This post is part of a symposium on Beth Popp Berman’s Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy. Read the rests of the posts here.
Beth Popp Berman accomplishes two big things in her book Thinking Like an Economist. First, she demonstrates conclusively the existence of what she calls the “economic style.” This point, which never should have been in doubt, has sometimes been obscured by the tendency of academic economists to insist that that their field is concerned only with following the data where it leads, implicitly in contrast to other disciplines, which are instead motivated by ideology.
Economists who work in or around government tend to be less confused about the source of their influence. They know that there is a demand for the services they provide—foregrounding efficiency as a normative principle in policy formulation, second-guessing experts in other fields, insisting on unintended consequences of egalitarian policies, and otherwise channeling the inclinations of those in power—so they play up the economic style as a positive good. They cast this approach as a service to the public in keeping activist, overreaching, and bumbling tendencies in government in check. But even if policy economists don’t deny the singular nature of their perspective, the history they tell about how it came to be so influential is self-serving and largely inaccurate.
That is the other thing that Berman contributes: a near-epidemiological study of the process by which the economic style became ensconced in government. Other authors have trod this path with less success, including Binyamin Appelbaum in his book The Economists’ Hour, which has many strengths, but its less granular account makes the process of intellectual and policy influence appear miasmic. From Berman, we learn that RAND Corporation economists developed cost-effectiveness methodologies to advise their patrons at the Air Force on how to allocate their resources—and that, when the Air Force proved resistant and threatened their continuing contracts, those economists marketed their services to other agencies and in the White House. We learn about the “Planning-Programming-Budgeting System” that a RAND expat persuaded LBJ to mandate throughout the government, and how that mandate caused many agencies to create offices of policy planning and employ RAND economists, both of which long outlived the system that brought them there in the first place.
We also learn about the founding of public policy schools at elite universities that offered degree programs whose graduates were set to staff these offices, an important contribution to the history of American higher education. Tellingly, the academic-administrative entrepreneurs who developed these programs contrasted them with degrees and schools of public administration dating to the Progressive era, when the programmatic underpinnings focused on the need for competent, efficient, and above all non-ideological and apolitical administrators to staff an expanding state in place of political machines. Public policy programs, by contrast, emphasized ideological training in the economic style as a means of differentiating their product and securing better employment opportunities for their graduates.
All of this is an important contribution to the scholarship of intellectual diffusion, and a telling example of the contingencies that surround elite consensus-formation. Universities, government agencies, and the government as a whole are festooned with the detritus of earlier fads and trends, out of which the seeds of the subsequent generation burst forth and are carried along to future seeding grounds. A related strength of Berman’s account is that hers is not the story of elite economics departments vying with one another over high ideology in the pages of elite journals and undergraduate textbooks, the Freshwater versus Saltwater narrative so familiar from the popular intellectual history of the origins of the 2008 financial crisis. Instead, Berman’s actors are think tanks, individual scholars, and bureaucrats with fingers in academia, government, the nonprofit world, and philanthropic funders—the people and institutions who actually carried the economic style to its position of great influence. If anything, she emphasizes the complicity of elite liberal academicians and policy entrepreneurs in importing right-wing ideologies to Democratic administrations as a tool by which to win battles with enemies to their left.
Don’t Believe Everything You Hear
The fact that policy economists would see themselves well-reflected in Berman’s narrative is, however, precisely the problem with it. In contrast to other accounts of economists’ pernicious influence on public policy, which have approached the field from an outsider perspective, and have, fairly or unfairly, been received as hostile demolition jobs by their subjects, Berman’s approach is to take her subjects’ stated values and their methodological choices at face value. She thus ends up telling the story as they would prefer it to be told.
Take antitrust. Berman repeatedly juxtaposes the economic style, which she characterizes as tolerating if not encouraging large firms to dominate markets in the name of efficiency, with an alternative approach that favors protectionism for small, independent businesses that operate less efficiently and thus serve consumers less well, in order to “protect the fabric of small-town life” (Berman’s phrasing). Those are exactly the terms in which today’s exponents of the economic style would like this debate to be conducted: between moral or political commitments (for example, to small business) and a solely ‘economic’ calculus (favoring large ones). But that framing is not faithful to the actual debate that took place, out of which the economic style achieved its dominance, because it gives no account of the alternative economic views and theories that were displaced.
Where the adherents of the economic style characterize the independence of small businesses in almost romantic terms (so as to denigrate it), scholars who actually engaged in this debate had very good—and above all economic—reasons that antitrust ought to protect the autonomy of what they called “independent business men.” When the federal courts upheld that idea as a core tenet of antitrust in the late 1940s, contemporaneous critics said it was uneconomic because small businesses under the control of large ones had voluntarily surrendered their autonomy in a free market. Responding to that critique in their 1953 book Fair Competition, Joel Dirlam and Alfred Kahn wrote:
Competition through tied outlets [i.e., retail gasoline stations exclusive to a dominant oil refiner] is competition of a channelized and limited kind. Control over these outlets confers on the big refiner a far from universally effective means of hurting price rivalry at both the retail and wholesale levels, and of limiting access to the market by the smaller, independent refiners and marketers, who are usually the price cutters.
