You write: "And so on. Adam Smith decries the existence of inequality and poverty, blames property rights for this inequality, advocates progressive taxation as a remedy, and is innately suspicious of profit."
Adam Smith did not advocate progressive taxation. His first maxim of taxation was:
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. "
That's tax burden in proportion to income, or the equivalent of a flat tax.
Your number 2 point doesn't say it is a good thing to tax the rich more, it says that it is "not very unreasonable" — a bad thing, but not bad enough to block a tax that Smith thought desirable for other reasons.
Your quote 5 stops just before the point where Smith makes it clear that he is not supporting anti-trust policy, he is arguing against government policies that help create trusts, the 18th c. equivalent of the CAB cartelizing the airline industry. Here are the sentences you didn't give:
"It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary."
Your quote 4 is again taken out of context, drastically changing its meaning. Here is what follows the bit you quote:
"The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security.
...Where there is no property, or at least none that exceeds the value of two or three days' labour, civil government is not so necessary.” He isn't arguing against inequality, he is saying that it is inequality that makes government necessary.
It's risky to pontificate on a book you haven't read, basing your views on other people's selected snippets. You are correct that Smith was not a conservative, but he was an 18th c. radical not a 21st century progressive, which is what you are trying to imagine him as. His basic view was that the laissez-faire policy he supported was in the interest of the laboring class.
I've discussed such misrepresentations of Smith repeatedly on my blog over the years as I encounter them.
A general point coming out of this. Any time you see a quote from Adam Smith, find it in the book, which is webbed in various places, and check the context. The same for any quote being used to establish what someone famous believed, provided the text is webbed.
The nature of the internet is such that factoids supporting what some people want to believe multiply, whether or not they are true, and it's pretty easy to misrepresent someone by selective quotation, as Noah just unintentionally demonstrated. It isn't the first, or the second, or the third time I have seen someone doing it to Smith, and not only from the left.
Well, the academics might be moving on, but the GOP and conservative Dems are still using the 70s and 80s ideas as excuses for inaction. So in a sense he's right.
One point you didn't make and perhaps should have is that conventional economic views sometimes contradict the right as well as the left. Economists are generally free traders, for example, and tend to be pro-immigration. They tend to oppose government programs intended to favor people conservatives approve of, such as farmers, as well as programs favoring people liberals approve of.
Consequentialism, please. Why should anyone outside of academia care about the latest trends in research? There's an ideology which is hugely influential among the ruling classes. You can give it a label and say it's "pop economism," not True Economics, and that definitional move may seem important in some esoteric debate, but it doesn't do much for the billions of people whose quality of live depends on the persistently bad decisions of those rulers.
This is wrong, for several reasons. First, as I mentioned, in the pop econ realm, voices like Piketty's and Krugman's are now displacing -- and to a large extent, have displaced -- the old libertarian machine. Second, as you should know, drawing a causal arrow between pop econ and the decisions of the ruling class is very "citation needed"; did they really need that justification? And third, what happens in academia is absolutely, undeniably important, as that generates both the ideas and the empirical results that inform policy for many decades to come.
Of the recent changes in the consensus in economics I'm just not seeing the consequences. Everywhere I look inequality is still increasing, economic (and political) power are becoming more concentrated and out of reach of anyone who has to work for a living, and if anything these trends are multiplying across more areas of life. If you want to argue that economic ideas aren't responsible for bad leadership in the past because they aren't influential then why should anyone care that the ideas are changing now?
I disagree that it's inaccurate or the wrong direction. I believe that educating the public in general, and key decision makers in particular, are among the most important responsibilities of any academic discipline, especially one where the consequences of those misconceptions are so great. To the extent that misconceptions are popular the discipline is still failing.
"To the extent that misconceptions are popular the discipline is still failing."
So... it's academics' fault that they haven't successfully countered a massive laissez-faire propaganda machine? And that makes them a complete failure?
As an engineer/physics major, this reminds me of all the moronic "WhErE's My FlYiNg CaR?!?111" takes out there who blame "scientists" for a media-driven misconception.
I don't agree that rulers make "persistently bad decisions", in the sense of producing outcomes the rulers didn't want. Education isn't going magically align the interests of a ruler and society.
Look at the AEA survey data in Noah's post, particular for the years when our current generation of federal judges, members of congress, and C-suite executives would have taken their Econ 101.
