In the spirit of Clemenceau, Huntington (1981) claims that in a democracy, the ultimate responsibility for a country’s military strategy belongs to the civilian political leadership. If, instead, the military controls the political decisions, it is a military dictatorship. In the same way, the ultimate responsibility for a country’s economic policy should belong to the political leadership. If economists control it, it is a technocratic dictatorship. This is the opening paragraph of a short article by Luigi Zingales, “The Political Limits of Economics,” American Economic Review, May 2020. The whole piece is worth reading, not because I agree with it but because he makes some points that are worth thinking about. What seems to be at the heart of his objection to
David Henderson considers the following as important: adultery, Bryan Caplan, Competition, Democracy, deregulation, FDR, Jonathan Gruber, Luigi Zingales, monopoly, Political Economy, Politics and Economics, Robinson-Patman
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Don Boudreaux writes Quotation of the Day…
In the spirit of Clemenceau, Huntington (1981) claims that in a democracy, the ultimate responsibility for a country’s military strategy belongs to the civilian political leadership. If, instead, the military controls the political decisions, it is a military dictatorship. In the same way, the ultimate responsibility for a country’s economic policy should belong to the political leadership. If economists control it, it is a technocratic dictatorship.
This is the opening paragraph of a short article by Luigi Zingales, “The Political Limits of Economics,” American Economic Review, May 2020.
The whole piece is worth reading, not because I agree with it but because he makes some points that are worth thinking about.
What seems to be at the heart of his objection to the power, such as it is, that economists have in economic policy is that we don’t respect the wishes of the majority. He writes that we are substituting “our preferences in place of those of the majority.”
Is that true? I think it often is. Is it bad? I think it depends on the preference. Let’s say that the majority want President Franklin D. Roosevelt to imprison largely innocent Japanese residents on the West Coast in 1942. I think there’s some evidence that that was true, especially if we focus just on residents of California. Imagine that you’re an economic adviser to FDR and your preference is that they not be imprisoned. Should you ignore your preference and help FDR achieve his goal in the least-cost way. Or should you argue against imprisoning them? I’m in the latter camp. (Pun not intended.)
I wonder what Zingales would say an economist with my views should do? It’s not clear from his article.
Zingales does point to the famous case of Jonathan Gruber. He writes:
The crudest form of political failure is that assumed by Jonathan Gruber, President Obama’s advisor on the health-care reform. In a panel discussion at the University of Pennsylvania, he frankly said what many economic advisors are too afraid to express: the Affordable Care Act was deliberately written “in a tortured way” to disguise the fact that it creates a system by which “healthy people pay in and sick people get money.” The obfuscation was necessary due to “the stupidity of the American voter.” The presumption, therefore, is that a majority of American voters do not want a health-caresystem that pools risk because they are ignorantor stupid, and thus the role of the advisor is to implement this system anyway—if necessary obfuscating the effects from voters, so they cannot possibly undo it.
On that issue, I wrote:
Tyler Cowen, co-bloggers Scott Sumner and Bryan Caplan, and David Friedman have all weighed in on Jonathan Gruber’s morality or lack of same. I have little to add to that discussion beyond the fact that I agree with Bryan and David.
Zingales points out, I think correctly given my reading of the history, that the Robinson-Patman Act was passed to protect small business competitors rather than to promote competition. He writes:
The most explicit form of substitution is when we economists de facto abrogate an existing law because we deem it inconsistent with economic thinking. This is the case with the Robinson–Patman Act. Approved in 1936, the act aimed at “protecting small business firms from competitive displacement by mass distributors at a time of general economic distress” (Rowe 1980, p. 508). In spite of several attempts to repeal it, the Robinson–Patman Act is still on the books. Yet it is not enforced, because we economists found it “inconsistent with the antitrust goal of promoting competition” and have de facto abrogated it: in the past two decades, the Federal Trade Commission filed only one case (Blair and DePasquale 2014, p. S214).
I think of this as a victory for good economic thinking. Zingales doesn’t address whether it is: what upsets him is that economists substituted their judgment for that of Robinson and Patman. But notice the rhetorical power that comes from his misstating the issue. He writes that economists, in pushing not to enforce the Act, have “abrogated” it. Have they? Normally you abrogate a law by breaking the law. But pushing not to enforce the act is not breaking the law.
Consider a non-economic issue. Many states have laws on the books against adultery. I happen to oppose adultery. I don’t think, though, that people who commit it should be charged with a crime. Imagine I’m advising a prosecutor in a state with such laws. Zingales would presumably say that because those laws were passed by politicians and because, he assumes, the majority favor those laws, I should advise the prosecutor to enforce them. Should I? And If Zingales would say that such laws shouldn’t be enforced, what would his argument be? And in arguing that the laws against adultery shouldn’t be enforced, am I de facto abrogating that law?
In making his case that economists should avoid substituting their judgments for those of the majority, Zingales doesn’t grapple with co-blogger Bryan Caplan’s argument in The Myth of the Rational Voter. I wish he had. Zingales does, though, refer to some work by Gilens and Page. He writes:
For example, Gilens and Page (2014) shows that US government policy seems to respond more to the interests of economic elites than to the preferences of the majority.
It’s possible that Gilens and Page found this. I doubt it though. From what I’ve read, Gilens’ data are thorough and impeccable. But what they found is the following, as noted by my co-blogger Bryan. He writes:
Gilens compiles a massive data set of public opinion surveys and subsequent policy outcomes, and reaches a shocking conclusion: Democracy has a strong tendency to simply supply the policies favored by the rich. When the poor, the middle class, and the rich disagree, American democracy largely ignores the poor and the middle class.
Notice what Bryan says. The tendency is to supply policies favored by the rich. That’s different from saying policies that are in the economic interests of the rich. Bryan explains:
To avoid misinterpretation, this does not mean that American democracy has a strong tendency to supply the policies that most materially benefit the rich. It doesn’t. Gilens, like all well-informed political scientists, knows that self-interest has little effect on public opinion. Neither does this mean that Americans strongly object to the policy status quo. They don’t, because poor, middle class, and rich tend to agree. Gilens’ key conclusion is simply that when rich and poor happen to disagree, the rich generally get their way.
One final point. Zingales writes:
Last but not least, neoclassical economics separates efficiency and distribution, focusing only on the former. Thus, the (implicit) preferences embedded in our approach are not politically neutral, but they clearly favor the strongest players, who—in the absence of any distributional concern—will capture the larger share of the benefits.
I have two problems with this two-sentence paragraph: the first sentence and the second sentence.
I think you would have to read the history of economic thought very selectively to agree completely with his first sentence. It’s true that neoclassical economics separates efficiency and distribution and one can argue that it focuses on efficiency. But “only” on efficiency? No way.
An even bigger problem is his second sentence. Not caring about distribution does not mean that you clearly favor the strongest players. At any given time, some of the strongest players will be firms with monopoly power. Economists concerned about efficiency are among the strongest critics of long-term monopoly power, especially the kind that is brought about by restrictions on competition. Economists were in the forefront of pushing for deregulation of airlines and trucking, for example, which made the airline and surface transportation industries more competitive and brought down prices paid by passengers and shippers. Economists concerned about efficiency have been among the harshest critics of subsidies to rich owners of sports teams. I could go on and on.