Have Economists Led Us to Economic Chaos?

 by Ed Dodson

In this time of severe economic stresses, our public officials are certainly listening to economists, despite the fact that few economists forecasted the current crisis. What is it about our economic system that is so difficult for so many highly-trained individuals to grasp?

Some of my best friends, I have to say, are members of the economics profession who really do try to discover truth and to challenge conventional wisdom. However, in my experience, theirs are voices in the wilderness.

Harry Gunnison Brown began his Basic Principles of Economics (first published in 1942) in this rather remarkable way:

Economics is concerned with the problem of ‘getting a living’…. Unfortunately, this fact operates to prevent unprejudiced investigation…. An examination that would show the effects of various policies from which a part of the public was benefiting, to be injurious to the remainder, might not be an examination which those who were profiting by the policies in question would desire to have made. And if such an examination were made, acceptance of its inevitable logical conclusions would probably be vigorously opposed.

Brown’s book was not widely used as an introductory text and certainly not read outside of the small community of professors (of economics and other social sciences) who likely shared his views and were within his inner circle of professional colleagues. It is also worth noting that his economics was sufficiently orthodox that his text did not even mention John Maynard Keynes — and even though he was a consistent defender of the central arguments made by Henry George, he nevertheless held that the central cause economic depression was “born of currency deflation.”

Harry Gunnison Brown was fighting a losing battle against the coming Keynesian revolution. His was clearly a voice in the wilderness. As young men and women emerged from their formal university studies in the 1950s, they were welcomed into business and government circles to an extent few professors of Brown’s generation ever thought possible. Increasingly, economists’ opinions were sought by the popular media. The mixed economy, with a balance of political and economic power shared by business, government and labor, seemed to be running well enough, its downturns and inflationary moves softened by skillful application of fiscal and monetary policy tools.

By the 1970s, however, the world had changed, and the warnings of dissenters within the economics discipline became more pronounced. The momentum was shifting away from Keynesianism, toward a repackaged body of so-called conservative thought, which called for less taxation, less regulation, less bureaucracy and freer trade.

As the voice of the Right acquired political standing, many responses came from the Left. One of the most influential of these was offered in the book Economists at Bay (1976) by Robert Lekachman, who taught economics from a Marxist perspective at Lehman College of the City University of New York. Economists at Bay was reviewed in Worldview Magazine by Paul Heyne, a professor of economics at the University of Washington. Heyne pointed out that “criticisms along the lines of Lekachman’s are regularly published, read at professional meetings, discussed among graduate students, and even summarized in introductory textbooks.” Heyne forewarned potential readers that while Lekachman had listed all the ideas of other economists with which he disagreed, he provided “no answer to the crucial question” he raised: “How has the socialization of economists prevented the vast majority of them from recognizing the distorting and limiting effects of thought within which they work?”

With that warning acknowledged, I want to take a new look at Robert Lekachman’s book. It was, after all, a sincere attempt to stir up dust within the ranks of economists. And, he does begin with an acknowledgment that “most economists are individuals of good will, eager to extirpate poverty, redeem the cities, diminish pollution, feed the hungry, heal the sick, and house the unsheltered.” Yet, he sounds a bit like those who diminish Thomas Jefferson’s contributions to the advance of democratic republicanism by emphasizing his status as a slave-owner:

In the good old days when capitalism was young and John Maynard Keynes was unheard of, recurrent depression was accepted even by its victims as an act of God.… Economists pointed to the beneficial side effects. Depression shook the weaker brethren out of the economy.

However, Lekachman offers no more analysis of the causes of economic depressions than the mainstream economists he takes to task. He points out that it was “[m]assive military outlays” that finally brought the Great Depression to an end.” There were, however, lessons to be learned from the war years and the economic expansion that occurred thereafter:

The moral appears to be that in conservative societies dominated by corporate interests, Keynesian measures operate successfully during large and popular wars or… during spells of economic growth rapid enough to offer a little something to the officially poor who populate the bottom fifth of the income distribution.

Lekachman is most concerned with the concentration of income and wealth: “Despite wars, a New Deal, a Fair Deal, a New Frontier, a Great Society, and a New American Revolution; despite civil-rights statutes and women’s liberation, the distribution of income, wealth, and power has been remarkably impervious to change.”

Defenders of the status quo, he points out, have been able to maintain “the myth of unlimited opportunity… in the land” — so much so that “many or most Americans believe that the rich deserve their riches.” Even thirty-two years later, my sense is that this is still very much the case. Widespread opposition to estate taxation is one clear indication that the myth remains.

