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The Economics of Reaction


Erik Peinert (@ErikPeinert) is the Research Manager and Editor for the American Economic Liberties Project.

This post concludes our symposium on Beth Popp Berman’s Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public PolicyRead the rests of the posts here.


Beth Popp Berman’s Thinking Like an Economist seeks to understand the rise in American policy circles of the microeconomic mindset – what she refers to as the “economic style of reasoning.” Berman traces the rise of the economic style in the mid-20th century U.S., following its path from systems analysts at the RAND corporation and academics in university economics departments as it made its way to environmental and social policy circles in Washington. For a federal government that had recently exploded in size with the New Deal, World War II, and then the Great Society, microeconomic reasoning provided a structured way of thinking about allocating scarce regulatory, commercial, or military resources.

While this historical narrative is itself of immense value, even more impressive is Berman’s articulation of how the economic style shapes one’s thinking. There is an intuitive sense for many on the left that there is something deeply wrong with the way that economic thinking – prioritizing as it does incentives, utility optimization, and allocative efficiency – seeks to politically engage, address economic problems, or redress social injustices. Berman’s account provides concepts and language to state this vague critique in a more precise and productive manner. In framing efficiency as a value-neutral priority for policy, many viable policy options appear unreasonable. For example, universal programs appear inefficient because they provide benefits to those who do not need them, but the economic style fails to recognize the political power of moral arguments for universal rights. Simple regulatory rules that do not optimize for a specific outcome appear inefficient, but such thinking overlooks the plain effectiveness of simple rules rather than complicated cost-benefit analyses. As the economic style heavily influences national policy in the US, even if PhD-credentialled economists themselves do not, it is more important than ever to recognize the shortcomings of this way of thinking.

In Berman’s telling, while the economic style was primarily introduced into policy by center-left technocrats who simply wanted the government to serve its functions more effectively and efficiently, it ended up pushing them to prioritize goals that conflict with progressive ones. Notwithstanding my admiration for her work, I think this framing can overlook a secondary role that the economic style plays politically: it can provide an appearance of apolitical, technical expertise for explicitly conservative and reactionary arguments.

I will explain this via an empirical disagreement I have with one of Berman’s central cases: the transformation of antitrust policy in the United States in the 1970s and 1980s. Berman shows that, as industrial organization economists slowly moved into the main antitrust agencies, the agencies began limiting enforcement actions to those they saw as enhancing allocative efficiency. They correspondingly rejected other “political” goals for which the antitrust laws had been originally written: controlling economic power, protecting smaller competitors, and maintaining a more decentralized market structure.

However, while the introduction of generic, center-left industrial organization economists may have played a minor role in this transformation, it was the prominent figures of the Chicago school—Robert Bork, George Stigler, Richard Posner, Frank Easterbrook— who were most influential in this change. The Chicago school’s vision of antitrust, while framed within the economic style, was openly conservative: they saw concentrated markets as ex post evidence that larger firms were more efficient because of economies of scale, rather than as evidence of harmful market power. In short, Chicago’s analytical frame was to assume that existing hierarchies of private power were efficient and just. And while center-left judges and economists later signed on to the new paradigm, it was conservatives who most effectively changed antitrust policy.

But as Berman notes, the Chicago schoolers did not introduce the economic style into antitrust. The dominant thinking in post-war antitrust policy was the Harvard school of industrial organization, with a network including Edward Mason, Corwin Edwards, Donald Turner, and Joe Bain. Not subscribing to price theory exactly as Chicago did, the Harvard school’s thinking was loosely built around the “structure-conduct-performance” (SCP) paradigm. To grossly simplify, SCP tended to assume that more concentrated markets made collusion much easier and thus were less competitive, a situation which policy should seek to prevent or avoid. Harvard schoolers had been influential in antitrust policy since World War II, favored very strong antitrust enforcement, and really cared about allocative efficiency! They just brought different assumptions into a somewhat different version of the economic style of reasoning. The Chicago assumptions, developed by conservatives, led to conservative conclusions, whereas the Harvard assumptions implied more progressive policies and solutions.

Yet my point is not about ideology, but rather how it interacts with the economic style. Robert Bork and his Chicago allies found a particular form of the economic style to be an effective language for their openly reactionary arguments. Why? Simply, the economic style of reasoning is particularly compatible with conservative arguments. To borrow from the late Albert Hirschman, an economist of a different tradition, reactionary arguments tend to take on one of three rhetorical forms – perversity, futility, and jeopardy – and these are frequently used by conservatives to defend private economic power, in antitrust and elsewhere.

To briefly illustrate, the perversity argument suggests that a policy meant to benefit someone will in fact harm them instead. Economic thinking does this repeatedly, with introductory courses highlighting minimum wages and rent controls as policies that will hurt those they were meant to help. Hirschman himself highlighted this connection between the economic style and perversity arguments:

“the perverse-effect doctrine is closely tied to a central tenet of [economics]: the idea of a self-regulating market. To the extent that this idea is dominant, any public policy aiming to change market outcomes, such as prices or wages, automatically becomes noxious interference with beneficent equilibrating processes. Even economists who are favorable to some measures of incomes and wealth redistribution tend to regard the most obvious ‘populist’ measures of that sort as counterproductive.”

This extended to Chicago’s antitrust politics: the premise of Bork’s arguments was that antitrust was “at war with itself” for doing the opposite of what was actually intended, because the policy area did not understand basic economics.

Jeopardy arguments are used to argue that progressive attempts to solve a problem will endanger other areas of social progress. Such arguments are often employed in non-economic disputes, such as the claim that expanding social rights supposedly puts the sanctity of the family at risk. But again, under the cover of the economic style, Bork employed jeopardy arguments to make his case that antitrust should focus on allocative efficiency rather than business rivalry:

“A policy of maximizing competition would … require the dissolution of virtually all industrial and commercial organizations. It is a prescription for the annihilation of our society and most of the individuals in it. Even a policy of pushing to a condition that a majority of economists would agree constituted pure competition would involve a vast destruction of the wealth of our society.”

For Bork, encouraging business rivalry rather than allocative efficiency would destroy our society. The fact that he was writing at a time when antitrust policy broadly did just that apparently did not provide a sufficient counterexample to his claim.

These are fundamentally conservative arguments framed in the economic style of reasoning, but they are not a unanimous verdict of those subscribing to the economic style. The economic style is not intrinsically a conservative way of thinking. As Berman very effectively shows, the Reagan administration abandoned economic thinking in spheres where it would have favored progressive conclusions. Nonetheless, the economic style does serve as an effective wrapper for reactionary arguments to appear neutral, expert-driven, and technically sophisticated.

In Berman’s diagnosis, the economic style has had a deleterious effect on policy because it has constrained progressive thinking to tinkering around the edges rather than aiming for big solutions to big problems. She opens the book, for instance, by arguing that the Obama administration’s failure to pursue more transformative change can be explained partly by the pervasiveness of the economic style within its ranks, neutering the boldness of its progressive members.

However, economic thinking has also provided effective cover for fundamentally reactionary arguments and beliefs, handing rhetorical advantages to conservatives in general. This also means, for example, that the fundamental conservatism of some figures in the Obama White House, like Larry Summers, could be denied by wrapping their ideological positions up in a package of supposed economic expertise. The influence of such figures arguably prevented the Obama administration from seeing the current state of politics and economic policy as fundamentally broken in a way that would have justified transformative change, never mind made it morally necessary.