> ----------
FYI
> From: stu[SMTP:[EMAIL PROTECTED]]
>
> DOWN AMONG THE ECONOMISTS
> by Jonathon Rowe
> Of the organized belief systems in America today, economics is surely
> among
> the strangest - and economists themselves are even stranger. How such
> agile
> and ambitious minds could drift so far out of touch with daily reality, is
> a
> question which merits the attentions of our most astute psychologists. The
>
> profession is like a cult of the highly IQd, and I've always wondered
> about
> the strange rites and rituals that could enable their beliefs to persist.
> So last winter, when I heard that the American Economic Association was
> holding its annual meeting around the corner from my office, I felt a
> little
> like an anthropologist who finds an encampment of aborigines in his back
> yard. Would anyone raise questions about basic premises, as opposed to the
>
> arcane mathematics of hypothetical markets and pecuniary gain? Would they
> talk about the actual experience of ordinary Americans, or only
> abstractions
> like "productivity" and "growth?" I never imagined they'd be talking about
>
> me. Several months before, the Atlantic Monthly had published an article
> by
> myself and two colleagues, Cliff Cobb and Ted Halstead, called "If the
> economy is up, why is America down?" The article explored the paradox that
>
> had befuddled the nation's policy establishment during the 1992
> Congressional campaigns. The economy was doing well, by the conventional
> reckonings - the GDP was up: people were supposed to be happy and
> fulfilled.
> But they weren't.
> In fact they were feeling pretty crummy. Alan Greenspan, America's
> economic
> pontiff, expressed the high-level headscratching in a speech to a business
>
> audience in San Francisco. Despite the economy's robust performance
> (again,
> as economists define it) he said, "there seemingly inexplicably remains an
>
> extraordinarily deep-rooted foreboding about the [economic] outlook" among
>
> the populace.
> What was really "inexplicable," we argued in the Atlantic article, was
> that
> Greenspan and other economists can't see the obvious. Their reckonings are
>
> archaic; and their very language tends to barricade their minds against
> what
> is actually happening in the world. Prime evidence is how they measure
> economic well-being: the gross domestic product or GDP. As have countless
> others before us, we pointed out that the GDP is a Mad Hatter's accounting
>
> system which adds but never subtracts. It lumps together just about
> everything that happens in the economy (the monetized portion, at least)
> under the archaic assumption that people become happier and better off
> whenever money changes hands. If you have been maimed in a multicar wreck,
>
> or gone through a grueling and costly divorce, or installed water filters
> in
> your home because the water supply is so bad, then please take a bow. You
> have caused economists to smile, and made your contribution to the GDP.
> These people can't tell misery from well-being, only more from less. And
> on
> top of that, we observed, economists can't even see the informal economies
>
> of family and community at all, because no money changes hands. The
> kitchen
> table becomes McDonald's, the watchful eyes of neighbors become burglar
> alarms and police - the more the informal economy breaks down, and a
> monetized "service sector" takes its place, the more the GDP goes up.
> Meanwhile, society is literally falling apart.
> We suggested that the American economy is approaching a turning point, if
> it hasn't gotten there already. Increasingly the negative, or "illth,"
> side
> of GDP seems to be outweighing the wealth. The fastest growing portions of
>
> the US economy today include such things as crime and prisons, gambling,
> disease, and entertainment. Is it any wonder, then, that "growth" doesn't
> always leave people feeling that life is getting better? Yet economists
> don't even have a language by which they can acknowledge - let alone
> measure
> - this fact, which is obvious to just about everyone else.
> There are economists who realize that the conventional belief system is
> crumbling. Several purchased bulk copies of the Atlantic article for their
>
> classes; one told us it prompted more class discussion than anything else
> on
> the reading list. But all were not pleased, especially at the upper levels
>
> of the profession, where stature and acclaim are bound up in the
> orthodoxies
> we had questioned. Or so I gathered at the AEA session I dropped in on
> that
> Saturday morning.
> The session was called "Covering the Economy," and featured a panel of
> reporters and the economists they often quote.
> It got off to a promising start. Louis Uchitelle of the New York Times
> said
> that journalists should endeavor to find out how people are actually
> faring
> in the economy, as opposed to what economists are saying. More, he
> wondered
> why reporters regularly quote Wall Street analysts without mentioning the
> financial interests of the firms they work for. Brokerage houses spin the
> economic news the way Newt Gingrich or the White House spin today's
> Washington doings. Yet reporters treat them with a hushed and reverential
> awe.
> Good question, I thought. I tried to imagine a story on energy in the
> business section of the Washington Post: one of those ubiquitous Wall
> Street
> "analysts" would be identified as, "affiliated with a brokerage house that
>
> recently shorted utility stocks." That would rattle a few cages, I thought
> -
> as well as tell us readers the truth for a change. I started to think this
>
> session could get interesting, but not for long. A couple of other
> journalists spoke, less pointedly than Uchitelle. Then it was Paul
> Krugman's
> turn.
