by Ben Schreckinger
My alma mater, Brown University, was founded in 1764 for the purpose of training clergymen. Today, it trains economists. A lot changed in the interim. A lot didn't. Enlightenment thinking penetrated mainstream consciousness, the industrial revolution rapidly raised standards of living to remarkable levels, and a new world order emerged from the ashes of two world wars. But Brown's output, like those of the American Ivy League's other universities — which have emerged from sectarian pasts to produce economists at similarly high rates and whose graduates control institutions like the U.S. presidency, the U.S. Supreme Court, the World Bank, and the UN — represents a continuity. Today's economists constitute the West's priestly class. Yes, they're in most ways better equipped to guide our lives than the authorities of Catholicism and its Protestant successors. They aspire to the scientific method, for one. But their discipline comes with form, function, and flaws inherited from its medieval ancestor — and recognizable to students of any dogmatic religion. We need look no further than the recent dust-up over an Excel error in a paper by two Harvard economists, which discredited the most influential piece of intellectual output of the last five years, to see that. Once we do, we can start to put the discipline in its proper place.
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But first, how did we get here? For most of history, religion has provided answers not just to metaphysical questions, but to ethical ones. What's the best structure for society? Should money be lent at a profit? How comfortable should we be with change? How should people decide what to do with their lives? How big should my family be? Should we accept newcomers into our midst? And what is the value of a human life? (Approximately $10 million in economics, which does not observe the same taboos as other religions). The answers provided by religion are ones most people can grasp, and when the questions got too difficult, or too pointed, religion appeals to some authority to cut the questioning off before things get out of hand. Despite what might seem like some pretty glaring flaws — Really, we're ruled by a giant invisible bull-man? A guy was dead for three days and then he wasn't? — religion has endured by proving valuable.
At a social level, we need religion to smooth coordination, to make sure we're all on the same page. Life is filled with uncertainty, but uncertainty can cause societies to break down into strife, or indecision, or fear. Religion fills in the gaps in our certainty, so that we can ignore them for a while and push onward. For much of the formation of the Western world, Catholicism played that role. Then people began to reject the structure of the church and ushered in new sects of the same religion. Christianity itself eventually took a backseat altogether and the West tried nationalism, a religion that goes awfully well with a nation-based system of politics. But two world wars provided the reductiones ad absurdum of nationalism's dogmas. The priestly class, those initiated into special knowledge and given special power at the universities, had to decide where to place its faith after God and country. A chunk of them became atheists — specifically existenialist, deconstructuralist, postmodernists — who identified and rejected the dogmas of nationalism and imperialism (and then all the other –isms they could get their hands on) so strongly that they no longer believed in anything, including science.
The rest of the priestly class outside of the heterodox USSR soon coalesced around secular humanism. It found its catechism in 1948 with the Universal Declaration of Human Rights, which makes sacred the individual and his freedom (their pronoun). But humanism soon gave way to its business-minded cousin, economics. The transition was helped along by the fall of Soviet Union, its demise attributed to its failure to produce and allocate enough blue jeans. The business of business had raised much of humanity out of utter poverty in the figurative blink of an eye. In a world in which communication and transportation technology made global integration both possible and rewarding, we needed aglobal system of values and authoritative institutions. When there's so much to be gained from commerce, a religion that holds it high is the most convenient. Economics also has the advantage of rhetorically smoothing over all the old divisions — sectarian, ethnic, national, sexual, even class — that have traditionally prevented cooperation. Do you see the light yet, as Milton Friedman once did?
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Primordial religions began when humans looked in awe at a great gift — life, existence — and took to believing the person around the fire with the best explanation: The sun and the Earth usually got a lot of credit (And as explainers of human life, they aren't halfway bad). Economics is the system we have used to explain another great gift, what heretical economist Deirdre McCloskey calls “the Great Fact,” the astounding increase in material prosperity since 1700 and the corresponding decrease in disease, hunger, and poverty. Economics provides a useful framework for explaining the unfolding of this great fact (though McCloskey argues that the discipline fails to explain its Genesis).
And the Good News, as the Evangelists tell us, is that life can keep on getting better and better: We need only put aside our differences, organize our interactions with each other according to the dictates of the market, work productively, and permit free trade, free capital flows, and free movement of labor. These dictates have achieved great success in diminishing war, poverty and disease — though not alienation, loneliness, or malaise.
