axiomatic approach to a lot of economics we learn that is problematic. Because the axiomatic approach is deductive, and so there is a right or wrong answer because it’s logic, and if you don’t get the right answer, you’re an idiot because you don’t understand mathematics. And I think a lot of the discussion in economic circles tends to follow this approach. And so, if you don’t follow this, you are incompetent or ignorant or not sophisticated, rather than trying to have a more inductive approach to look at the evidence and also the multiplicity of the evidence and trying to infer what is true.

Now, that, in my view, is part of the success of economics, because you go to psychology, they are very inductive, they have very little theory, much more empirical evidence, and then it is all, it depends. So, you don’t have any general big views of the world, and that makes it difficult to teach it, to expand it, etc. And economics with a deductive approach has formulated some very strong principles. The paraphrase is, often wrong but never in doubt. And I think that that’s a bit of what economics has been so far, but that, we have to recognize, has also contributed to its success. What do you think?

Binyamin Appelbaum: I think that’s right. I mean, I think, actually, the intersection of psychology and economics is an interesting example, because it’s been a very fruitful intersection. We’ve seen some of the methodological discipline of economics cross-pollinating with some of the insight of psychology in the work of a number of . . . I mean, Richard Thaler here at Chicago has done really interesting work at that intersection. And so, I think that sort of points to the way in which you can integrate those two disciplines and a model for perhaps the integration of other disciplines as well, taking what’s good about economics, but also recognizing its limitations on normative questions and in areas that are difficult to assess through its methodology and thinking a little bit about how to combine those things in ways that enhance our understanding of the world.

Luigi: In the ’80s and ’90s, most of the public discussion was about monetarist versus Keynesianism, which was already passé in academia. Isn’t there the risk that this distinction, that ideological position of the economies you describe, belongs more to the past? Because if I look at even my colleagues here at Chicago, especially the younger generation, there is a lot of variety, and if you look around, it’s not one point of view, and if anything, the majority of them are Democrats, if not liberals. So, I don’t see that stark distinction that you described.

Binyamin Appelbaum: To be clear, this is a work of history. It’s about a period that is in the past, and it is not an attempt to describe the state of the field of economics at this moment in time. I think that over the last decade in particular, we’ve seen, much as in the ’30s and ’70s, a period of real intellectual ferment, a questioning of premises, an exploration of new approaches. People are willing to talk about questions that had been regarded as closed and have now been reopened. That’s all tremendously positive in my view, and I think that a lot of really good work is going on. And indeed, some of the criticisms in my book and much of the evidence in my book is built on the work of younger economists who are bringing their talents to bear on these issues. So, all of that is undoubtedly true.

There are two caveats, I think. The first is that there’s a real lag between when ideas are influential in the academy and when they act on policy, and there’s a real sense in which our policy makers are still in the grip of an older version of economics. And one really important question that the academy should be grappling with is, how does it communicate its new and improved understanding on some of these issues to the current generation of policy makers? How it expedites that transfer process, I think, is really important. And the second is, I think that there are respects in which older ideas, and perhaps older economists, retain influence. And so, while I think newer things are happening, the older things are still there, too.

Luigi: I don’t want to do too much of an infomercial, but I think that a lot of what the Stigler Center is doing is trying to promote new ideas and expose them to the public policy arena without doing direct advocacy, which is not our role, but at least bringing them to the surface. And I think, especially in antitrust, you even mentioned one of these conferences in your book.

Binyamin Appelbaum: Absolutely. I think the Stigler Center is a good model of an institution that is trying to do that.

Luigi: Sorry, I couldn’t resist.

Binyamin Appelbaum: No, no. By all means.

Kate: All right. So, Binya, do you think that economists themselves are capital-is or capitalisn’t?

Binyamin Appelbaum: I’d say that the way that economics was practiced during this period was capitalisn’t. I think it harmed markets ultimately, I think it harmed our capitalist society. I think it stretched and strained it in ways that risk breaking it, and part of what we need to do is construct a better capitalism, and in order to do that, we need better economics.

Luigi: I am a bit more mixed. I think that much of the stuff that was pushed in the ’70s and ’80s was right for the time and the conditions back then. I think it lasted too long. To some extent, we were not fast enough to adapt to the new world. What about you, Kate?

Kate: I don’t know if I have an answer for this one. I think I’m a little more skeptical that economists mattered all that much. I mean, I agree that on some fronts like antitrust, there may have been some bad actors, but I also think that on the whole, economists often aren’t the ones pulling the strings.