 Scott? OK. Well, first of all, thanks for inviting me to this panel. It's great to be here. This isn't really my area of expertise. I'm actually a monetary economist. And so when I was invited to do a paper for the project, I immediately thought back to 2007 when I was, that was before I was blogging, and I was studying neoliberalism at the time. It's sort of because they had solved all the macro problems. I thought, well, turn my attention to something else. Anyway, and I thought that project kind of related to what Dan was asking about. In thinking about neoliberalism, I tried to think about how the word liberalism has evolved over time. And of course, it has multiple meanings. But one interpretation that I found attractive, and of course, there are many, but this one was that liberalism can be thought of as a value system sort of like utilitarianism, but changing worldviews so that over time, people's intellectuals' views of what fulfilled utilitarian goals would be different. So classical liberals in the late 1700s and early 1800s believe that free markets were a way to improve the well-being of society. Later in the Industrial Revolution, liberals started to turn a more socialist direction, a sort of big government direction, which probably reached its peak around the mid-20th century. And then between 1980 and 2007, when I was working on this project, we had what I called the neoliberal era, which started to go back towards the free market focus. And I thought that was the end of history at the time, but we're probably in a fourth cycle now. So this was sort of the framework that I used when I was asked to think about this problem. And I guess I thought that if liberalism has evolved over time and if many economists are sort of utilitarian, then one way to think about this is that maybe some of the reasons why economists differ at a point in time, differ among each other, might have something to do with why their views have changed over long periods of time as well. If worldviews changed about what policies could best fulfill these goals over time, then maybe at a point in time, people have different worldviews about which policies are most effective at achieving some of these goals. So that's sort of the framework that I used to start thinking about the project. Another way of putting this is that instead of thinking in terms of liberal versus conservative economists, we think about different types of liberal economists, classical liberal economists like Milton Friedman or Hayek, and then more modern varieties like Paul Krugman. And even Paul Krugman, you could argue, is sort of split between the 1990s of Paul Krugman, which I would argue was sort of a neoliberal economist, and the more recent Paul Krugman, which is going back to the mid-20th century big government type of liberalism. So, and one other example that I think is useful here is the New York Times in 1987 endorsed abolishing the minimum wage. Recently, they've advocated doubling the minimum wage. That's quite a swing within a single newspaper that's usually identified as correctly as liberal. So, but that raises a question. So, if most economists are some variant of liberal in this broad sense or utilitarian, then why would economists not agree about public policies if they have the same goals? What would cause them to disagree about public policies at any given point in time? So, here's where I start to focus on what I call the worldview, which is the connections you make between policies and outcomes. How do you see the world working? How do you analyze it? And Don, I don't know if I'm mischaracterizing your view, but I think you've done an excellent job of presenting sort of the Austrian perspective on the complexity of society, the fact that we often don't have the information to design good public policies. And I think that's a very valuable perspective on it. My own view is probably shaped more by my education at the University of Chicago. And so, I'm gonna talk about some of the things that I got out of that that helped me understand this split. So, I actually went as an undergrad to Wisconsin, which is sort of a typical liberal economics department in the 70s, and then later at a grad school at Chicago. And one thing I noticed is that the Chicago economists seemed to take economic theory much more seriously. They were sort of like the true believers, the economists, economists. That is, they really, they didn't just teach the models and say, but of course that doesn't apply to the real world. They believed it does apply to the real world. So, here's a couple things that I think helped me understand these differences. One, they believed incentives matter a lot. Now, of course, economics is all about how incentives matter, but for instance, price increases may discourage certain activities. And think about the minimum wage debate. Part of that debate is about how much do higher minimum wages discourage companies from hiring workers. If you think incentives matter a lot, you might be more worried about the minimum wage. Taxes, how much disincentive do they provide to work and savings and so on? Unemployment insurance welfare, do those provide a disincentive to work? If you believe incentives are important, you might be more worried about that question. Something like FDIC, which protects depositors, does that provide an incentive for banks to engage in more risk-taking? So again, I think Chicago economists would be more worried about moral hazard, those kind of problems associated with public policies. So, incentives I think are