Economics, by assigning numbers to values, is also really good at comparing things that are otherwise hard to compare (guns, butter, and haircuts, for example). This makes it a great tool for organizing decision-making on a grand scale. And it provides a way of viewing the world that is deeply compatible with commerce, which has become the dominant force in global affairs over the past two centuries.
All of the best prophets of economics understand and observe its limitations. Most professional economists make modest claims in their research, ones that are reasonable and backed by evidence. But the answers the discipline gives us rest on dogmatic foundations that go unexamined by most economists, let alone lay people: that most things can successfully be given number values that make them interchangeable, that the complexities of large-scale human interactions can be successfully measured, and that notions like utility, happiness, and fulfillment can be meaningfully understood in clinical terms. The profession as a whole has failed to articulate the limits of its insights and their claims on human welfare.
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April's Reinhart-Rogoff controversy reminds us of that. In 2010, Harvard economists Carmen Reinhart and Kenneth Rogoff published a paper, “Growth in a Time of Debt,” that purported to show that a country's GDP growth suffered noticeably when its public debt reached or exceeded 90 percent of the value of its GDP. In the United States, conservative politicians making the case for austerity have cited it extensively — claiming that negative economic consequences reach a tipping point at the 90 percent debt-GDP threshold. The paper has been even more influential in the UK and Europe, where central bankers have actually enacted austerity measures that today are being blamed for widespread stagnation and unemployment. It was probably the single most influential piece of intellectual output of the past several years.
But then, someone also versed in the language and quantitative techniques of economics went to the trouble of checking their paper. Actually, he tried to replicate their results as part of a technical exercise and was unable to do so. So the Harvard economists sent Thomas Herndon, a graduate student at the public University of Massachusetts, their Excel spreadsheet. The first thing he found was a simple coding error that led the paper to make incorrect conclusions. The final rebuke of Reinhart-Rogoff, co-authored by Herndon, also faulted the original paper for omitting data from countries whose economic histories contradicted its thesis. In June, the International Monetary Fund, where Rogoff once served as chief economist, issued a rare mea culpa. The IMF said that it had failed to anticipate the devastating consequences of its insistence on drastic austerity measures in its bailout of Greece.
Here we have economists providing a deeply flawed analysis that purports to provide authoritative truth and whose methods of interpretation are not readily accessible to the general public. Harvard's imprimatur legitimized the paper's analysis in the eyes of Europe's most important decision-makers (It's worth noting that Harvard, the world's most foremost university, also trained clergy at its founding and now churns out more economists than anything else). After all, the school's motto is, in the language of Christendom, “Truth.” In the United States, the paper was cited not only by conservative politicians, but by many of the arbiters of truth relied on by the country's sober, decision-making class, including the editorial board of The Washington Post. The economists themselves used the paper's reception to publicly push policies beyond those strictly supported by the study itself. And politicians, many of whom are not intellectually equipped to contend with the paper itself, exaggerated its findings to justify policies to which they were already inclined. Never mind that the paper never purported to prove that debt caused stagnation, and that there are many good reasons to believe that the causation runs in the opposite direction — that slow growth causes higher debt.
Notably, the paper legitimized a policy outcome whose effects tilted favorably toward society's most enfranchised and against its least enfranchised (Of course, many would argue that in the long run everyone is worse off with austerity, but that's part of a larger economic debate laden with value assumptions of its own). Austerity amounts to a reduction in government spending, which the poor depend on disproportionately. Austerity is enacted out of fear that stimulus would cause inflation, a phenomenon that hurts lenders, i.e. the rich.
Fortunately, economics' priestly caste is large and disputatious, with plenty of young Luthers ready to voice their dissent. And so the paper has been largely discredited, its authors humbled, and the policies it justified critically reexamined — all in a matter of three years. This highlights the many advantages of economics over, say, Catholicism for ascertaining truth and distributing power.
