Elephant Stalkers: Fixed Perspectives and Required Results

This sad indictment of the economics profession, though hardly unique to it, originated in a speech delivered by Paul Samuelson in honor of Robert Heilbroner at the New School for Social Research, New York, November 12, 1998. Subsequently, the article appeared in Challenge (1999) 42(5): 29–33. The speech itself warned of the consequences when, in Samuelson’s words, “the failed god of Marxian socialism gets replaced by the ancient god of libertarian laissez-faire” (Samuelson 2011:426). In the same article Samuelson also looks back on the folly of left-wing economists.

As Keynes said about another system, the market system, in its moment of worst 1930s pathology: It is not aesthetic and it does not deliver the goods. Exactly that held for pre- and post-Stalin Soviet Union, Maoist Cultural Revolutions, Tito’s Yugoslavia, North Korea, Albania, Cuba, and all the utopias that transiently enchanted so intelligent and humane an expert as the late Joan Robinson. (Samuelson 2011: 427)

This phrase has been attributed to Jacob Viner. The same wording was also employed by Kenneth Boulding in his breakthrough, but subsequently ignored, textbook (1941:3). Boulding did spend 1932–3 on a Commonwealth Fellowship at Chicago choosing Viner as his adviser, mentioned in passing (not without the requisite sardonic, offhand remark) by George Stigler in his bare-bones autobiography.

Kenneth Boulding came to Chicago from England as a Commonwealth Fellow. (Commonwealth Fellows usually spent some of their time, and perhaps more of their fellowship grants, speculating on the English pound.) He was both clever and so brave as to engage in disputes with Frank Knight about the nature of capital. (Stigler 1988:25)

Whether Boulding was simply repeating a phrase uttered by Viner that caught his fancy must remain a mystery. Both have long since ceased to communicate on such matters.

Descartes (1961) in 1623 set down a didactic series of steps, a veritable pathway to discovering the truth (Rules for the Direction of the Mind). Milton Friedman (1953) became famous, if not notorious, for attempting to squelch further methodological discussion in economics with his much-cited critical essay. Friedman’s thinking was in part shaped by his discussions with George Stigler. An early version of Friedman’s guidelines appears in Stigler’s (1949) attack on monopolistic competition.

The presence of ideology can be detected by a simple litmus test. In the case of George Stigler, this volume’s author employed a very simple-minded method. He posed a seemingly unsophisticated question to those who knew and worked with this eminent economist: “What evidence would succeed in convincing George Stigler that markets were not efficient?” (George Stigler had been an early proponent and vigorous crusader for empirical testing of economic propositions.) No one was able to imagine the shape or content of such evidence. For ideologues, whether politically leaning to the left or right, all data, whatever shape or form that data might take, serves consistently to bolster their unyielding convictions.

Gary Becker firmly believed that in turning away from Frank Knight, George Stigler was ultimately more influenced in terms of his conceptualization of price theory by his other teacher, Jacob Viner. However on the issue of ideology, Stigler manages to substantially part company with both his teachers.

Yes, I’m saying he becomes more like Viner. Look at Viner, early on, in Viner’s own dissertation on international trade, he is already testing the Canadian and American data. George became a big, empirical testing guy. As with Friedman, Viner was the greater influence. Not Knight. (Conversation with Gary Becker, October 1997)

Stigler continued to believe that quantification and testing had allowed the profession to rise above mere assertion. Moreover, the motivation for a theory seemed irrelevant to him. What counted was the test of time, the competitive battle to accumulate evidence one way or another.

As I said the other day, he built up evidence and other people contributed their evidence and when you have a mountain of evidence you have more confidence in a theory. And if you don’t have a mountain, forget about any conclusive test. George was adding something to that pile (or starting a new one). (Conversation with Claire Friedland, October 1997)

Becker, supported strongly by Stigler, believed a rational choice approach to be applicable to any observed decision-making process. That all-inclusive quality was exactly what both found to be particularly appealing, when applying this particular mode of analysis. The method was universal because it was:

Applicable to all human behavior, be it behavior involving money prices or imputed shadow prices, repeated or infrequent decisions, large or minor decisions, emotional or mechanical ends, rich or poor persons, patients or therapists, businessmen or politicians, teachers or students. (Gary Becker quoted in Medema 2011:162)

Medema (2011) is useful in considering this type of refocusing on Stigler’s part. In a sense, his original approach to methodology was not spurned, nor was an alternative substituted. Rather, the issue of methodology became largely irrelevant in later years for Stigler. However, one can only suspect that like Friedman (in a 50th-anniversary ASSA session celebrating his essay) Stigler would have still adhered to the same methodological position if pressed.