Lekachman was also one of the first economists to express concern for the health of our physical environment:

Climatologists warn of long-run weather shifts adverse to food production. Overfishing has diminished the potentiality of the oceans as a protein source. Miscellaneous environmental hazards: pollution, damage to the ozone barrier, and lowering of water tables among others, threaten, to an extent not yet thoroughly understood by the experts, the future of the human race.

Lekachman implored his colleagues “to rethink old assumptions, old certainties, and old emphases.” He believed that “economists accept the major features of an economy which has rewarded them quite amply.” “A graduate education in economics,” he added, “enables its survivors to rise above the common sense with which no doubt they were endowed at birth.”

Could these shortcomings be overcome? Not very likely. Lekachman observed that graduate programs in economics turned “thoroughly socialized young practitioners into institutional conservatives, wary of structural change, dependent upon official sources for data, and skeptical of inquiry into emerging institutions and impure issues which combine politics and economics.” In the real world, he knew, separating economics from politics was impossible. Lekachman’s over-arching policy priority was for greater equality in the distribution of wealth. He chastised “liberal economists” for their “lapses during the Kennedy years when growth superseded distribution as the target of national policy.” This reflected a regrettable “infatuation with competitive markets” to the detriment of “democratic planning.”

Lekachman was writing at a time when many cities in the United States were losing population and suffering from a decaying infrastructure, aging housing stock and high levels of social problems. Although he offered no specific recommendations for how to reverse those trends, Lekachman believed that cities potentially offered tremendous cultural and economic efficiency advantages:

As the cities became safer, cleaner, and more convenient, population migration to suburbs and exurbs would slow, stop, and ultimately reverse itself. The role of the automobile at that happy moment would permanently decline. Cities are more than traditional centers of intellectual originality and aesthetic excitement: they are potentially the thriftiest institutional mechanism for supporting large numbers of people.

Lekachman reached back to the political economists, and to John Stuart Mill in particular, for insight into proper government intervention on behalf of the common good. He drew on Mill to support his own view that the rights of the individual to claim property in land were limited. “The claim of the landowners to the land is altogether subordinate to the general policy of the state,” Lekachman quoted from Mill.

Lekachman touches on the all-important (for Georgists) economic character of land — but does not pursue either the moral or theoretical implications:

Property in land, personal possessions, cash, securities, or other forms is aseptically taken as the fruits of the efforts and ingenuity of employees and entrepreneurs now alive or as inheritance from ancestors similarly engaged. By heavy implication, the existing pattern of ownership is accepted as at least tolerable if not equitable.

Apparently ignorant of the reforms advanced by George, or even Harry Gunnison Brown and other economics professors who embraced Henry George’s main proposals, Lekachman looks to democratic planning (i.e., social democracy) and the safety net of social welfare programs to mitigate distribution problems:

What has cushioned many Americans in modest financial circumstances against the full force of the worst depression since the 1930s has been the existence of a set of entitlements which were a political consequence of the horrors of the Great Depression: retirement on increasingly liberal social security pensions; unemployment compensation benefits; food stamps; and even, despite its humiliations, public welfare.

Our experience in the United States since the Reagan presidency, in the United Kingdom since the Thatcher government, in Australia since the Hawke government and elsewhere around the world, supports Lekachman’s conclusion. The concentration of income and wealth ownership has increased the most where deregulation, deunionization of the work force and dramatic reductions in the marginal tax rates on income and so-called capital gains have been adopted as the new economic faith. The central problem, of course, is the failure to socialize the rental value of locations, natural resource-laden lands, the broadcast spectrum and other sources of income gained by the issuance of licenses over the control of nature.

Economics as taught today continues to have its critics – from within and outside the discipline. Our voices – the voices of those who have accepted as our own the political economy taught by Henry George — remain voices in the wilderness. However, common sense messages are finding their way to a broader audience around the globe. We are beholden to the developers of technology that allows us to communicate so easily with one another. A few decades ago our message could be broadly conveyed only by books and periodicals (such as Progress) that reached hundreds or a few thousand readers. Today, Progress can be read online by millions of people. The English language text can be converted into other languages using inexpensive software programs. Our fellow world citizens are desperate to find their way out from under severe economic and social problems. Economists are, for the most part, blinded by their own formal education and training. We are no longer the remnant; we are the vanguard of change.

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