Economics can serve as an ideology. But it can be something other than an ideology. It can be a social science, for instance, most immediately concerning things about money, and extending to the calculus of social and cultural exchanges where notions of benefit and utility operate. Economics is also a profession. That means it’s a body of economists and those who practice economics in the realm of practical reason, including (but certainly not limited to) public policy. Economists tend to promote economics as an ideology, partly by acts of omission in their teaching, but more often by explicit arguments that lead to the acceptance of economics as the first and most fundamental science of public life. Economists sometimes do this because they themselves have accepted economics as ideology. This gets intertwined with their temptation to maximize their own satisfaction, income, and social position precisely as economists, which their own analysis tells them are the proper and perhaps only rational goals of their activities.
A body of thought is “ideological” when it willfully projects its own first principles on its subject matter and actively seeks, perhaps unconsciously, material changes to bring social realities into conformity with these first principles. To give a simple (if simplistic) example of what I mean: Economics conceives of society as composed of autonomous, utility-maximizing agents. The preferences of these agents for family, religion, baseball teams, and other things are essentially arbitrary—“tastes.” Economics functions as an ideology insofar as it willfully interprets all evidence to conform to this picture, normatively prescribes this self-understanding as the only rational way to think about social interactions, and then recommends and puts into effect the policies of modern liberal society that encourage us to become autonomous, utility-maximizing agents with arbitrary preferences. Economics as ideology eliminates competitors by undermining the legitimacy of other conceptions. As ideology, it constructs its measurements and subject matter to conceal material facts. It does not apply its scheme of understanding to itself, because doing so would undermine its ideological legitimacy.
The contemporary tendency of economics to become an ideology poses serious problems. So we need to unpack what it means to say that economics can become an ideology.
Let’s start with economics itself. We can say many things about the discipline. But it’s sufficient for our purposes to stipulate one of its great principles: Being able to do something you couldn’t do before is always good, or at least not bad. There are three leading expressions of this principle. First, the expansion of the opportunities for trade is always good. Second, greater mobility of labor and capital is always good. Third, technological innovation is always good. In all three instances, these claims are true, economically speaking. As a matter of economic calculus, the gains to the winners from the exploitation of the new opportunities are sufficient to compensate the losers for the disruption and its negative consequences to their overall utility. But these compensations are difficult to calculate and effect. It is easier to pretend that the gains will be widespread, or if not, significant enough to allow for politically uncontroversial redistribution.
This fantasy operates powerfully in public discussions, so much so that we often downplay the fact that the expansion of trade, mobility of labor and capital, and technological innovation can lead to bad personal outcomes for some, perhaps many, and that this in turn can create significant political and cultural problems for society as a whole. This tendency toward fantasy indicates the extent of the second deficiency: Many have come to believe in economics not as a discipline but as an ideology.
A pattern of thought is an ideology when it tends to create the very things it assumes as the conditions of its own validity. This means (among other things) that the ideologue becomes captured by it to such an extent that he actively endeavors to interpret and shape reality to promote the conditions that justify his theories of how things work. To be in thrall to an ideological mode of thinking is to be a slave to it; to understand that the conditions of a thought’s validity stand outside of us is to be free. One can study Marxism and take up some of its analytical insights without becoming a Marxist ideologue. The same is true for classical economics, which provides tools for thinking about human behavior that are very illuminating and in some cases useful. But it is also possible to make economics into an ideology. When that happens, we redefine the good so that the great principle of economics—to be able to do now what you couldn’t do before is always good—is foundational. And we assume that the three leading expressions—the expansion of trade, the mobility of labor and capital, and technological advancement—are always for the best.
This brings me to another deficiency, which we find in the practitioners of economics. A practitioner is at fault not only when a mistake is made but more profoundly when the mistake is specific to the subject matter in which he claims expertise. An error in arithmetic is one thing; to promote counterproductive economic policies because of an error in economics is something else. When this happens—and it happens far too often—it’s because economists have promoted economics as ideology, and have done so for the simple reason that it serves their self-interest. It makes their discipline the queen of the sciences, which, given its practical importance, makes them the most important and authoritative people at any table of experts where public matters of importance are discussed.
