Sun Aug 11, 2002

More on Post-War Economics

I recently read Philip Mirowski’s Machine Dreams, a trenchant and engaging book about the development of Economics in the U.S. since the Second World War. (Click here for my thoughts on Mirowski.) On the recommendation of Marion Fourcade-Gourinchas—- who knows a hell of a lot more about this topic than me—- I went and read A Perilous Progress: Economists and Public Purpose in Twentieth-Century America, by Michael A. Bernstein. It’s a very interesting book, and a good complement to Mirowski.

A Profession of No Importance For the first half of the twentieth century, Bernstein argues, economists had no leverage over economic policy in the U.S. The professionalizing efforts of economists after 1910—- such as the founding of the American Economic Review, and their efforts to weed out businesspeople and other non-academics from the AEA—- were geared towards making economics a credible scientific field that could advise the nation on economic policy. They changed the internal character of the profession, but were of little public consequence. Economists routinely (and accurately) complained of being ignored. Petitions they signed opposing this or that course of action (most notably the Smoot-Hawley tarriff act of 1930) had no effect on policy.

Their efforts were not wholly in vain. Instead, the events of this period provided the first of several ironies that Bernstein savors. As he rose toward the presidency, Herbert Hoover was serious about collecting economic data. As secretary of commerce, Hoover initiated a serious and successful round of economic data collection and, in the process, set the standard for future efforts. Economists slowly found themselves playing a serious policy role for the first time. But the crash of 1929 ended the fortunes of the profession just as they ended those of the president. The failure of economists to predict the 1929 crash, and their apparent inability to even understand the ensuing Depression—- let alone recommend a solution to it—- seemed to invalidate their scientific credentials.

The Revolutionary Effect of WWII Like Mirowski, Bernstein argues that the Second World War was the decisive event in the development of the Economics profession. The War greatly expanded the American state. Planners were brought on board to centrally direct production in the service of the war effort. A generation of economists successully found their way into public life and many of the modern tools of economic theory and analysis were developed in response to the needs of the State to manage the militarized economy. In Machine Dreams, Mirowski focuses on the way that economic theory took its “cyborg” shape during this period. Bernstein traces instead ots growing public role, in particular through the Council of Economic Advisers. In his account, this body reached the apex of its inlfuence and importance in the Kennedy White House. The CEA of this period, Bernstein argues, was the most talented group of economists ever to have the ear of a President, and was largely successful in its management of the economy. It represented, in short, the achievement of the early project of the Economics profession to put itself and its expert knowledge in the service of the State. This had been made possible, in turn, by the growth of the State itself and its use for economic expertise in the context of a centrally planned war economy.

The Retreat from Public Life The second half of the book charts what in Bernstein’s view is the decline of the profession and its public purpose since that time. The decline, he argues, has two sources, one coming from outside the profession and one from inside. Externally, the advice of the CEA was not adopted consistently by the Government. In particular, the Keynesian bargain to repay state spending now with higher taxes later was ignored. The pressure of events, and the fact that responses to them were essentially political rather than economic, meant that the initially successful policy program under Kennedy led to inflationary pressures that the Johnson administration did not adequately combat. The 1973 oil shock and subsequent stagflation seemed like an even worse indictment of Kenynesian macroeconomic policy.

Within the profession, the need to firmly establish the scientific status of Economics continued to assert itself.. In the political realm, economists had been burned by seeing their advice only partially followed and yet being blamed for the bad outcomes. The result was that the profession simultaneously withdrew from active public engagement and came increasingly to value a highly formal, scientistic discourse closed to outsiders (and of little interest to them).

Within the profession, these two pressures generated a backlash against the earlier model of political engagement through expert economic planning. The new orthodoxy was that the most useful thing the State could do with the economy was to leave it alone. Bernstein argues that economists have paid for their soi disant scientific legitimacy by strangling heterodoxy in their own field and becoming irrelevant to the “public purpose”. The irony is that, in the process, they have rejected the institution to which they owe their importance and repressed its importance to their discipline’s history.

Ignored Again? The strength of A Perilous Progress is its rich detail. For the most part, Bernstein makes his arguments with care and documents them meticulously. The style is generally clear, though often a little ponderous. Toward the end of the book, especially in the last chapter, he lets his disgust with the current state of Economics get the upper hand. It’s true that the supply-side economics of the Reagan era represents the nadir of the Economics profession’s contributions to the public good. But I wonder whether the space for argument within the field right now is quite as narrow as Bernstein paints it, or the commitment to a public purpose for Economics quite so thin on the ground. I know there are a number of economists—- mainstream by any reasonably definition—- would would probably buy a good deal of Bernstein’s critique and who might, had the election gone slightly differently, be serving the state right now. (Some of them have good weblogs.)

In any event, Bernstein’s book is well worth reading. Together with Mirowski, it does a lot to put the recent history of the American Economics profession in historical context. Now I’m going to swear off reading in this area for a bit, and wait until Marion writes the book that puts tge stories told by Bernstein and Mirowski in comparative context for me. Here’s a taste of what that’s going to look like.