The following essays are based on talks given at a symposium on âPower and Economicsâ organised by the Centre for Global Studies in March 2015.
Our symposium took as its starting point the thought of how little change the Greater Recession had brought about in the system of ideas, institutions, and policies which preceded the economic collapse of 2008. This led us to consider the relationship between economic ideas and power. It is not entirely absent; as Thomas Palley pointed out, economists discuss market power, bargaining power, and so on. However, this is a discussion within the discipline. It fails to explore the reciprocal connections between economic ideas and politics: the political power of economic ideas on the one side, and the influence of power structures on economic thought on the other. Was it correct to say, as Keynes famously did, that âthe power of vested interests is vastly exaggerated compared with gradual encroachment of ideasâ, that âsoon or late, it is ideas, not vested interests, which are dangerous for good or evilâ.1 Or was Marx right to regard economics as the ideology of the triumphant bourgeoisie? A key conclusion of the discussion was that power is under-theorised in economics.
This was a debate that we returned to many times over the day: to what extent are economists ignoring power, or, at the very least, ignoring major facets of powerâboth their own power and the power dynamics within the social world they study? These elements overlap, as Nancy Cartwright described, through looping effects and self-fulfilling prophecies, as economic theories are picked up by the financial and policy worlds. The supposedly neutral discipline of economics does not simply describe human behaviour but, in fact, shapes it.
We began with presentations from Steven Lukes and Jonathan Hearn, detailing the basic dynamics of economics and power. Then, the superstructure of economics, with Norbert HĂ€ring of Handelsblatt and Lucas Zeise. Nancy Cartwright and John Bryan Davis completed the theoretical component of the day with presentations on economics as a science, including how power affects debates within economics.
Steven Lukes gave a triadic view of powerâthat, in addition to power over decision-making and power over agenda-setting, there exists a third type of power, as described by J. K. Galbraith in his book The Anatomy of Power, which is power of conditioningâthe power to shape othersâ interests and preferences, so that they are not even aware of their ârealâ interests. This takes preferences not as exogenously given, but as shaped. In some cases, objectively observable harms do not develop into grievances.
Jonathan Hearn noted that a discussion of this third form of power is necessarily different from the first two, because it is âfundamentally conceived as a critique of harmâ. The evidence for this third form of power is not in the behaviour of dominant actors, but in the harm done to the dominatedâthat is, the difference between their true interests and their preferences.
He also argued that intention is hard to discern here or, rather, that intention and action can be complex, and that beliefs âcan be both prevalent and under question at the same timeââfor instance, in the case Steven Lukes raised of the repeal of the California estate tax, or âdeath taxâ, where voters voted clearly against their own interests.
In the following discussion, Anthony Giddens questioned whether this definition of power was analytically clear enough to be useful:
He added, âYou could argue neoclassical economic theory is kind of in denial of power; it portrays the economy as if power were not there.â Yuan Yang agreed thatPower is everywhere and nowhere. It is elusive, so you need some kind of definition [âŠ] to my mind the Parsonian ideaâthe two forms of power, there is power as capability and there is power as power over peopleâis not a bad starting point.
Thomas Palley noted, âThere is a very old concept called false consciousness, and it seems that is what we are talking about here [âŠ] that is how I have always thought of Galbraithâs conditioned power.â He added,Neoclassical economics is both an exercise of discursive power, but also ignores many of the problems to do with that power. [âŠ] It seems to me that many economists have an allergy to dealing with ethical philosophy, which means that when you get in normative concepts such as benefits, interests and freedom, which came up early in both your presentations, that is the point at which many neoclassical economists will switch off and say, âThis is a job for the philosophers and not for us.â That means that many economists spend their careers rationalising forms of power.
Andrew Graham added that,False consciousness is a slightly paternalistic concept and it is probably the most difficult political problem: how far can you go to unravel false consciousness? At the worst you end up with Stalin and Mao, and alternatively you end up with the United States that is in total denial about its existence, and maybe that is the neo-liberal era for us.
In the next session of the day, Norbert HĂ€ring laid out a series of shifts in economic thinking and orthodoxy over the centuries, and how these were affected by the needs of powerful interests. The four shifts he described range from the beginning of the industrial revolution in Britainâthe first being the shift from protectionism, originally the natural policy to protect nascent British industries, to the promotion of free trade once these industries had become established. The second was in the nineteenth century, with the shift from classical to neoclassical economics, which HĂ€ring ascribes to the need to defend against the threat of Marxism. The third came during the 1930s, when the threat of revolution shifted to that of redistribution, with the redefining of economics to the study of the relationship between ends and scarce means. HĂ€ring argued that the fourth shift is a continuation of the third, where the dominance of methodological individualism, rational choice theory and public choice theory in economics serves the interests of the few against the possibility of collective decision-making. Finally, he argued it can be more useful to consider who or what is served by a particular idea, than whether that idea is strictly correct or incorrect.Of course, it is true that economists talk all the time about market power, and bargaining, but they do not talk about ideology. That is a term that, a bit like false consciousness, has not come back onto the table. [âŠ] The other word we have not yet had is equality. Economists at the moment do not have much to say about the whole massive inequality that has emerged.
