 You start up. Good afternoon, everybody. I'm Daniel Klein. Welcome to this event on economists on the welfare state and the regulatory state. There are two handouts that might be useful if you don't have those. Does anyone have the two handouts? Who needs one of the two handouts? Maybe, yeah, that's great, Bethany, if you can help with that. So I'm an econ prof and the gym share at the Mercatus Center at GMU. And I'm delighted to have this opportunity, the partnership of Mercatus for today of Claire Morgan, in particular. I thank them for their ongoing support and friendship. In particular, they co-sponsored the symposium on this title, published an econ journal watch, of which I am the editor. And of course, they're doing this for us today. And thank you to you for coming out today. I'm glad you're here. Mercatus, for those of you who don't know, is a university-based research center. It advances knowledge about how markets work to improve people's lives by training graduate students, some of whom are here, conducting research, and applying economics to offer solutions to society's most pressing problems. So I have a PowerPoint, and one of the handouts has all the slides for your convenience. Why don't any argue in favor of one and against the other? That's the essential question of the symposium and of the event today. Let's start with a thought experiment. Suppose you see an economist get up on TV or in a classroom, economist you're not familiar with, and let's say favor increases in Medicare or increases in public school funding. My guess is that you would, in the back of your mind, if only in the back of your mind, guess that that economist also is friendly to market interventions, the regulatory state, such as it exists. I think you would expect that pattern. And likewise, if you just heard this economist you're seeing for the first time oppose the welfare state, I think you would expect that that economist probably also leans against the regulatory state. I just think that's actually built into our interpretation of the culture. Now, these positions on the welfare state and the regulatory state, I want you to think of that in terms of directions from the status quo. We normalize the status quo to be the 50-yard line on the football field, as it were. And what we're talking about are people leading this way towards a greater governmentalization of social affairs or this way toward less governmentalization of social affairs. The issue I'm talking about today, the evidence for today, is about these directions. It's not claims about people's ideal destinations. It's not about the end zone of the football field. It's about which way they want to go from the status quo. And our thought experiment, I think, conforms to what we might think of as customary camps of prominent economists. These are mostly Americans, except for Hayek, 20th century economists who've passed away. Hayek, Friedman, Buchanan, Becker, all certainly favorable towards liberalizing regulations, reducing interventions. And I would say from the status quo, certainly not leaning in favor of more welfare state and tending even to favor reductions in the welfare state. And Samuelson, Galbraith, Robert Heilbroner, Robert LeCochman, they go in the other direction on both dimensions in both dimensions. And if you take prominent economists who are vocal today, here's some names that I put together rather haphazardly. Again, I think they sort themselves into these two basic camps, the liberal camp. And I use that term in the original political sense of the term. And a more left-leaning camp, liberal and left. And it's really, so it's really quite all around us. Now we can conceptualize this a little further if we actually think spatially. So on the welfare state along the horizontal, you can think of, well, being generally pro, neutral, or anti, OK? And then there's the regulatory state to mention, pro, neutral, and anti. And you might sort of, if someone from Mars who didn't know anything about our culture might figure that economists populate this whole field and you find economists in all those cells. But as we've already discussed, in fact, we think of them as generally actually tending towards the diagonal or even the corners. The most extreme kind of configuration would be if they were only in those shaded areas. But I think really we find them also sometimes neutral or just silent on many issues. So I'm certainly not denying that. In fact, I'm not denying that they're neutral on some, while positive or anti on the other dimension. So we're going to look at data. And actually it looks kind of like that. But still, there's a question here. There's a big question here. Why don't we find folks in those pro-anti, anti-pro corners? Now before I elaborate that, I just want to talk about some data. We have surveys of economics professors. This is one that I was involved in. And here's one of your handouts with the 17 policy questions might be of interest. We asked these 17 policy questions all in the format of positing a regulation, such as higher minimum wages, where it's about increases in the regulation or governmentalization, and then five options from strongly support to strongly oppose. And that was the format for all 17. Now of these, first of all, I want to drop out the military question, the last one entirely. I want to use the three at the end then to form a welfare state variable. That's the questions, more redistribution, more funding of the public school system, more benefits and coverage by Medicaid. Now if you take those and compare that to the other 13 that are here and call those restriction, because those would be all different kinds of restriction, you see that the data looks like this. This is actually the scatter plot of the respondents of the survey. So this here is Bill, right? And this was his welfare state score. And this was his score on this 13 part restriction variable. And as you can see, it kind of fits what we're saying. We have this upward sloping regression line. We have a lot of concentration down here with strong support for the welfare