The economics that’s in demand

by Russ Roberts on January 28, 2013

in Economics, Education, Hubris and humility

In the latest EconTalk, Pete Boettke makes the case (based on his book, Living Economics) for what he calls mainline economics–the tradition going back to Adam Smith via Hayek and others, with a strong emphasis on spontaneous order. He also has a very nice tribute to Jim Buchanan–we recorded this just after Buchanan passed away.

Toward the end of the conversation, I raised a point about trends and fashions in economics. I didn’t say it very well and I want to try to elaborate on it here.

I suggested that we get the economics we deserve, the economics that most everyday people want to hear. I’ve often wondered why my viewpoint (or Don’s or Pete’s or Adam Smith’s or Milton Friedman’s) has such limited traction in the marketplace for ideas. We have to concede that we are not the market leaders. Interventionism, market failure, Keynesianism–they are all doing “better” in the marketplace in that they dominate the best universities and much of political discourse.

What is the reason for this?

The obvious answer is that our ideas are inferior and we are losing (or have lost) the competition. This of course could be correct. Not surprisingly, I’m eager to find a different answer.

What else might explain the varying popularity of our ideas vs. those of our competitors? Various answers have been given by Hayek and others as to why economists find the intervention mindset so attractive. But talking to Pete (and reading his book) made me think of an answer that is a little different. We get the economics that’s in demand, the economics that people want. It’s the reverse of the Keynes argument about the influence of defunct economists. Keynes saw economics ideas influencing policy. But maybe it is policy that influences economics. So as the world becomes more interventionist, the economists respond by finding arguments that rationalize that policy. (I am sure I’m not the first person to suggest this. Feel free to share references in the comments.)

Our neighbors are not ideologues. Not on the left or the right. Nor are they interested particularly in discovering the “best” economic theories. They can’t. They don’t have time.

In this view, economists are not truth-seekers. They are producers of ideas who respond to market demand. So when the financial crisis comes in 2008 and everyone wants something to be done about it, suddenly, Keynesianism is obviously the right intellectual choice for hundreds of academics and bloggers who hadn’t given it much thought or if they had, they had rejected it previously.

Our product, the less interventionist, liberty product, is in demand but not nearly as popular. People generally don’t want to trust unseen, spontaneous order-based solutions that rely on invisible hand processes. They don’t trust solutions without top-down control–they are not as reassuring. Most people are eager to trust a person who says they care about them than they do a process they are unlikely to fully understand.

In this view, the market for ideas is not designed to produce truth, at least not as its primary output. The market for ideas is like any other market–it serves the customer. Another way to say it is that there are market forces that affect what economists espouse. It is fun and profitable to be popular and in demand by politicians and those that politicians wish to please–mainly voters, but some special interests, too.

Obviously, this is not the whole story. Keynes was right–good ideas are powerful. Economists aren’t just affected by public opinion, they affect it in turn. But I do think our profession (like journalists) have a view of ourselves that is quite romantic–we see ourselves as truth-seekers. Well, yes, there is an element of truth-seeking in what we do. But it’s not the only factor.

I also don’t want to be too pessimistic. In many ways, the glass is half-full. Our product does quite well in the marketplace under the circumstances. It was established long ago–1776 isn’t a bad launch date, the publication of the Wealth of Nations by Adam Smith–and despite the fact that the underlying premise of spontaneous order is difficult to grasp without training or common-sense observation, it remains alive and well.

Where romance comes in for me is in imagining that we can make progress and convince people to be less interventionist, taking market share from the other side.

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