So all you're saying there, is that "the era where Noah said conservatives had their free-market insurgency, was also when most current policymakers were educated".
Which is really just, "generational cohorts tend to reach their peak policymaking power roughly 40 years after their formative education years".
That doesn't sound like miseducation, it sounds like "duh".
"And though economists do generally believe that very high taxes have some costs, a 2013 survey found that 97% of economists favored federal tax hikes"
This is not what your linked survey said. Instead, it asked economists whether they thought raising federal taxes on the top tax bracket would raise revenues over the next 10 years. This is emphatically different from saying that 97% of economists favor federal tax hikes.
Fun fact: a dozen years ago, I proposed to write a senior thesis at Williams on researching deeper causes of income inequality, which the econ department rejected as it was of “unclear value.” I’m certain things have changed since then.
"Greg Mankiw’s textbooks, which generally favor free-market ideas"
I don't think this is a fair take. On issues *where there is some controversy among actual economists*, I'll concede that Mankiw generally favors the libertarian side. But compare that to, say, the modal twitter or facebook user who has appointed themselves a "believer in the free market" and Mankiw appears to be quite statist; A full third of Mankiw's "Principles of Microeconomics" textbooks describe market failures and their policy solutions.
On the other hand, an economist who didn't realize that market failures occur on the political market as well, with the rational ignorance of voters an obvious example, would not be thinking through the logic of the problem. For details see: http://www.daviddfriedman.com/Machinery_3d_Edition/Market%20Failure.htm
The modal twitter user on the other side is no great improvement. Most people commenting are rationally ignorant. They know which is their side, which is sufficient. Dan Kahan has some good work showing that, when issues have become identified with group membership, the more you understand science the more likely you are to agree with your group's position, whether that means believing in evolution or not believing in it. Whether you believe in evolution (or global warming or gun control or ...) has very little effect on the world but a large effect on you, so it is rational to persuade yourself of the view that the people who matter to you favor.
I plead guilty to having once believed that economics was a reactionary pseudoscience. It made me drop my Econ 101 course in uni early on (I only signed up for it to please my right-libertarian parents). I feel very ashamed of that decision now.
Something to add is that a lot of the econ majors at my school were people who wanted to be business majors but either couldn't get in or were in the process of transferring. In some schools the finance and econ department are the same. Business majors in general are more conservative than other majors. And post 2008 financial crisis, the enemies of the left/occupy wall street movement were investment bankers at Goldman Sachs who usually had a finance/econ background. In the same way when I tell other people I study computer science they think IT/fix my computer, if I tell them I study econ they think finance/stock market.
You can imagine Trump thought the same thing when he appointed Steve Mnuchin a former investment banker to one of the most influential econ positions in government, as Treasury secretary. And Gary Cohn, former COO of Goldman Sachs as director of national economic council and chief economic advisor.
Would it be wrong to say the inverse is very plausibly true, that there's a non zero chunk of the proverbial the ruling class are using (Milton style pop) economics as a supporting argument to justify their own inaction?
Because that doesn't feel like a terribly wrong take here.
"The Second Welfare Theorem says that if you change the initial distribution of wealth in society, you can basically get any outcome you like. This puts the burden of proof on those who think we shouldn’t redistribute wealth — it forces them to bring proof that the harms from taxation are just too high."
Isn't the assumption being made generally that we can use a pure lump sum tax with no transaction costs? Actual wealth redistribution policies don't use lump sum taxes, and so I think it's a major stretch to say that this fact "puts the burden of proof on those who think we shouldn't redistribute wealth."
Getting there is itself costly. Not just the harms from taxation but the rent-seeking costs, as everyone spends resources trying to be redistributed to instead of from. We don't have the option of a benevolent god reaching down to redistribute.
What you call redistribution could equally be described as insecure property rights, the very problem that Smith, in the part of what he wrote just after the part you quoted, says government is needed to deal with.
i was waiting to hear some menger / austrian school... but, alas, none. not a problem though. just sharing that here for folks to google and learn more about this vastly better way of thinking / doing stuff / life.
although keynesian economics is "universally accepted"... it hasn't solved problems of inflation and the debasement of all currencies (save bitcoin).