Dirlam and Kahn were writing during a period that contemporary antitrust scholars characterize as “pre-economic,” but this defense of an antitrust ban on vertical restraints imposed by dominant manufacturers almost exactly presages contemporary competitive analysis of those same vertical restraints (specifically the analysis in “Raising Retailers’ Profits” by John Asker and Heski Bar-Isaac, published in the American Economic Review in 2014). Moreover, it is reminiscent of the cases currently ongoing against dominant tech platforms whose profits depend on their widespread use of Most-Favored Nations clauses and similar restrictions on the ability of their disempowered counterparties (think rideshare drivers, restaurants on food-delivery platforms, smartphone apps on dominant app stores, and even merchants subject to high credit card fees) to seek better prices and service elsewhere.
This is far from the only economic argument from the period that, once forgotten, has recently been rediscovered. Responding to the critics’ claims that making vertical restraints illegal would just invite outright vertical integration, which is even worse for competition (as argued by Justice Douglas in his dissent in the 1949 case Standard Oil Co. v. United States), Dirlam and Kahn continued
A firm that wishes to chance its own capital and managerial effort in undertaking a new function must, in a free enterprise system, be permitted to do so, unless the effect is a substantial restraint on competition. It must not be permitted to achieve the anticipated benefits costlessly by coercing businessmen who are supposed to be independent bargaining agents… In the face of social security and chain store taxes, it seems unlikely that the oil companies will follow Justice Douglas’s invitation [to vertically integrate].
“Businessmen who are supposed to be independent bargaining agents” may sound like the valorization of small business for its own sake that the economic style disdains, and one that has been ruled out of antitrust calculus since the economic style took it over starting in the 70s. But note that this exact argument about the anti-competitive effect of vertical control in the form of franchise no-poaching clauses was articulated by Alan Krueger and Orley Ashenfelter in a paper that sparked a successful antitrust enforcement campaign against the practice by the Attorney General of Washington State. Those authors argue that no-poaching provisions are anti-competitive because they costlessly allow franchising chains to depress the wage-turnover tradeoff faced by monopsonistic employers—in other words, they can retain workers despite paying lower wages—because those workers can’t leave for another job in the same chain.
Moreover, Dirlam and Kahn’s invocation of social security, which unlike chain store taxes has survived into the modern era despite repeated assaults by adherents of the economic style, raises the issue that has made vertical restraints a hot-button topic in antitrust research and policy for the first time in many decades: the fissured workplace and employment misclassification. Contra Berman and her subjects, the real crux of the economic style as applied to antitrust has not been to prefer large efficient businesses that provide consumers with abundant goods at low prices to small inefficient ones propped up by misguided anti-bigness regulations, but rather to bar any overt consideration of power disparities between economic agents from the realm of antitrust. Robert Bork, as Daniel Crane has put it, reoriented antitrust away from a set of constraints “on large-scale business power and toward a conception of antitrust law as a mild constraint on a relatively small set of practices that pose a threat to allocative efficiency.” And his aim has been achieved in the de facto legalization of vertical restraints, most recently in Ohio v. American Express.
If independent business men can be wholly controlled in the name of economic efficiency, then why not make every worker an independent contractor and so avoid obligations under labor law? Economic relationships have thus been moved out of the category of ‘labor,’ in which consideration of power imbalances is inherent, and into the bucket of ‘antitrust,’ from which consideration of power imbalances has been removed by the economic style. While there has been no equivalent conscious policy change to ‘introduce economics into labor law,’ labor law has been defanged by enlarging the legal terrain wherein domination by powerful actors is unregulated and giving those powerful actors de facto autonomy to decide which economic relationships will be evaluated under which regulatory regime. By crediting the preference for consolidation and vertical control as opposition to small business protectionism, Berman fails to tell this story and thus lets the economic style off the intellectual-historical hook. In that, she follows prominent contemporary economists, who have likewise elected to interpret these facts as reflecting both rising competition and rising intra-firm productive efficiency, steadfastly refusing to entertain the idea that the legal revolution their intellectual ancestors put in place might have exerted a decisive impact on the economy their descendants are studying.
