Will Davies on the Economics, Economists, and the Limits of Neoliberalism
Mar 7 2016

Limits%20of%20Neoliberalism.jpg Will Davies of Goldsmith's, University of London and author of The Limits of Neoliberalism talks with EconTalk host Russ Roberts about the ideas in his book. Davies argues that the free-market vision of economists like Milton Friedman and Friedrich Hayek has de-romanticized politics and ensconced competition at the heart of our economy and culture. Davies argues for the value of a completely different perspective and pushes for a reduction in the influence and status of economists as policymakers and influencers. Along the way he gives his perspective on the role of economists in the financial crisis and in antitrust policy.

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Explore audio transcript, further reading that will help you delve deeper into this week’s episode, and vigorous conversations in the form of our comments section below.


Mar 7 2016 at 4:27pm

Wow. I don’t want to say anything bad about the guest. Thank you for exposing me to an articulate person that has a worldview largely antithetical to my own. It’s truly fascinating to hear such a different perspective that’s not just emotional or superficial. Having said that, I can’t seem to be persuaded into accepting that the state is even mostly benevolent. Dr. Davies talks about the romanticization of markets while he romanticizes the state, and historical conditions. At root I suspect the intuition that coercion is not only necessary but desirable is misguided. Good intentions are never enough to justify coercion. Many of the worst governments in history were convinced they were doing good and that the ends justified the means. Every authoritarian appeals to the “greater good” to justify actions we would reject if done by the local mafia, presumably because we don’t vote for the mafia. If we did, then all the sudden the same activities become acceptable, or even noble.

I wish Dr. Davies would talk more about the moral agents most responsible for the huge demand for a “safety net.” There are sad cases for sure, but there’s also a completely ridiculous number of people having children they can’t take care of, not saving for their own retirement, etc. People who make good choices end up subsidizing people who don’t. Not just voluntarily through family and community and charity, but by force from big central governments. What we need is not more government, it’s more personal responsibility, more voluntary arrangements within families, communities, etc. Better local and private solutions have been crowded out by big central governments that do a terrible job. We’re not doing the world any favors by subsidizing irresponsible, immoral actions — we should seek to reduce irresponsibility, seek to reduce immoral choices.

Merely treating the symptoms via big centralized state coercion is far from ideal. Wouldn’t it be better to treat the disease? Wouldn’t it be better to pursue smaller more local more voluntary solutions? For some the big centralized state is their hammer and so seemingly everything looks like a nail that needs to be hit repeatedly and violently by the state. People are neither nails to be hit, nor pawns on a chessboard to be manipulated by omnipotent masters. Central planning doesn’t work, cf. USSR. Central planning of a subset of the economy and a subset of charity doesn’t work either. We imagine the status quo is better than the alternative without seriously considering what the alternatives might be. We consider them only enough to create a strawman that we can easily defeat. And so we forever have do-gooders who genuinely want to make the world better routinely advocating policies that increase the use of coercion. Maybe just a little more coercion will turn the world into Utopia? Maybe reducing the agency of individuals just a little more and transferring decision-making to the state will turn the world into a Utopia? It’s a trick. You can’t legislate or redistribute or force your way to Utopia. The more freedom we all have to make our own choices and the more personal responsibility we bear, the faster we’ll be able to make the world better for everyone.

As the legend goes, when the French government asked businessmen how it could be of service they businessmen say “Laissez-nous faire” (leave us alone). What we need is not more government, it’s less government!

Mark Crankshaw
Mar 7 2016 at 5:06pm

I think that I would sum up the views of Will Davies the same way as an Amazon.com commentator summarized his booked entitled ‘The Happiness Industry: How the Government and Big Business Sold Us Well-Being’:

The Happiness Industry can be read as a polemic from a disgruntled member of the British Left

I, for one, am naturally skeptical and wary of the assessment of ‘society’ that comes from anyone within the academic Left since they have such a large financial, and usually ideological, stake in ‘government’ and the benefits that ‘government’ provides them. That’s, of course, how their ‘bread’ is ‘buttered’.

The call from the Left for a reduction in the ethos of competition, is to my eye, made only to provide a economic and social competitive advantage to those on the Left who are already positioned to suckle sufficiently from the teet of the State. It is laden with competitive intent.

This call to circumvent competition is designed to entice fellow social and economic competitors to voluntarily ‘disarm’ themselves or to provide the political environment that will enable this unwanted competition to be legislated away. Of course Leftist academics naturally recoil from economic and social competition. They simply want to be coddled, privileged, and advantaged without having to work much, or work hard, or, if they really were to actually come clean, to even work at all. They fashion themselves the new Aristocracy, entitled to a high standard of living without the fuss and bother of the competition of those not already in the academic cloister.

I have lived both in the US and the UK and it is precisely living in the UK that allowed me to realized how fatuous and vacuous the concept of nationalism truly is. The concept of ‘government’ that Davies, like Leftists invariably do, refers to is a nationalist concept. By ‘government’ or ‘The State’ they specifically have in mind the Nation State where ‘community’ is based on national identity.

When I lived in the UK, I was acutely aware that I wasn’t British. The British ‘State’ wasn’t mine. Terms such as ‘community’, ‘society’, or ‘government’, in the context of the UK, did not refer to anything that included me in any way whatever. While I couldn’t vote, I did find interest in British Politics (and found Labour completely unattractive, the Tories inarticulate and off-putting and the Lib Dems completely barmy). However, my view of politics was completely fatalistic. Whatever mess the British voters made of their country wasn’t my concern or of my doing. It was actually a very liberating feeling.

When I returned to the US, I became aware that I no longer felt any connection to America or Americans. The US state was no longer ‘mine’, this place wasn’t ‘home’. Terms such as ‘community’, ‘society’, or ‘government’, now in the American context, did not refer to anything that included me in any way whatever. While I could vote, I became detached from US Politics (and found Democrats completely insane and dangerous, the Republicans dangerous and insane). However, my view of politics became as fatalistic as it was when I lived in the UK. Whatever mess the US voters made of ‘their’ country was no longer of my doing.

Once you get such an epiphany about ‘the State’ and your lack of relationship with it, all the talk of the ‘alternatives’ hinted at by Davies (like his American ideological brethren) fall by the wayside. They are completely dependent on nationalist collectivist ideology. They assert that one is ‘responsible’ to your fellow compatriots, it is a nationalized obligation. I disagree. Take the nationalist out of nationalist collectivist ideology and you are left with complete political impotency. The Left can achieve very little internationally or outside of the national government.

This entire Leftist argument is made, from my view, as a cold, calculated maneuver to protect the political and social interests of the affluent Left.

Attacks on ‘neoliberalism’, ‘Thatcherism’ (the American code-word being ‘Reaganism’), or ‘individualism’ are highly ideological. Fair enough–everyone is entitled to an ideological position. However, why I should dispatch with an ideological position that, I believe, favors me and my interests in favor of an ideological position that absolutely doesn’t? Will Davies, like most Leftists, has a lot to say about how his ideological preferences will benefit people like him and absolutely nothing to say about those, like me, that have actually benefited greatly from competition and ideas such as libertarianism and individualism that will be disadvantaged by Welfare State collectivism or, perhaps you could call it, ‘neo-socialism’.

I would actually like more competition not less, specifically where ‘governments’ lessen the obstacles for talent and ability to compete across national boundaries.

Stuart MacLean
Mar 7 2016 at 8:35pm

Having studied libertarian economics I too see the need for regulations and institutions to preside over property rights etc. but the regulations should apply equally to government. Article I, Section 8 of the U.S. Constitution was designed to hold government to the same ‘currency’ as ‘we the people’. Their policies were to meet the same tests of economics. When in 1884, the Supreme Court decided the last ‘legal tender’ case, (Julliard vs Greenman), in favor of government, the lone dissenting judge, Stephen Field’ predicted “only evil is likely to follow”…Why pay interest on the millions of dollars of bonds now due when congress can in one day make the money to pay the principal? And why should there be any restraint upon unlimited appropriations by the government for all imaginary schemes of public improvement, if the printing-press can furnish the money that is needed for them?”

The result is two economies; ‘government’s’ and ‘we the peoples’. If government can ‘print’ their power how do ‘we’ compete? Government becomes the economy, government becomes the ‘market’. Lobbying becomes the modus operandi.

We can not apply ‘economics’ to a system that adheres to alchemy.

Mar 7 2016 at 8:54pm


I agree with your opinion generally, particularly in regards to the need for individual responsibility. In regards to your skepticism about the need or value of coercion in society, I would suggest that coercion and redistribution is a necessary cost of democracy and could be seen as ‘desirable’ if you believe, as say Stiglitz seems to, that riot and social disorder increases as a function of inequality.

If you accept some sort of social disorder function along those lines exists then presumably there would be some optimal level of redistribution in terms of social stability. From that perspective it is open to suggest that a non-coercive redistribution model may be sub-optimal in terms of societal outcomes.

Mar 7 2016 at 11:49pm


Society necessitates coercion if there are any laws. Redistribution is tricky because it’s impossible to measure how much the government really benefits you vs how much you pay in.

If you want to live in a country that minimizes coercion, then it will quickly go to the dump economically and possibly ended by other countries with bigger guns. Just one example: if only responsible parents who could afford to pay for *everything* in their kids upbringing, including education, would have them, and they got no tax credit or any support from the big bad government, then fertility rates would plummet by 90%. Imagine the long term prospects for such a country.

Mar 8 2016 at 1:44am


I’m not opposed to redistribution when done voluntarily. If the government disappeared tomorrow it wouldn’t take us long to figure out we needed to chip in a few bucks to pay for the fire department. We already give almost $300 billion in private charity every year, and that’s at the same time we’re paying up to around 50% in taxes. We don’t need coercion to help the deserving poor. If you were to claim we needed coercive redistribution to preserve social order I would say we need better protection services. I’m unwilling to accept extortion.


I want to minimize coercion. I think we should all have this as our goal. In terms of fertility rate 1. you’re exaggerating how much it would impact the fertility rate, 2. people who wanted to have children would just continue living with their parents or other family, as has been the case for most of history. There would be less small families living on their own, true, but so what — there’s no moral justification for me to fund them getting their own apartment (etc). 3. If the birth rate declined dramatically: good. Nothing our government does should depend on a ponzi scheme where the next generation must be bigger than the current generation. The fact that a declining population would be seen as a terrible thing just tells you how messed up the government is. The labor force participation rate is already pathetic and having more kids just means expanding the dependent class and even worse labor force participation. If we’re afraid the wheels are going to come off the bus if the least capable among us aren’t subsidized into having children, surely that can only support my case: we need a heck of a lot less coercion. All this central planning distorts the economy, requires social engineering, transfers wealth from the future to the present via debt, funds unending warfare, etc.

The government was half the current size 15 years ago. Were we living in a Mad Max dystopia? No, it was fine. The government was half that size 15 years earlier. Was the sky falling back then? No it was fine then too. The size and scope of government has expanded enormously, and we absolutely don’t need it — we would be better without it. We would be much better off moving back in the direction of decentralized power. Smaller and less powerful federal government. Smaller and less powerful states.

Mar 8 2016 at 2:41am


I find your statement about a 90% drop in fertility rate somewhat surprising, or as it is otherwise known, flat out wrong. In the US 120 years ago, government funding for schools was very low. Yet 90% or all children went to school and could read or write.