... but, the economics that i believe in are working pretty well for me... my bank account grows faster than fiat-based inflation and my family's future is secure. this is a source of great, personal pride for me.
I would have expected a summary of the theoretical underpinnings of the "do nothing" view to mention Pareto. The idea that no one should be worse off from any redistribution has permeated really deeply in our society. A lot of our social logjams are built around this presumption - no one should have to deal with the least additional inconvenience or loss, no matter how arbitrary (views from a balcony, for example). Although the second theorem of welfare economics does show the arbitrariness of the current distribution, economists seem loath to argue for making any people worse off. I think this is why the turn away to experimentalism and government action came from development economics, where you can hand-wave away the question of where the money comes from (i.e. who it's been taken from).
Pareto optimality is the old Polish system of everyone gets a veto. Nothing gets done; and the Kingdom of Poland was swallowed by its neighbors.
Many Pareto optima exist for any given economy; all you need is one person who doesn't want to give anything up. But it is very difficult for a market to achieve any of them under realistic limitations of information and credit.
I have long argued that one ought to base the concept of economic efficiency on Marshall, not Pareto. That's what economist actually do, via the Hicks-Kaldor hack, but not how they explain what they do. For details see my _Hidden Order: The Economics of Everyday Life_.
You write: "And so on. Adam Smith decries the existence of inequality and poverty, blames property rights for this inequality, advocates progressive taxation as a remedy, and is innately suspicious of profit."
Adam Smith did not advocate progressive taxation. His first maxim of taxation was:
"The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. "
That's tax burden in proportion to income, or the equivalent of a flat tax.
Your number 2 point doesn't say it is a good thing to tax the rich more, it says that it is "not very unreasonable" — a bad thing, but not bad enough to block a tax that Smith thought desirable for other reasons.
Your quote 5 stops just before the point where Smith makes it clear that he is not supporting anti-trust policy, he is arguing against government policies that help create trusts, the 18th c. equivalent of the CAB cartelizing the airline industry. Here are the sentences you didn't give:
"It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies, much less to render them necessary."
Your quote 4 is again taken out of context, drastically changing its meaning. Here is what follows the bit you quote:
"The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions. It is only under the shelter of the civil magistrate that the owner of that valuable property, which is acquired by the labour of many years, or perhaps of many successive generations, can sleep a single night in security.
...Where there is no property, or at least none that exceeds the value of two or three days' labour, civil government is not so necessary.” He isn't arguing against inequality, he is saying that it is inequality that makes government necessary.
It's risky to pontificate on a book you haven't read, basing your views on other people's selected snippets. You are correct that Smith was not a conservative, but he was an 18th c. radical not a 21st century progressive, which is what you are trying to imagine him as. His basic view was that the laissez-faire policy he supported was in the interest of the laboring class.
I've discussed such misrepresentations of Smith repeatedly on my blog over the years as I encounter them.
A general point coming out of this. Any time you see a quote from Adam Smith, find it in the book, which is webbed in various places, and check the context. The same for any quote being used to establish what someone famous believed, provided the text is webbed.
The nature of the internet is such that factoids supporting what some people want to believe multiply, whether or not they are true, and it's pretty easy to misrepresent someone by selective quotation, as Noah just unintentionally demonstrated. It isn't the first, or the second, or the third time I have seen someone doing it to Smith, and not only from the left.
Well, the academics might be moving on, but the GOP and conservative Dems are still using the 70s and 80s ideas as excuses for inaction. So in a sense he's right.
One point you didn't make and perhaps should have is that conventional economic views sometimes contradict the right as well as the left. Economists are generally free traders, for example, and tend to be pro-immigration. They tend to oppose government programs intended to favor people conservatives approve of, such as farmers, as well as programs favoring people liberals approve of.
Consequentialism, please. Why should anyone outside of academia care about the latest trends in research? There's an ideology which is hugely influential among the ruling classes. You can give it a label and say it's "pop economism," not True Economics, and that definitional move may seem important in some esoteric debate, but it doesn't do much for the billions of people whose quality of live depends on the persistently bad decisions of those rulers.
This is wrong, for several reasons. First, as I mentioned, in the pop econ realm, voices like Piketty's and Krugman's are now displacing -- and to a large extent, have displaced -- the old libertarian machine. Second, as you should know, drawing a causal arrow between pop econ and the decisions of the ruling class is very "citation needed"; did they really need that justification? And third, what happens in academia is absolutely, undeniably important, as that generates both the ideas and the empirical results that inform policy for many decades to come.