Deficiencies in academic disciplines are commonplace. We are human, after all, which means that we are tempted to make our ways of thinking into master disciplines, we are seduced by the ideological mentality, and our best intellectual impulses are distorted by self-interest. But today we face problems that stem, at least in part, from the deficiencies of economics and economists. To make matters worse, these same deficiencies prevent us from acknowledging these problems and taking responsibility for addressing them.
What are our problems? The short answer: widespread despair, resentment, and dysfunction among the lower two-thirds of American society as ranked by some mixture of income, education, and social class. For these people, our society has not worked or is on the verge of not working, or they have a justified fear that their children will face a crisis. There is a widespread sense that the children of middle-income, middle-educated, and middle-talented Americans would not have faced these problems in the past and that the future will bring new troubles of even greater severity. This intensifies our usual anxiety about the future. It’s not just that the future is unknown; to many it seems it will be worse.
In themselves, these economic and cultural challenges and difficulties would not implicate economics as a discipline. What age does not have its problems? But our difficulties have a distinctive character, and I can summarize it by observing that those responsible for leading our society over the last generation have no contrition. This is remarkable. We have been brought to our current state of affairs by the purposive action of a competent and probably well-meaning elite. They have a glimmer that something is amiss. The studies by Anne Case and Angus Deaton showing dramatic decreases in life expectancy among white, high-school-educated Americans have some concerned. But there is not the slightest evidence of an inclination to regret or apologize. Having no regrets or sense of sorrow, our leadership class has no sense of responsibility beyond its usual technocratic duty to manage well the larger machine of social utility.
This failure to understand that they (and we) owe an apology is the natural consequence of their belief in economics as ideology. And, naturally, if this attitude of “no apologies” continues, we will enter an era of heightened societal conflict, and the political and moral failures of our elite will become more evident.
Many of my friends who are economists discount my pessimism. “Talent has a wonderful future,” they remind me. “Very true,” I reply, “and that’s our problem in another guise.”
Not everyone has talent, although we like to pretend that everyone has a talent. Economic theory helps us pretend. In international trade theory, for example, even the poorest nation has a comparative advantage; even the least fortunate person has a comparative advantage based on some skill or talent of which he has relatively more, though the absolute amount of the talent may be small. If we could get rid of the minimum wage, the purists argue, then everyone would have a role in the labor market, even the least talented, though admittedly they wouldn’t get paid very much. Most economists don’t focus on people with very low levels of talent, and thus they don’t have to explain the exchange value of low IQ combined with poor work habits and bad manners.
Our common theory of talent goes something like this. There is a wide array of characteristics that are useful and productive. Many of these characteristics are types of intelligence or cognitive skill; others are abilities to understand and sympathize with people; yet others are physical strength or agility; and finally there are things like discipline, perseverance, organization, and optimism. We tend to think of people as having some aspect of all these things innately, and through what we loosely call “education,” they get developed. So let’s take the term “talent” to indicate both innate capacities and their current and prospective development into specific useful skills.
However we look at talent and the people who possess it, there is a fundamental fact to be reckoned with: Some people have more of it than others. A small number of people have very high, well-developed endowments, and these can be well matched to specific requirements that are especially prized at this time in history. Most people have something or some combination of things that translates into making a fair living and getting along in life. Some people are so disabled that they cannot take care of themselves at any time in their lives.
The trade for talent varies over time and social circumstances. I can’t tell you what the value of high-level mathematical skill will be in one hundred years. Maybe machines will make that talent less valuable, just as one hundred years ago they made a strong back less valuable. That said, economics as a discipline can make a very precise and true statement: People are paid what they are worth to the person or process making that decision.
As an economist, I want to emphasize that the demand for talent is “endogenous,” which is to say, determined within the economy itself. The demand for talents depends upon the history of the demand for talents and the evolution of the supply of talents, which in turn have been and will be determined by the decisions of “rational-purposive” agents. In other words, the market for talent is rational. It reflects rational-purposive agents paying the lowest possible salaries, bonuses, and stock options to other people whom they judge best suited to advance their interests—and on the other side of the market are all the people who are trying to get the best price for their talents.