one big reasons that the worldview of more free market economists differ from more big government economists. Another one I think is that the Chicago economists felt that the market model, the supply and demand model was actually a pretty good model of society. And it's not perfect, and also by the way that the public is reasonably rational in their decision making. And so this led to sort of a natural skepticism about regulations, and regulations are often based on the assumption that markets aren't very efficient in allocating resources, or that the public is not very rational in making decisions. So, I think this is, in a nutshell, the way the Chicago view that I absorbed in grad school differs from what I later found that many other economists had, which was more favorable to government regulation and government spending programs. Now, I'm not trying to claim that other economists are necessarily ignorant of this. It's not a question of that they don't know the theory of comparative advantage or something like that. What's really going on here I think is that, although by the way you could say that some economists don't know the theory of comparative advantage, and actually Paul Krugman wrote a famous book basically arguing that point, so I should maybe back up on that. But mostly this is about honest disagreement about empirical data and how to interpret it, what are the relevant elastices, how responsive are people to incentives, and so on. So, although obviously, naturally I prefer the Chicago view, I don't want to be too arrogant about this and claim that my opponents are not as well educated. Certainly there's lots of brilliant economists on the other side of the question. On the other hand, I do think I have at least some reason for believing that economists underestimate these effects. This is what I like to call cognitive illusions. I think most people, especially non-economists, tend to underestimate the power of economic forces in general. And I'll just give you an anecdote here. When I was young, my father, who's a heavy smoker, he used to say, well, if they put a high tax on cigarettes, that's not gonna discourage anyone from smoking. And that's sort of a common sense way of looking at it. Smokers seem addicted, so what would a few pennies on a pack of cigarettes matter? Much later in my life, my mother told me that she had been a smoker when she was young, which really shocked me, because I'd never seen my mother smoke before. So I said, well, why did you quit? And she said, well, when your father and I got married, we decided we could only afford one smoker in the family. And the reason I love this example, first of all, my father, he was very bright. But I think even for someone who's intelligent, common sense would suggest that incentives aren't gonna matter that much in that case, or that a little higher minimum wage isn't really gonna cost anyone any job, and so on. And I think if we just rely on common sense, we tend to underestimate the power of economic forces. I think that's also true in my area of monetary economics. I think this is, even economists, I think, have this problem. A lot of times if you pick up economics textbooks and they need to illustrate perfectly inelastic demand curves, they shouldn't even teach this concept, by the way, but it's a vertical demand curve. Consumers are not at all responsive to price. So the professor has to think of an example, and they'll say, well, a lifesaving drug, there certainly higher prices won't discourage consumption. But then we find when they invent lifesaving drugs for, say, AIDS, they find that if they reduce the price sharply, sales increase enormously, especially in developing countries. So even the textbook example of where prices don't matter, it turns out prices matter a lot, lifesaving drugs. And that just shows you how relying on common sense to think about how people respond to incentives is actually not very reliable. And I do think that some on the left tend to rely too much on common sense, whereas reality is deeply counterintuitive. It's full of things that seem wrong. In a natural disaster, it's actually a good thing if businesses engage in price gouging. That's really hard to explain to the average person. It's true, but it's very hard to explain. It's very deeply counterintuitive. And so I think this is partly what shapes these two worldviews, is that the market oriented economists, the classical liberals, if you will, really take economics seriously, the model seriously, and believe it. There's important things to say about how we behave. Liberal economists believe it to a certain extent, but they're willing to brush it aside in where they see important need for regulation. And they don't worry as much about the secondary effects, the side effects that result from that regulation. Now I said I did this work in 2007. And by the way, I sort of dropped the subject when I got into blogging, but if you're interested, there's on the line, online you can find a paper by Googling it called The Great Danes. That's where I wrote up all this work I've been doing on that subject. Anyway, since then obviously we've had the great recession and this has only strengthened my conviction that changing worldviews are behind the shift in liberalism. So at the time I only had the great depression to work through, work with. But I argued that the Great Depression made economists more left wing because it made reality in a sense look more left wing. Like it looked like capitalism didn't work very well. It looked like fiscal stimulus