Friday, February 10, 2012

Economists: Actively Evil Neoliberal Ideologues or Soulless Technocratic Hacks?

... or in other words, does economics (as it's currently constituted) inherently promote a vision of markets for everything and no rights but property rights? (A vision that, obviously, conforms nicely to the interests of the owners of capital.) Or is the role of economics in upholding neoliberalism mainly the work of apolitical technicians, administrators and scientists manques, who could just as comfortably supply arguments for more regulation and a larger public sector if that's what those in power were asking for?

Well, like nature vs. nurture, or whether to get the sweet brunch or the savory, it's a debate that will never be fully resolved. (Go with savory, unless you're, like, 12 years old.) But new evidence does sometimes come in.

Like those those polls of economists that the University of Chicago business school does; has everybody seen those? For those of us who've been debating this question, these things are a gold mine.

The latest question, on rent control, has Peter Dorman rightly exercised. As he points out, the question -- whether rent regulations have had "a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them" -- omits the genuine goal of rent regulation, neighborhood stabilization:
The most compelling argument for rent control is neighborhood stabilization, the idea that social capital in an urban environment requires stable residence patterns.  If prices are volatile, and this leads to a lot of residential turnover, the result can be a less desirable neighborhood for everyone.  ... not a single textbook treatment of rent control mentions stabilization as an objective, even though this is a standard element in the real-world rhetoric surrounding this issue. 
I would just add that a diversity of income levels in a neighborhood is also a goal of rent regulation, as is recognizing the legitimate interest of long-time tenants in staying in their homes. (Not all rights are property rights!) So by framing the question purely in terms of the housing supply, the Booth people have already disconnected it from actual policy debates in a way favorable to orthodoxy. Anyway, no surprise, orthodoxy wins, with only a single respondent favoring rent regulation. (And I think that one might be a typo.) My favorite answer is the person who said, " Rent control will have similar effects to any price control." That's the beauty of economics, isn't it? -- all markets are exactly the same.

Some of the other ones are even better. Check out the one on education, which asks if all money currently being spent on K-12 education should be given out as vouchers instead. (Why not cash?) By a margin of 36 to 19 (or 41 to 23 when the answers are weighted by confidence) the economists vote, Hells yeah, let's abolish the public school system. Presumably they're mostly reasoning along the same lines as Michael Greenstone of MIT: " Competition is likely beneficial on average. Less clear that all students would benefit leading to tough questions about social welfare functions" -- which doesn't stop him from signing up in favor of vouchers. The presumed benefits of competition are dispositive, while distributional questions, while "tough" in principle, can evidently be ignored in practice. On the other hand, props to Nancy Stokely of the U of C (strongly agree, confidence 9 out of 10) for spelling it right out: "It's the only way to break the unions." (Yes, that's what she wrote.) So, hardly definitive, but definitely some ammo for Team Ideologue.

People sometimes say that academic economists just reflect the views of the country at large, or even the more-liberal-than-median views of other academics or educated professionals. And on some issues, that's certainly true. (Booth also gets a solid majority in favor of drug law reform.) But come on. Replacing the public school system with vouchers is a far-right, fringe position in almost any significant demographic -- except, it would seem, professional economists.

Back to rent control. Jodi Beggs enthusiastically endorses the consensus, but her conscience then compels her to add:
Techhhhhnically speaking [1], if none of the housing in an area was deemed “affordable” before the price ceiling, then the price ceiling could, I suppose, increase the quantity of affordable housing. (In fact, Pinelopi Goldberg specifically points this out.) [True. Goldberg's answers in general are a beacon of sanity.] In most realistic cases, however, the rent control laws are going to make builders think twice about putting up residential properties and make potential landlords think twice about getting into the rental business. 
It's awfully hard not to read the drawn out adverb as a parapraxis, indicating resistance to the heretical thought that, in fact, economic theory gives no answer to the question of whether rent control laws increase or decrease the supply of affordable housing. More concretely, Begg's "realistic cases" are a figment of her imagination, or rather her ideology; in all actual cases rent control laws, at least in major American cities (there are only a couple) only apply to units built before a certain date. In New York City, for instance, rent regulations DO NOT APPLY to anything built since 1974. Hard to believe that builders are thinking twice about putting up new buildings because of rent stabilization, when it hasn't applied to new buildings in nearly 40 years. But hey, why should you have to actually know something about the policy you're discussing, to walk through the old familiar supply and demand graphs showing why Price Controls Are Bad?