Why is this something a mainstream economist would bother to say? The alternative view is that the demand for talents is “exogenous,” driven by the technological requirements that are necessary to meet the desires of consumers. If something is judged exogenous, two attitudes about it tend to go together: The theory doesn’t have to explain it, and there is nothing we can do about it. People tend to adopt these two attitudes with respect to talent.
International trade theory has a close analogy to theories of markets for individual talent, and the analogies help us understand our problems. Christopher Caldwell considers the case of parts being made in Vietnam for a Japanese auto manufacturer:
There is no such thing as a nation of geniuses lying low in the jungles of Southeast Asia, nurturing its “specific edge in mufflers” and dreaming of the day when it might strut its muffler-making stuff on the world stage. No. Muffler-making (or what have you) is a role conferred on some poor country by a first-world corporation with one goal and one goal only.
That goal is to flee high Western wages. Almost all “global value chains” were set up to acquire the same good—a waiver from accumulated obligations to Western workers.
Supply chain management might seem an unlikely source of an analogy. However, when the principles of supply chain management are applied to talent and its cultural formation, which is to say, people, we come to our current problems. Why would a “global value chain” want to educate and improve the middling talents of Americans when it can find better talent in Vietnam for a significantly lower price? The problem here is not just that the wage of a guy in Youngstown goes down. It’s worse than that. In 2018, the very talented have significantly less incentive to invest in developing their less talented neighbors’ capabilities than they did two generations ago when Vietnam’s talent was unavailable.
As an economist, I can tell you that my mainstream theories of the talent market combined with international trade theory predict that highly talented Americans will be indifferent to school quality for Americans of middling and low talent. They have less and less need for these people and have fewer and fewer incentives to invest in their educations. This is why high-talent liberals are willing to bargain away school quality for the support of public teachers’ unions. It’s also why large global businesses aren’t engaged by the problem. Who needs to develop domestic talent when you can get it on the global market?
And what does this mean at the highest levels of talent? At the highest levels, it takes special talents to produce talent, and those who are engaged in this activity take reputational risk in promoting their products. A more efficient global market in talent reduces incentives for elites to invest in sustainable domestic talent development at all levels of talent.
Less investment: What does that mean? A good economist models more than financial transactions. The training of the very talented requires social and cultural transactions. Thus, I predict that less investment in domestic talent will take the form of cosmopolitan disregard and even disdain for fellow citizens of middling talents. Why waste paying them respect and regard when there’s no rational reason to do so as far as the talent market is concerned? The evidence already supports this analysis.
Another thing to notice is that the desirable talents tend not to be divisible across individuals. Naturally, it is harder to find people with multiple high-level talents, and at upper-moderate talent levels, the overhead costs of managing and compensating individuals intensifies the advantages of organizing production to employ fewer but more talented people. Sometimes this process is explicitly disruptive, as when cashiers are replaced not by machines (though that is one way of looking at it) but by the people who design and maintain the machines. But often the process is quiet and gradual. The result is both a stratification of income and the corresponding stratification of esteem. If your talents are plentiful and align well with the new developments, you merit higher income, esteem, and self-respect. And if they don’t, you don’t. And that is the end of it, not just the “end” as opposed to the beginning, but also the “end” as the goal or telos. This is the outcome the talent market seeks.
It is the first deficiency of economics that the way I have been trained to analyze leaves me deliberately untutored in what to say about these outcomes. I can remediate that deficit by reading Plato, perhaps, or, better, the New Testament. But that’s not the usual way things work out. Instead, economists like me tend to make a subtle shift away from saying that these outcomes are what the talent market seeks and toward the ideological claim that these outcomes are what we ought to seek, because they will make things better over the long run. This in turn leads us to work to make it so.
It is not original to observe that liberal utilitarianism, roughly the line of thought running from Jeremy Bentham to John Stuart Mill to John Rawls, and neoclassical economics share a number of assumptions and dispositions. Both traditions of thought tend to presuppose the picture of an autonomous, utility-maximizing individual. This leads to a convenient and often useful calculus that has the alluring feature of objectivity. If you need a calculus for predicting how storm-induced refinery closures in Houston lead to gasoline price increases in Pittsburgh, neoclassical economics is your answer.