state, with some neutral or support for the regulatory state. And then it goes up to the other corner, the more liberal corner of opposing both. We see, most importantly, the two empty areas. We do not find people opposing one and favoring the other. This is 299 economics professors surveyed at random. And I just want to show you another picture where on the vertical axis, I dropped out prostitution, gambling, immigration, abortion, and hard drugs, leaving eight more business regulation type questions. Minimum wages, import restrictions, permitting of new pharmaceuticals, restrictions on discrimination by private parties, restrictions in buying and selling organs, human organs, tighter workplace safety, tighter air quality and water quality regulation, and occupational licensing. So these are regulations of recognized legitimate businesses as opposed to, say, things like the drug prohibition, which you might not think of as really the regulatory state. And here, we have an even higher upward slope. We have a somewhat tighter fit. So this may be best shows. What it is, I feel, cries out for explanation. Let me elaborate why I think so. Oh, no. I want to tell you about two more studies that actually also is one of the problems with not having presenter's view for the file. I don't exactly know what slides coming next. So this one, in the most recent EJW, we have two papers, and Ryan Daza is the co-author of one of them. We have two papers that look at the top 200 econ blogs. On these two issues, which have received a great deal of attention, they've been hot in the news in the last two years. The first, because its charter expired, and there's been wrangling and battling over whether to renew it. And the second, because Uber and Lyft are revolutionizing transit and wreaking havoc, really, on the traditional taxi cartels and monopolies. And so these are very hot topics that bloggers have talked about, at least some bloggers. For example, Donald Boudreau, who's blogged about these a lot, these investigations looked at the top 200 econ blogs, as listed by a 2013 listing. And quite remarkably, Lyft bloggers expressed almost no favor for liberalization on these two issues. They were like silent, more or less, sometimes even negative towards, say, Uber or towards ending the ex-Imbank. So that's further evidence of actually this pattern that we're trying to explain. Now, why is a call out for explanation? Let's take the welfare state dimension. Let's say you're pro-welfare state. You believe that a dollar means more to a poor person than it does to a rich person, a very reasonable belief, I think we all feel. Furthermore, you see that a lot of people in society feel the same way. So they like to see dollars going from richer people to poorer people, because a dollar means more to a poor person than to a rich person. But on the other hand, if one person voluntarily gives dollars to poorer people, that benefits not only the recipient, but actually the other people who care about this issue. So there's like a positive externality in voluntary redistribution and a free rider problem. We all would like to see more redistribution. But if it's left to voluntary means, there's a free rider problem in each of us doing it, paying our part. And so that's an argument for having the state require it. So that's a logic. It makes some sense. But what is it about those arguments, the pillars of those arguments, that so much carry over to the regulatory state issues? The pillars of that welfare state argument where dollar means more to a poor person than a rich person and this free rider problem in this particular sort of public goods of redistribution. So why is it then that you can't believe that and favor the welfare state, but then also be against, say, occupational licensing or anti-trust law or agricultural intervention or energy policy or transportation policy? Those aren't the same arguments. Those aren't the same logic. Are they? Or maybe they are, but I don't quite see what it is that's common to both. So it calls out for explanation. Let's now start with someone taking an anti-position on welfare state. Suppose you're not favorable to the welfare state. Suppose you say, yes, a dollar means more to a poor person than to a rich person. But the welfare state creates disincentives, both for the taxpayer and for the recipient. These create less growth, less wealth, dead weight losses, a smaller pie. Those are good arguments. Those are meaningful arguments. You might also say that the welfare state creates dependencies. And that's another reason you're against it. I'd say those are the familiar arguments, the common arguments. But again, are those arguments so germane to the regulatory state dimension? It's not at all clear that they are. Again, consumer protection interventions, environmental interventions, antitrust interventions, and so on. I don't see that it's the same logic in the two dimensions. So if it's not the same logic, why couldn't we more expect someone to mix and match so as to populate those two other cells where, in fact, we find nobody? So I think there's psychology in this. And so I want to turn to Jonathan Haidt. Let me just say that why do we think it goes to psychology, questions of political psychology? Like, even if one economist says, I have a theory which explains why I'm pro-pro or anti as the case may be, you still would want to ask that economist, so how come your colleagues in the economics profession don't also see this logic? And that would seem to be then a psychological question. So one way or the other, I think we get to psychology, and I think it's perfectly reasonable to ask these questions of psychologizing economists. So Jonathan Haidt has this metaphor of the elephant and the rider, perhaps you're acquainted with it. The mind is divided like a rider on an elephant, and the rider's job is to serve the elephant. The rider is our conscious reasoning, the stream of words and images of which we are fully aware. The elephant is the other 99% of mental processes, the ones that occur outside of awareness but that actually