Thursday, September 5, 2013

How economists saved their worthless hides

You gotta love someone who teaches you a new word. So, I am indebted to Philip Mirowski, chairman of economics at Notre Dame, for the word, ‘agnotology’, which Prof. Mirowski defines as "the analysis of the intentional production and promotion of ignorance." As anybody who has read Veblen or Jon Larson knows, "trained incapacity" was a particular sore point for Veblen.

I happened upon Mirowski's definition after being reminded this evening about his most recent book, Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown. Now, this is, I should think, an issue of great importance to anyone who frequents these pages. Poor Jon Larson - I have him completely fooled; he thinks I am smart or something. Actually, I'm a really big idiot. How big? Well, I was so stupid as to think that the events of 2007-2008, generically referred to as "the financial crash," would lead to enough people acquiring an understanding of political economy that the political power of Wall Street would disintegrate, and we could dispose of the post-industrial madness that has wrecked our economy, our lives, and our futures, and we can go about finally building the great and glorious future I thought we were going to have when I was a kid.

What particularly nettles me is that economics, as a profession, has generally not been held to account for its role in creating the conditions that led to the financial crash, not to mention providing the ideological smokescreen for the financial predation underlying deindustrialization. So it was with a special joy that I found on the tubez and read this small excerpt from Mirowski's book, from February 2012, offering four reasons for why economists have been able to avoid responsibility for the pain and misery their professional practice has imposed on billions of their fellow human beings.

Mumbo Jumble: The underwhelming response of the American economics profession to the crisis

Neoclassical economists, having worked hard to convince the world that everything was hunky-dory circa 2005, and concurrently having invented the rationales and the theories behind the financial time bombs that went off across the landscape, don’t seem to have suffered one whit for the subsequent sequence of events, a slow-motion train wreck that one might reasonably have expected would have rubbished the credibility of lesser mortals. Individually and collectively, they have only become more dominant in academia and in government. They are even tapped to usurp the position of democratically elected leaders in periods of crisis.

The economics profession can only seem to have escaped scot-free from the crisis because certain fundamental intellectual trends and supportive institutions conspired to maintain it in the face of screaming headwinds. The armory of defense mechanisms will only become apparent with the fullness of time and the diligent efforts of future serious intellectual historians of economics; but in the interim, I shall suggest four major sources of the deliverance of economics from its critics.

1. The Immunity Granted by the Financial Sector and the Federal Reserve

It was indeed the case that the orthodox economics profession had become heavily integrated with the commanding heights of the formal financial sector over the last three decades, which means both the banking and allied spheres, and the major governmental institutions tasked with their regulation.  In the eventuality that both spheres will have managed to come through the crisis intact, then the economics profession ipso facto would also be sheltered from the storm.

In a counterfactual world, had the reaction been instead the breaking up of the big banks and cleaning up the shadow banking sector, then the economics profession would have discovered a badly exposed and vulnerable flank. Once heads started to roll, the press would have been more inclined to discover economist craniums skittering hither and yon, and then it would have proven far more difficult to maintain the pretence of serving as detached spectators, guarantors of the public weal.

The interlocking connections between the pinnacles of the economics profession and the glittering heights of the financial sector have been briefly noted in passing, but tended to get lost when many of those firms were rescued or otherwise saved by the Fed. The movie Inside Job attempted to foreground the subject of how there must have been something systematic about an entire profession getting paid to be on the wrong side of a degenerating financial infrastructure, and then shielded from audit thereafter; but perhaps predictably, the lesson was rapidly interpreted as concerning the morality of a few individuals, understandably inclined to accept a little money ‘on the side’.

Defenders were readily recruited to huff: these people really believed what they preached, were not craven lickspittles, and could not be corrupted by such modest emoluments. One indication that this interpretation was itself faulty was that the amounts of money involved were many multiples of their official academic salaries. Another is that the point being made has nothing to do with their personal probity or cherished beliefs: rather, it concerns the ways in which these figures led the economics profession to be suborned to the financial sector.

The recruitment track in America worked like this: If you were lucky enough to write a few macrofinance papers in major journals that attract the attention of people that matter; and then garnish a plum political job like under-assistant-sub-secretary of the Treasury/Council of Advisors, touching the right political bases, then it just follows that you will in the fullness of time become absorbed into the corporate/financial sector in some reasonably lucrative capacity, all the while speaking out as an ‘independent’ academic voice for the public commonweal. This career trajectory has been a conveyor belt for some time now, at least back to 1970, when Paul Samuelson helped found the hedge fund Commodities Corporation. The issue is not the possible compromise of personal virtue of this or that individual in the face of tempting blandishments; it is rather that the proud pretence of ‘independent expertise’ has become thoroughly undermined by career co-optation within the current economics profession. This has been the bane of academic economics, but also, after the crisis, the vessel of its deliverance.

2.  The Immunity conveyed by the Neoliberal Restructuring of Universities

It was not just the turbocharged finance sector that provided cover for economists. Another major factor in the maintenance of the untouchable reputation of the orthodox economics profession has been the progressive commercialization of the totality of university research since the 1980s. If one wholeheartedly subscribes to the neoliberal doctrine of the market as uber-information processor, then ‘reform’ of the university prescribes the monetization of knowledge in all its forms.

Since the 1980s, the most prominent academic prophets of this reform have been members of the economics profession. Indeed, so zealous were the Boards of Trustees and state governments to bring this change about, that neoclassical economists were frequently installed as Presidents of many major universities (such as Larry Summers at Harvard and Rick Levin at Yale). These captains of erudition then set out to shrink the footprint of the humanities and expand the natural sciences at their institutions, since that was where the money was purportedly to be found. But a little-noted subsidiary trend was to further expand the representation of economists within the academic walls.

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