Stigler was not satisfied with using self-interest as a useful assumption, a mere platform from which to launch productive economic analysis. As he makes clear in his 1980 (April) Tanner Lectures, self-interested motivation should instead be understood as an economic hypothesis that if tested would prove to be correct.

I predict this result because it is the prevalent one found by economists not only within a wide variety of economic phenomena, but in their investigations of marital, child-bearing, criminal, religious, and other social behavior as well. We believe that man is a utility-maximizing animal – apparently pigeons and rats are also – and to date we have not found it informative to carve out a section of his life in which he invokes a different goal of behavior. In fact, the test I have just proposed has very little potential scope, I shall argue, because most ethical values do not conflict with individual utility-maximizing behavior. (Stigler 1982a:26)

Ronald Coase takes quite a different position. He prefers to adhere more closely to Knight’s behavioral approach rather than subscribing to the less flexible world of incontrovertible rational choice.

When you say it is un-Chicago, you mean that it is an unmodern Chicago view. Because Frank Knight was at Chicago, and I was brought up more on Knight than I was on any of the others. And my views were quite consistent with what he says. They’re not consistent with what George Stigler, Gary Becker and Richard Posner say. Posner condemns me because I don’t think people maximize utility. … I don’t say people are wholly irrational. … but it doesn’t follow that because a person does less foolishness when the price is high for foolishness that you don’t have foolishness. The foolishness follows the universal law of demand. The greater the price you have to pay for being foolish, the less you do. (Hazlett 1997:3)

There is no point in denying that Stigler himself was a master at selling his ideas, much in the fashion delineated in Stigler and Becker (1977). He knew how to appeal to the existing preferences of his audience. His genius involved putting just the right spin on any given argument or empirical analysis. He was a skilled rhetorician despite the fact that he dismissed the McCloskey-style (1983) focus on the way in which economists persuade. His insistence on presenting economists as impartial observers, unmoved by self-interested or partisan concerns, led to him assert in a 1985 NSF report that persuasion in economics was a simple function of the facts. For Stigler the task was always to put together a clear chunk of analysis supported by empirical evidence. The ensuing result would sell itself. (Such thoughts are reminiscent of the optimism embodied in the oft-misquoted phrase dubiously attributed to Ralph Waldo Emerson, “build a better mousetrap, and the world will beat a path to your door.”) However, Stigler’s own professional strategy tended to belie this idealized position.

He had confidence in his theory and he felt that his data supported it. The defects, they are always mentioned somewhere, not in strong terms, but they are always there. Maybe they’re in a footnote or an appendix, but the defects in the data, as far we were aware of them, are there. We always tried, of course, to find a way to overcome them. But I think it was really a personality thing that saw him always presenting everything with great confidence. He was always a kind of rhetorician, although, he did give that bad review of the McCloskey book on rhetoric. (Conversation with Claire Friedland, October 1997)

For George Stigler, the power of market competition made much of government intervention and regulation not only unnecessary, but downright counter-productive. Certainly the Securities and Exchange Commission fit this profile.

The capital markets work best when they are competitive, because people work best when they are subjected to competition. Competitors simultaneously raise the dividends and interest payable to savers and lower the cost of capital to investors. Competitors provide securities offering all degrees of safety or risk that different investors desire. (Stigler “The Economy”, Business Month January 1988:8)

Undoubtedly Stigler would regard the decision by the American Economic Association to have the authors of articles published in its journals openly declare any potential conflicts of interest as no more than an irritating distraction, lacking any discernible shred of merit whatsoever. (See the AEA disclosure policy, http://​www.​aeaweb.​org/​aea_​journals/​AEA_​Disclosure_​Policy.​pdf) The position and ideas articulated in any such article would of necessity face the persistent competition generated within the market for economic ideas and would fall or rise on their own merits, no matter what the author’s funding source might be. Thus focusing on any such perceived conflicts of interest was essentially an irrelevant diversion and an outright waste of time.