I am not going to argue that the US of 1890 was an ideal society. It quite clearly wasn’t if you were black or native american, for instance. But suggesting that less government meddling would lead to catastrophic drops in fertility rates is quite counterfactual.

Mark Crankshaw
Mar 8 2016 at 10:05am

@ Tom

I would suggest that coercion and redistribution is a necessary cost of democracy and could be seen as ‘desirable’ if you believe, as say Stiglitz seems to, that riot and social disorder increases as a function of inequality.

I don’t believe the facts fit Stieglitz’s argument at all. Social disorder, as measured by riots and anti-social behavior, was at relatively very low levels prior to the advent of large scale wealth redistribution in both the US and UK in the mid-1960’s. After that period, starting precisely in the mid-1960’s, as government directed wealth redistribution escalated (and Leftwing anti-social propaganda intensified), so did public disorder and anti-social behavior in economically disadvantaged communities. Detroit, the Bronx, and Glasgow illustrate this effect quite aptly.

This trend towards increasing public disorder combined with increasing levels of anti-social behavior has abated only after redistribution was curtailed and the anti-social propaganda of the Left was significantly pushed back against in the political arena (through political movements such as ‘Reaganism’ and ‘Thatcherism’).

Consequently, it doesn’t seem at all apparent that the cost of wealth redistribution is ‘necessary’ let alone ‘desirable’. Perhaps tuning down the violent ‘social justice’ rhetoric of the Left was all that was ‘necessary’ and ‘desirable’. Perhaps economically disadvantaged communities would be served with real economic opportunities (through the expansion of the private sector at the expense of the public sector) rather than a shabby self-serving hand-out…


if only responsible parents who could afford to pay for *everything* in their kids upbringing, including education, would have them, and they got no tax credit or any support from the big bad government, then fertility rates would plummet by 90%.

The irony here is that fertility rates have plunged dramatically in the very parts of Europe where the Social Welfare State has been extended to its greatest extent. The European model suggests that high levels of taxation to pay for “everything” actually discourages people from actually having children. Combine that trend with a hampered, restrained free-market and a bloated inefficient public sector (a la Italy or Greece) and the reduction is to about half of replacement level. Imagine the long term prospects for such a country…

Mar 8 2016 at 10:37am


I said that fertility rates would drop if only people who could responsibly educate their kids would have them. Currently that’s at least 12-15 years starting from age 6, and a few years before. Back in the 1890-s it was 4 years. And don’t you think that the 10% rate of illiteracy that you seem to be fine with is really high ? Can you imagine a thriving modern economy with that low level of education ?


Minimal coercion is zero coercion, which is anarchy.

Where do you get that doubling of the government’s size ? It’s consistently around 35% of the GDP.

Joshua Woods
Mar 8 2016 at 12:07pm

I don’t find the argument that economists should apologise for advocating market-based solutions because they too benefit from the adoption of such policies remotely convincing.

If scientists discovered a pill which extended lifespan, improved productivity and prevented needless human suffering would they be attacked as self serving for publicising their discovery because they too would benefit? Should they be shy about advocating its adoption?

But this is precisely what the economic mode of thinking offers us!

Yes, economists are better off along with the rest of humanity when people calmly reflect on the virtues of free exchange versus forced governmental dictates. That was surely always implicit in the claim and doesn’t really warrant major soul searching in my opinion.

Cowboy Prof
Mar 8 2016 at 12:28pm

The says (from above transcript): “I mean, Milton Friedman, his famous 1953 methodology essay, “The Methodology of Positive Economics,” he argued that the truth value of economics was nothing to do with its description of how things are; it was purely to do with the predictions of what will happen.”

This is a misreading of Friedman here. Milton argued that the value of a theory lies not in the realism of its assumptions, but rather in the empirical validation of its theoretical predictions (i.e., explanatory power).

This confusion is indicative of Davies arguments throughout here, largely cursory. Another instance that drove me bonkers was the casual assertion that competition leads to more depression. Fortunately Russ jumped in to note a number of the alternative explanations, including pharmaceutical subsidies and incentives for over-diagnosis. I would further add (in a casual way I guess), that the draining of competition from schools (cf. participation trophies) and rote memorization aimed at standardized tests has led to increased malaise amongst our youths.

Steve Verdon
Mar 8 2016 at 1:18pm

I have to say, I found much of the guests views to be caricatures of what whom he was lumping into this neoliberal group. For example, his comment about democracy being a market much like going to the grocery store was laughable. Even a casual study of voting theory would lead the reader to the conclusion that there are many, many more problems with voting/democracy than with the market place. Just to trot out one of the best known examples is Arrow’s Impossibility Theorem which shows that voting in multi-dimensional space (which is just a fancy way of saying voting over many issues at once–i.e. tax policy, fiscal policy, foreign policy, etc.) does not not and will likely not lead to an optimal outcome even if you have do satisfy similar restrictive assumptions to get similar results for the market (e.g. the first and second fundamental welfare theorems). Then there are other theorems like the Gibbard–Satterthwaite theorem which basically tells us that tactical voting is a thing, and is particularly interesting when applied to things like Congressional committees.

I know people might be tempted to criticize such mathematical approaches, but I’ll just use that Taleb quote, “We favor the visible, the embedded, the personal, the narrated, and the tangible; we scorn the abstract.”

Now he did have a few good points.

1. That economists, like those they study, are self-interested and need to be aware of this and the possibility that biases are creeping into what ever work they do. Personally, I think the best approach is to state one’s views up front (like a Bayesian statistician) so that there is no hidden information.

2. That trying to impose competition where it does not currently exists may not lead to the expected results. After listening to these podcasts, the notion of institutions and traditions and the roles they play in just about everything is quite important. We know what makes a good market, but as Russ put it, “It is a cake to which we do not know the order of the recipe.” We know the rule of law is important, private property is important, contracts and trust. But which comes first and how much.

AS for his statements about the financial crisis…he should have steered clear of that topic, IMO. I have gone back and listened to many of the podcasts on the financial crisis (many more than once) and…well, his comments struck me as considerably wide of the mark.

Mar 8 2016 at 8:19pm

Davies’ complaints are just another variation on a theme we’ve heard from critics of capitalism for 200 years. They look around and see trouble, suffering, and ugliness, and blame capitalism. At least Marx had the excuse that the statistical data wasn’t available to show he was living in the biggest boom for the standard of living of the bottom 99% in history. For time immemorial life was mostly “solitary poor, nasty, brutish and short”, to borrow Hobbes. Now it is a bit less so, but no thanks to arrogant, delusional collectivist schemes from the French revolution to the regulatory state.

David McGrogan
Mar 9 2016 at 6:55am

I can’t help but feel that the people commenting here haven’t given Davies a fair crack of the whip. He barely discusses capitalism. He’s attempting to analyse neoliberalism as he defines it, and I think his critique is spot on. It is, in my view, absolutely correct to describe the neoliberal project as being an effort to denude the public space of ‘politics’. He also managed to articulate something which I have felt for a long time but never been quite able to put into words: a free market needs norms and institutions to function effectively – but those things are dependent on, influenced by, and created by politics broadly understood, not just market forces or simple evolution. (I found the recent Matt Ridley episode quite trite and blithe about this issue.) Those of us who are broadly in favour of free markets and prefer less State intervention need to address those issues and think about them carefully.

I thought it was a nice change of gears for Econtalk to have on a first rate sociologist (who can be forgiven for not being an expert on economics), as a contrast to what I sometimes perceive as rather unconvincing or commonsense analyses of society performed by economists.

Mar 9 2016 at 8:36am

I had a few random thoughts about the podcast:

The idea that public choice has no critique of lobbying seemed wrong. I think the critique is borderline trivial – when you funnel 35% of the entire economy through 536 people and their lackies then only mad men would not exert their power to get a piece of the pie. I am taxed at 50%, if there was a group that lobbied for people at my tax rate I would be insane not to give them money, because I might spend 5% of my income to get 10% back. Lobbyists are simply a symptom of government over reach, and easily predicted by public choice, and the solution is to reduce the scope of government and they will go away.

The second thought, was that if the majority of British people are too fragile to handle failure they might as well throw in the towel because other nations striving for wealth are going to destroy them and not be the least concerned with their feelings of failure.

The third, I love how many of the leftist critiques makes the assumption that without government safety nets there can be no market competition because of lost participants. Its as if history started when we got welfare programs and there was not thousands of years of human progress with successes and failures and no welfare safety net.

Further, I view about 90% of government welfare as a complete dead weight loss for society. If we simply burnt that money in a furnace we would be just as well off. In fact we might be better because we stopped subsidizing an amazing amount of pathological behaviors. For that matter, probably 50% of education spending is a dead weight loss for society as well. So few people on welfare are ever going to be contributors that it is a statistical artifact and most who do end up contributing probably would have without a welfare state.

Finally, unrelated to the podcast, I have of late been feeling like Mr. Crankshaw, that I am disconnected from my fellow citizens and politics. It has become near theater and I have as much impact on the system as I have on the weather. My fellow citizens rejoicing in making me work long hours away from my family for 6 months of the year for their benefit, while demonizing me as a monster deserving such punishment, will do that to someone.

Cowboy Prof
Mar 9 2016 at 11:38am

I wholeheartedly agree with the sentiments expressed by Kevin and Mr. Crankshaw and lift a glass to toast their comments, with a “here, here!” (Or is it “hear, hear”?)

Mar 9 2016 at 11:45am

There was a lot to disagree with in this podcast (understanding that challenging viewpoints are one of the features of Econtalk):

– Guest: “because in effect what you are doing is consigning the majority of people to the states of losers. And in a way this seems to run contra to the ethos of democracy.” – Actually it doesn’t, at least the American Constitutional republic version of it. We have an equality of opportunity, not an egalitarian equality of outcome, and that is all of the difference.

– Utilitarianism has been and always will be a failure as we cannot come close to correctly modeling the variables, let alone the moral values. See Hayek’s knowledge problem.

– Hayek was far from perfect, but he was a fairly lone beacon against the Keynesian nonsense that was prevailing in his time, and was never a pure enough free marketer for the libertarians. I also fall into this category and believe that there are people that truly need to be helped by government and that this help is a proper role for government to play. Of course, my idea of scale is FAR below the current expenditures, so I remain a heartless, soulless, evil conservative.

– Of course, we now have an avowed Socialist somewhat successfully running for President and his leading Democratic opponent unable to explain the difference between socialism and the Democratic Party (here) so Hayek is more germane than ever. I think that classical socialism where the government owns the means of production has evolved (neo-socialism?) into a more pernicious and politically acceptable system where the state controls almost every aspect of production via regulation, then milks it for an absurd 40% on worldwide earnings. This allows the state to capture almost as much cash as owning the production without any of the responsibility. And brilliantly, it allows the left to keep their favorite bogeyman.

– Neo-socialism also retains the lobbying system, where the return on investment of a few million in the right hands can result in billions in subsidies and handouts. It is very hard to match this 1,000x ROI any other way.

– I mentioned The Road to Serfdom in a previous post. I want to make clear that I do not believe that with neo-socialism the entire population will be rendered into serfdom, at least not right away. Neo-serfdom consists of the majority being bribed into becoming zombies via EBT cards, ESPN and layers and layers of redistributive programs in exchange for votes. The serfs will be the ones paying for this immoral bribery scheme, until the Thatcherian math eventually catches up and everyone runs out of money (or credit).

