Why economists stubbornly stick to their guns

Ethan Bueno de Mesquita. Arvind Subramanian. Caleb Orr. Oren Cass. Opening :. Image: pxhere. We live in an age of astonishing inequality. Income and wealth disparities in the United States have risen to heights not seen since the Gilded Age and are among the highest in the developed world. Median wages for U. Fewer and fewer younger Americans can expect to do better than their parents. Racial disparities in wealth and well-being remain stubbornly persistent. In , life expectancy in the United States declined for the third year in a row, and the allocation of healthcare looks both inefficient and unfair.

Advances in automation and digitization threaten even greater labor market disruptions in the years ahead. Climate change—fueled disasters increasingly disrupt everyday life. Economics is in a state of creative ferment—a sense of public responsibility is bringing people into the fray. We believe that these are solvable problems—at the very least, that we can make serious headway on them.

But addressing them will require a broad public discussion of new policy ideas. Social scientists have a responsibility to be part of this discussion.

And economists have an indispensable role to play. Indeed, they have already started to play it. Economics is in a state of creative ferment that is often invisible to outsiders. While the sociology of the profession—career incentives, norms, socialization patterns—often militates against engagement with the policy world, a sense of public responsibility is bringing people into the fray.

To improve the quality of public discussion around inclusive prosperity, we have organized a group of economists—the Economics for Inclusive Prosperity EfIP network—to make policy recommendations across a range of topics, including labor markets, international trade, and finance. The purpose of this nascent effort is not simply to offer a list of prescriptions for different policy domains, but to provide an overall vision for economic policy that stands as an alternative to the market fundamentalism that is often—and wrongly— identified with economics.

All of us were horrified by the illiberal, nativist turn in our politics, fueled in part by these chasms. There was consensus around the need for a genuine alternative—a set of policies that were both effective and inclusive, responding to legitimate grievances without sowing deeper societal divisions.

Although we fully embraced these aims, we found ourselves on the defensive. In the eyes of many, the turn toward neoliberalism is closely associated with economic ideas.

Leading economists such as Friedrich Hayek and Milton Friedman were among the founders of the Mont Pelerin Society, the influential group of intellectuals whose advocacy of markets and hostility to government intervention proved highly effective in reshaping the policy landscape after Deregulation, financialization, dismantling of the welfare state, deinstitutionalization of labor markets, reduction in corporate and progressive taxation, and the pursuit of hyper-globalization—the culprits behind rising inequalities—all seem to be rooted in conventional economic doctrines.

In short, neoliberalism appears to be just another name for economics. Neoliberalism—or market fetishism—is not the consistent application of modern economics, but its primitive, simplistic perversion.

Consequently, many people view the discipline with outright hostility. They believe the teaching and practice of economics has to be fundamentally reformed for the discipline to become a constructive force. There are, indeed, legitimate reasons for discontent with the way economics is often practiced and taught. Conservative foundations and think tanks have monopolized the banner of economics in policy circles, pushing the view that there is a steep efficiency—equality trade-off and assigning priority to economic growth.

Our response is fundamentally different. Many of the dominant policy ideas of the last few decades are supported neither by sound economics nor by good evidence. Neoliberalism—or market fundamentalism, market fetishism, etc. And contemporary economics is rife with new ideas for creating a more inclusive society.

But it is up to economists to convince our audience about the merits of these claims, which is why we have embarked on this project. Before we get to policy proposals, however, we must first address the issue of how to persuade non-economists that economics is part of the solution. Economists study markets among other things , and we naturally feel a certain pride in explaining the way markets operate.

When markets work well, they do a good job of aggregating information and allocating scarce resources. Similarly, economists believe in the power of incentives; we have evidence that people respond to incentives, and we have seen too many well-meaning programs fail because they did not pay adequate attention to the creative ways in which people behave to realize their own goals. Economists have a strong bias towards market-based policy solutions, but the science of economics has never produced pre-determined policy conclusions.

Economists thus get labeled as cheerleaders for free markets and hyper-globalization. Economists also often get overly enamored with models that focus on a narrow set of issues and identify first-best solutions in the circumscribed domain, at the expense of potential complications and adverse implications elsewhere. A growth economist, for example, will analyze policies that enhance technology and innovation without worrying about labor market consequences. And a finance economist will design regulations to make banks safe, without considering how these may interact with macro-economic cycles.

Many policy failures—the excesses of deregulation, hyper-globalization, tax cuts, fiscal austerity—reflect such first-best reasoning. To be useful, economists have to evaluate policies in the totality of the context in which they will be implemented and consider the robustness of policies to many possible institutional configurations and political contingencies. But these bad habits aside, contemporary economics is hardly a paean to markets and selfishness. The typical course in microeconomics spends more time on market failures and how to fix them than on the magic of competitive markets.

The typical finance course revolves around financial crises, excessive risk-taking, and other malfunctions of financial systems. Thoughtful economists of which there are many quickly move away from it. Search the FT Search. World Show more World. US Show more US. Companies Show more Companies. Markets Show more Markets. Opinion Show more Opinion. World Home U. Markets Home U. Jonathan Cable. All ears tuned to Fed language, Greek debt talks Jun 14 That behavioral economics has been minimized and treated as an aberration by the mainstream has major bearings on how students make sense of markets and the world.

Read: The curse of Econ What is so surprising about the hesitancy of economists today to absorb the learnings of behavioral economics is that until the appearance of Homo economicus , invoking psychology in the teaching of economics was standard. At the University of Cambridge, for instance, before a stand-alone department was established in , economics was taught alongside psychology and philosophy. Only after World War II, when the center of gravity of the discipline shifted across the Atlantic, did the rupture became so stark.

The dawn of the American era in economics marked a more intense commitment to mathematical analysis, at the exclusion of all else. This profound change in the economics curriculum has resulted in a discipline that is sterile, tone-deaf, and lacking an emotional pulse—but also one that has proved ineffective in its explanatory and predictive capacities.