Nik Khah (2011a) discusses George Stigler’s relationship with corporate funding. However it would be a stretch bordering on exaggeration and perhaps dishonesty to see him as some sort of shill for corporate interests or even influenced heavily by them. It is more accurate to say that Stigler was very successful in raising such private backing because of the views he held, rather than thinking that he shaved his position to attract such funding.

For example, somewhat notoriously, government budgets are more often than not erroneously presented in the cosy terms of household spending dilemmas, a story that is immediately comprehensible to the casual voter, but misleading in quite a deliberate fashion.

Given the diametrically opposed political stances embedded in these articles, the examples chosen reinforce what should be obvious from the start. Ideology doesn’t only affect the methodological approach taken by a uniquely specific political allegiance. The Chicago School of the post-war era was certainly far from alone in this respect. This particular tribe of economists does loom large in this volume, not because it deserves any special brickbats, but simply because of the skill and success the School manifested in marketing its ideas. Chicago provides a more cogent, and perhaps entertaining, example than those with more left-leaning ideologies. The issue is best illustrated by the most adept as opposed to the many other also-rans available.

The resemblance to the sort of twelve-step program subscribed to by Alcoholics Anonymous or other offshoots of that original model is striking. The essence of the predicament may lie in a human proclivity to want to direct the lives of others, their undeniable enjoyment in telling others what they should do and how they should do it.

Too many economists seem unaware of the particular Kantian blinders limiting their vision.

The statement is attributed to Keynes and has become part of a very hard-to-change oral tradition in economics. Since this is a reported verbal utterance, it will always be difficult to pin down. However, if Keynes did not actually make such a statement, then he certainly was remiss and should have adroitly fashioned one along those lines.

John Cochrane (2010), ensconced at the Booth School of Business (Chicago), seems intent on continuing this Chicago a priori tradition in regard to fiscal stimulus.

A reading of Coetzee’s (1980) Waiting for the Barbarians might in this instance be of some use even for veteran economists.

Before the 1970s, most academic economists published only sporadically, their responsibility residing mainly within the realm of teaching. According to Stigler and Friedland (1982b:198), more than one-third of economists granted doctorates from the top economics departments in the USA failed to publish a single article during the 1950–1968 period. A mere 5 percent managed to publish sixteen or more articles. Clearly less competitive pressure existed during that era. Nowadays, economists, even those employed at institutions verging on the obscure, and only equipped with degrees from schools sporting less than prestigious banners, would barely be treading water if adorned with similar publishing records. Conceivably, such added competition may have ultimately generated more dross than gold, since in that long-lost era, most published research was the result of self-motivated individuals. If we accept basic economic assumptions concerning motivations and incentives, only those with a true interest and vocation would have bothered investing time in what was then a seemingly optional practise. The opportunity cost of not publishing simply was much lower than it has become in more recent times.

Running even simple regressions in the era of punch cards required a degree of patience outshone only by the dark days prior to such access. Without the assistance of skilled research librarians, finding articles and data was extremely time-consuming and often unrewarding as well. Typing itself was yet another daunting hurdle which only those able to access secretarial assistance could easily overcome. The associated opportunity cost of writing an article implied that only the most self-motivated, or masochistic, succeeded in producing anything resembling frequent output.

Perhaps ironically Ralph Waldo Emerson may not himself have written such a moldy chestnut (or more kindly, an epigram) to encapsulate this thought. At best it might have been uttered by him during an address or speech. The original printed version read, “If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he build his house in the woods, the world will make a beaten path to his door.” This dubious quotation became transmuted and marketed as “Build a better mousetrap, and the world will beat a path to your door.” (For those wishing to indulge an unslakeable idle curiosity, the place to begin this rather fruitless exploration can be found at http://​todayinsci.​com/​E/​Emerson_​Ralph/​EmersonRalph-MousetrapQuotati​on.​htm. However, whether such a statement ever contained much in the way of practical wisdom is another matter, one perhaps not worthy of consideration.