"Nothing dulls the mind," says Feyerabend, "as thoroughly as a sequence of familiar notions."

(I can't resist putting down the quote in full:
Writing... [is] almost like composing a work of art. There is some overall pattern, very vague at first, but sufficiently well defined to provide ... a starting point. Then come the details -- arranging the words in sentences and paragraphs. I choose my words very carefully -- they must sound right, must have the right rhythm, and their meaning must be slightly off-center; nothing dulls the mind as thoroughly as a sequence of familiar notions. Then comes the story. It should be interesting and comprehensible, and it should have some unusual twists. I avoid "systematic" analyses. The elements hang together beautifully, but the argument itself is from outer space, as it were, unless it is connected with the lives and interests of individuals or special groups. Of course, it is already so connected, otherwise it would not be understood, but the connection is concealed, which means that, strictly speaking, a "systematic" analysis is a fraud. So why not avoid the fraud by using stories right away?)


  1. Been down so long it looks like up to me

    Asking "whether rent regulations have had 'a positive impact over the past three decades'" has something in common with asking: So how are things since you've been dying of cancer?

    Thirty years is time enough for people to grow up and to become economists without ever having experienced a good economy. You have to have lived in the 1950s and 1960s to have experienced a good economy.

    ALL of these studies of things "since 1980" or things "since the 1970s" -- throw them away.

  2. Economists set themselves too easy a task if all they can say is 'I wouldn't start from here if I were you'.

  3. Do rent regulations in New York apply to buildings maintained since 1974?

    1. I'm not sure if I'm doing this right. I'm aware of some new feature on Blogger where you can comment on comments, but I can't seem to find the place to comment on the original post. Anyway...

      I dunno, the idea that residential turnover is bad sounds to me like an excuse for the centuries-old bigotries against "nomadic" or "itinerant" peoples and preference for "settled" peoples. And not much farther down the same slippery slope is the idea that homeowners are more desirable residents for a community than tenants, and the subsidy of homeownership for its own sake that some say caused the housing bubble. Also, there must be armloads of people who want to be low-turnover residents somewhere, but due to the casualization of work, are denied the opportunity to be low-turnover (i.e. permanent, full-time) employees. Perhaps instead of neighborhood stabilization we need workforce stabilization, which is to say, the opposite of workforce "flexibility."

      Distributional questions can be ignored in practice because they are simply proxies for allocational questions, right? :-)

      "Replacing the public school system with vouchers is a far-right, fringe position in almost any significant demographic -- except, it would seem, professional economists."

      Don't know the cite, but Thom Hartmann on his radio show keeps referring to some study (I think by the RAND Corporation) which found that while game theory failed to predict the behavior of humans in general, it rather successfully predicted the behavior of two categories of humans, namely criminals and economists.

      Anyway, I only know economics from introductory textbooks, but those introductory textbooks read to me more like math books (derivation of "proofs" from "axioms") than science books (development of "models" from empirical data). Whence does one get empirical data from which to plot a "demand curve?" By conducting a phone survey of consumers and ask them randomized questions in the form "how many boxes of baking soda would you buy if the price of each is $2.3415098?" No, really, how? Oh, and then there's polemics masquerading as textbooks.

    2. dunno, the idea that residential turnover is bad sounds to me like an excuse for the centuries-old bigotries against "nomadic" or "itinerant" peoples and preference for "settled" peoples.

      This is an interesting point. It would certainly be progress if we were debating rent control on these grounds rather than spurious proofs that departures from market prices are always bad. That said, I don't agree: it's true that invocations of "community" have often been a cover for bigotry, but it's also true that communities are real and important and worth preserving, or so I think. That said, I think you're on much stronger ground criticizing building restrictions that are justified as preserving the "character" of a neighborhood, etc. But the whole subject is complicated and probably deserves its own followup post. (problem is, this is true of basically everything.)

      Perhaps instead of neighborhood stabilization we need workforce stabilization, which is to say, the opposite of workforce "flexibility."

      Why not both? Note that rent-stabilization still preserves a lot more flexibility than our actual housing-affordability policy in the past 50 years, subsidized homeownership.

      Distributional questions can be ignored in practice because they are simply proxies for allocational questions, right?