– Total government spending has not always been around 35%. In the 20’s it was 12%, even in FDR’s New Deal it was 20%, then 25% in the 50’s and 60’s and has been consistently above 35% only since the financial crisis. CBO projections show it heading steadily towards 40% over the next few years. (here)

– The real eye opener is real total government spending per capita (2009 dollars): (here)

– Schumpeterian creative destruction will occur despite any government efforts to prevent it. It may be postponed or socialized, but the piper will be paid. (Note: the “creative” bit only occurs within a free market…)

– MC (and SV), I appreciate you voicing something that has been simmering within me for quite some time, and now I recognize what it is and agree with you. I am increasingly alienated by what the US is becoming. I fear that we are gradually becoming a state sanctioned abused minority – highly productive people. I look around the world and can’t imagine living anywhere else and I still think that the US is the greatest country relative to any other, but I see a drastic decline in its absolute standing (see the Heritage Freedom Index as just one measure). I may be able to retire before I see the need to go full Atlas Shrugged, but that would just leave these problems for the next generation.

Mark Crankshaw
Mar 9 2016 at 11:52am

@ David McGrogan

a free market needs norms and institutions to function effectively – but those things are dependent on, influenced by, and created by politics broadly understood, not just market forces or simple evolution.

I beg to differ on that point. Cultural and societal values create the norms necessary to facilitate a free market and it is those social and cultural values that politics, broadly understood, depends upon to create the institutions necessary, if they be necessary, to enforce those norms.

Politics merely reflects the underlying social and cultural values and ideas of the people engaged in political conflict. The scale of the ‘Political’ is, in fact, arbitrary but completely dependent on shared cultural and social values. Within a group of individuals that broadly share social and cultural values, any number of independent or concentric political entities can peacefully co-exist. A group of individuals with antagonistic social and cultural values can not peaceably co-exist in a political entity without extreme repression by a dominant group.

The fact is that free markets emerged simultaneously at an international level in precisely those parts of the world with shared social and cultural values, namely those culturally and socially predisposed towards free markets and culturally and socially opposed to political manipulation and restrictions of trade. It occurred in only such Western countries and with little to no central political direction yet against significant central political opposition. Without those social and cultural ideas and norms, politics is simply inert, it cannot and will not act outside of cultural and social direction.

On the contrary, the move towards free markets was a social and cultural revolution against those very entrenched political interests that had sought to control, manage, and restrict trade and markets for millenia. The political ruling class, for political and financial gain, has attempted to manipulate trade and markets continuously since the dawn of civilization. What is only truly necessary then to “free” markets is to curb political control of trade and markets. That’s what they are being made ‘free’ of. The how is, as you phrased it, “an effort to denude the [trade and market] space of ‘politics'”. Once you inject ‘politics’ into trade and markets, then you dispense with the ‘free’ in ‘free’ trade and the ‘open’ in ‘open’ markets.

One can use ‘politics’ and use politically derived ‘institutions’ to arrive at ‘free’ trade but if, and only if, those political institutions successfully check political interference in trade and markets. I would indeed argue that was the historical pattern adopted in the West. However, ‘politics’ remains only an indirect and proximate cause of ‘free’ trade and ‘open’ markets. Cultural and social values are the direct cause of both the ‘politics’ used and the ‘free’ trade that may result from politically derived institutions meant solely to restrict political action.

Mark Crankshaw
Mar 9 2016 at 2:34pm

@Kevin, Cowboy Prof, and jw

It is a comfort to know that I am not alone with these ideas and feelings.

As an aside, as I have been feeling more and more alienated towards the “Nation-State” and disconnected from the politics that allegedly “connects” me to the national “horde”, I have given quite a bit of thought to the statist ideological underpinnings I received through the indoctrination process one undergoes as an “American” child. What I am stunned by is the fact that I was able to “resist” the religious indoctrination and programming I received as a child that I received from my own family while in my early teens, however, the “resistance” towards the statist political indoctrination and programming I received through thoroughly impersonal schools, media, and ‘culture’ took much, much longer to build up.

I view my own epiphany process much like a Rubin Vase– where the picture of a vase is in black, but only when one concentrates on the white outline of the vase can one see two faces opposing one another.

The Statist argument is usually “packaged” as follows: since people are dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative then people, if left alone to act according to their nature, will be dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative towards one another. Therefore, unless there exists an ultimate authority to threaten, punish, and check their nature the result will be the Hobbesian “war of all against all”. The primitive remnants of theocratic thought here are obvious–primitive States relied on ‘God’ to do the threatening, punishing, and checking. The next step, since ‘God’ didn’t seem very ambitious and didn’t seem up to the task, was for some of the people to assert that ‘God’ had delegated the task of threatening, punishing, and checking the nature of their fellow man to them personally. It was just a small step to reach the modern version: the ‘social contract’ and the institution of a ‘government’ of men as ‘Ultimate Authority’ in lieu of ‘God’ that will do the threatening, punishing, and checking of human nature.

This kind of idea is like the black shape of the vase. That the Statist sees very well. What they evidently can not see are the two opposing faces, the implication of their original premise given that there is not ‘God’ nor possibility of the delegation of ‘Ultimate Authority’ from a ‘God’.

If man is, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative then any man who assumes (or usurps) ‘Ultimate Authority’ is also, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative. Since ‘governments’ are institutions comprised only of man (human kind), then ‘governments’ are consequently and inescapably, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative. The ‘war of all against all’ is not averted, rather some faction merely claims (or usurps) more weapons than others to use as a cudgel against others. Catch-22…

If man is not, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative, what need he of an ‘Ultimate Authority’ to threaten, punish, and check his base nature? Why have all those armies, police, and itchy fingers poised on the trigger?

There would be no need for a government in a world where people were, by nature, honest, civil, responsible, caring, helpful and loving.

‘Exactly!’ snaps the Statist! Mankind is none of those things! Without ‘government’, why those capitalists, corporations, the “Rich”, and those bloody foreigners would slit our throats in the night and take all we have and dance on our corpses in delight!

They then assert that we must have ‘government’–staffed by humans with, even they admit, horrible natures, and not just any ‘government’, but sprawling often continent sized ‘Nation States’ with millions and millions of disparate and disconnected subjects who do not share the same values, culture, or ideology.

After all, isn’t it obvious, suggests statism, that the best way to come to political consensus is to amass millions of people who have differing backgrounds, ideas, tastes, language, customs, ideologies, interests, lifestyles, and religions through violent military conquest? Like how, say, China, Russia, the UK and the US were all formed? What a great idea, says the Statist!

Why do we tolerate all of this anarchy in things like what, where, and how much we can eat? Why have all this anarchy in what we wear, how we pray, who we make love to, what we read, or how we think. Let’s instead impose and enforce a political centrally directed ‘consensus’ at the ‘Nation-State’ level. We’ve done it before. Why, we’ll even do it democratically, implores the Statist. Good idea, right?

I suggest not. I agree with GregG when he says “we are social animals”. However, this sociability is not infinitely scalable. I contend the sheer massive size of modern Nation States is hardly ideal, nay, it is stunningly poor, at coming to any reasonable form of political consensus on much of anything substantive. No election result, no platform, no “reform”, no appeal to ‘hope’ or ‘change’ will ever change that obvious fact.

Why then are the ‘politics’ that Statist insist we engage at a ponderously large national scale? A scale that ensures endless conflict, the endless political war of all against all? Return to the original premise: man is, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative. Any government formed from such will also be, by nature, dishonest, uncivil, irresponsible, uncaring, abusive, and exploitative. Does a large, unwieldy, scale of ‘governance’, comprising of millions upon millions of subjects serve to further the interests of a ruling elite that is dishonest, uncivil, irresponsible, uncaring, and abusive that is bent on mercilessly exploiting its subjects?

Russia? China? No? North Korea? Can you really not see that?

Then why not the USA…

Mar 9 2016 at 2:42pm

And another thing…

If you are singing karaoke with friends at a bar or in your living room, then yes, there doesn’t have to be winners and losers. But if millions in commercial revenue and a million dollar recording contract for the winner are at stake, then market forces enter the picture. All one has to do is watch some of the contestants who “want to be a star so badly” but are totally unprepared (or untalented) when they audition to understand that there is a vast difference between the winner and almost everyone else, although there may be only a slight difference compared to the runner up.

I think that one of the reasons that these shows are so popular is that they produce a rules based meritocracy. If the producers changed the rules mid show to clearly favor one contestant over another, there would be a huge backlash. Unfortunately, the citizenry who would not stand for that on a TV show let it go by unnoticed every day in politics.

In any case, if you missed the last X Factor UK, this is a sample of what this meritocracy can produce (put on your best headphones or crank up the stereo…):



BTW, some in the UK criticized this 17 year old because she pursued professional singing lessons and performed at hundreds of charity events and minor bar gigs to perfect her craft, as if hard work in pursuit of a goal was a disqualifier.

P Whetton
Mar 10 2016 at 6:52am

Perhaps the best episode I have ever heard of Econ Talk. Great job to Russ and Will Davies for having a nuanced and detailed conversation on the subject of his book as well as of the social sciences in general. I particularly enjoyed some of Russ’s musings on the state of the field of economics and the legacy of people like Friedman and Hayek. I would love to hear Russ do some more podcasts in that direction, kind of mini lectures/musings of topics or people. Thanks again Russ!

Mar 10 2016 at 9:04am

Wonderful episode, Russ! I very much enjoyed the calm regardful tone of the conversation.

@jw, Mark Crankshaw, Kevin

I agree with most of what you are saying, but I think you are stretching Will Davies’s words a little bit- his position seemed much less extreme than what you are depicting.

He as a sociologist just tries to point out that there are somewhat less attractive side effects of the competitive process. I don’t think that he is particularly optimistic about the efficacy of the government in remedying those side effects.


We have an equality of opportunity, not an egalitarian equality of outcome, and that is all of the difference.

That is I think the biggest problem right now – opportunities are very different for kids in different income groups. The amount of time and money demanded from parents to give their child proper education is already insane and it keeps getting bigger.

I don’t think market mechanisms have played an important role in providing opportunities for kids from low income families (on a large scale). I can’t say for the US but in Eastern Europe the government does an OK job giving educational opportunities for low-income families (myself included).

Patrick R. Sullivan
Mar 10 2016 at 10:20am

Roosevelt didn’t have to come up with an economic model proving that if you break up investment banking, retail banking, it would make everyone better overall. He was just able to do it. I don’t know the whole history of the Glass-Steagall Act, but you see the point I’m making. Russ: Yep.

I’d suggest that if Russ’s ‘Yep’ is an accurate reflection of his opinion on the misinformation that Davies had just delivered about Roosevelt and Glass-Steagall–legislation largely written by lobbyists for Rockefeller banking interests, and that led to the creation of TWO cartels–that he invite Charlie Calomiris back to talk about the history of Glass-Steagall:

On Carter Glass’s laundry list was the notion that mixing investment banking with commercial banking was a bad idea. There was no evidence for that, and all subsequent research has rejected Glass’s view. It’s not even a close call. The Bank of United States’ failure here in New York in 1930 had nothing to do with securities markets; it was exposed to Manhattan real estate and suffered losses related to the New York real-estate crash in Manhattan in 1929. Most of the other U.S. banks that failed in the 1930s did so as a result of farm problems and especially farm real-estate problems.