Of the recent changes in the consensus in economics I'm just not seeing the consequences. Everywhere I look inequality is still increasing, economic (and political) power are becoming more concentrated and out of reach of anyone who has to work for a living, and if anything these trends are multiplying across more areas of life. If you want to argue that economic ideas aren't responsible for bad leadership in the past because they aren't influential then why should anyone care that the ideas are changing now?
And how is inaccurate language, causing people to look for the problem in the wrong direction, helping those billions of people?
I disagree that it's inaccurate or the wrong direction. I believe that educating the public in general, and key decision makers in particular, are among the most important responsibilities of any academic discipline, especially one where the consequences of those misconceptions are so great. To the extent that misconceptions are popular the discipline is still failing.
"To the extent that misconceptions are popular the discipline is still failing."
So... it's academics' fault that they haven't successfully countered a massive laissez-faire propaganda machine? And that makes them a complete failure?
As an engineer/physics major, this reminds me of all the moronic "WhErE's My FlYiNg CaR?!?111" takes out there who blame "scientists" for a media-driven misconception.
I don't agree that the problem is a lack of education on the part of decision makers.
Then what *is*?
Differing interests.
I don't agree that rulers make "persistently bad decisions", in the sense of producing outcomes the rulers didn't want. Education isn't going magically align the interests of a ruler and society.
Look at the AEA survey data in Noah's post, particular for the years when our current generation of federal judges, members of congress, and C-suite executives would have taken their Econ 101.
So all you're saying there, is that "the era where Noah said conservatives had their free-market insurgency, was also when most current policymakers were educated".
Which is really just, "generational cohorts tend to reach their peak policymaking power roughly 40 years after their formative education years".
That doesn't sound like miseducation, it sounds like "duh".
"And though economists do generally believe that very high taxes have some costs, a 2013 survey found that 97% of economists favored federal tax hikes"
This is not what your linked survey said. Instead, it asked economists whether they thought raising federal taxes on the top tax bracket would raise revenues over the next 10 years. This is emphatically different from saying that 97% of economists favor federal tax hikes.
You can see their appendix with the full question wording here: https://assets.aeaweb.org/asset-server/articles-attachments/aer/data/may2013/P2013_4396_app.pdf
My uni uses the CORE textbook, I really liked it. I thought the Steglitz model of employment was so clever lol.
Fun fact: a dozen years ago, I proposed to write a senior thesis at Williams on researching deeper causes of income inequality, which the econ department rejected as it was of “unclear value.” I’m certain things have changed since then.
Good article!
"Greg Mankiw’s textbooks, which generally favor free-market ideas"
I don't think this is a fair take. On issues *where there is some controversy among actual economists*, I'll concede that Mankiw generally favors the libertarian side. But compare that to, say, the modal twitter or facebook user who has appointed themselves a "believer in the free market" and Mankiw appears to be quite statist; A full third of Mankiw's "Principles of Microeconomics" textbooks describe market failures and their policy solutions.
Acknowledging market failures equals statist? An economist who didn't acknowledge that market failures exist would simply be a crank.
On the other hand, an economist who didn't realize that market failures occur on the political market as well, with the rational ignorance of voters an obvious example, would not be thinking through the logic of the problem. For details see: http://www.daviddfriedman.com/Machinery_3d_Edition/Market%20Failure.htm
It does to the modal twitter user who has appointed themselves a "believer in the free market".
The modal twitter user on the other side is no great improvement. Most people commenting are rationally ignorant. They know which is their side, which is sufficient. Dan Kahan has some good work showing that, when issues have become identified with group membership, the more you understand science the more likely you are to agree with your group's position, whether that means believing in evolution or not believing in it. Whether you believe in evolution (or global warming or gun control or ...) has very little effect on the world but a large effect on you, so it is rational to persuade yourself of the view that the people who matter to you favor.
Depressing conclusion but an elegant argument.
Thus speaks a (literal) son of Milton Friedman.
I plead guilty to having once believed that economics was a reactionary pseudoscience. It made me drop my Econ 101 course in uni early on (I only signed up for it to please my right-libertarian parents). I feel very ashamed of that decision now.