> Krugman is an economist at Stanford University who is generally touted as
> one of the new stars of the field. Newsweek cast him recently in an
> adoring
> profile as a "great debunker" and "Nobel-bound." (The Nobel in economics
> isn't really a Nobel; it was created by the Central Bank of Sweden to
> sound
> like one.) Krugman is known as one who does not always suffer others
> gladly.
> But with his restless mind and iconoclastic bent, I thought he'd be among
> the first to want to turn the orthodoxies inside out. Instead, totally out
>
> of the blue, he launched into a bilious tirade against the Atlantic piece,
>
> the magazine itself and journalists generally.
> The strangest part was the reason Krugman gave for regarding us as
> "incompetents." He didn't address the major assumptions we challenged; for
>
> example, that more monetary transactions and more stuff sold automatically
>
> mean that people are better off, regardless what that stuff consists of
> and
> its effects on peoples lives. He didn't try to explain why economists
> assume
> that more driving, say, counts as economic advance but more walking does
> not; that sales of white noise machines counts, but the serenity provided
> by
> parks and open spaces does not.
> Instead, he took issue with a point of methodology, in our rough-cut
> alternative to the GDP: the way we had computed increasing inequity in the
>
> distribution of income. Geez, I thought, is this the way the profession
> works? Get into such a lather over one another's methodology that you
> forget
> how to ask the basic questions? We never pretended that our draft
> alternative to the GDP - the Genuine Progress Indicator or GPI - was
> perfect. To the contrary, we said it was a first stab at trying to correct
>
> the egregious deficiencies of the GDP. Weren't those worth at least
> talking
> about?
> Economists may preach the rigors of competition and open markets for the
> rest of us. But they run their own profession more like a medieval guild.
> They determine which articles get published in the prestigious journals.
> They pass judgement on PhD and tenure candidates, and therefore decide who
>
> gets to teach. It's a stitch listening to these people denounce
> "protectionism," from the protected enclaves of their subsidized
> think-tanks
> and tenured chairs, in a profession that makes the Japanese retail market
> seem an exemplar of free trade by comparison.
> Same thing with change. Economists may rhapsodize about its bracing winds
> and creative destructions. But their own conceptual apparatus is stuck
> deeper in the mud than a state-owned factory in the former Soviet Union.
> Few
> fields that call themselves sciences have changed as little in their basic
>
> premises. Krugman chastised the media for accepting our analysis
> uncritically, the New York Times in particular. But that wasn't true. A
> prominent Times business page columnist had raised a large eyebrow
> regarding
> our GPI, quoting a Harvard economist. The piece that riled Krugman was by
> Robert Hersey, an economics reporter, who went to Baltimore to see how the
>
> assumptions underlying the GDP actually play out in peoples' lives. He
> found
> people doing important work that isn't counted in the GDP because it's
> unpaid; and others doing less important work in the monetized economy, who
>
> do get counted in the reckoning of progress and growth.
> Wouldn't it be something, I thought, if economists did that once in a
> while; that is, tested their assumptions by looking at the lives of
> ordinary
> people? Instead of just dumping on reporters.
> A bit later, Lawrence Summers weighed in on Krugman's side. Summers is a
> Harvard professor and an undersecretary at the US Treasury Department, and
>
> he gave the conventional wisdom case a revealing twist. The situation in
> economics today is much like that in medicine, he said. There are real
> doctors, and then there are "quacks," and the media should do more to
> distinguish the one from the other. The Atlantic had become a particular
> fount of quackery, he said (though this might have been Krugman).
> This crack was aimed not just at our piece, but also at previous ones by
> James Fallows. Fallows, who has a degree in economics from Oxford, spent
> several years in Southeast Asia studying the economies there. He came to
> the
> conclusion that to chastise Japan and other Asian nations for violating
> the
> principles of "free trade," misses the point entirely. People there simply
>
> don't recognize the belief system called "free trade" - or the dogmas that
>
> underlie it - as moral or scientific principle, he said.
> Fallows went further. What American writers glibly refer to as
> "economics,"
> he observed, is really just Anglo-American economics. Elsewhere in the
> world
> people do not regard Adam Smith and his intellectual successors as the
> fountain of economic truth. They are disposed to ask, "What will work for
> our nation?" rather than, "What did some dead British economist say?"
> Fallows was doing to conventional economics what anthropologists and
> sociologists did to Freudian psychiatry decades ago; he was showing that
> it
> is a product of a particular time and culture, rather than universal and
> irrefutable truth. This did not please the economics establishment; and
> Fallows took a pounding.
> But back to Summers. The medical profession was an odd choice for
> comparison, I thought. The conventional medical paradigm of high-tech
> "intervention" isn't exactly without critics these days - including
> increasing numbers of MDs themselves. It is becoming a mounting financial
> burden with no end in sight. Is that the best model for economics? Or is
> it
> really the social status of doctors that economists find appealing?