….Remember some of the illustrious names that got into deep trouble during the crisis — Bear Stearns, Lehman Brothers, Merrill Lynch. They were all stand-alone investment banks at the time, unaffected by the partial repeal of Glass-Steagall. And we can only wish that commercial banks had done more of the relatively low-risk underwriting of [corporate] securities that the repeal of Glass-Steagall permitted them to do, instead of accumulating toxic mortgages, which Glass-Steagall had not prevented them from doing.

Calomiris then goes on to point out that FDR opposed Steagall’s deposit insurance scheme, but it was the price that that congressman extracted for supporting the Act.

Patrick R. Sullivan
Mar 10 2016 at 10:49am

Here’s a short history of the backroom maneuvering that led to Glass-Steagall;

It is also interesting to note what the Glass-Steagall Act did not do. Most of the banks that failed during the 1920s and 1930s were located in agricultural areas, and the evidence indicates that bank distress during the 1920s and 1930s was primarily due to declines in agri- cultural income and land values both in rural areas and in cities.5 Nevertheless, Carter Glass made sure that real estate lending continued to be allowed. Loans collater- alized by land had proven to be risky, but Glass wanted to maintain the incentives of rural banks with state char- ters, whose main business was lending to local farmers, to stay in the Federal Reserve System. After all, he had been one of the architects of the Fed in 1913 (Neal and White 2012, 109). Understandably, he opposed policies that might undermine support for it. Thus, even though it made the US banking system less stable than it would have been otherwise, the Glass-Steagall Act did nothing to limit lending on real-estate.

Of course, it was bad real estate loans that led to the housing bubble/collapse and the financial crisis.

Mark Crankshaw
Mar 10 2016 at 1:49pm

@ Dmitry

He as a sociologist just tries to point out that there are somewhat less attractive side effects of the competitive process. I don’t think that he is particularly optimistic about the efficacy of the government in remedying those side effects.

Fair enough, he may not be particularly optimistic about the efficacy of the government remedying the side effects of the “competitive process”. I didn’t get that impression, but he may not be. However, from my view, his notion of “romanticizing” politics seems to miss the ‘less attractive side effects’ of politics which itself is a highly competitive process, perhaps the most uncivil, nasty competitive “winner-takes-all” “one-size-fits-all”, “my way or the highway” process of them all, and by a very wide margin. Politics is one of the most brutal, toxic, cut-throat, zero-sum social systems that we have, a system that usually results in a few politically powerful ‘winners’ and a massive host of politically weak ‘losers’.

Game shows you can turn off and ignore. I’ve never turned them on. If one wanted to not compete in the private sector, no one is stopping anyone from doing that. However, if you don’t want to be a political ‘loser’ as a result of the latest political “strong-arm” zero-sum game maneuver by the socialist Left or the neo-con Right, you are simply out of luck. Voting is completely ineffective, the best one can hope for politically is that the inevitable political losses aren’t too numerous, too financially crippling, or fatal.

The competitive atmosphere generated by Neo-liberalism is far, far less toxic and much, much more tolerable than the Neo-socialism that Will Davies is seemingly offering up as an ‘alternative’…economists are necessary to remind the sociologists of that…

Mar 10 2016 at 7:19pm

@Mark Crankshaw

However, from my view, his notion of “romanticizing” politics seems to miss the ‘less attractive side effects’ of politics which itself is a highly competitive process, perhaps the most uncivil, nasty competitive “winner-takes-all” “one-size-fits-all”, “my way or the highway” process of them all, and by a very wide margin. Politics is one of the most brutal, toxic, cut-throat, zero-sum social systems that we have, a system that usually results in a few politically powerful ‘winners’ and a massive host of politically weak ‘losers’.

Isn’t it precisely what Will is trying to address here when he talks about lobbying and the financial crisis?

The way I interpreted his words is that right now lobbying is seen as a natural extension of a “competitive process” – companies spend money on production, marketing, … AND lobbying. In that way it is a completely understandable behavior on economic grounds. This is exactly where he wants to put some obstacles to this “competitive process”.

However, if you don’t want to be a political ‘loser’ as a result of the latest political “strong-arm” zero-sum game maneuver by the socialist Left or the neo-con Right, you are simply out of luck. Voting is completely ineffective, the best one can hope for politically is that the inevitable political losses aren’t too numerous, too financially crippling, or fatal.

Well I have always thought that you cannot have anything close to democracy in a country with 300 mln people. This would require an unprecedented redistribution of ruling power in favor of local authorities, which is not only politically unfeasible, but I am also not sure about the economic consequences (e.g. the interstate infrastructure, national defense, etc).

But overall I agree that it would be much more interesting to run an experiment of shrinking the government sector to see how the country would compare to e.g. Europe in 50 years.

Mark Crankshaw
Mar 11 2016 at 11:17am

@ Dmitry

The way I interpreted his words is that right now lobbying is seen as a natural extension of a “competitive process” – companies spend money on production, marketing, … AND lobbying. In that way it is a completely understandable behavior on economic grounds. This is exactly where he wants to put some obstacles to this “competitive process”.

You may indeed have interpreted him better than I may have. I think this may be yet another demonstration of the ‘logistics’ difficulty I have with those who share his, in my view, quixotic ideology.

Of course business will lobby ‘government’ if the ‘government’ is in the business of providing competitive advantage to business in exchange for political and economic support and in the business of providing a competitive disadvantage if that payment isn’t forthcoming.

The ‘government’, as Will Davies seems to tell it, is a young naif being constantly propositioned and groped by ‘big business’. In this view, I guess, obstacles would and, perhaps could, be placed against big business ‘abducting’ the government for politically prurient pursuits.

I see the ‘government’ somewhat differently, however, I see it more like a grizzled bedraggled street-walker with a crack addiction propositioning anyone within earshot who has a habit of robbing (and occasionally killing) her John’s whenever the opportunity presents itself. Does anyone really believe that politicians, the very people who profit most from lobbying efforts and who are the very people that have absolute control over the nature of the ‘obstacles’ against lobbying (as imagined by Davies) are going to kill the goose that lays their very golden eggs?

Well I have always thought that you cannot have anything close to democracy in a country with 300 mln people. This would require an unprecedented redistribution of ruling power in favor of local authorities, which is not only politically unfeasible, but I am also not sure about the economic consequences (e.g. the interstate infrastructure, national defense, etc).

Absolutely, a ‘democracy’ of 300 million is clearly not of organic origin with a view towards peaceably or amicably making political decisions. Its’ origins are that of the Roman Empire: military conquest with view towards political and economic exploitation by a ruling class over a subject class.

However, the economic consequences you alluded to of much smaller polities may not be unfeasible. I have driven from Germany, Austria, Hungary, Switzerland, France, Belgium and back into Germany with no problem. It seems that ‘interstate infrastructure’ can work quite nicely without a single central State apparatus building or maintaining it. I think ‘NATO’, a defense umbrella over many States is also at least a feasible alternative to a single central State defense provider. Where there’s a will, there’s a way…

Angelo nanni
Mar 11 2016 at 12:47pm

At serveral point in the interview I got the impression that the guest thought it was somehow more virtuous to live in a society that encourages it population to live off the welfare state instead of one that encouraged it’s population to stand on their own economic footing.

Mar 11 2016 at 3:00pm

Your guest lost credibility after this statement “As any sensible political economist understands, even the most libertarian economic system, the most pro-market economic system, is dependent on institutional preconditions and contexts. So, I’m talking about regulations, property rights, money, rules of what you can and can’t do. Or one of the things I talk a lot about in the book is antitrust law. But even if you are the most fervent free-market believer, you still recognize–and okay, there might be one or two exceptions on the absolute extremes of libertarian thought–but for anyone within the neoliberal movements of the Austrian and Chicago school neoliberals would recognize there’s still a need for the rules and the state in order to make the system work. And one of the things I stress in the book is, one of the differences between the neoliberals, intellectuals of the 20th century, and the classical liberals within whom I would include people like Adam Smith, English, really the founder of economics in the late 18th century, is that the neoliberals are actually more attuned to the need for these rules and state interventions than the original classical liberals. So, actually neoliberals have always been quite concerned with: What is the role of the state? What do we need the state to do? What kind of law do we need in order for a free market society to work? But one of the problems is: If you are going to have laws and rights and [?] some institutions, you need to recognize them for what they are. Which is that they are institutions which need–in order to work, they have to carry authority. And authority is a political concept. ‘Norms’ is a social concept. The idea that there is a right and a wrong way to behave is something which everybody right back to Adam Smith has realized that you don’t get a functioning market if people don’t have a sense of right and wrong. You can’t just have a–you can’t have complete anarchists and nihilists in order for market society to work. It might be that there are certain institutions…..
I would defend the free market does not need the institutions and laws he requests ever unless voluntarily agreed upon by its members

Mar 12 2016 at 5:49pm

@ Mark Crankshaw

I see the ‘government’ somewhat differently

I am sure your views of government are more similar than you think.

I believe you both understand that the incentives to take advantage of power and grow the government bigger are there.

The difference seems to be that Neo-Liberals try to shrink the size of the government, contrary to the incentives.

Those like Will Davies try to put obstacles to taking advantage of power, again contrary to the incentives of politicians.

To me both positions are equally Utopian, but the example of US constitution shows that sometimes those Utopian ideas actually get forced into politics.

In that way I remain positive about both outlooks and hope that from time to time some good things will actually get implemented.

However, the economic consequences you alluded to of much smaller polities may not be unfeasible. I have driven from Germany, Austria, Hungary, Switzerland, France, Belgium and back into Germany with no problem. It seems that ‘interstate infrastructure’ can work quite nicely without a single central State apparatus building or maintaining it

Europeans have long had some supernational forms of governments (even before EU). And actually right now those supernational structures have run into the same problems we are talking in here: lots of Europeans argue against the size of EU bureaucracy. And the problems are not purely political but they often lie exactly in the economic sphere (including interstate infrastructure).

So in this way I don’t see Europe as a convincing argument…

But again my meta-idea is the following: I don’t assign myself to either Neo-Liberal or a more socialistic position (I am too young to make a proper judgment anyway); and so from an outside perspective it seems like you are overestimating the awful pro-government position of Will Davies.

Robert Swan
Mar 13 2016 at 6:25pm

Will Davies was articulate enough, but I didn’t see much in his proposition.

He offered Britain’s Got Talent as an example of what you can expect from the look-after-yourself, dog-eat-dog world of the free market.

Firstly, is it a good parallel? In front of the cameras in a popular “reality” TV show, I think you’d be hard pressed to find a more planned and centrally controlled environment. As a metaphor, maybe it shows how cruel central planning can be.

Except I’m not so sure it’s cruel. He laments that there is only one winner, but is he right? You could equally say there is only one loser. Obviously the judges declare their winner, but plenty of also-rans have benefitted from appearing — rewards from the mere 15 minutes of fame, to cash contracts richer than the “winner” got. Reducing the result to one happy winner and 99 devastated losers is absurd.

If this model were representative of the free marketplace wouldn’t there be just one car company, one computer manufacturer, etc.? The show’s “winner” is the result of planned discrete events — perform, then judge, then end — the market is continuous performance and continuous judgement.

While Russ didn’t pick him up on the weakness of the TV show analogy, I was glad he raised another way there can be many winners — there are many scoreboards. Unlike on TV, there are no assigned judges to score us. Some count their pay check or net wealth as their score. Others look at their children’s success. Others to their social standing, or perhaps to getting their mugs on national TV singing out of tune.