was needed to sort of the average common sense view. And so the economics profession swung to the left. Now, in the so-called neoliberal era after 1980, a lot of the problems that developed from big government started to discredit it. We also had the fall of communism and the economics profession moved somewhat back to the right. There was again more interest in free markets and deregulation, cutting high marginal tax rates, things like that, free trade. That's the neoliberal era. Now, I think we're clearly seeing a swing back towards big government, especially among liberal economists, you know, in the American sense of liberal. There's much more support for higher minimum wage fiscal stimulus, a lot of sort of big government policies than there was just a few years ago. And again, I think that's come out of this recession. So let's think about what you might call depression economics. Paul Krugman wrote a book with that title on depression economics. If you're in a depression, it looks like there are not important opportunity costs from government programs. It's not a question if you spend more here, you have to spend less here, you can pull unemployed workers into that program. Now, I think there's flaws with that way of thinking, but it's harder for me to make the case against fiscal stimulus when there's high unemployment. When you're at full employment, like say during the Clinton presidency, it's a lot harder to make the argument for big government because the opportunity costs are much greater. At zero interest rates, fiscal stimulus looks more attractive. So again, in the Great Depression and again recently, much more interest in the left and fiscal stimulus than in the 1990s. And policies like as I said, minimum wage, regulation, skepticism, even about free trade is growing on the left. Now, if this shift to the left is mistaken, and I think it is mistaken, then that suggests we're sort of making the same mistakes we made in the 1930s or misdiagnosing what really went on in the Great Recession, the causes of it and the solutions. And that sort of led the profession astray. But I would go back to this idea of cognitive illusions. It's easier to have cognitive illusions about the field of economics when you're in a depression. It leads to bad or even a period of high unemployment. It leads to bad thinking about economic policies. Let me just read you one quote here. I don't have time yet. To give you a sense of how much things have changed. This is Paul Krugman from 1999. And now of course, I assume you all know he's a huge fan of fiscal stimulus. What continues to amaze me is this. Japan's current strategy of massive, unsustainable deficit spending in the hopes that this will somehow generate a self-sustained recovery is currently regarded as the orthodox, sensible thing to do. Even though it can be justified only by exotic stories about multiple equilibria, the sort of thing you would imagine only a professor could believe. Meanwhile, further steps on monetary policy is the sort of thing you would advocate if you believed in more conventional boring model. One in which the problem is simply a question of savings investment balance are rejected as dangerously radical and unbecoming of a dignified economy. So he's expressing exactly my view of monetary policy and fiscal policy and implicitly criticizing his more recent view. And then he ends up, will someone please explain this to me? So I think back in the 90s, actually I think these splits were much smaller. There still was differences between liberal and conservative but you had terms like the Washington consensus. The Nordic model which is mixture of free markets with social insurance became sort of a compromise agreement among a lot of economists. Monetary policy was less polarized. There was less polarization in general when the economy was closer to full employment. So I focused on epistemic differences, differences in worldview but let me just conclude by pointing out that I don't think this is really complete. It's the area I've been interested in, the one I think I have the most to contribute but I do think differences are also due to two other factors. One is I don't think all economists have utilitarian values. There are other value systems, especially on the right I would argue. For instance, on the right some economists put a lot of emphasis on natural rights. You just have a natural right to do things regardless of utilitarian considerations. Or just desserts. Maybe high taxes would reach to the poor, would make them happier but the rich deserve what they've earned. So these are other value systems. And then third I think tribalism has increased. This is more of a psychological theory but society has become more polarized. We've seen this in politics. We have whole news networks now focused on feeding different ideologies to different groups. We have bloggers like Paul Krugman who tend to demonize the other side. So I think there's this tendency now, I notice this in the blogosphere to group people into the good guys and bad guys and if you think in a more tribal sense then you're going to start even maybe subconsciously adopting the beliefs of other people in your quote tribe about public policy issues you haven't even studied maybe but well this is a good guy, he's in my tribe. He says this so I should probably believe that too. So I think there is room for criticism of the profession in terms of those other areas as well but again I think epistemic differences are an underappreciated part of the story. Thank you. Okay, thank you.