      You've cracked the code!

      Whence does one get empirical data from which to plot a "demand curve?"

      Actually, this is one bit of conventional economics that I think is ok -- lots ot hings *do* have downward sloping demand curves. (Just not labor.) Upward-sloping supply curves are much more problematic -- outside of primary production, it's much ore realistic to think of modern capitalist economies as featuring constant marginal products.

      Re the commenting machinery, your guess is as good as mine. The whole system just changed recently, with threading and force-justify (ugh) added without my doing anything.

  4. Come on. Chicago is the bastion of freshwater econ, know for being right wing and in some cases almost Austrian. Of course their survey is biased. Don't paint all us economists as the same people thinking the same way. Maybe others don't like rent controls for market reasons, but because maintenance tends to slip and housing quality falls, which isn't good for neighborhood stabilization either. And every reasonable economist believes not in government just for property rights, but to fix market failures like public goods. Education is definitely in need of state control. So are a myriad of other areas. This is offensive generalization to an extreme.

    1. Oh, sure, I know the whole economics profession is not like Chicago. Lots of my friends are economists. Come to think of it, I'm an economist myself, or I will be if I ever get this dissertation finished.

      But here's the thing: If you're offended by markets-in-everything-yay! being presented as the professional consensus, your complaint is with the U of C, not with me. Because they say explicitly that's what they're presenting, a survey of what economists at top institutions all agree on. (Or it's with people like Beggs, who not only says Rent Control Bad, but thinks that claim is on a level with the earth going round the sun -- that's literally what she titles her post.) So if there are people in top departments who don't agree that we should eliminate rent regulation and privatize the schools, that rising inequality is all about returns to skill, etc., or even who just think this stuff is more complicated than intro micro, they really need to speak up and make it clear that this survey does not represent them.

      I do agree, though, that if you were to take a broader sample of economists you'd find more diverse views. It's an interesting question why the peak institutions of economics are so much more orthodox than economists at large. But whatever the reason, it's a fact about the world, not something I just made up.

      Oh, and just one favor -- could you use a handle of some kind? A pseudonym is fine, but there are enough comments here that multiple Anons gets confusing

    2. Sure, I don't mind using my name. I'm the anonymous above.

      Glad you realize that its not that way everywhere, and yeah, the real beef definitely is with Chicago. I think the reason they're so orthodox is multi level. One, Chicago gets to pick who works there, and the idea that there is a "Chicago School" of thought in economics brings prestige, whether people agree with their views or not. Diluting that coherent school of thought takes that away. Not to mention the fact that the ones choosing new profs are the old profs who interview them, and while people like to be intellectually challenged, its another thing to constantly bickering over basic ideas like the role of government with a colleague you share a wall with.

  5. Jodi Beggs? The only funny thing with her is her photo collection with various animals and unanimated objects studying Mankiws principles.

    1. Yeah, it's kind of silly/unfair to include her here -- she's not much closer to the peak institutions of the economics profession than I am, I don't think. I don't even read her blog, and only saw this post because Peter Dorman linked to it.

      In my defense, she really did frame her post around the idea that saying that rent control is always and everywhere bad is like saying that the Earth goes around the sun, which is as nice an example as you could ask for of ideological thinking -- treating a contested political claim as if it were a brute fact about physical reality.

  6. The article you cite contains the following sentence: "The second hole is that rent control ordinances are normally replete with measures intended to maintain supply incentives," such as, for example, exempting new construction from rent control rules.

    That is an extremely salient point, and it's worth pointing out that all of those measures are specifically NOT rent control. The textbook model of rent-control-as-price-floor makes predictions about an implementation of rent-control-as-price-floor. That model is so unassailably correct that no city in its right mind would implement rent control this way. In real life we get "soft" rent control, which predictably has weaker effects on the housing market, though the effects certainly run in the same direction. For proof look no further than Boston, which eliminated rent control in 2003 and experienced the predictable effect of rising rents at the low end and substantially increased residential construction at the drop of a hat.

    1. And by 2003 I mean 1993. Brain fart.

  7. Odd that when talking about the evil of economists you forgot to include Joan Robinson's praise of the culture revolution and Maoism or her praise of North Korea.

    Oh wait, you probably consider her one of the "good guys."

    1. indeed I do. Joan Robinson is one of my intellectual heroes!

