Submitted by Jeffrey Snider via Alhambra Investment Partners,
At the start of this new year, a new law took effect in Illinois which required hairdressers to obtain training in domestic abuse prevention. Hairdressers. The seeds of the idea were where any stylist in the state would take advantage of what is presumed a very close relationship between a woman and the person, presumed also to be a woman, using a hairdryer on her to spot possible abuse or even violence and know how to direct the victim toward help. Though protected, for now, from reporting requirements and shielded in untested fashion from liability, this is now part of the credentialing process for anyone seeking to enter the profession or stay within its ranks, at least in Illinois (and whichever states ultimately follow, as you probably have a good idea already those that will).
Thus, without one hour of training every two years a formerly credentialed hairstylist will transition simply to being a former hairstylist. Her (presumably) ability to wield objects of beautification being fully undisturbed, the loss of ability to perform with them as an economic service is clearly, in this case, not about those abilities.
You see occasionally statistics bandied about the internet where in the 1950’s fewer than one in twenty jobs required some government body’s expressed, explicit approval, but sixty years later the imposition of government credentials is somewhere between one and three or four. The world has become enthralled by them to the point of these kinds of extremes. Some of it is surely the desire for reduced liability, to retain or hire the credentialed expert so that if something goes wrong you are less likely to be sued for it. But what happens when in the real world “credentialed expert” makes that disastrous outcome more likely? Would that be the case where credentials themselves aren’t what they are supposed to be?
In August 2013, Paul Krugman was writing favorably about Milton Friedman. The context of that discourse was the period immediately following the “fiscal cliff” which was supposed to bring about immediate disaster, as Krugman himself predicted on several occasions. The favorable light under which Friedman was being remembered in this one specific instance boiled down to what Krugman called him being a “realist.”
One way to think about Friedman is that he was the man who tried to save free-market ideology from itself, by offering an answer to the obvious question: “If free markets are so great, how come we have depressions?”
In Krugman’s view, Friedman was acceptable in the narrowest sense because he opened the door for government intervention among the so-called right. I doubt Krugman was unaware that it was this same door that caused Friedman to apologize for it in the 1990’s given what it became. Ironically, it was in Friedman’s Nobel lecture in 1976 which describes Krugman’s brief positivity about him:
I well recall a dinner at a Cambridge University college when I was sitting between a fellow economist and R. A. Fisher, the great mathematical statistician and geneticist. My fellow economist told me about a student he had been tutoring on labor economics, who, in connection with an analysis of the effect of trade unions, remarked, “Well surely, Mr. X (another economist of a different political persuasion) would not agree with that.” My colleague regarded this experience as a terrible indictment of economics because it illustrated the impossibility of a value-free positive economic science. I turned to Sir Ronald and asked whether such an experience was indeed unique to social science. His answer was an impassioned “no”, and he proceeded to tell one story after another about how accurately he could infer views in genetics from political views.
At one time, there was a difference between Friedman and Krugman, meaning Keynes. In 1980, for example, Keynes was so thoroughly debunked that there was enormous bipartisan support against it. Yet it didn’t go away, it simply found itself wriggling through Friedman’s open door and into the central bank monetarism that replaced it. Not long after 1980, Keynes and Friedman became fused, the activist central bank, rather than Treasury Department or Finance Ministry, the result. On the inside, economists think themselves arguing a world of difference among themselves; from the outside, they are all the same as none of them can actually produce scientific results and predictions.
The reason is that they are all working from the same general theories. The concept of “free trade” was as close to untouchable in “acceptable” economic discourse as anything. The politics of it was no longer “right” or “left”, but rather within or without. If you argue for “free trade”, you are welcomed by economists (really Economists); if you argue against it, you are a krank, a kook, or any other epithet that may be applied to show the world you have none of the right “credentials.” It is about conformity, not fact let alone truth.
The sudden rush in the mainstream of Economics to defend globalism isn’t specifically about globalism and its version of “free trade.” It is about Economics and the bigger questions that are being asked more often now outside of it. The voters in 2016 are following the questions, for even if there isn’t yet widespread awareness of the answers there is at the very least robust and open discussion taking place where over the past decade the application of argumentum ad verecundiam has been used ruthlessly to shut it down. If Janet Yellen or more so Ben Bernanke declared that there was recovery, nobody possessed the credentials to say otherwise.