Lucas Zeise, in his discussion of HĂ€ringâs talk, agreed with his argument that ideas in economics have developed mainly along the lines required for the perpetuation of power by specific interests. He also stressed the importance of the idea of âsuperstructureââthe Marxist idea that the âclass system of society is established and stabilised by a superstructure that, on the one hand, is built upon the economy, and on the other, keeps the economy in its class structure, in its capitalist modeâ.
In the discussion that followed, Edward Skidelsky opened by pointing out that there was no clear theory to explain why economists needed to justify the ruling class. Adair Turner, in response, argued that it may be traceable to employment prospects, since the growth since the 1970s in the numbers of economists employed in the financial services sector may well make them unlikely to question theories in economics that support the financial sector. Norbert HĂ€ring argued that, in his experience of the German university system, there were clear professional advantages to espousing the most conveniently mainstream version of economicsâone which is advantageous to the financial sector. In addition, he suggested, even academic economists have to train PhD economists who will go to work outside the academy and are therefore required to teach them ideas that will fit their roles in business. Steven Lukes raised the issue of âphysics envyâ, which he argued was rife in the social sciences but particularly acute amongst economists. He argued that economics has attempted to produce a âunified theoryâ, where a universally applicable theory of micro-behaviourâwhich assumes that preferences are given and exogenousâprovides the foundations for macroeconomic thought.
Anthony Giddens reflected on the fact that the unanticipated, non-violent collapse of Marxism and communism in the 1990s may have had an effect in âliberating a certain version of economics in the west with a triumphalist backgroundâ, and, second, that there may be more than one layer to the storyââthe contest of ideas and their relationship to the real worldâ. Roger Backhouse, however, stressed the importance of complicating the historical narrative and de-homogenising this account of neoclassical economicsâfor instance, by acknowledging the shift between the economics of Frank Knight, who wrote extensively on ethics, to that of his pupils Stigler and Becker, who espoused the Chicago school view that it was wrong to question peopleâs tastes or preferences. Jonathan Hearn argued in response that, in fact, the interesting aspect was the homogenising of neoclassicismâwhy has neoclassical economics taken it as incontestable that markets are sites of perfect competition? David Runciman suggested that, to the contrary, perfect competition is an account of power, but an account that argues advantages to smaller players in the system, and which is suspicious of the state as the one player which is not subject to the disruptive competitive forces of the market. Thomas Palley added to the argument that it was also important that the ruling class should not be considered as homogeneous, either, and that the ruling class can also suffer from their own version of false consciousnessâsuch as in the case of industrial leaders who feel they cannot argue against free trade, despite the damage it does to their own business. Finally, Jonathan Hearn suggested in response to David Runciman that, indeed, economics does not remove power from its argument, so much as naturalise it and fail to question it.
In the third session, we moved on to a discussion of the relationship between science and economics. Nancy Cartwrightâs presentation touched on two areas: whether economics can be called a science, and also the ways in which it is granted power simply because it is perceived as a science, whatever its true attributes. The power of economics rests on several effects, the first being reflexivityâa âloopingâ effect in which economic theories are self-fulfilling. Another is the power inherent in the ability to design measures and modelsâsuch as in deciding how to measure poverty. Choice of model can highlight or bury issues such as distribution, since no model can describe everything, so, depending on what is left out, important issues can be invisible or inexpressible.
John Davisâ presentation expressed a concern that economics is becoming âessentially a performative scienceâ, which could become vulnerable to a collapse similar to that of alchemy and other pseudo-sciences. He argued that this had happened due to the breakdown of economicsâ âreflexive practicesâ as a discipline, including the fixing of a hierarchy of economics journals and departments, and the marginalisation of the methodological and historical aspects of economics, which previously acted as its âprincipal forms of scientific self-consciousnessâ. He further argued that the increasing insularity of economics explained why so many recent advances in the field had come from the introduction of approaches from other social sciences, such as behaviourism from psychology.
Three issues emerged in the discussion that followed. First, the difficulty of testing economics empirically, and whether there is a different possibility of testability in micro- versus macroeconomics. Second, there is the question of whether it is possible, or desirable, to build macroeconomics on micro-foundations. Third, the group discussed the range of techniques or effects through which economics becomes a powerful political tool.
Roger Backhouse asked whether, in fact, the examples that Nancy Cartwright had given of Tony Atkinsonâs work on inequality and that of Nicholas Stern on climate change, were actually counter-examples to the case John Davis presented for a failure of reflexivity in economics.
