By Tony Ditta
For our third annual “Economics and Beyond” panel, we were joined by Samuel Bowles, Research Professor at the Santa Fe Institute and emeritus professor at the University of Massachusetts, and Amy Kapczynski, Professor of Law at Yale Law School, Faculty Co-Director of the Law and Political Economy Project, cofounder of the Law and Political Economy blog, and Faculty Co-Director of the Global Health Justice Partnership. The panel was moderated by Reimagining the Economy Co-Director Dani Rodrik.
The title of this year’s event was “Has Contemporary Economics Failed Us?” and the answer from both panelists was a resounding “yes.” Bowles argued that an oversimplified set of assumptions led the field of economics to focus on a narrow set of topics at the expense of broader issues that have become central to contemporary economic life in America and around the world — especially emphasizing a narrow conception of efficiency while downplaying the importance of inequality. Kapczynski explained how this paradigm made its way into the teaching and practice of law, with far-reaching effects on the structure of the economy.
Although both panelists believe economics has failed in major ways, they agreed that it has value and that it can be improved to better serve all people.
How did we get here?
Bowles says that economics is in a crisis. Much of the field is unable (or unwilling) to address the most pressing economic issues of our time.
In his , Bowles surveyed over 4,000 college students in 12 countries, asking them “what is the most pressing problem economists should be addressing?” Their answers are summarized in the image above — the larger the word, the more often it was mentioned.
The obvious standout is “inequality.” Inequality is a significant issue, and students want to learn about it, but Bowles argues that it doesn’t play a large enough role in education and communication by economists.
This gap and others in the mainstream economic paradigm are a result of overly simple assumptions which have been allowed to dominate economic thinking. Assumptions about rationality, the amount of information people have when making decisions, and the types of interactions people have (market vs. political and social) limit the ability of economics to take on big issues like inequality. Most notably, the emphasis on efficiency and objective metrics of distribution like Pareto optimality, makes economics ill-equipped to answer moral questions, but these questions are extremely important.
The effect on law
Economics’ emphasis on efficiency has made its way into American law. As a professor of law, Kapczynski has seen this rudimentary economic approach permeate education as well as the creation, application, and interpretation of laws. Efficiency appears to be neutral and objective, so people believe it makes a good metric for a fair justice system. But the truth is, any metric for efficiency reflects people’s values. Elevating economic efficiency over equity is a moral stance.
The other simplifying assumptions from economics have worked their way into law as well. Assumptions about competition have made the law lax about antitrust and discrimination and hostile to unions. In Kapczynski ’s field of intellectual property, she has seen a trend toward permissiveness of monopoly power. These choices, too, reflect values and morals above and beyond any objective effect on efficiency.
Kapczynski acknowledges that a well-functioning society will be at least somewhat efficient, and simple models of economic behavior are valuable tools for understanding and making predictions about the world. However, when these things become the default choice and rule out more nuanced considerations and explicit moral arguments, society is hurt more than it is helped.
Doing better
Bowles likens the current crisis in economics to the one in the wake of the Great Depression. At that point, the looming question was how to create macroeconomic stability. The problem then, as now, was not that no one had thought about the issue; the problem was that this thinking hadn’t become widespread — it wasn’t being taught in classrooms or reaching the public. A lot of excellent work in economics does address inequality and the violations of basic assumptions like complete information; it just needs to reach more people. So, Bowles suggests that we go back to basics and change the “common sense” views in economics. Like Paul Samuelson in the 1940s, we need to rewrite our textbooks to reflect the best ideas which tackle the big issues (something which Bowles has done with ).
Kapczynski agrees that we need to go back to basics — that we need to emphasize the “political” in “political economy” and shift our objectives from efficiency to effectiveness. This means engaging in difficult debates. Without the “objective” metric of efficiency, we face tough questions about which values the economy should serve, like how much inequality we should tolerate. But if we don’t actively engage with these questions, they will be answered by the market, and that can fail to deliver an equitable society.