Selective History of De-regulation
A similar misrepresentation occurs in the book’s account of transportation de-regulation. According to Berman, the economic style as applied to transportation regulation favors competition and choice, and hence the removal of price and entry regulations as a means to achieve those outcomes. By contrast, Berman writes, New Deal-era transportation regulation was more concerned with “stability and fairness.” Again, this is a simplistic juxtaposition, a history told by the victors. The New Deal transportation regulation against which the exponents of the economic style directed their assault was quite concerned about protecting competition, as one means of achieving fairness. That’s why it insisted on neutrality and non-discrimination, often by means of structural separation (as described and analyzed in Lina Khan’s article “The Separation of Platforms and Commerce“). The point wasn’t to sacrifice competition to stability and fairness, but rather to channel it to serve rather than undermine those aims.
Price regulation was designed to provide universal access to a network on fair (i.e., non-discriminatory) terms, while stability was achieved through cross-subsidization: users would be charged a high (but usually regulated) price on routes with robust demand, in part by means of entry restrictions, so as to provide universal access via routes that were not economic to maintain absent cross-subsidies. Universal access to such networks on non-discriminatory terms was viewed as necessary to protect competition in adjacent industries reliant on common carriers like railroads, oil pipelines, trucking, and international shipping (not to mention telecommunications, energy, and other regulated industries).
In his 1971 paper “The theory of economic regulation,” George Stigler reinterpreted these foundational pillars of economic regulation as mere pretexts to protect the high profits of incumbents from upstarts with novel, potentially cheaper technologies. But Stigler’s re-interpretation should be understood as what it was at the time: a fringe critique of what was then the consensus mode of economic governance of networked industries. Berman treats it instead as an official institutional history, which, again, is in line with how Stigler’s intellectual descendants and the officials responsible for the eventual deregulation that occurred would like it to be seen: a righteous opening-up of a staid and polite oligopoly profiting at the public’s expense.
In their hands, we replaced stability and fairness with cream-skimming: introducing competition on profitable routes (abrogating entry restrictions), thus unraveling cross-subsidization and eliminating service on unprofitable ones. This form of competition has encouraged consolidation in adjacent industries (e.g., the big box stores now responsible for most long-haul trucking, or the disappearance of family farms in regions once served by a dense rail network), high profits for incumbents once they managed to re-consolidate under private shareholder control, discriminatory pricing, terrible working conditions, environmental devastation due to very long supply chains and factory farms churning out low cost, un-nutritious food on the backs of exploited labor, service interruptions brought about by network sparseness, and a range of social ills that look like the very antithesis of competition and choice. From the vantage point of 2022, regulated competition and even regulated monopoly look pretty good. But only if given a fair hearing.
A Telling Review
The pitfalls of Berman’s approach are evident in Jason Furman’s review of Thinking Like an Economist in Foreign Affairs. He writes “It is to Berman’s credit as a social scientist that she separates her own value judgments from her historical analysis, and a reader who skips the first and last chapters of her book would be mostly unaware that Berman disapproves of the developments she chronicles.” Furman then proceeds to re-tell that “historical analysis” in even more embellished form, falsely stating that “It wasn’t until the 1960s that the discipline began playing a serious role in regulation and rule-making,” wholly ignoring the earlier generation of institutionalist economists (among whom one could count Dirlam and Kahn, though the latter underwent a telling shift in the decades following his 1953 book about antitrust). Institutionalists exerted great influence over the enactment of New Deal-era economic regulation, but Furman doesn’t consider them to be economists. Berman, to her credit, includes a brief section on institutionalist economists, but even that is related incompletely, as are the reasons for their eclipse.
The more revealing aspect of Furman’s review is his explanation of the means by which the economic style achieved its dominance in antitrust (not to mention other policy areas): the scientific method. His narrative is that the aggressive antitrust enforcement of the mid-20th-century was eventually shown to have caused prices to be higher for consumers, thanks to constraining the growth of more efficient businesses. According to Furman, the problem right now is that yet-more-sophisticated contemporary methodologies have shown the pendulum has swung too far in the other direction, favoring antitrust non-enforcement, and so a course correction is well-founded. That construction aligns Furman with the so-called “post-Chicago School” of antitrust scholarship: The Chicago School takeover was justified, but it went too far, and so now the economic style dictates that the pendulum swing back.
That is, simply put, a fantasy. No empirical revolution accompanied the Chicago School’s takeover of antitrust policy. Rather, economists and policymakers of a different persuasion were marginalized from the field and excluded from decision-making positions at antitrust agencies and in the judiciary, and the ex-post rationale of empirical discrediting cooked up more recently to paper over what was in fact an ideological and political power play. In fact, not only did participants in the Chicago School takeover explicitly denigrate the earlier institutionalist over-reliance on empirics, and elevate their own unified theoretical methodology with common assumptions (for example, that markets are ‘naturally’ competitive) as the reason why their approach was the more scientific, but they also wielded the fact of their ideological triumph as its own evidence of their superior scientific validity (since like all other markets, the Marketplace of Ideas is naturally perfectly competitive, the superior production technology wins out). Furman, by contrast, treats past ideological contestation as an embarrassing family secret to be swept under the rug. Indeed, false histories of this type seem to be endemic to the discipline, a mutually-agreed-upon fable by which to clothe its outsized influence in something other than its real intellectual history as an ideological battleground on which the most powerful interests have almost always been victorious.