Cartwright agreed that they were, in one sense, but that they were also welfare economists of a specific era, whose approach to economics is not likely to continue in a younger generation: âWelfare economics is not taught at the London School of Economicsâ. John Davis added that he did not intend to portray economics as monolithic but, rather, point out the failings of ârational choice [âŠ] as the performative mainstreamâ.
Anthony Heath argued that the larger problem was the difficulty in properly testing any hypotheses in economics,
Adair Turner agreed that there are some areas where economics can be tested, and that these tend to produce useful evidence, âthey produce very different results in different areas of economics and, in particular, between some categories of microeconomics, macro and financeâ. He argued that as Chairman of the Low Pay Commission, he found research on labour markets and monopsony was helpful, as was the use of behavioural economics to the Pensions Commission. Both of these are areas in which policies can be tested and results observed, to some degree. However, macroeconomic policy is impossible to test in the same way: âThe difficulty with macro is that you cannot run Economy A for the next 10 years in one fashion, Economy B in another fashion and then observe which one performs better.â He added,That [âŠ] is why economics can get away with it, in a way that medicine cannot. You would not do the sorts of things economists do if you were making decisions in medicine. You would not use instrumental variable methods, for example, when you were deciding on treatment outcomes.
Andrew Graham argued that, in fact, it was wrong to think that micro-economics was more effective than macroeconomics, adding,What that means is that economics must not migrate solely to try to answer the things that it can answer. We have to be aware that the different degrees by which we can test different propositions can, unless we are careful, drag us towards saying things on micro issues and avoiding some of the most important issues with which economics has to engage.
Adair Turner responded thatI would like to return to the book by Bernard Williams, Truth and Truthfulness.2 He thinks we can almost always tell whether people are trying to be truth tellers. He does not make the silly mistake of thinking there is such a thing as truth, but he thinks we can tell whether people are trying to do it or not. You can apply that to good historians, economists or physicists. Almost always you would do it by looking at more than one truthtelling story. [âŠ] If I was a truth teller who then looked at microeconomics, the assumption that the representative agent is always, everywhere, rational in the economic sense is just obviously not true.
Thomas Palley countered:I completely agree with you. I said [âŠ] that some of micro had been helpful: the empirical parts of micro, the behavioural economics of micro and the bits of micro that explicitly rejected rational expectations and choice, for instance the behavioural stuff that feed into auto-enrolment systems. I completely agree with you that the fundamental problem of macro is that, about 40 years ago, we developed a hypothesis that we had to have micro foundations of macro theory. The micro foundations on which we built it were the most absurd you could ever imagine. I think it reasonable to say that some of micro since then has moved away from those incredibly simplistic foundations, and macro has stuck in a rational expectations world that a lot of the best micro now rejects.
He added, âThe concept of pluralism becomes key. It is not pluralism because I like difference or I am a nice guy. I am pluralistic because your hypothesis, which I happen to disagree with, passes the tests that we have right now.âI do not think that the project is wrong. We do need some sort of micro foundation [âŠ] What we come back to is the problem that economics has always insisted on neoclassical micro foundations.
The afternoon sessions moved on to case studies, first historical and then present-day, with the aim of describing shifts in economic thinking over the twentieth century, and how these had exerted power over policy as well as over âcommon senseâ or the received wisdom of the period.
Robert Skidelsky argued that the success of Keynesianism in producing full employment over the early part of the twentieth century had induced a form of amnesia that allowed the âills of the marketâ to be forgotten and classical economics to be rehabilitated. An intellectual shift happened over the 1970s and 1980s, including the rise in Schumpeterian ideas and Austrian theory. Second, Keynesianism failed to resolve the RicardoâMarx problem of wages, and Keynesian governments in the 1970s resorted to inflation as a âvent for social conflictâ. Third, there was a political shift against trade unions, and fourth, the structure of the economy shifted towards the financial sector and service sector. Finally, globalisation has undermined workersâ economic power. The consequence is that the social contract of the welfare state has been replaced by access to credit, which was and continues to be inherently unstable.
Roger Backhouse took up the discussion, in the context of the USA, in particular in the 1930s. He argued that although there were close connections, the experiences of Britain and the USA were not the same. Instead of the stagnation in Britain after World War I, the frontier and individualism were important factors for the USA, and there was a massive boom preceding the collapse, so it was possible to think of the Depression as a business cycle gone wrongâthat it was a failure of competition due to monopoly and oligopoly. He went on to illustrate this through the activities of the Temporary National Economic Committee (TNEC), which was established in 1938 to study monopoly power. Two of the witnesses called were Keynesian economists Hansen and Currie, who shifted the discussion of the Committee from monopoly power to financial flows. The association of Keynesianism with the TNEC report lead to hostility to Keynesianism because it was associated with a critique or attack on economic power.
The following discussion broadly covered...