Economists — The high priests of progress
This essay is a follow-up to Monday's The Law Of Civilization And Decay, which you should be familiar with before proceeding. Economist James K. Galbraith posed the question Who Are These Economists, Anyway? Based on the historical investigations of Christopher Lasch, my answer was that they are the High Priests of Progress.
Both Galbraith's article, and Philip Morowski's The Great Mortification, explore why almost all economists got things so spectacularly wrong during the lead-up to the financial crisis of 2008. A deep answer to this puzzler requires that we think outside the box of specific economic policies and schools of thought.
Rather, we must understand that the mission of economists, regardless of their theoretical persuasion, is to define those policies that best implement the unquestioned assumption of Progress, which has come to mean in our time the endless expansion of abundance of all resources and ever-wider consumption of those resources. The result of all this, if the Progress program were successfully carried out to its logical end, would mean that all people on Earth would have a well-off American's standard of living—or better.
However, if Progress is an illusion, and America has been in decline for decades according to the Law of Civilization And Decay, as I believe, and the proximate causes of our decline (e.g. the inordinate power of Wall Street) follow from that natural decay, then there is nothing to explain regarding the failure of economists to apprehend what was going on. All policies, in the context of the Empire's Decline, were bound to fail eventually. And are bound to fail. Economists could always be found who would endorse whatever policy was on the table. That is no less true today, after the crisis.
In fact, the destructive policies (e.g. "free" trade) that were implemented over the last 30 years were reflective of our decline, they were part and parcel of that decline. As Lasch's historical studies reveal, this has been the position of critics of Progress since time immemorial. Thus, I am merely extending that tradition to modern times.
Morowski draws lessons from the manifest failure of economists to get it right. The first one, and the one most important for us, is This Is What Happens When You Banish History and Philosophy.
It was perhaps no coincidence that history and philosophy were the areas where one found the greatest concentrations of skeptics concerning the shape and substance of the postwar American economic orthodoxy. High-ranking journals, such as the American Economic Review, the Quarterly Journal of Economics, and the Journal of Political Economy, declared they would cease publication of any articles whatsoever in these areas, after a long history of acceptance. Once this policy was put in place, then journal rankings were used to deny hiring and promotion at the commanding heights of economics to those with methodological leanings. Consequently, the greybeards summarily expelled both philosophy and history from the graduate economics curriculum, and then they chased it out of the undergraduate curriculum as well.
In other words, economics became ahistorical. The triumph of Progress was so all-encompassing that there was no longer any need to study past financial crises or past anything else, including the rise & fall of civilizations. The Tech & Housing bubbles best illustrate this blindness. Economists were so sure that nothing could go wrong that they not only ignored the historical lessons of past financial crises that John Kenneth Galbraith laid out in A Short History Of Financial Euphoria, but they also denied that the bubbles were happening, period. Our High Priests would wonder aloud if it was even possible to identify bubbles, or simply praised the apparent "growth" you get as bubbles inflate.
In banishing history & philosophy, economists became mere technicians (sometimes called technocrats) with a very limited perspective regarding how civilizations (or Empires) progress over time. The most famous economic engineers in the Modern Age are former Fed chairman Alan Greenspan and current chairman Ben Bernanke, who has laid out detailed policy arguments in speeches on fighting deflation (helicopter money drops) or the Great Moderation (~1983-2007). It was this period of ever-growing "prosperity"—interrupted only occasionally by mild, brief recessions—that fooled economists into thinking that Progress was inevitable, irreversible, and endless. Ironically, it was during this very period that the events occurred that signify & define the American Empire's decline today.
James Galbraith, who is Kenneth's son and author of The Predator State, acknowledges the great failure of economists to understand what was going on in the period leading up to the crash. He then chooses to focus on those economists who got it right, which is to say, those economists (e.g. Dean Baker, who called the bubbles) whose insights would have led to better policy decisions, thus allowing us to avoid the meltdown. You will notice immediately that Galbraith is arguing inside the box, meaning that Progress is still inevitable, irreversible and endless had only the right policy choices been made, and the right regulatory structures implemented. For Galbraith, since it is never too late to change course, all we need to do now is to revert to Good Policies to set things right, to get us back on the Progress ladder.
To take up Galbraith's faith, you must also believe that all the corruption in Congress (e.g. midnight deregulation), the grotesque wealth inequality in America, our broken, dysfunctional politics, the predatory behavior of all-powerful Finance, the existence of Too-Big-To-Fail, the disconnect between Imperial agendas and what is best for Main Street, the existence of what I call the Money World, the exploding deficits, our unmanageable future entitlements debt, etc, etc. can all be placed at the feet of Bad Policy over the last 30 years. And not just misguided policy, but policy that was also well-intended and sincere whether it emanated from the Left or the Right—policy untainted by the corruption great political power creates. That's a lot to swallow.
For Galbraith, only bad-faith political conservatives who are "relentless opponents of the public interest" have turned to the Dark Side. Liberal Democrats, if they would only abandon their misguided love affair with unfettered Free Markets, are still as pure as the driven snow. But George W. Bush and his cronies, and before him Bill Clinton, are not sufficient reason to abandon the technocratic dream of Progress—
[Galbraith] thus resurrects [in The Predator State] both the extreme pessimism of Veblen’s notion of predation (by the conspicuously consuming leisure class in Veblen’s day, but by the corporate elite and Cheney’s imperial court today) as well as his only partially defined but optimistic vision of a world dominated by the engineers.
I contend that all of these pernicious (and irreversible) factors in American life are expected outcomes in an Empire in Decline. They are not due to the triumph of one corrupt political faction over another. See my post America, A Faltering Empire. I believe Barack Obama's ineffectual presidency, including the abject failure of financial reform, proves my point. Thus we live according to the Law of Civilization and Decay, not within a triumphant but currently troubled Progress story. And thus the tragic events we've witnessed in the last 3 years are the inevitable outcome of a 30-year historical build-up, not a temporary glitch in Simon Patten's "superlative machine" which enables increases in abundance & consumption without end.
Before concluding, I would point out that I am talking about Progress in an economic sense, which clearly relies on the assumption of never-ending advance in Science & Technology, which itself renders any discussion about limits on growth and natural resources meaningless. Man's mastery over Nature is assumed to be complete. In other words, you won't find Paul Krugman—or Milton Friedman, were he alive—worrying too much about how we will power our cars in 2035, or heat our homes, etc. And you will be unsurprised to learn that run-of-the-mill economists believe that the cost of fixing anthropogenic climate change is merely a few percentage points of GDP in 2050—
Reducing the risk of climate change would come at some cost to the economy. For example, the Congressional Budget Office (CBO) concludes that the cap-and-trade provisions of H.R. 2454 [Waxman-Markey], the American Clean Energy and Security Act of 2009 (ACESA), if implemented, would reduce gross domestic product (GDP) below what it would otherwise have been—by roughly ¼ percent to ¾ percent in 2020 and by between 1 percent and 3½ percent in 2050. By way of comparison, CBO projects that real (inflation-adjusted) GDP will be roughly two and a half times as large in 2050 as it is today, so those changes would be comparatively modest. In the models that CBO reviewed, the long-run cost to households would be smaller than the changes in GDP...
The doctrine of indestructible Progress is the overriding myth of our time, the story we tell ourselves to avoid the despair of certain death, whether of peoples or Empires. All other stories are destroyed in its wake. The doctrine of Progress encompasses everything. You will find very few people who, at bottom, do not subscribe to it.
But I don't buy it.