Allen Jacobs
Mar 14 2016 at 4:09pm

All choice is just the counterpart of competition.

If there is no competition, then there can never be choice in that sphere of life.

Competition for one is choice for another.

All competition has struggle, striving, and concern or anxiety over outcomes. The idea that there are alternative (unicorn) institutions that allow us to escape from this is a fantasy.


Robert Swan
Mar 15 2016 at 4:32pm

I was wrong. Russ did argue that the reality TV show was a poor parallel for the free market — in particular that the TV show is a zero sum game.

I missed this on my previous listening, probably because I was following my own train of thought rather than being attentive. Easy to do with podcasts, but I manage to do it with books too.

Mar 27 2016 at 6:46am

Dr. Sowell explains things much better than I ever will here.

I called it neo-socialism. We are describing the same phenomena, but I have never found a solid definition for fascism, especially since it has been erroneously used by the left as a pejorative for anything conservative.

Naturally, I agree with Sowell and Goldberg that it has historically always been a form of left wing politics, but even then, it was still a vague variation of socialism.

Comments are closed.


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Podcast Episode Highlights
0:33Intro. [Recording date: February 18, 2016.] Russ: Let's start off by defining neoliberalism. What does that mean? Guest: Neoliberalism is a term that attracts quite a bit of controversy because some people think it's a term of abuse used by people on the Left to attack those that they disagree with--they sort of use it to dismiss capitalism or free markets, whatever it might be. But I try and use it in quite a specific way. And my understanding of neoliberalism and the definition that I provide in the book is that it's an attempt to remake political institutions and political institutions around particular ideals and norms and ethics that are associated with the market. So, for example, the idea of democracy, which is clearly a key political ideal for many societies, is re-imagined by neoliberals as a form of marketplace in which people can exercise preferences, just like consumers. And the voting becomes viewed as no different really from going to the supermarket and selecting a product or a brand. And one of the things that I argue in the book is that the neoliberal era--before the neoliberal era, which really began in the late 1970s--before then, in the thought of neoliberal intellectuals, in Germany, Austria, United States--that there is a deliberate project of trying to strip political institutions and states of their political logic and to try an instate an economic logic. To apply an economic calculus to political institutions. To treat bureaucrats as economic agents or treat politicians as economic agents. And it's actually trying to strip the political realm of human life, of its distinctive qualities. Russ: Yeah. It's an issue that comes up a lot on the program. And I'm in that group. I'm neoliberal certainly in that sense--that I often on this program talk about my disenchantment with politics, which is a phrase you use in a similar way. So, what's wrong with that? The defense of that view is that, 'Well, we're just scientists. We are just looking at politics in a dispassionate way. And it's full of people making decisions subject to their own self-interest just like anywhere else.' It's what's called--as you don't in your book--the Public Choice school of political economy, the analysis of politics using the tools of economics. What's wrong with that? Or what's the alternative that might be better or more productive? Guest: So, you pick up on a phrase that I do use, which is what I call the 'disenchantment of politics by economics.' Which is actually a kind of a nod toward the German sociologist Max Weber, who spoke of modern science, modern rationality, as leading to the 'disenchantment of the world.' It's a very famous phrase that Weber uses. And just as for Weber, I use the term in a slightly mournful sense: that under the attack of neoliberal critique and reforms and thinking, that politics has become viewed in an increasingly cynical way. But it's seen as a space purely of calculation, of self-interest, of a kind of utilitarian logic. And this is partly, I suppose--why would one mourn a different form of politics? Well, one reason is that politics can be a space in which people achieve a kind of fulfillment that is greater than they are capable of just through their business relations or their consumer relations and so on. And in a way this is an argument that goes a whole way back to Aristotle and the ancient times. And if Aristotle--human beings are what he calls "zoon politikon"--they are political animals. They have an innate need and tendency to debate questions of justice, of the common good, and to do so publicly. And that this is the essence of politics. And in a way, neoliberalism, because it fears politics, it views politics as the root of totalitarian movements, really, wants to strip politics of that kind of romanticism. Now, I completely understand the risk of a romanticized vision of politics. And it's a romanticized vision of politics that is present in extreme political movements and so on. But at the same time, it leads to a, I would argue, an emptying of public life and an emptying of social life, if it's re-conceived and modeled purely in economic terms. But there's a more specific and I would say a more tangible reason why there's a problem here. Which is: As any sensible political economist understands, even the most libertarian economic system, the most pro-market economic system, is dependent on institutional preconditions and contexts. So, I'm talking about regulations, property rights, money, rules of what you can and can't do. Or one of the things I talk a lot about in the book is antitrust law. But even if you are the most fervent free-market believer, you still recognize--and okay, there might be one or two exceptions on the absolute extremes of libertarian thought--but for anyone within the neoliberal movements of the Austrian and Chicago school neoliberals would recognize there's still a need for the rules and the state in order to make the system work. And one of the things I stress in the book is, one of the differences between the neoliberals, intellectuals of the 20th century, and the classical liberals within whom I would include people like Adam Smith, English, really the founder of economics in the late 18th century, is that the neoliberals are actually more attuned to the need for these rules and state interventions than the original classical liberals. So, actually neoliberals have always been quite concerned with: What is the role of the state? What do we need the state to do? What kind of law do we need in order for a free market society to work? But one of the problems is: If you are going to have laws and rights and [?] some institutions, you need to recognize them for what they are. Which is that they are institutions which need--in order to work, they have to carry authority. And authority is a political concept. 'Norms' is a social concept. The idea that there is a right and a wrong way to behave is something which everybody right back to Adam Smith has realized that you don't get a functioning market if people don't have a sense of right and wrong. You can't just have a--you can't have complete anarchists and nihilists in order for market society to work. It might be that there are certain institutions in the financial sector that give some space to those sorts of ethical orientations. But ultimately a successful free market society is one that is founded in institutions, rules, norms, and legal systems. And one of the contradictions of neoliberalism, and one of the ways I would argue that it's running to its limits over the last decade, is that it doesn't offer a basis with which to think about things like law and regulation and authority. Because it only offers more and more economic calculations and economic ways of thinking. So ultimately it loses the capacity to think what is a legitimate state or legitimate regulation. All it can do is apply economics to more and more corners of social and public life.
8:46Russ: So, I should mention, to listeners, that Will is a Sociologist. Which is a lot of fun. One of the things I enjoyed greatly about the book is that I felt a little bit like an animal at the zoo, as an economist. It's really almost an anthropological study of how economists think and their influence. But I want to challenge the effectiveness of this transformation that you mention, this disenchantment with politics. So, I agree that, certainly for myself--and I would put myself in the camp that you describe: I'm not an anarcho-capitalist. I'm certainly aware of the importance of institutions and the role of the state in allowing economic choices to be made. And not just economic choices, but what might be called 'civil society'--the voluntary ways that we come together to help other people or to achieve certain goals either in commercial or in our social spheres. So, I'm sympathetic to that worldview. But I wonder how effective we've been in disenchanting politics. So, I agree that in the academic world there is a large group of economists, and maybe others, who wonder about the efficacy of the state as a source of meaning--the political sphere as a source of meaning. But I'd say in the body politic--in the masses, in the average citizen, it's pretty alive and well. We're seeing that--we're in the Winter of 2016, in the run-up to the next Presidential election--and we see a lot of, I see a lot of romance on both the Republican and Democratic side, without going into specifics. But I see a lot of desire that people have to express themselves politically who are not cynical at all about the enterprise and who are very romantic about it. Do you agree with that? Guest: I suppose that's right. And maybe I'm partly--not being a U.S. resident or citizen, that, what I would describe as--that's a kind of famous feature of U.S. democracy and civil society right back to the work of Alexis de Tocqueville in the early 19th century, where he visited America from France and discovered this amazing passion that people had for the public sphere. Things like--talk radio, whatever it might be. And that's something which we don't have in the same way in my own country, in Britain. I suppose, in a way, my book is less about democracy and those spaces of citizenship, which, I think you are right, could be a lot of that going on. Although, I think there's also some convincing analysis, although it may be more European. But there's a book called Ruling the Void by a British political scientist called Peter Mair that came out a couple of years ago about the demise of political participation, the demise of political parties. In the 1950s Britain's Conservative Party had a membership of over 2 million people, and now I think it's well under 100,000. So that type of political participation has disappeared. As it has on the Left as well, with the demise of trade unions. And instead, there is a shift towards a more, of a tele-visual form of politics, where effectively, you know, a lot of the techniques that were important to politics came from the business world. I mean, Bill Clinton, and Tony Blair in Britain, were well known for having been masters of using focus groups and branding exercises and so on. So effectively the political party, or the political project becomes the sort of product that's being sold. But it's impossible to disagree with what you are saying about the passion that's currently being exercised around something like the American Presidential election. But most of my analysis is more--and I wouldn't want to romanticize the state--I think that's clearly a dangerous thing to do. But I think that there is a sense that the state itself becomes viewed via a mainly economic lens. And in some ways the fact that, you know, the difficulty of developing a critique of lobbying or limit to lobbying power, or in the United States campaign finance and so on, is in some ways a manifestation of some of the problems that I am trying to describe, where the way in which, say, a corporation behaves economically is seen as just a way in which, a kind of different variant of the way it can behave politically. If you've got billions of dollars to spend then your right to spend them in the political arena is no different than your right to spend them in the economic arena--because ultimately they are viewed as the same thing. This is the logic--effectively the colonization of the political sphere by an economic logic that I'm describing--I think is also part of the problem of something like the power of lobbying. Which is more of a problem in the United States I think than it is in Europe.
13:56Russ: Yeah. Let's turn to the role of competition, which is a big chunk of the book. Which fascinates me, because I have a little bit of a love-hate relationship with it. A little more hate than I used to have. Mostly love, still. But a little bit of unease. What role does competition play in the neoliberal vision? Guest: Well, this is really where I got interested in all of this in the first place. Because I worked in the policy world in Britain--I worked in think tanks in the early 2000s. I became very interested in the rhetoric of national competitiveness. This is how I became interested in all of this--people would talk about, 'You need to make Britain more competitive' or 'London more competitive' and so on. And I became interested in at least the rhetoric that surrounds competitiveness. So I started thinking: Why would we deem competitiveness to be something we want more and more and more of? Now, there are various answers. You might say, 'Well, it's natural. It's hardwired into us because of what Darwin argues.' Or you might say that it's exciting. Or whatever. Like you might say, 'We like competitiveness in sport.' But I began to look at some of the ways in which neoliberal thinkers back to the 1930s have described and valued competition as just, not just something which is present in markets but actually as a principle that is crucial to human progress and human freedom--which is how they viewed it. And I think in some ways the simplest defense of competition--it's not just a defense of competition: it's actually a prioritization of competition as the ultimate basis for a liberal society to be organized around--comes from the work of the Austrian economist and philosopher Friedrich Hayek. And he described competition as a discovery process. He argued that via institutions which are competitive--and mainly markets, but I don't think it's only markets: I think you could say that something like academic publishing would be an example of this as well, or something. Russ: Culture. Guest: Or you could say that Internet dating, or whatever it might be. But that it's, you know, culture, as you say. And through eliminating that which is of less value, or less truth or less beauty, you've hit on that which is of more value or truth or beauty, and also what someone like Karl Popper, the philosopher of science, argued really with his vision of the open society was that you need to have the chance of something being eliminated in order for it to be valued. And you see that today, in Britain, you know, in my own sector, the university sector, the government is trying to introduce more markets into higher education. But they don't really introduce a price mechanism. They are not making it a market in the sense of kind of a commodities market. What they are doing is making it competitive. So they are trying to reach a situation where bad universities stop, you know, basically go bust. Or have to get gobbled up by another one. Something like that. So they are looking to processes of competition in order to govern universities differently, in order to discipline, in order to get people to change their behavior in certain ways so that they behave in a more enterprising way. And that would be an example of the way in which competition is mobilized within a neoliberal political system. Because, firstly, if you take that example of something like the way universities are governed in Britain, it's something being pushed very much by the state. It's not sort of natural competition that emerges in the way that you might see in a nature documentary or something. And it's also not a natural competition of the sort that Adam Smith was interested in, in the late 18th century, where he thought that capitalism involves--people begin to naturally compete against each other and that has certain kinds of efficiencies[?]