Like formal mathematical approximations, the approximations of economic theory (including, but not limited to, the metaphors of the market) are motivated by a scientific spirit that asks, “How much can I explain with the fewest assumptions possible?” It’s often a useful game, because careful reasoning from sparse assumptions can lead to surprising and valuable insights. However, it is equally important to remember that valid reasoning alone won’t get you far. The arguments need to be sound, which means based on true premises. Most well-trained intellectuals don’t make the mistake of reasoning from blatantly false first principles. But if we’re in the business of modeling human behavior—which is what economists do—we can easily treat our parsimonious assumptions not only as true enough to get a good model going, but also as sufficiently true to describe reality as a whole. This is a serious mistake that leads to specious conclusions.
There are political and cultural pressures that encourage this mistake, which again is not a mistake in formal modeling but one in philosophy, if by philosophy we mean venturing claims about what is, finally, true. One way of solving the political problem of living together is to narrow the assumptions we need to share in order to draw the binding conclusions that guide how we ought to order public life. The modern master of this approach is John Rawls. His approach, latent in A Theory of Justice and apparent in Political Liberalism, is to remove conflict over essential public questions by securing unanimous agreement to fundamental principles. Some of those fundamental principles turn out to be very similar to those that form the basis of mainstream economics today. This allows contested public questions to be translated into expressions of preferences that can be mediated by the mechanisms of markets and utility theory. It’s not difficult to find entire bodies of economic research that reframe whole swaths of controversial cultural questions such as abortion, single parenting, and divorce as matters of preference maximization. Once this is done, smart, well-meaning technocrats informed by sophisticated economic theories can solve or at least manage our problems, or so we are told.
It is the power of this picture as a nonpolitical, objective solution to our problems that helps explain why economics can gain an ideological hold over us. Let us start with the assumption, the picture says, that people are their own best judges of happiness; that they should be given the freedom to act toward this happiness insofar as it does not harm others; and that the laws and society should be arranged to allow the free and peaceful interaction of individuals in pursuit of this individually determined happiness. These assumptions are classically liberal. They naturally turn political actors toward the goal of expanding the market, empowering the limited liability corporation, and promoting cultural changes that free people from older norms that by and large do not deem people the best judges of their own happiness.
Some think this a recipe for minimal government. But they have not consulted economists who have read John Rawls. If they do, they will be told something like this:
“There are initial conditions to our present arrangements that are based in old cultural norms and patterns that were in many cases antithetical to classical liberalism. Therefore, if we truly believe in liberal ideals, we need to remediate these exogenous factors. If we do so, the happiness of unfortunates in our society can be greatly increased at little or perhaps no cost to the fortunate many. And even if the costs are high, it is in the rational self-interest of the fortunate to make the adjustments necessary to sustain the public trust in liberalism. Therefore, we must agree, through the proper use of public reason and in accord with the same collective processes that provide lawful security and the benefits of public goods such as roads, libraries, and civic celebrations, to pass laws and establish programs to effect the compensations that provide substantive equality to all.”
Economics is the calculus of these arrangements. In its daring and imperial moments, it goes a little further: Economics is the complete and final calculus of those arrangements. This explains why today’s debates about regulation, the welfare state, and “big government” are almost entirely framed in terms of economic efficiency and long-term utility maximization for the greatest number of people.
You might object, “Economics is not the correct calculus.” Fair enough. Newton’s calculus was not quite right for Einstein’s purposes, but it works just fine for almost all our engineering needs.
You might object, “It’s a deficient picture of the human condition.” Fair enough. You get your own assumptions, and work out their calculus, and get everyone (or nearly everyone) to agree to those assumptions, and get back to me when you’re done. Meanwhile, we have to live on what we can agree on. (As economists like to say, “It takes a model to beat a model.”)
Rawls’s goal was to compel agreement to this picture as a condition of participation in the public square. He argued that to refer in public discourse to principles beyond the minimal assumptions of liberal utilitarianism was to offend and possibly denigrate the citizens who either hold only the minimal assumptions or harbor different beliefs about what he called “comprehensive doctrines.” What this means, in practice, is that a basic principle of economics must become public dogma: Rational-purposive agents always pursue what they regard as their best interests, and any account of “best interests” that exceeds this formal definition violates the canons of public reason. Economics, therefore, is the queen of the sciences.