      However, I freely admit that 50 years ago, the range of opinion in the economics profession was quite different from the range today, as represented in the Booth surveys. So if you're saying that if there were people like Joan Robinson at top departments then this post would be nonsense, then, you are right.

    2. I should add, I think the question of Joan Robinson's views on China is complicated, but I personally find some genuinely admirable aspects of the Cultural Revolution, tho of course one should't romanticize it. As it happens, I just recently read Alain Badiou's The Communist Hypothesis, which includes a long discussion of the Cultural Revolution, and it's surprising how many affinities you can see with the Occupy movement. I'm not familiar with Robinson's writings on North Korea, but I would say that while today the regime is, of course, indefensible, I'm not sure that was so obvious in the 1960s.

    3. @ Josh,

      You write, “I personally find some genuinely admirable aspects of the Cultural Revolution, tho of course one shouldn’t romanticize it.”

      Really? Which aspects?

      I haven’t read Badiou’s book, but I have reviewed some histories of the Cultural Revolution. I found nothing admirable in it, just a parade of sickening atrocities: millions of innocent people tortured and killed; millions more hauled off to labor camps; old women beaten bloody by braying teenaged thugs.

      It came after Maoist maximalism had been tarnished by the Great Leap Forward and the attendant famine that killed many millions. So it took a time-honored page from the communist play-book: distract from economic catastrophe—and outmaneuver moderate factions—by ginning up a super-pogrom against imaginary class enemies.

      True, there was an anarchic air to the proceedings, what with Mao, that jolly lord of misrule, spewing his liberationist prattle and exhorting the Red Guards to club and humiliate their elders. Is that all it takes for Marxist academics to discern a progressive tendency?

      To find anything admirable in this episode is to romanticize it beyond all recognition.

      --“I’m not familiar with Robinson’s writings on North Korea, but I would say that while today the regime is, of course, indefensible, I’m not sure that was so obvious in the 1960s.”

      Lots of people, lots of liberals, thought this was perfectly obvious in the 1960s. It took a pretty thick pair of rose-colored ideological glasses not to see it.

      But there’s always Pol Pot—at least he made the trains run on time, right?

    4. You know, I knew I was going to regret writing that comment.

      I will explain the bit about the Cultural revolution when I get home this evening, tho I don't think my answer will satisfy you.

      Re Pol Pot, tho, here's the thing: The actual defenders of Pol Pot, not just rhetorically but materially, weren't on the Left, they were people like Kissinger.

    5. @ Josh:

      “The actual defenders of Pol Pot, not just rhetorically but materially, weren’t on the Left, they were people like Kissinger.”

      On the left, Noam Chomsky and Edward Hermann defended Pol Pot in The Political Economy of Human Rights, Vol. II. Kissinger bombed Pol Pot. The point is, nobody should defend Pol Pot, rhetorically or materially, whether from ideological or geopolitical opportunism. And nobody should defend Maoism or Kim Il Sungism, either.

      “You know, I knew I was going to regret writing that comment.”

      As well you should have. But you should also regret just thinking it, because it shows how badly your common sense and moral faculties can be corrupted by Marxist romanticism.

  8. "Competition is likely beneficial on average."

    When I read that line, I could almost feel my fight-or-flight reflexes gearing up. I understand that it's practically an economic adage or piece of common sense, but it always bugs me to see people saying it in response to one condition or another without adequately explaining how exactly (it does not feel very much like science to me when it is just repetition without referring back to data). It almost always makes me want to quote back with a a favourite line of mine from Keynes.

    "In the long run, everybody is dead."

    The average does not always manage to represent everything. As an industrial-organization sort of fellow, I disagree with any opinion how all markets are exactly the same. I'm curious, though, does anyone actually tried to explain precisely how rent control is unadviseable? Or at the very least, do they manage to illustrate how close to perfect competition, and how free from externalities the housing market that other factors need not be considered at this point but price above all? How did they decide what factors are important external considerations in the housing market and what are negligible?

    Sorry if the questions seems piled rather high and not specific enough, but I know next-to-nothing about the housing market in the US and curious minds want to know.

  9. does anyone actually tried to explain precisely how rent control is unadviseable?

    Not to my knowledge. This debate, as far as I can tell, is about where the minimum wage was pre-Card and Krueger.

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