The Wall Street Journal published an article this past Sunday that in just its headline perfectly sums up the current wedge, writing up the recent conference in Chicago where Top Economists Grapple With Public Disdain for Initiatives They Championed.
The nation’s leading economists are suffering an identity crisis as many of the institutions they helped build and causes they advanced have come in for public scorn and rejection at the ballot box.
The angst was on display this weekend at the annual conference of the American Economic Association, the profession’s largest gathering. The conference is a showcase for agenda-setting research, a giant job fair for the nation’s most promising young economists and, this year, the site of endless discussion about how to rebuild trust in the discipline.
What is never really asked is why are these particular people the “nation’s leading economists?” They are surely some of the brightest minds, possessing great intellectual capacity, displaying impressive educational attainments and industry-given awards, but by and large because of all that they are all the same. And none of it displays comprehension of economics, but instead Economics. They have all been required to say the same things, speak in a common language (statistics), and to not deviate too far lest it trigger implicit excommunication from among the wider group. It’s how Paul Krugman can spend eight years screaming for fiscal “stimulus” of any type, including the stimulus effects of preparing for an alien invasion that won’t happen, but the moment just the bland talk of fiscal spending being introduced by President-Elect Trump he declares it all wrong and absolutely certain to deliver the worst of the worst long run consequences. People tend to notice, from the outside, these non-trivial inconsistencies and at the very least start to wonder just how robust a “discipline” it all might be.
The chart included with the WSJ article is the most damning, by survey history showing that in early 2014 faith in “free trade” took a decided turn, at least for many. Among R’s, those who said free-trade agreements were good was about 55%; 60% for D’s. Those suggesting it is bad were only 35% or so for R’s, and just 30% for D’s. It swung to only 25% of R’s now feeling positive about “free trade”, with an astonishing 68% now against. The shift among D’s was sharper to the middle of 2015, but has mostly reverted to the 2014 levels.
One quoted economist explains quite well the dilemma, though more subconsciously than he seems aware.
“The economic elite did many things to undermine their credibility while people’s economic fortunes were taking a turn for the worse,” said Steven Davis, an economist at the University of Chicago. But a road map for regaining trust is elusive. “I used to think facts and analysis will ultimately carry the day but now I’m not quite sure.”
The incongruence (in arrogance) of that statement is striking, and for Economics it should be alarming. For a narrow segment of the “discipline”, it clearly is and has been. Economist Edmund Phelps, who along with Milton Friedman did great work in debunking the (exploitable) Phillips Curve infatuation in the 1960’s, was also there in Chicago presenting on “How the Right And Left Are Failing The West.” Joseph Stiglitz, for once, was more succinct (though still far short of an explanation about why).
“The promise was that globalization, together with liberalization, lowering tax rates, and advances in technology, would make everyone better off,” said Mr. Stiglitz. It was economists, not the economics, that over-promised, he said.
The end of the recovery in 2016 was not as one that had happened but as an actual, realistic idea that has had dire effects including among the credentialed “experts.” It is unsurprising to find those survey results about “free trade” breaking sharply where they do; the introduction of the “rising dollar” in the middle of 2014 and the broad, global consequences it unleashed was the evidence that the “science” of Economics refuses to consider, let alone comprehend. Despite the backlash from the inside, The People have been more than patient the past ten years, giving Economists chance after chance after chance (after chance, in the fashion of QE’s) to produce. The “rising dollar” was the last straw. Rejection of Economics is not irrational nor is it free of “facts and analysis” as (presumably Dr.) Davis is suggesting.
The past two years require no regressions. Economists said in late 2014 that the economy would take off; it did the opposite. They kept relying on mostly the unemployment rate to deny what was happening though in the US, like Europe and elsewhere, regular people had and have an intuitive, basic sense of why that was and still is just stupid. Very quietly, without too much disturbance, central bankers at least now agree, if still for now on their own terms. Is it really “too far” that people are now branching out, wondering what else Economists might be so wrong about? In terms of “free trade”, it’s not as if it is unrelated to the past decade.
The rise of populism isn’t the politics of rejecting experts, it is the rejection of these “experts” – who quite frankly deserve more than voter disdain. Credentials have come to be seen by a very large and growing proportion of the global population to declare incompetence, having nothing at all to do with intellectual capacity apart from objectivity. It isn’t the denial of reasoned argument but rather the logical end of it.
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