This is not a hypothetical sovereignty. A key concept in utilitarian theory is that an individual’s utility can always (or at least almost always) be augmented or decreased by giving money to or taking it away from that individual. In this way, utility is transferable. A proposed change in public matters can therefore be assessed by two criteria. First, is it Pareto-improving? That is, does it make at least one person better off while leaving every other person as well off as before? The second criterion is weaker. It stipulates that the change must be potentially or feasibly Pareto-improving. This means analyzing whether it would be possible for the winners to transfer enough utility to the losers so that there would still be winners but no net losers.
Mainstream economic theory tells us that the expansion of trade opportunities and greater mobility of the factors of production are always potentially Pareto-improving. So is the expansion of the technological frontier. In laymen’s terms, greater free trade, deregulation, and technological innovation lead to faster GDP growth, which means there’s more utility to go around for everyone. The Wall Street Journal editorial page reiterates these truths on a regular basis. Short form: Over the long run, globalization will make us all better off.
But given human nature and the natural desire for the winners to keep their winnings, you more or less need a dictatorship, or at least a stern and invasive administrative state, to ensure the income transfers that will make globalization actually Pareto-improving. If you have that administrative state, as we do, and you grant that utility is transferable, which we do, and that “comprehensive doctrines” are impermissible in the public sphere, as we are regularly reminded, then you can (effectively) satisfy the remaining requirements of the theory. Which is to say, given human nature and a public culture defined by economics as an ideology, it is not hard to use economic theory to predict that we’ll have pretty much today’s state of affairs: a formal commitment to a modern redistributive welfare state in which politics is dominated by endless battles over which winners are going to pay for which losers, and how much. Put simplistically: Tax rates, entitlements, and regulatory control become the dominant issues for political elites.
This is one way that ideology works: The assumptions of the theory are not true, so you set out to change the world so that the assumptions become true. It also shows how deluded limited-government conservatives are. Once economics becomes the queen of the sciences, given initial conditions, we get the technocratic management of utilities that oversees free-market exchanges to ensure that they are Pareto-optimal, which they must be if what economic theory predicts as true is in fact true. And because “comprehensive doctrines” are proscribed, there’s no leverage in public life to point us toward a different outcome. This is not theoretical. It describes with relative accuracy some of the crucial features of American public life in 2018. Economics as a discipline did not create these present conditions. It would be an absurd determinism to imagine that to be so. But the discipline of economics, as practiced for the last one or two generations, makes today’s impoverished public debates and our end-of-history entanglement with the technocratic administrative state seem normal, natural, even inevitable.
Let me give another example of economics as ideology, which you will remember means a way of thinking that seeks to establish realities that ensure the validity of its own ideas. This time I will focus on international trade.
Here is what economic theory teaches us. When tariffs and other barriers to making goods abroad are removed so that production which formerly took place in the U.S. now takes place in locations like China, the monetary benefits to the winners will be sufficiently large that it will in principle be possible to fully compensate the losers. The winners are the workers in the foreign country, the U.S. firms (in principle, the shareholders), and the general consumers in the U.S. who buy less expensive products. The losers are the American workers who lose their jobs.
Given the fact that the losers in all this make up a non-negligible portion of the electorate, one wonders why this process of globalization has been largely welcomed by the elites of both political parties, who depend on votes from the people who lose their jobs or worry about losing their jobs in order to stay in power. One wonders, as well, why so many progressive academics and intellectuals and the coastal elites are enthusiastic about greater global trade. One answer is easy: They all have been direct economic beneficiaries of this trade. However, an equally important reason has been the faith, widely held, that the efficiencies of globalization make it inevitable, and that the process has been a net gain for global utility, bringing large populations from abject poverty to something like the laboring conditions typical of industrial America and Europe in the hundred years prior to 1970—which is to say, monotony and rigidity accompanied by some material prosperity and hope for the future station of one’s children. There’s no denying the truth of the second reason. Nonetheless, the process of globalization has served the interests of the elites, who have comforted themselves that the winners will be able to compensate the losers, insofar as the losers deserve any compensation.