. Competition is something which is actively inculcated in a neoliberal political system as a deliberate way of trying to achieve some kind of progress, but also to impose some kind of discipline. One of the curious things, to me, looking at the way in which different neoliberal intellectuals and policy-makers have tried to do this, is that often they become more interested in pushing competition into areas outside of the market than to ensuring that it exists inside the market. Russ: Yeah. Guest: So, if you look at the Chicago school influence on antitrust from the 1970s up until, well, ongoing really, it became--antitrust authorities became far more sympathetic towards corporations than was previously the case. So, by some standards, United States' competition authorities were more, provided more of a defense of competition in the sense of achieving some kind of pluralism in the market than they do nowadays. And yet you would assume that where we now live in a more pro-market era than was the case under the, during the Keynesian era of the 1950s and 1960s; yet competition enforcement has become more pro-monopoly over that period. Now that instituted interesting questions to me about what exactly is meant by competition and competitiveness.
19:06Russ: I want to come back to the antitrust thing; but I want to react to, and get you to expand on this just general set of remarks about competition. We've talked on this program before about what I call a pseudo-market--the introduction of certain features of markets without the rest of the features that emerge organically in a real market. So, your education example is a perfect example. And, Milton Friedman proposed, in Capitalism and Freedom in the early 1960s, and I think there are others who proposed it around that time as well, that by introducing vouchers into public schools we'd have competition. Well, we would--we'd have more competition. Whether that would be good or bad--my first thought is, probably good; certainly probably better than what we have. But it wouldn't be a market system of education. It would have some of the features of a market system. But I think there's a psychological, philosophical, romanticization of markets that you sensitize the reader to--that those features are not really, necessarily going to lead to the outcomes that occur in more organically emergent markets. And yet we sort of[?] bring all of the romance that we have about those markets along with them. Even though they may not be present. The other factor is the role that competition plays in everyday life and in our culture, that perhaps comes from this neoliberal, economist's vision of the virtues of competition. And then there's the pushback against it. So, I see, in today's world, in many ways there's a fight between those of us who are eager to see competition work its magic, say in the real marketplace, versus those who think, 'Ehhh, I don't like a lot of the aspects of that.' So we want to have everybody get a trophy in sports work, in the sports world. We want to have a social role for business; the social responsibility movement. We don't want it to be a dog-eat-dog world where businesses can creatively destroy others--the Schumpeterian ideal. That's too harsh on the members of those corporations and businesses. So I see there's a strife between those two cultural trends. So, I wonder if you can comment on that, and see if you agree with me on the educational part. Guest: Well, absolutely I agree that there's this distinction between what's a market and something that's become a pseudo-market. I think it's an important one, that distinction you are drawing. And to me, the key issue is whether there is a price mechanism. Whether there is going to be some price for the good that is going to rise and fall, vaguely, in response to blind change in response to supply and demand. And this is clearly something that--this distinction is quite important. And people go around--in Britain, which has had historically a large state involvement--a larger public sector than most of the United States--and there's been various trends towards forms of privatization over the last 30 years--and many of them don't actually involve a sell-off. They don't actually involve taking goods that were previously publicly owned and making them privately owned. When they are in the market, often they involve some type of managerial reforms, trying to inject a [?]market ethos or a competitive ethos. So that's an important point. On the cultural point: I think this is interesting. And I think it's become--there's a kind of feedback that goes on between the ways in which our economy becomes reformed and governed, so as to create greater and greater, a greater and greater role for competition. Trying to inculcate that spirit of creative destruction. And there's probably nowhere in the world that has, places greater emphasis on this than Silicon Valley, which there is sort of an ethos, that celebrates huge entrepreneurial success but also widespread entrepreneurial failure. I mean this is, and in a way this is something which, and again, in my own national context, I think there are very few people who could actually cope with that level of sort of disruption, really. Because I think people--the need for widespread failure in a system like that--I think places huge strains on a society. And that's not to say that the success of Google, Facebook, whatever are not sensational and kind of quiet, awe-inspiring in a way. But the need to also have a large amount of the population that is willing to repeatedly put up with failure, partly because they still are dreaming of success in the future, is something that not many cultures can sustain. And I think that partly is how the--I mean, it's no coincidence that a lot of Austrian economics is so celebrated in the United States. I think the Ludwig von Mises Institute, the famous Austrian economist, I think is in Alabama or somewhere. Russ: Somewhere. Guest: You know, there's a--so there's a bit of a sort of quite a neat cultural fit between the Austrian emphasis entrepreneur, which I think stems from some quite conservative visions of heroic and quite macho individualism that some people have even linked back to the work of Friedrich Nietzsche in the late 19th century. Russ: Say it isn't so! Guest: Heh, heh, heh. Russ: I think you are right. Guest: The ability to re-make a society around that is quite difficult. And I'm sure that our current government in Britain would kind of like the idea that we'd have more people with that kind of mindset. And there are now areas of our welfare state reform--which, you know, the fact that we even have as much, a welfare state as we do would probably be seen as shocking to many people, particularly of a conservative persuasion in the United States. But as it's been reformed at the moment, there is the introduction of various sort of positive thinking, behavioral modification techniques. Which in some ways are sort of the worst of all worlds. Because it's kind of big state but it's also very pro-, it's also kind of enforced competitiveness, really. Where they, people have to recite positive thinking, slogans, about 'every time I get down, fall down, I will get up again; and I'm the only person who can do it.' And in a way it's a sort of an Austrian neoliberal ethos, being converted into an attempt to try and get people out of the house in the morning and looking for a job rather than living off benefits. So, I think it's difficult to just kind of manufacture that kind of culture. But on the other hand, I think it interesting how mass media has become more and more interested in competition. I think one of the most interesting cultural phenomena of the last 15, 20 years is the rise of reality television and talent shows, which are just huge, certainly in Britain. But this, you know--in a way, what the talent shows do--we have "Britain's Got Talent" or, you know, these singing shows and so on, and dancing and cooking and everything--is that they take that, what I said earlier about Hayek calling competition a discovery process--is that they turn that into a spectacle in its own right. So, it's taking the question of singing--which ultimately singing has intrinsic value; it's a nice thing to do; it's a nice thing to listen to. It should be possible to sing in an enjoyable way or to listen to a singer without someone else being deemed a worse singer. But in a way, that's--in a way this obsession with elimination of the unworthy has become a cultural maxim that we almost are addicted to now, I would say. And--
26:41Russ: Well, there's a flip side of it. Which is the--I think part of the appeal of those shows--and I watch them now and then on YouTube--I watch highlights. I've probably seen an hour of Britain's Got Talent. So, not a lot. But the pieces; but I've watched some. And I'm not a TV watcher generally. But what I'm watching, the reason I find it emotionally uplifting and powerful is the underdog. And I think they know that really well, and they sell that relentlessly. So, you bring a person who is working in a fish and chips shop or driving a lorry--as you say there--and this person is undiscovered and usually has some traumatic family life on top of it. And a surviving parent is there in the audience, in the wings, watching, sobbing--as this person of unknown ability, suddenly is the winner. And I think it taps into a deep human need there. And it's interesting, I never thought about it, how that interacts with the competitive aspect of it. Obviously, an underdog is by definition related to the competitiveness of it. But there's something about the victory there that is particularly satisfying, because it's somebody we didn't expect. Guest: But you're focusing on--it's interesting. You are focusing on a minority of the contestants there. Russ: Absolutely. Guest: And you can say, 'Well, of course I am.' Quality. And success. But I think if you were to view that same--you are interested in who wins. Russ: I'm cherry picking. Guest: Yeah. And that's the logic of the show. But this means, in order for that person to have that experience, you've got to have another--I don't, 99, who have to have a devastating experience. And sometimes that devastation is also internal to the spectacle. I mean, they--a lot of emphasis on the tears, and the hugs-- Russ: Yep-- Guest: and the person walking off, and so on. And of course, you could say, from a kind of cultural studies perspective, if you were doing a cultural analysis research, you'd say that we can, in a way we relate to both sides: We relate to the winner in our dreams but a lot of the time we do put up with situations we are the person or at least we worry about being eliminated--we worry about losing our jobs or we worry about not being the winner, and so on. And in a way it's sort of--it strikes me that if you were designing a society from scratch, if you were to think purely in terms of how can this be done to best identify the winner, or the best, or the most glorious, that would be a very strange principle on which to organize any society, because in effect what you are doing is consigning the majority of people to the states of losers. And in a way this seems to run contra to the ethos of democracy. Russ: But it also runs counter to the neoliberal version of competition in economics. Which is--I think it's important; I think it's forgotten a lot. It's not--economics almost by definition, at least the Smithian vision of it, which I think many of us still hold in the modern world, is that it's not a zero sum game. Guest: No. Russ: And reality TV is a zero sum game. The Super Bowl is a zero sum game. The World Cup is a zero sum game. There is only one winner. But the ideal of--I think the romance that I have and that many have, that has some reality to it about economics and economic competition, is that the losers get reconstituted as winners. That people who rise and fall in the economic competition, they don't die. The losers don't die. They are not eliminated from the show. They just have to come back and--their firm dies, and then the people who work there have to go find other jobs. And, or, their children thrive as a result of the competition. Guest: Yeah. Russ: So it's a very different, I think, view of that. So I agree with you--that would be a bizarre ethos to bring to a society. I don't think that's really what we have in the economic sphere. Guest: But I suppose it--now we are talking about questions of degree. Because in order for that system that you've described where people get to come back, you need to have certain forms of social safety nets, certain forms of public education. You need to have the institutions which produce what is often referred to as a meritocracy. But you also need to have--I mean, I suppose, maybe culturally, the persistence of a class system in Britain or a class system that is recognized as a class system, unlike the American class system which is not recognized as a class system-- Russ: That's right; we don't have one-- Guest: No, you don't have one. That's right. But in Britain, we have one and we admit we have one. And we joke about the fact that we have one. So it's a sort of a class system that speaks its name. But I suppose that makes it all the more obvious--that in a way, some form of meritocracy requires some type of active political intervention in order to prevent people being held back by their origins. And that in a way is a cultural problem of Britain. And in a way, I suppose--Tony Blair's Labour Government of 1997, well, he stepped down in 2007, was in some ways the most, in some ways the most effective Neoliberal government. Because it was one that recognized the need for an active state to keep this competitive game constantly ticking over. So there were a lot of efforts to try and get people