Galbraith felt compelled to respond to Stigler’s reflexive evisceration of his television effort “The Age of Uncertainty”. The two had been sparring since the post-war era and Galbraith would have been disappointed without a slashing review from Stigler.

That the television series [The Age of Uncertainty] and the accompanying book, contain few ideas new even to Galbraith is therefore no occasion for surprise, let alone complaint. So a well-known preacher has returned with his customary sermon, and if it is beginning to be delivered in a somewhat garrulous fashion, that is a small sin and one customarily indulged in by people of Galbraith’s (and my!) age. (Stigler 1986:352)

Stigler would not publicly acknowledge the importance of rhetoric, preferring the pose of the objective scientist operating above the affray. Galbraith, however, was always the public figure, the showman who enjoyed selling his wares. He understood and never denied the importance of uncommon marketing.

On balance, I think it more important to be known as a good writer than a good economist. There must be hundreds of our profession … I could name a dozen … with an original, perceptive or otherwise interesting view of matters, large or small, who have been unable to communicate it beyond at least the narrowest circle, often not that. (Letter from John Kenneth Galbraith to George Stigler, June 2, 1977)

To repeat the obvious, Chicago isn’t the only school or department with an unacknowledged and unintentional ideological bias.

Republicans have for many decades profited from the facile quip slipped into Ronald Reagan’s first Inaugural Address (January 20, 1981), “Government is not the solution to our problem; government is the problem.”

To emphasize again, the purpose was not to deliberately promote the vested interests of the corporate sector. That the end result closely resembled an intentional lobbying effort is largely beside the point. An unshakeable belief in competitive markets reduced economic power to a level of inconsequence. The danger then became not any attempted conspiracy by corporate interests, but rather the unwelcome intrusion of government administrators.

Notice that Friedman’s statement is defined by a distinct marketing spin, however trivial it may seem. He chooses to opt for effect over accuracy, a perhaps unintentional sloppiness that can prove addictive. The rush to sell a point can leave precise specification in the dust. The issue Friedman fixes upon is not the dilemma of creating a Frankenstein but of creating Frankenstein’s monster. The common error is to confuse the scientist with his creation. Undoubtedly if Friedman chose to be more careful he would warn against the collectivist scientist, Victor Frankenstein, who like the central planners of the post-war era has the audacity to think that he could be god-like, achieving ends that would benefit all humanity. Instead he creates a life-threatening monster. In contrast, self-regulating markets, at least in textbooks, are able to avoid such unintended consequences.

It is difficult to keep the refrains from Gilbert and Sullivan’s famous patter song “A Modern Major General” from floating through one’s mind when considering Stigler as a very epitome of the Chicago School and style.

I’m very good at integral and differential calculus;

I know the scientific names of beings animalculous;

In short, in matters vegetable, animal, and mineral,

I am the very model of a modern Major-General. (Gilbert and Sullivan, The Pirates of Penzance, 1879)

His loyalty even extended to abstractions: the Chicago School or neoclassical economics. Much of his work centered around saving the damsel in distress, neoclassicism, from her attackers: hence his work on the economics of information and his enthusiasm for the Coase theorem. (Friedland 1993:780)

I am indebted for the idea of employing a rhetorical demolition derby to ritually disembowel opposing theories to Thomas Sowell’s recollections of Stigler, from his position as his student. The approach was a scorched-earth strategy or perhaps a campaign reminiscent of Rome salting the very earth on which Carthage once stood to prevent the city-state from ever again rising to prominence.

It was the perfect place for Stigler to conduct a Demolition Derby. Nor was he hesitant about the task. Theories like “monopolistic competition” and “countervailing power,” which were treated reverently at Harvard (where they originated), were eviscerated by Stigler. (Sowell 1993:787)

English mapmakers were wont to place the legend, “here be dragons” to denote the edges of the known world.