Is economists’ groupthink responsible for global inequality?

Is the economics profession responsible for the rise in global income inequality since 1980?

This question crossed my mind after reading a book and a paper by the UC Berkeley sociologist Marion Fourcade (the paper was co-authored with Etienne Ollion and Yann Algan), and a few pieces by Paul Krugman on inequality and the economics profession.

Fourcade et al argue that economists see themselves as intellectually and methodologically superior to other social scientists. Their discipline is centralised and hierarchical, with strictly codified standards of what makes for a good economist. Getting hired by a university and getting published in academic journals are governed by very rigid rules: universities will only hire staff from universities of equal or greater prestige (this reminds Fourcade et al of kinship systems in which some marriages are strictly forbidden). Journals display strong biases towards publishing papers from graduates of top five universities. These biases are much stricter than other disciplines: sociology and political science departments do not have such strict rules for hiring, and publishing.

Economists are also better paid, and more insular. Economists are less likely to cite papers from other disciplines, and more likely to believe that their own discipline is more scientific than other forms of social science. Because of the growth of business schools across the US, salaries have risen – the median economist now earns about 33 per cent more than the median sociologist – while opportunities for lucrative consultancy gigs have increased.

Alarm bells should ring when reading this. Insular professions are susceptible to groupthink, even when their members are bright. Paul Krugman, describing his coworkers: “It is a fact of life that trained economists find it very difficult to see the obvious unless it has been encapsulated in a clear formal model”.

Since the 1980s, income and wealth inequality has grown. Oxfam looked at the Credit Suisse Global Wealth report and realised that it implied that the richest 1 per cent of individuals will own more wealth than the other 99 per cent of the world by the end of next year. Piketty’s Capital suggests that the same thing is happening in the US, UK and France.

Krugman, reviewing Saving Capitalism by Robert Reich this week, suggests that America has been experiencing a rise in oligopolistic business practices, spurred on by lax antitrust laws and lobbyist influence over Congress, which has only strengthened in recent years. This picture is a bit US-centric – lobbying has not obviously become worse in Europe, where inequality is also widening. But, in Europe, the political right has moved from faith in softer forms of dirigisme to more consistently embracing variants of Thatcherism, neoliberalism, or ordoliberalism since the 1970s. These ideologies are spawned from ideas developed in American economics departments and imported in simplified form to the Reagan White House and Thatcher’s 10 Downing Street.

Fourcade’s book, Economists and Societies, contains an interesting survey of economists’ beliefs from 1979, in the heyday of the influence of the Chicago School of neoclassical macro. The economics profession showed almost unanimity in the profession on the negative impacts of the minimum wage and reducing the welfare state plus big majorities in favour of cutting regulation – in general, not in specific industries – to boost growth. (It is worth saying that economists in France, the UK, Sweden, Austria and Canada, where universities have different rules for career progression, had much more varied opinions.)

Here’s the thing. On the one hand, we have, at the level of the profession – a homogenous, intellectual monoculture, with hierarchical rungs on the occupational ladder, progression through which is determined by collective belief in universal standards for what makes a good economist. On the other, we have evidence that something approaching unanimity prevailed on issues relating to distribution and equity among economists. We see the institutional set-up that generates groupthink, and we see a remarkable tendency for a group to think alike. And this groupthink influenced a generation of right-wing politicians.

Of course, these days there is plenty of disagreement about macro among professional economists – the political stuff where who gets what is debated. After 2008, a lot of the pre-crisis optimism about the healing powers of derivatives and options, imported from financial economists, now seems misplaced. A more recent survey suggests that American economists are now more likely to be politically left-leaning than the general public. And academic communities, when they make a virtue of the egalitarianism of criticism – that the tenured professor’s ideas are no more likely to be right than the spotty college kid – have at least one line of defence against groupthink.

But did a homogenous economics community in the US in the 1970s and ‘80s cause the widespread prevalence of beliefs about the economy that have led to an explosion in inequality? Isaiah Berlin did once warn that ideas born “in the stillness of a professor’s study could destroy a civilisation”.

This continues our series of weekly analysis articles by a rotating group of The National’s beat reporters. Adam Bouyamourn covers economics

abouyamourn@thenational.ae

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