Furman is explicit that this is his motive for deploying the misleading narrative of upward progress: to contest the idea that economics is an ideological battleground rather than a social science. He criticizes Berman for supposedly espousing this view, saying “She underestimates the degree to which economic thought evolves as a result of genuine improvements in understanding, instead assuming that it is simply a projection of power and interest groups.” This charge is unfair when leveled at Berman, since she says nothing to the contrary, so it is telling that Furman sees himself threatened on that score. It is also a charge that Furman is unqualified to make against her factual account of how the economic style achieved its influence. The effect is to wish away the scholarship evidenced in the pages of the book. But Furman’s largely negative review speaks to the futility of Berman’s attempt not to be received by her subjects as a hatchet job. He liked the parts that accorded with his view of how things happened, pocketing the wins, so to speak, and ignored or dismissed the implications he found uncomfortable.
The overall prescription of Berman’s book, if there is one, is that the left can’t beat the economists at their own game. And by seeking to do so, Democratic administrations have built a cage for themselves and climbed into it. The right, meanwhile, recognizes its economic claims for what they are: expediency in furtherance of their true agenda, to be jettisoned when convenient. I have some sympathy with that point of view. Without doubt, there is an influential class of economic policy professionals (typified by Furman) whose prestige and position depends on the elevation of the economic style to a creed, and whose careers have prospered thanks to the small number of enormous philanthropies for whom adherence to the economic style is the price of entry, and on whose watch the Democratic party has abandoned any pretense of expounding a policy program designed to foster a durable majority political coalition.
But on the other hand, abandoning the field to espouse other values lets those responsible for inflicting the economic style upon us off the hook and leaves their claims intact on their own terms. Berman faults the movement for student debt cancellation for having confined itself to making the case in terms amenable to the economic style: as macroeconomically expansionary, and as economically egalitarian on dimensions of income, wealth, age, and especially race. It’s instructive to take note of the current state of proposals to cancel student debt and to revive and reform antitrust law. These two policy areas have two things in common as of this writing: they remain live areas of economic policy debate within and around the Biden Administration, and most economists, especially those with the fanciest credentials, hate them both. That is because in both cases advocates of the policy have squarely taken aim at the most cherished precepts of the economic style and held them up to uncomfortable scrutiny from an audience that most economists don’t view as qualified to pass judgment: the general public.
By contrast, notionally egalitarian policies such as paid family leave, childcare subsidies, expansion of the Earned Income Tax Credit and the Child Tax Credit, and even once-anathema proposals like increasing the federal minimum wage all made their way into the Biden administration’s economic policy agenda to a chorus of approval from a wide swathe of the elite of the economics profession. (The exception that proves the rule in this instance is a carbon tax, which despite being endorsed by an open letter signed by over 3500 economists did not become part of the administration’s climate policy, presumably because its politics had become too toxic even for them—likely because it is not as egalitarian as its proselytizers make it out.) Indeed, whole organizations have been founded exactly to bring about that state of affairs: column after column of well-ensconced professors proclaim that this or that Democratic policy priority is Good Economics, on the grounds, for example, that they remedy the factor misallocation of mediocre men to jobs that ought to be held by more-productive women (thus implying that male joblessness is economically efficient). But there is another thing to note about the policies that garner much greater enthusiasm from policy-attentive economists than reforming antitrust or student debt cancellation: they’re all dead.
Even I wouldn’t go so far as to say that they died because they had the support of an army of elite economists. Rather, attracting support from that constituency means structuring your policy, and especially the case you make for your policy, in terms that appeal to that audience. There’s a high opportunity cost to doing that, namely forswearing the possibility of activating a mass base. Economists will insist that you come to them and flatter them on their own terms, namely meritocracy, fiscal rectitude, finitude of resources requiring some form of optimization, and their particular notion of just desserts, which is radically different from the ones shared among the broad public. It’s worth pointing out that neither antitrust reform nor student debt cancellation have actually happened, and maybe they won’t, because neither appealing to the public nor to economists is a promising means of getting what you want, such is the state of our political system.
But I would say that Berman’s book suffers from some of the same flaws as the efforts to enact paid family leave, expand the CTC, and legislate an increase in the minimum wage, even though Berman herself encourages progressives to avoid the economics-friendly strategies that were attempted to enact those policies: an inclination to achieve influence by means of giving your subjects and would-be critics nothing to hate and nothing to fear. The problem is that the economists are going to hate and fear you for telling the truth, and there’s no way to have it both ways.