Here we note a change in our public culture that is fairly recent, corresponding quite closely to accelerating globalization after 1989. These days, the losers are increasingly characterized as untalented, backward sorts. They are portrayed as morally less deserving than the foreign poor whose labor has displaced theirs. One can find religious leaders arguing, in effect, that American losers in globalization are less deserving in the eyes of Christ than the global poor uplifted by the changes of the last generation. Here is an example of a “comprehensive doctrine” welcomed by our technocratic, Rawlsian elites because it has a net positive effect on global utility by smoothing the way for its further beneficent development. It dampens populist resistance to globalization, or at least discredits it as morally reprehensible. In a global perspective, those American workers with depressed wages are rich. Why are the ingrates complaining?
What is striking is the convergence of this ersatz sermonizing with the kind of thinking economic theory encourages. The world market for talent has shifted, and those who cannot repackage their talents to meet the demand of the new order deserve if anything less consideration than those who can present a package that is newly competitive on the world stage. The market for talent is what it is, and it reveals to us who is genuinely valuable and who is not. This, in turn, strengthens the sense of meritocratic entitlement that the winners have, as well as the prestige and preeminence of their institutions. This social esteem is an important source of elite support for globalization. It probably provides them with more psychic utility than their schadenfreude about the plight of flyover country, where the conditions of social atomization that are assumed by liberal utilitarianism are coming to fruition. But it’s a close call.
At the dawn of the Second Great Awakening of game theory in economics, I attended a highbrow weekly seminar at Bell Laboratories on the topic. Most weeks, we started out developing the unfortunate characteristics of particular equilibrium concepts and similar theoretic constructs. Then, when we were about two-thirds of the way through the seminar, someone would explain that one of the disadvantages was really an advantage. And the spirit of the room would turn until everything that was formerly a fatal objection was converted into a selling point. What was “vice” was reconceived as “virtue.”
I have come to see the importance of this alchemy for the future of economics as ideology. Let me describe important aspects of our present situation, drawing on Mark Regnerus’s use of my discipline’s tools in his recent book Cheap Sex. I will then make predictions.
- Pre-pill (and pre-abortion), women had an important advantage as the gatekeepers of sexual activity, and this advantage was widespread and largely independent of other talents. The loss of this advantage stratified women and magnified inequalities of talent among them.
- Women have reacted to this change by intensifying their participation in the labor market, increasing their education, and increasing their sexual activity outside of marriage.
- Less talented men do not need to persistently develop their talents in order to gain access to sex. Consequently, they do not develop their talents, which gives still greater competitive advantages to men with greater talents and advantageous initial social positions.
- The sexual autonomy of individuals (largely females) has increased. Children do not need the permission of their parents to access contraception or abortion; nor do wives need the agreement of their husbands, and so forth.
- The traditional family, which formerly dominated in all sectors of society, is in the process of becoming the nearly exclusive preserve of the talented.
Given this evolution of the talent market in light of the technological innovation of the pill and the greater freedom our culture now accords to one’s sexual choices, I can formulate two predictions. All I am doing here is applying my economic training to the realities described above:
- Women will shortly lose their key role in reproduction, and less-talented women will feel this loss first.
- Those who think they (both women and men) will escape the increasing competition of the talented for the top relative esteem spots or even middle spots through increased education are going to be disappointed. The mortality and morbidity experience of less-talented white men will spread to other parts of the talent spectrum.
This leads me to my conclusion, which is a meta-prediction of what will transpire in a society animated by economics as ideology, such as ours: All of these losses will be redescribed as gains. Many already have been. And the economists will lead the way. They will provide the winners with the technical vocabulary and clever arguments to show that everything we have wrought in our era, even our worst vices and most grotesque injustices, is for the best. They’re already doing so.
Richard H. Spady is research professor of economics at Johns Hopkins University and a senior research fellow of Nuffield College, Oxford.
Follow the conversation on this article in the Letters section of our June/July 2018 issue.