> Then it struck me: the road to this particular poorhouse is paved with
> "GDP." Coronary bypass surgeries add significantly to the GDP, compared to
>
> the simple diets and healthful living that help prevent them. Prozac adds
> to
> the GDP, while eliminating the sources of depression in our lives might
> not.
> It's understandable that economists would like a system like that; it is
> the
> mirror image of their own assumptions.
> By the same token, some of the most promising advances in healing have
> been
> outside the conventional paradigm - and not coincidentally, also outside
> the
> GDP. The evidence is growing for example, that nonphysical factors weigh
> heavily in what people experience as bodily health - and especially
> relationships with other people. Study after study has shown that people
> who
> care about others, have good marriages, get involved in their communities
> and the like, tend to live longer and experience less disease.
> Dean Ornish, a prominent heart specialist at UCLA, instructs his patients
> to do acts of kindness for one another. To restore a healthy heart, in
> other
> words, they should strive to live in a good-hearted way. "Anything that
> promotes a sense of isolation leads to chronic stress and often, to
> illnesses like heart disease," Ornish has written. "Conversely, anything
> that leads to real intimacy and feelings of connection can be healing in
> the
> real sense of the word: to bring together, to make whole."
> Consider that in relation to the conventional economic model. The
> good-heartedness and sense of community that are crucial to health, barely
>
> exist in mainstream economic thought. The basic molecule of that thinking
> is
> homo economicus, the isolated little integer of self-seeking, who strives
> to
> get as much as possible and give as little in return. What is called
> "market
> economics" is really just the study of transactions between such
> hypothetical integers - that is, between selfish strangers - for money. It
>
> is the study of the kind of behavior which, if people like Ornish are
> right,
> tends towards disease.
> As Margaret Thatcher put it famously, expressing the fundamentalist market
>
> view, society "does not exist." She really meant should not exist, because
>
> people who don't relate as strangers, concerned only for their own
> personal
> gain, impede efficiency and economic advance, as conventionally reckoned.
> When Summers compared economics to medicine, I thought he was revealing a
> lot more than he intended. The conventional economic model turns a
> description of a hypothetical state of affairs into a prescription for an
> actual one. It encourages a society in which people deal with one another
> increasingly in this very way. The social cohesion of Main Street gives
> way
> to the isolated consumerism of the Mall. The sense of connection between
> locally owned firms and their communities gives way to the abstracted
> calculations of global corporations. Shared civic spaces turn into the
> solipsistic enclosures of television. Loneliness becomes epidemic in an
> era
> that provides more means of supposed "communication" than any in history.
> And loneliness makes people buy. Most people don't go to malls to buy
> particular items; they go because it's a way of "alleviating loneliness,"
> "dispelling boredom," and "relieving depression," according to a survey of
>
> studies in the Wall Street Journal. Economics becomes the means of
> creating
> the hunger that cannot be filled; and economists, the ideological
> apologists
> for this process.
> Could it be that in industrial societies, human distress is increasingly a
>
> form of iatrogenic disease - the doctors in this case being economists?
> Could it be that the growth engine that pulls nations out of poverty, can
> start to turn on itself and create new problems? Has the whole enterprise
> of
> economics become a rigid calculus for solving yesterday's problems in a
> way
> that helps create tomorrow's?
> New problems, such as those of affluence, require a new calculus and
> higher
> goals. Just maybe, I thought, economists are going to do some changing,
> along with the rest of us. As the need for more stuff becomes less urgent
> and the need for qualities such as stability and social cohesion become
> greater, economists are going to have to outgrow their obsession with
> pecuniary accretion - just as the factory workers they preach to will need
>
> to learn new skills.
> Edward Luttwak of the Center for Strategic and International Studies, a
> conservative think-tank, broached this point recently in a panel
> discussion
> in Harper's. "When a country is as rich in GNP and as poor in social
> tranquillity as the United States," Luttwak said, "it makes no sense to
> purchase more GNP through deregulation and increased efficiency, at the
> expense of tranquillity. It's like a man with 24 ties and no shoes buying
> himself another tie."
> I sat there in the audience trying to formulate a reply along these lines.
>
> But it was a large ballroom, with no mikes on the floor. It would have
> been
> difficult to get a single point across, let alone a whole argument. So I
> approached Krugman afterwards - taking a certain delight, I'll admit, in
> introducing myself as one of the "incompetents" he had spoken of. (He
> didn't
> know I was there.) "Well, I'm sorry," he said, in a way that made me
> wonder.
> "But it's true." I tried to engage him in discussion, but he hurried off.
> "I'm sorry, but I have to go to an interview," he said.
> Jonathan Rowe is policy director of Redefining Progress in San Francisco
> and a contributing editor of the Washington Monthly.
> ==================================================================
>