But the episode brings into relief an uncanny resemblance to the really-quite-bad religious system for answering ethical and social questions employed within European Christendom (and one recognizable in countless societies throughout human history). To take but one prominent example, look at the divine right of kings. It was a public policy justified by a flawed interpretation of flawed data that remained in force for centuries. For answering the question, “How should a European nation state be governed, and for whose benefit?” the Bible is a pretty irrelevant, and totally incoherent, text. It contains plenty of ethical pronouncements and descriptions of some ancient societies, but few reasonable people would choose it as a blueprint for theirs. It prescribes ethical rules that may have made sense to ancient Israelites or 1st Centruy AD Roman subjects, but whose universal applications are dubious: Eating shellfish, or wearing a garment of mixed material, seem unproblematic today. It's also a hopelessly contradictory text, comprising books authored by dozens of hands over millennia and canonized in a politicized process over the course of another millennium and a half. Jesus tells us to love the poor, but how do we satisfy the bloodthirsty God of the Old Testament without sending off armies of the poor to die in battle?
Despite its many drawbacks, the Bible had become the ultimate touchstone of truth for European decision-makers by the time James I articulated it as a theory of his sacrosanct legitimacy. Its justification was based in passages of scripture like Jesus' pronouncement “Render unto Caesar the things which are Caesar's” in the synoptic gospels. Jesus was signaling his support for the emperor's right to levy taxes, an olive branch from the gospel's author to the Roman state. It sent a specific message: Don't persecute us. Our upstart cult is not trying to overthrow the government. The priestly classes of later centuries, notably Thomas Aquinas, interpreted such passages as justification for making kings subject to no other earthly checks other than the pope. Eventually, that interpretation was massaged to get ride of the pope, and subject the monarch only to God directly. Only a small class was equipped to evaluate and challenge this theological sleight of hand, and they were invested in the political status quo. And within that small class, very few, if any, were equipped to evaluate the broader theological framework in which the sleight of hand took place. Today, it is the language of economics in which a small class of decision-makers make big decisions.
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We did not need Reinhart-Rogoff to divine the religious nature of economics. People had already been doing just that for some time. In 1980, in a lecture at Harvard titled “The Economist as Preacher,” Nobel Laureate and Manhattan Project alumnus George Stigler could still say of preaching that economists “have done very little of it.” Stigler's definition of preaching: “a clear and reasoned recommendation (or more often, denunciation) of a policy or form of behavior by men or societies of men.”
But that same year, the elder George Bush gave us the rhetorical gift of “Voodoo economics.” The term referred derogatively to Ronald Reagan's economic plan. Reagan's adviser Art Laffer proposed that at certain levels of taxation, lowering tax rates would actually increase government revenue. This becomes true as tax rates approach 100 percent. But Laffer further claimed that this was true at then-current levels of taxation, providing the justification for tax cuts (a move that again benefitted the rich). This was little more than magical thinking and blind faith, but Laffer and Reagan produced some official-looking curves to prove it.
Economists may protest that their discipline observes a distinction between positive — or merely descriptive — economics, and normative economics. But by the mid-'80s, notes Robert H. Nelson, a survey of economics graduate students at Harvard and MIT found that overwhelming majorities of them considered the distinction a farce. And by 1991, Nelson had written a book entitled, Reaching for Heaven on Earth: The Theological Meaning of Economics.
In 1997, another academic, David L. Roy, wrote, “The discipline of economics is less a science than the theology of this new religion, and its God, the market, has become a vicious circle of ever increasing production and consumption by pretending to offer a secular salvation.”
Preeminent American theologian Harvey Cox, as cited by Nelson, wrote in 1999 that:
The lexicon of The Wall Street Journal and the business sections of Time and Newsweek turned out to bear a striking resemblance to Genesis, the Epistle to the Romans, and Saint Augustine's City of God. Behind descriptions of market reforms, monetary policy, and the convolutions of the Dow, I gradually made out the pieces of a grand narrative about the inner meaning of human history, why things had gone wrong, and how to put them right. Theologians call these myths of origin, legends of the fall, and doctrines of sin and redemption. But here they were again, and in only thin disguise.
We nicknamed Warren Buffet, at times the world's richest man, the “wizard” and the “oracle” of Omaha. A New York Times article from the booming 1990s refers to America's central banker, Alan Greenspan, by the same epithets. It is the central bankers after all, who are tasked by the state with reading the tealeaves, the reams of data that purport to represent the state of reality, and know where things are headed before anyone else. They have fared neither better nor worse than the Pythia.
