Donald "Cafe Hayek" Boudreaux
reviews Elizabeth Berman's
Thinking Like an Economist. The review makes for interesting reading, and the book might merit consideration the next time I add to the already groaning library. A sociologist's perspective on thinking like an economist is intriguing: apparently constrained optimization and making tradeoffs become optional.
From the administration of Franklin Delano Roosevelt through that of Lyndon Johnson, Americans on the political left—and not least those in elective office—were motivated by ideals that precluded any utilitarian weighing of costs and benefits. These ideals, as frequently listed by Berman, are “universalism, rights, and equality.” To put these ideals into practice, the U.S. government adopted policies to protect minorities, the poor, the sick, consumers, workers, the environment, and democratic participation itself. Designers of these policies intended them to be implemented without regard to costs. But despite the designers’ intentions, these policies, starting in the 1960s and gaining steam in subsequent decades, were increasingly guided by economic considerations. These economic considerations—above all, the use of cost-benefit analyses—in most cases limited government’s ability to right the wrongs that were targeted by the policies.
Yes, I was in college and graduate school at
the apex of the Welfare Economics Paradigm, and that approach surely included cost-benefit analysis, which, along with such concepts as optimal taxation, provided technocrats, with the advice of the proper team of academic economists, with Pareto-improving outcomes along the desirable dimensions. Professor Boudreaux's summary is consistent with the book learning I got at the time.
Ironically, the impetus for subjecting government interventions to economic considerations did not come from conservative or “neoliberal” ideologues. Nor did it come from right-wing economists affiliated with the University of Chicago. Instead, this impetus came from economists who were ideologically left-of-center. These economists were confident that active, smart government intervention can improve economic performance and social outcomes; they shared none of the skepticism of government that marked the attitudes of their right-wing colleagues. As Berman summarizes, “[t]he central players in this story are economists (and their allies) who wanted to use economic reasoning to make government work better and more effectively, and who thought government had an important role to play in American life. Chicago Schoolers are on the stage, but they are not the stars.”
Also ironically, the left-of-center economists whose efforts would inadvertently over time result in restrictions on the reach of government intervention were given their main toehold in Washington not by a Republican administration or during a time when trust in government was waning. Instead, that toehold was created by President John F. Kennedy, who was in office when confidence in government ran quite high. Kennedy surrounded himself with impressively credentialed technocrats who were sincerely committed to science and quantitative methods. Naively trusting that neoclassical economic analysis is value-free—that is, is scientific—these administration advisors and appointees believed that using economics to guide government intervention would render that intervention more effective.
But, alas, the claim to be value-free is in fact a statement of a value. (Postmodern skepticism has its uses, doesn't it?)
As Berman points out, however, the very use of cost-benefit analysis involves a value judgment. Yet because this economic practice appears to be value-free, the technocrats in Kennedy’s administration—many of whom continued in their positions of influence during LBJ’s administration—endorsed it enthusiastically. To carry out economic-style analyses of government programs, formal systems such as the Planning-Programming-Budgeting System (PPBS) were created for the purpose of improving government decision-making. In addition, more and more government agencies in the 1960s and 1970s established internal offices devoted to amplifying economists’ sway over policymaking.
Economic-analyses’ alluring scientific patina mixed with the increasing institutionalization into formal policymaking processes of what Berman calls “the economic style of reasoning” to produce a result that no one intended—namely, a government-wide displacement of policymaking based on “universalism, rights, and equality” by policymaking constrained by economic considerations.
This entrenchment of the economic style of reasoning into policymaking was fueled also by the success of think tanks—above all, RAND—that, starting in the mid-20th century, used economics to analyze and improve narrow aspects of government policy, such as weapons acquisition. But as government came increasingly to rely on the economic style of reasoning, demand grew for more such analyses to be supplied by not-for-profit think tanks. Government paid attention to such analyses and, thus, encouraged their development. In turn, there blossomed at universities public-policy programs that (as Berman puts it) “centered” the economic style of reasoning. Larger numbers of scholars were drawn to this style of reasoning. Many of these scholars consulted with government and often even took positions within government. Government’s heavy reliance on these scholars of course only further entrenched the economic style of reasoning into policymaking.
That "government reliance" also offered me opportunities to apply my research on behalf of assorted policy initiatives, primarily in energy use.