Something to add is that a lot of the econ majors at my school were people who wanted to be business majors but either couldn't get in or were in the process of transferring. In some schools the finance and econ department are the same. Business majors in general are more conservative than other majors. And post 2008 financial crisis, the enemies of the left/occupy wall street movement were investment bankers at Goldman Sachs who usually had a finance/econ background. In the same way when I tell other people I study computer science they think IT/fix my computer, if I tell them I study econ they think finance/stock market.
You can imagine Trump thought the same thing when he appointed Steve Mnuchin a former investment banker to one of the most influential econ positions in government, as Treasury secretary. And Gary Cohn, former COO of Goldman Sachs as director of national economic council and chief economic advisor.
Would it be wrong to say the inverse is very plausibly true, that there's a non zero chunk of the proverbial the ruling class are using (Milton style pop) economics as a supporting argument to justify their own inaction?
Because that doesn't feel like a terribly wrong take here.
Milton style pop economics is simply the most recent in a long human history of such ploys to manipulate public opinion.
"The Second Welfare Theorem says that if you change the initial distribution of wealth in society, you can basically get any outcome you like. This puts the burden of proof on those who think we shouldn’t redistribute wealth — it forces them to bring proof that the harms from taxation are just too high."
Isn't the assumption being made generally that we can use a pure lump sum tax with no transaction costs? Actual wealth redistribution policies don't use lump sum taxes, and so I think it's a major stretch to say that this fact "puts the burden of proof on those who think we shouldn't redistribute wealth."
The 2nd Welfare Theorem is about the initial distribution of wealth. It doesn't say how you get there.
Getting there is itself costly. Not just the harms from taxation but the rent-seeking costs, as everyone spends resources trying to be redistributed to instead of from. We don't have the option of a benevolent god reaching down to redistribute.
What you call redistribution could equally be described as insecure property rights, the very problem that Smith, in the part of what he wrote just after the part you quoted, says government is needed to deal with.
That's what the disclaimer in the post is for. ;)
i was waiting to hear some menger / austrian school... but, alas, none. not a problem though. just sharing that here for folks to google and learn more about this vastly better way of thinking / doing stuff / life.
although keynesian economics is "universally accepted"... it hasn't solved problems of inflation and the debasement of all currencies (save bitcoin).
sigh
sadly, people like you have been taken in by the advent of internet econ cranks.
oh, i suppose that's possible.
... but, the economics that i believe in are working pretty well for me... my bank account grows faster than fiat-based inflation and my family's future is secure. this is a source of great, personal pride for me.
i hope you can say the same!
I would have expected a summary of the theoretical underpinnings of the "do nothing" view to mention Pareto. The idea that no one should be worse off from any redistribution has permeated really deeply in our society. A lot of our social logjams are built around this presumption - no one should have to deal with the least additional inconvenience or loss, no matter how arbitrary (views from a balcony, for example). Although the second theorem of welfare economics does show the arbitrariness of the current distribution, economists seem loath to argue for making any people worse off. I think this is why the turn away to experimentalism and government action came from development economics, where you can hand-wave away the question of where the money comes from (i.e. who it's been taken from).
Pareto optimality is the old Polish system of everyone gets a veto. Nothing gets done; and the Kingdom of Poland was swallowed by its neighbors.
Many Pareto optima exist for any given economy; all you need is one person who doesn't want to give anything up. But it is very difficult for a market to achieve any of them under realistic limitations of information and credit.
Pareto is the "quantum teleportation" of econ.
1) It's NOT what the original concept said.
2) It's been simplified by hack journalists into something unrecognizable and mostly based on pop culture.
3) It's a meme with zero redeeming value at this point, but keeps on keeping on even though its scientific promise peaked about 40-60 years ago.
I have long argued that one ought to base the concept of economic efficiency on Marshall, not Pareto. That's what economist actually do, via the Hicks-Kaldor hack, but not how they explain what they do. For details see my _Hidden Order: The Economics of Everyday Life_.
Among other issues, you seem to be misrepresenting Adam Smith by taking his writing out of context. Would be interested in your response. See legal economist David Friedman's blog (http://daviddfriedman.blogspot.com/2021/07/noah-smith-on-adam-smith.html) for details.