In 2002, Nelson wrote the more bluntly titled Economics as Religion. In it, he traces the basic presuppositions about the nature of humanity and the world staked out by different schools of economic thought back to their antecedents in Christian theology and ultimately ancient philosophy. He contends that in large part the same sects are continuing the same ancient arguments with a new vocabulary.
In a foreword to Nelson's book, Princeton theologian Max L. Stackhouse admirably summarizes the reasons for economics' theological trappings: that “there are only a few basic alternative approaches to the ultimate questions, that the approach chosen has great consequences for every effort to seek a remedy to what ails humanity, and that every basic theory when it is adopted on faith among the people takes on unforeseen forms with unforeseen consequences.”
Nelson came to this view as an economist for the U.S. Department of the Interior in the 1970s. There, Nelson found that rather than providing answers to economic questions, he and his colleagues were championing economics' implicit set of values against those of other ethical systems. Deep inside the opaque decision-making apparatus of a modern state, he served on the front lines of a holy war to settle the question “Exactly how will we make decisions on behalf of society?” Most political arguments today are expected to boil down to how best to achieve “growth,” a concept that couldn't possibly contain all the hopes and goals of a society without ballooning into meaninglessness. To anyone listening to contemporary public policy and political discourse, it's clear that the language and values of economics have won the day.
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In the aftermath of the 2007-2008, and in light of the world's continuing economic difficulties, the insights of Nelson, Roy, and Cox penetrate all the more deeply. To count economics as a religion does not render it useless, but it does create a cognitive dissonance with the discipline's claims to scientific objectivity.
That old nickname for central banker Alan Greenspan, “The Wizard of Oz of Finance,” has proven oddly prescient. The crash pulled back the curtain on that high priest of the '90s to reveal something less than expected
In 2010, the apocalyptic heretics at the alternative finance blog Zerohedge ran a post titled, “Is Economics A Science Or Religious Dogma? There's A Hearing For That,” about a congressional hearing convened to “examine the promise and limits of modern macroeconomic theory in light of the current economic crisis.” The anonymous but influential hedge fund traders at Zerohedge didn't need the hearing to answer that one: “Congress has to decide on whether or not economics is actually a science. And as the answer is and has always been no, perhaps they could have held this hearing a century ago when the country still had a chance to avoid bankruptcy, ruin and social catastrophe, all facilitated by the false religion of Keynesianism.” Strong words.
Today, we even have our own Keynesian Cassandra, Paul Krugman, whose weekly pleas for more stimulus fall from the pages of The New York Times on deaf ears.
To their credit, economists themselves, who tend to be rational and self-critical, had identified many of the limits of the old approaches well before Lehman Brothers collapsed. In 2002, Daniel Kahneman won the Nobel Prize for decades of pioneering work in behavioral economics, which integrates psychological insights into the field and upends the traditional model of economic agents as rational maximizers of utility. Other economists far and wide have been pushing the limits of the discipline to integrate the insights of other fields. Philosophers, too, have been taking a hard look at the implicit ethical values and metaphysical claims of the discipline. Such work improves economics, but also diminishes the power of the old dogma. It dilutes the discipline's claim to offer uniquely powerful insight into social and ethical questions. Why, for example, should economics subsume psychology, rather than vice versa?
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To history, the feuds between Keynesians and Austrians and Friedmanites and Samuelsonians, bickering back and forth about how to foster growth, may look a lot like the old disputes over how to achieve salvation that consumed the Lutherans, and Calvinists and Anabaptists. To the present, they increasingly do.
There is a middle ground between the nihilism of postmodernism — which uses all of the old epistemic paradoxes to excuse belief in nothing, especially economic arguments in politics — and the credulousness of the current economic mindset, in which utils flow like mana and give purpose to our lives. In that middle ground, other ways of looking at the world would adopt the most useful insights of economics, and economics will tread more self-consciously. It would continue to provide invaluable decision-making help, but at the service of a more nuanced ethical framework.
In the same way, the Archishop of Canterbury will anoint the next monarch of England, but neither will regain their sway over the everyday lives of Englishmen and Englishwomen. In the meantime, tell your kids to major in bioengineering. It's our only hope for salvation.
Ben Schreckinger is a writer and journalist, based at large. He can be reached at [email protected] Follow him on Twitter at @SchreckReports.