Economics After Neoliberalism: Introducing the Efip Project †
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AEA Papers and Proceedings 2020, 110: 366–371 https://doi.org/10.1257/pandp.20201000 ECONOMICS FOR INCLUSIVE PROSPERITY (EFIP) Economics after Neoliberalism: Introducing the EfIP Project † By Suresh Naidu, Dani Rodrik, and Gabriel Zucman* We live in an age of astonishing inequality, have organized a group of economists—the together with volatile and oligarchic politics. Economics for Inclusive Prosperity EfIP net- We also confront seemingly intractable ineffi- work—to make policy recommendations( across) ciencies in key sectors like education, finance, a wide range of topics, including labor markets, health, and media, and a spectacular ongoing public finance, international trade, and finance.1 climate crisis. The purpose of this nascent collective effort is We believe that these are all solvable prob- not simply to offer a list of prescriptions for dif- lems—or at least that we can make serious head- ferent domains of policy but to provide an over- way on them. Economists have an indispensable all vision for economic policy that stands as a role to play. Indeed they have already started to genuine alternative to the market fundamental- play it. ism that is often—and wrongly—identified with economics. I. The Role s of Economists We personally saw the power of this iden- ( ) tification in early 2018, when the three of us While the sociology of the profession—career attended a workshop on “new thinking beyond incentives, norms, socialization patterns—often neoliberalism.” The participants—historians, militates against engagement with the policy political scientists, sociologists, legal scholars, world, especially by younger academic econo- and economists—agreed that the prevailing mists, a sense of public responsibility is bring- neoliberal policy framework had failed society, ing people into the fray. resulting in monumental and growing inequal- The tools of economics are critical to devel- ity. All of us were worried by the illiberal, nativ- oping a policy framework for what we call ist turn in our politics, fueled in part by these “inclusive prosperity.” While prosperity is the chasms. There was consensus around the need traditional concern of economists, the “inclu- for a genuine alternative—a set of policies that sive” modifier demands both that we consider were both effective and inclusive, responding the whole distribution of outcomes, not simply to legitimate grievances without sowing deeper the average, and that we consider human pros- societal divisions. perity broadly, including nonpecuniary sources Although we fully embraced these aims, we of well-being, from health to climate change to found ourselves on the defensive. For in the political rights. To improve the quality of pub- eyes of many, the turn toward neoliberalism is lic discussion around inclusive prosperity, we closely associated with economic ideas. Leading economists such as Friedrich Hayek and Milton Friedman were among the founders of the Mont * Naidu: Columbia University email: sn2430@ ( Pelerin Society, the influential group of intellec- columbia.edu ; Rodrik: Harvard Kennedy School email: tuals whose advocacy of markets and hostility to [email protected]) . Zucman: UC-Berkeley (email: [email protected] . )This is a revised and updated( ver- government intervention proved highly effective sion of our introduction to) EfIP policy briefs, published orig- in reshaping the policy landscape after 1980. inally in the Boston Review. We thank Joshua Cohen, the other founding EfIP members, and participants in the Boston Review forum for comments. 1 A list of these policy briefs and the current members of † Go to https://doi.org/10.1257/pandp.20201000 to visit EfIP are available at https://econfip.org. We encourageall the article page for additional materials and author disclo- economists to submit policy briefs drawing on economic sure statement s . research. ( ) 366 VOL. 110 ECONOMICS AFTER NEOLIBERALISM: INTRODUCING THE EFIP PROJECT 367 Deregulation, financialization, dismantling of other economists all are available at https:// the welfare state, deinstitutionalization of labor econfip.org/ . ( markets, reduction in corporate and progressive In the face) of the broad loss of legitimacy taxation, and the pursuit of hyperglobalization— neoliberalism has cost economics, we must the culprits behind rising inequalities—all seem first address the issue of how to persuade to be rooted in conventional economic doctrines. noneconomists that economics is part of the The discipline’s focus on markets and incen- solution. To be sure, many economists’ habits, tives, methodological individualism, and math- especially when it comes to how they engage in ematical formalism all seem to stand in the way public debates, are to blame for the misunder- of meaningful, larger-scale economic and social standing of what economics is and what econ- reform. In short, neoliberalism appears to be just omists do. another name for economics. Among many things, economists study Consequently many people view the disci- markets. When markets look like they do in pline of economics with outright hostility. They textbook economics, they do a good job of believe the teaching and practice of economics aggregating information and allocating scarce has to be fundamentally reformed for the disci- resources. The principle of comparative advan- pline to become a constructive force. There are, tage, which lies behind the case for free trade, indeed, legitimate reasons for discontent with the is one of the profession’s crown jewels—both way economics is too often practiced and taught. because it explains important aspects of the Conservative foundations and think tanks have international economy and because it is, on its often monopolized the banner of economics in face, so counterintuitive. Similarly, economists policy circles, pushing the view that there is a believe in the power of incentives: we have evi- steep efficiency–equality trade-off and assigning dence that people respond to incentives, and we priority to economic growth. Students often leave have seen too many well-meaning programs fail their introductory economics courses thinking because they did not pay adequate attention to that “markets always work.” Conservatives tend the creative ways in which people behave to to deploy “economics” as a justification for pre- realize their own goals. ferred policies, while liberals are seen as insensi- Yet too many economists believe their quan- tive to the requirements for prosperity. titative tools and theoretical lenses are the only Our response is fundamentally different. ones that count as “scientific,” leading them to Many of the dominant policy ideas of the last dismiss disciplines that rely more on qualitative few decades are supported neither by sound eco- analysis and verbal theorizing. Many econo- nomics nor by good evidence. Neoliberalism— mists feel they need to take the side of markets or market fundamentalism, market fetishism, because no one else will and because doing oth- etc.—is not the consistent application of modern erwise might “provide ammunition to barbar- economics but its primitive, simplistic perver- ians” i.e., self-interested pressure groups and sion. And contemporary economics is rife with rent seekers( . And even when some economists new ideas for creating a more inclusive society. recognize market) failures, they worry govern- But it is up to us economists to convince our audi- ment action will make things worse and sweep ence about the merits of these claims, which is many of the discipline’s caveats under the rug. why we have embarked on this project. We hope Economists thus get labeled as cheerleaders for the policy briefs written by EfIP members, some free markets and hyperglobalization. of which we outline here, stimulate and acceler- Economists also often get overly enamored ate academic economists’ sustained engagement with models that focus on a narrow set of issues with creative ideas for inclusive prosperity.2 We and identify first-best solutions in the circum- have since had additional contributions from scribed domain at the expense of potential complications and adverse implications else- where. A growth economist, for example, will 2 There are many think tanks that rely on economists’ analyze policies that enhance technology and ideas and engage them in thinking about policy issues. innovation without worrying about labor mar- However, we are not aware of any academic network of economists focused on turning research and scholarship to ket consequences. A trade economist will rec- policy use in the broad domain that we have called “inclu- ommend free trade and assume that devising sive prosperity.” compensatory mechanisms for people who lose 368 AEA PAPERS AND PROCEEDINGS MAY 2020 their jobs is somebody else’s responsibility. And market failures. For example, to address global a finance economist will design regulations to warming, economists are likely to support put- make banks safe without considering how these ting a steep price on carbon. But the science of may interact with macroeconomic cycles. Many economics has never produced predetermined policy failures—the excesses of deregulation, policy conclusions. In fact, all predictions and hyperglobalization, tax cuts, fiscal austerity— conclusions in economics are contingent. The reflect such first-best reasoning. To be useful answer to almost any question in economics is in discussions of real policies, economists have “it depends,” followed by an exegesis on what to evaluate those