to be active in the labor market, and not drop out; to help people who were disadvantaged to get into the game. So that people were constantly being helped back into the game the whole time. Now, again, there's a history of this in certain--strange as it may sound, there are some leftwing neoliberal intellectual traditions. They tend to be more in France and Germany over the second half of the 20th century--people like Louis Rougier and some of the ordoliberal thinkers of Germany from the 1930s through to the 1960s. And these were intellectual traditions that placed great emphasis on the need for the state in order to ensure that everybody could be a competitor. Because if you just leave capitalism to itself, which would be close to I suppose the Chicago School of neoliberalism then you can't guarantee that everyone is going to be in with a shout. And I think if you look at--my hunch is, today, this isn't based on evidence, but when you look at the burden of rising mental health problems and the problem of depression across the Anglo-American world, I think in many ways this neoliberal vision of a society where everyone can keep having another go is losing credibility. It may have had credibility at certain times in its history, but I'm not sure that, unless you've taken the right sorts of SSRIs (Selective serotonin re-uptake inhibitors) and you've read the right kind of self-help books and you are constantly looking up to the American flag and believing that you can still make it--there's a sort of--it requires growing amounts of work on the parts of ordinary people and particularly people of low income who don't own any assets to really see this system as one that they have a chance of succeeding in. Russ: Well, I don't know. We're in a particularly unpleasant time. I think for a significant part of the population, I don't think we understand why that's true. Whether it's a response to the--an effect of the financial crisis, the Recession; whether it's a reordering of skills in the global marketplace--I think this will be a little clearer in the next, I hope, 10 years or so. But I do have to say that--well, two things. One, certainly some of the resources that would cushion the blows of creative destruction could come from the private sector--from voluntary action, motivated by altruism and compassion. Which, if they are not there are not going to be working much through the political process, either, I would add. But the other point I would make is that the rise of depression and mental issue is somewhat, unfortunately, perhaps, a different kind of example of the trends you are talking about--the empowerment of pharmaceutical corporations through subsidies to health care have made it dramatically easier for people to have access to things that they are often encouraged to take without spending their own money; the expansion of definitions of certain conditions. I'm not much with Henry David Thoreau, but I do agree that the mass of men lead lives of quiet desperation. I think that was true a long time ago; I don't think it's a new phenomenon. I think it's part of the human condition. I don't think it's a result of competitive stress. At least, that's my take.
36:47Russ: I want to move to a different aspect of your work, which I found extremely interesting, which was your emphasis on the Chicago School's championing of efficiency as a goal. Talk about--most people I think struggle with that term because it has an everyday use that sounds like 'efficacy.' But in economics it has a more narrow use that is, I think, somewhat triumphant alongside quantitative techniques that you also mention. So, talk about efficiency and the role of the Chicago School in pushing that forward. Guest: Well, the context of this is reforms to antitrust law; and the key period is the 1970s and early 1980s. So, it coincides with the conservative, the rise of Reagan and the conservative counterrevolution of the 1970s and 1980s. And the effect of it is--I would argue, and I'm not the only person to say this--that Washington regulators become much more sympathetic towards large corporations, corporations which might have been broken up during the 1950s, 1960s, such as ATT&T (American Telephone and Telegraph) and others that were even targeted for breakup in the early 1980s, become left alone as a result of certain reforms to the way in which antitrust is conceived. One of the things I explore in the book is how this is a relatively direct result of certain arguments that are made by Chicago School lawyers and economists from the 1950s onwards, particularly the lawyer Robert Bork, the law and economics scholar and judge Richard Posner, and others-- Russ: Aaron Director you mentioned as well being important in that movement. Aaron Director. Guest: Yes, absolutely. The argument that these figures make is that fundamentally the antitrust authority don't know what they are doing--that they are enforcing the law but they don't really know to what end they are enforcing the law. They seem to be targeting companies purely for being successful--this is one of the abiding hunches and arguments that is made within the Chicago School from the work of Director and others in the mid-1950s through a book published by Bork and Posner in the 1970s. And they argue that the antitrust authorities were simply targeting large companies, whereas they argue that companies might be large because they are good. And the antitrust authorities were targeting profitable companies on the assumption that profits were a sign that some kind of anti-competitive behavior was going on. Whereas from a Chicago School perspective, profits might just be a sign that you are being managed in an efficient fashion. And one of the very, very simple, almost sort of irresistibly simple arguments that was put forward by these Chicago School figures was to say that the only basis for legitimate intervention by the regulator in the market is to increase efficiency. And what they mean by this is, efficiency is an outcome. It's something that can be calculated using neoclassical economics. Efficiency--I mean, I'm not enough of an expert on economics or economic philosophy to know exactly how it's defined. Russ: May I try? Guest: Yeah, go on. Russ: So, the way I was taught--and I was taught this, as I've mentioned many times on the program, I was taught this relentlessly as a graduate student at Chicago, particularly by Arnold Harberger--and others--that you want to maximize the net benefits. You want to maximize benefits minus costs. And as a result--and that's what matters. And the argument--it goes back to Vilfredo Pareto, one of the great names of social science. Can't beat that--Vilfredo Pareto. But Pareto had different ways of thinking about social outcomes. And the way his ideas became part of economics was, I would say, the following: If a policy produces monetary gains that exceed the losses, then there is a surplus there that can be redistributed to those who were harmed by it. So that everyone is at least as well off, or better off than they were before. And it's a beautiful idea. The problem is, is that that redistribution or compensation rarely takes place. Which means that any policy has winners and losers. So, my view, as a grownup rather than as a graduate student, has become: Well, I think growth matters; I think adding to the size of the pie, which is what efficiency really is about, matters. But we do also care, both--the losers certainly care that they are hurt, and those of us who are the winners often care about the losers. So, just looking at efficiency seems rather bizarre. It's a utilitarian argument. Guest: Yes, a utilitarian argument. So it's about the outcome. And in the European Commission where they adopted this approach in the early 2000s, much later than in Washington, D.C. they call it the 'effects-based approach.' So they mean it's about assessing whether or not a behavior is legitimate or illegitimate not by looking at the behavior itself but by looking at effectively how it reshapes the overall system. What is the outcome? What are you left at the end of the behavior? So, effectively it's also quite an amoral approach--not immoral--but it is an amoral approach, because it effectively says there is no such thing as bad behavior; there's only bad outcomes. So, this means that lots of things that the antitrust authorities used to try and punish during the 1950s and 1960s--they used to punish firms for doing things purely because they were deemed to be anti-competitive in and of themselves. So, you know, if you were in two different markets--you might be selling lawnmowers in one market; you might be selling teabags in another market--you weren't allowed to actually offer your two products in your two different markets bundled together as a single deal because that was seen to be an abuse of the way in which the market works. And they had no interest in whether it might be best for everyone abroad, as you say, in Pareto's way of looking at things. It was purely punished on the basis that it was a breach of a particular norm, a norm that was believed to be crucial to the way in which markets worked. So, in that sense, the Chicago School critique had a massively simplifying--well, on one level it was simplifying, because it made very clear what antitrust interventions were there to do, which was that they were there to make everybody better off overall. On the other hand it was actually quite complexifying, because it meant that the key questions of antitrust authorities and the courts which were overseeing, which were making rulings in this area, came down to often very complicated forms of economic evidence that had to be assembled in order to try and--counterfactuals: What would be the effect of this merger not going ahead? Or this merger going ahead? And you'd look at two different models of the future. And if there's a price rise for consumers in one model and there's a price fall for consumers in the other model, then the second one is deemed to be preferable. But you've got to understand what the model is and whether the model contains errors, and so on. So, one of the arguments that I make in the book, one of the things that I explore a bit, is that this shift towards a more utilitarian outlook not only means that there is less of a moral approach to the market. There's also a rising authority for techniques of economic model-building and calculation and so on. And if you take something like the financial sector which is not something I looked at, but in a way these problems are even more exacerbated. Because in a sense, the question of how do you--I mean, Roosevelt didn't have to come up with an economic model proving that if you break up investment banking, retail banking, it would make everyone better overall. He was just able to do it. I don't know the whole history of the Glass-Steagall Act, but you see the point I'm making. Russ: Yep. Guest: Whereas nowadays in order to do something like that, the banks would assemble huge bodies of evidence and data and calculations showing that this was going to be, going to have this negative effect on GDP (Gross Domestic Product) and this negative effect on consumers and this negative effect on the economy of New York and London and so on. And you'd be lost in a whole battle about utilitarian effects. And you would have completely lost sight of the question of how to structure the economy in the first place. Russ: Yeah; I was at a conference in the last year where a paper was presented showing that countries that have large financial sectors do better than countries that don't. Which--I find that analysis, that kind of analysis deeply disturbing, for many reasons.
44:57Russ: But I want to come back to this issue of efficiency in general, and growth. Because I think they are really--talking about it and reading your book forced me to realize there are really two trends in this way of thinking. One, I consider the Smithian trend. Which is, we are easily seduced by money, and wealth, and the thrill of competition. And so it's perfectly okay if we fight against that and decide, 'You know, I'm not going to try to be as rich as possible. I might take some time off and volunteer or learn how to play the guitar, whatever it might be.' At the same time, there's sort of this trend that says, 'Hey, you're a slacker. You are not carrying your weight. You are not producing--you are not contributing to national competitiveness'--a theme, you talk about it a lot. And I feel like, in a way, the political sphere, and plenty of economists as well, have taken that really good idea, 'Well, you know, how rich you are really is important; you don't want to starve to death,' and people sometimes choose to be wealthy and sometimes less so--and they've taken it to say, 'Well, the more the better.' And they've taken this human urge that we all have to acquire, which is I think part of our nature--we sometimes fight against it; religion encourages us to fight against it. We take this, I think reality; and then we elevate it to an ideal. That, 'Well, then, the more growth, the better off we are.' And that doesn't follow at all. And I think economists have really let us down. And I want to read a quote from the book which I think really captures this beautifully. You say,
Ironically, where every other actor is considered by Chicago scholars to be driven by rational self-interest--the bureaucrat, the judge, the parent, the trade unionist, the politician--the neo-classical economist is elevated to a quasi-judicial status from where he can evaluate socio-economic behaviour and data in an entirely disinterested manner.
And that's a lie. You're right! Your statement is correct. It's a lie that economists are just these disinterested social engineers trying to find out what's best. We are also self-interested; and we also have or benefit from certain of our ideas becoming more prominent. I think your book sensitizes the reader to that. Guest: Yes. And I think of this as something--again, the financial crisis threw a lot of light and a lot of skepticism upon the power that economists have. Maybe not power. But the influence they have within the financial system. The impact, yes. And what sociologists have called the--I'm going to use one piece of jargon now, but the performativity of economics--which basically means that economics isn't just describing the world. In fact, actually, the Chicago School economists never really believed that it described the world very well at all. That wasn't really the point. But that it's, it's actually something that you can do things with, rather than it being a representation. I mean, Milton Friedman, his famous 1953 methodology essay, "The Methodology of Positive Economics," he argued that the truth value of economics was nothing to do with its description of how things are; it was purely to do with the predictions of what will happen. With in a sense is in keeping with that--you know, that, if you take that term and effects-based approach which the European Commission does in competition of policy, that sort of, in sense some set up, is that what you are doing is what you are coming up with tools with which to take decisions, tools with which to make predictions, and tools with which to manage situations and so on. You are not actually trying to come up with a plausible description of the world. So in that sense, economists have never been very innocent. I mean, the Chicago School itself--and you would know this much better than me--but I think had an ethos of scientific detachment, in the sense of that a lot of its central figures believed that economics could plow on in a very scientific, very objective, very a-political kind of way. I mean, that wasn't true, obviously, of Milton Friedman, who was a much more politically engaged public intellectual. But I think one of the questions that I suppose I would put to the Chicago School, and I know you've been associated with it, is: How plausible is that sense that price theory, as they like to call it, is just yet another neutral tool for analyzing the world? When quite clearly it's been entangled in all sorts of crises and meltdowns and so on. I mean, anyone who--I don't know if you've seen the film Inside Job about the financial crisis. I mean, this--I'm sure it's not a--it tells one particular version of events. But economists were involved in the financial crisis. Russ: Absolutely. There are many of them. They are not all in that video. There are many other people who I think bear some responsibility for it. But I actually think--I think Milton belongs in that camp. I think Milton saw himself--even though he was politically active; and you can contrast Friedman and Stigler, who you write about as well. Stigler felt that the world was a circus to be observed and analyzed; and sometimes laughed at. Particularly the political process. And that it would be a mistake--and a delusion--to try to influence it. Because of course it is subject to market forces, and one's own championing of a particular policy is not going to have any impact if it doesn't pass the--isn't in the incentive of the political actors to do it. Milton, on the other hand, felt you could influence the political sphere. So he wrote a lot about politics--of course--and public policy. Not politics--public policy. But at the same time, I think he believed, or at least it was his public persona, that he was also a scientist. That his scientific work was different. That he could, as one EconTalk guest said: He could put on his science hat, and then take it off and put on his ideology hat. And my claim is that that's a delusion--I don't mean to be critical about Milton, who I'm a big fan of, and incredibly important person in my education and in my life. But I think it is--so I don't know how aware or unaware he was about it. I don't want to say he was deluded. But I think many economists are deluded into thinking, and want to believe that they can wear those two hats separately. And it's very self-serving. We need to confront the fact that it's very much in our interest to pretend to the world that we have a scientific aspect to our work that is free of values. And I think that's--I think it's fundamentally deceptive, and dishonest. Guest: Right. Well, I agree with that. And I think in a way that is why it's important to start reviving some sense of political economy, in the sense of--someone like Keynes would never have claimed to have two different hats in the first place. His theories had to carry enough water in order to pass muster. But I think that the politics and economics was always entangled to a greater extent. So I agree with everything you've said.
52:29Russ: Talk about the Nudge industry, which you mention, and its influence on public policy, and how it fits in with some of these themes. Guest: My interest in nudge--and this is something that I look at also in my other book, The Happiness Industry--my interest in it is the mismatch between the levels of intervention that are being made and the hopes that are being expressed for it. The book Nudge by Cass Sunstein and Richard Thaler--and Thaler, of course, is another Chicago figure, but I suppose not associated with the Chicago School. Russ: Not quite the same. Guest: This book really took the world by storm in 2008, 2009 that sort of time--and there's been now a Nudge Institute set up in the British government, and I think Barack Obama recently legislated to have all federal policies evaluated in terms of whether or not they abided by certain psychological principles of common sense in some way. I can't remember exactly how the legislation was framed, but it's certainly something which is on the rise. And of course, the more we live in what might be called smart environments, with smartphones and smart cities and smart transport networks and so on, the capacity to try and influence our behavior through changing the kind of cues and information we get is going up all the time. So this is very much an idea of its times. Just for the listeners who aren't familiar with it, the idea effectively suggests that there's a role for public authorities not in simply providing people with choices, or reducing their choices, or banning their choices, but in altering the way in which choices are presented, what they call 'choice architectures', so as to try and help people choose things that are going to be better for them in terms of their health, or their financial futures, or their well-being, or whatever it might be. And I suppose my interest in it is that in some ways it's not a very radical departure from the status quo, really. The Chicago School had a fairly dogmatic commitment to a vision of rational choice. It's there in the work of Gary Becker, and Ronald Coase, and people like this. And this assumes that people take rational, self-interested, utility-maximizing decisions, and that their preferences are exogenous, and that they sort of spring into their minds as if by magic, and then people just kind of act on them. Clearly that has never been a plausible description of--the mere existence of advertising means that that description is clearly not a plausible description. But of course, they never claimed it was a description; they claimed that it was a principle. So I suppose what nudging is doing is beginning to tweak with that model. And I suppose my interest in it is that in some ways it's an attempt to kind of rescue the status quo. If the financial crisis can be put down to the problems of choice architecture or the heuristics or the neurological mechanisms or whatever it might be that were going on inside the financial system, then you can act on a very, very small scale towards optimizing some of those decisions. And of course it's something that individual themselves try to self-optimize. So, if you are a financial trader there are various neural supplements and behavioral techniques you can try and learn to try and improve your decision making, and so on. So in some ways what's happening is this ideal of a society in which everybody is acting in a perfectly economic fashion has not been abandoned. It's just that the responsibility for pursuing it is just becoming shared across a wider range of different types of human and non-human axes in a way: if your smartphone can now nudge you towards taking the best route home, and you can--smartphones I think have changed a great deal because we have real time updates on information in our pockets in a way that wasn't previously the case. In some ways it allows the economic utopia, the neoliberal utopia of everything becoming a question of calculation and optimization and utilitarianism--in a way it allows that to spread even further into our lives. Russ: Yeah. I find it insidious, myself. Guest: It's not very liberal, I must say. It is liberal in the European sense. It's not very libertarian-- Russ: But it's deeply appealing to a lot of people, who would be the nudgers. I think the nudgees are a little less--I like voluntary nudging. I like people signing up to be reminded, say, to do something good if they choose to be so reminded. Having it come through the state is not my favorite thing, as you might expect.
57:25Russ: Probably the most common name in your book--I didn't check this, because the edition I had didn't allow me, the electronic edition--but I suspect Hayek is the most common name that's used in your book. Guest: Right. Russ: Now, Hayek is a complicated figure, I think if looked at correctly. A lot of people look at a caricature of him. And I have no problem accepting that he was a complicated figure. I don't understand his macroeconomics, mostly, until his Nobel Prize address--which I think is phenomenal. But his earlier macro attempts to understand--the role of capital, I find opaque. At least to me. And I'm happy to reject some of his policy positions: he did not climb up to Mt. Sinai and accept divine truth, as some people would argue about some other, various economic figures; they want to embrace them. So, I think he's a complicated figure. But, I'd like you to talk about his legacy. Here's a guy who, here's a scholar and a thinker who is mainly forgotten by the early 1970s; gets the Nobel Prize in 1974; has a little bit of a resurgence, a re-interest. And then with the financial crisis there's a great deal more interest in Hayek, both in his political economy and in his business cycle theory, both. It's easy to use him as, you know, a straw man, as a boogie man to scare people. What do you think his influence has been overall? And being realistic about the fact that the United States is not really such a neoliberal place, in its outcomes at least, or its policy. Or at least not classically liberal the way I think of it. Guest: Well, yeah. His reputation--and there's no point in dwelling on some of the negative aspects of his reputation, which you've alluded to. But clearly he was someone who was celebrated by the New Right figures of the 1980s--Margaret Thatcher used to slap one of his books down on the table, according to anecdote, and say, 'This is what we believe.' Russ: That was with one hand. The other hand she was slapping the Wealth of Nations down on the table. Right? Guest: Right. Yes. I'm not sure she'd read either. But The Road to Serfdom, which was his 1944 book, which in a way was written in the depths of despair, I would imagine, not just because of world war but also because liberalism and neoliberalism would have seemed quite so far off at that time. This was a best seller and it was something which--I don't know exactly the details, how many it sold, but it was serialized in Reader's Digest in the States, and he was then repeatedly flown to the United States, I think organized by Aaron Director in the 1940s and 1950s, with funding I think from the Ford Foundation to try and get him, firstly to go on a tour to promote the book, but also to write an American version of it. Correct me if I'm not quite right about that. But I think he was someone who was picked up as a celebrity by the post-War Chicago School, and then eventually moved to Chicago, I think in the 1950s or 1960s. So he had this association with the Chicago School of economics; but his thinking was quite [?] I think with a great deal of what the Chicago School promoted. Most importantly, it would seem to me, the Chicago School involved a certain epistemological arrogance, I would say--a certain belief that it was possible to know a great deal about what was going on in the economy. Admittedly through very rigorous and careful approaches to empirics and use of theory and so on. But it didn't--the Chicago School was not troubled by the problem of uncertainty and the problem of the impossibility of social scientific knowledge in the way that, certainly that Hayek's work of the 1930s and 1940s was motivated very much by a fear and a distrust of what he called 'scientism,' which was the idea that it's possible to model social science upon the methods of natural science, or the philosophy of natural science. Whereas I don't think the Chicago School had that same--they weren't troubled in quite the same way. Russ: I agree. Guest: So clearly that's where a big split takes place. I think--I don't know what your position is on this, but if you take something like the financial crisis, I don't think that a Hayekian would be happy with how the financial crisis was dealt with by policy. I mean, I think, I don't know exactly what the Hayekian take on the whole course of the financial crisis or how it occurred would be. But the huge bailouts--I suppose the purely Austrian perspective on what took place was that you would just need to cleanse the system, and that might take a while and it might be very painful. But then you would have a new system again. And one of the problems we have right now is that we do not have a new system. We have the same system that we had in 2007, basically. With a few less banks, ironically. So in that respect--one thing which really appeals to me about the Austrian mindset, although I think politically it doesn't appeal to me, is that it seems to be fueled by a spirit of modernity, in a way. And what I mean by that is, it seems to be fueled by a spirit that the future might be very unlike the present. Or unlike the past. And we need to be prepared for that. And we can be excited about that. And it may work out well, or it might work out badly. One of the problems with it is that that mediation between present and future, it seems to be something that has to be purely channeled through investment, entrepreneurship, and the market. Whereas, I suppose, as someone who is less cynical about politics, I would say, 'Well, what about political and social transformation?' And not just trust entrepreneurs or trust the likes of Uber to go around transforming the conditions of human life, but actually think about how people can do it in a democratic and social fashion. But again, I didn't have any particular truck with Hayek, and he's certainly not a boogie man for me. Russ: Yeah. I think--most--I'll pick the leaders. I think Hayek and Friedman, Milton Friedman, would both have been appalled by the way the financial crisis was dealt with, by the policy makers. And what I find interesting--and we'll close on this--is how most economists, across the political spectrum view it, the way we cope with the financial crisis, as a great success. Friedman would have said it was an utter failure. Hayek, I think would have said it was an utter failure. Because of the incentives it created for the future, for the rewarding of imprudence and bad risk-taking. Certainly the discovery process has been tampered with. The feedback loops have been ruined. And yet, the economists on the Left--not too far on the Left, but certainly Left-leaning economists in the United States-- Guest: [?] Russ: have applauded the role that Bernanke and others have played in saving the world. And I find that--to be honest, I find that self-serving. I find that, relating to your ideas about the economist as an objective, judicial observer and I think that's just--that's absurd. But I think that is the way that people in the United States, at least, across the political spectrum, other than the harder-core neoliberals in the Chicago and Austrian School--I think that's the way they viewed the aftermath. They viewed it as a great triumph of economic reasoning. Guest: Well, that's very interesting. Yeah. Clearly there are real questions about how much of what's happened could be described as neoliberal. And I guess that's something that--that debate will run.