govern most of our behavior. So he makes a kind of extreme case with 99% subterranean while the rider thinks, likes to think of itself as in control. And Haidt says that what people really do is they have their elephant moving around in whatever directions, and the rider kind of rationalizing those movements so as to feel in control and feel that it has an articulation, a theory, of why it does what it does, why it takes the positions that it takes. And so we can imagine our two sorts of economists each saying this and each saying this about the other. I can articulate the reasons that justify my positions in both realms, but those other economists, they're ideologues. They have let their elephant run away with them. They're rationalizing what their elephant does, and it doesn't make sense, and it's irresponsible. So that's what I'm after here. That's what the symposium was all about, to ask economists these questions. So on the two dimensions, why do so few economists argue in favor of one and against the other? And can you think of counter examples, economists who would fit those empty boxes? What are your own views in the two areas? And if your judgment tends to be parallel across them, how would you account for that? Like, what is the theory, the basis, for being pro-pro or anti-anti? What's like the common theory that gives you both of those answers? And then if your judgment tends to be parallel in that fashion, how would you explain why many economists do not share your views? Why don't they see as you see? So I'm asking psychology questions, as well as sort of background theory questions. In the symposium, we had, in the published symposium, we had a number of contributors. Today we have Donald Boudreau, Scott Sumner, and Jeremy Rabkin. I was thinking I would read their intros now, so we can just move along. Professor Donald Boudreau is econ professor and getchill chair in the econ department here at Mason. He's also a senior fellow of the FA Hayek program at the Mercata Center. Don was also the chairman of the econ department for eight years, during which we made great advances and upon which we continue to build today. That's when we hired Dan. It is, actually. I remember that phone call. Can never forget it. He specializes in globalization trade, law and economics, and antitrust economics. As you all probably know, he's a vibrant poster at Cafe Hayek. And just recently, he published a splendid primer on Hayek, the essential Hayek published by the Fraser Institute. Scott Sumner is professor of economics at Bentley University and the Ralph G. Houghtry chair and program director of monetary policy at Mercatus. He specializes in monetary policy, the role of the gold standard and the history of macroeconomic thought. He's got his own blog. I'm sure many of you know the Money Illusion and he also blogs very, again, very vibrantly at Econ Log. And he's published in leading academic journals, including the Journal of Political Economy, Economic Inquiry, the Journal of Money, and Credit and Banking, and others. Jeremy Rabkin is professor of law at GMU. He is on the board of directors for the United States Institute of Peace and the Center for Individual Rights and the board of academic advisors for both the Harvard Journal of Law and Public Policy and the American Enterprise Institute. Prior to joining Mason, Professor Rabkin was professor of government at Cornell for 28 years and he as well had done a stint at Harvard. So we'll go in the order that they're seated here. Don, you're first and please proceed. Thanks, Dan. Shall I just speak from here? Whatever you like. I'll just speak from here. And I assume, okay, Mike's working. Before I started, I do want to say when I was interviewed to be chairman at George Mason back in 2001, Tyler Cowan asked me, he said, well, if you're chairman, who are the three people you'd like to bring to the faculty who are not currently on the faculty? And I said, no particular order. I said, Rush Roberts, Deirdre McCloskey and D.N. Klein. And I got two at three. At two of the three. Rush has since left. We all became this close to getting Deirdre. But I'm really delighted to be Dan's colleague. His work, as you can tell just from this symposium is interesting. It's pioneering. It's certainly outside of the box of what most economists do. And I can't help but think that that fact in some way has some relevance to explaining these patterns that we see revealed in the questionnaires. So I want to congratulate Dan. It's a great symposium. But I have to qualify my congratulations because it's not a great symposium for me because I can't find anything worthwhile to say that hasn't been said by the contributors, including Scott, or at least strongly implied by them. It's unsurprising that support for the welfare states highly and positively correlated with support for government regulation in the economy. And the reasons detailed by many of the symposium's authors, again, including Scott, are credible and pretty much complete. But let me at least try to offer a take that's somewhat different from the ones that I've encountered. So here's my proposed mental experiment. Dan started with one. Here's my proposed mental experiment. Supposed to take all these 219, 229 economists. And you ask them one additional question. You take these economists, and you ask them to respond to Hayek's increasingly famous claim that he makes in his last book, The Fatal Conceit. And I'll read this Hayek quotation. It's a bit wordy, but he was Hayek. And just ask these economists to react to that quotation. Here's a Hayek quotation. The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. It's a typical Hayek quotation. Saying, look, the curious task of economics is to explain how little we know about reality. And what would be the reaction, or the lineup of reactions, of these economists to that quotation? I assume that some would be in fist pumping agreement. That would be me. Well, I wasn't in the group, but I would agree with that claim. And I'm sure that there would be a lot of economists who would be befuddled by the claim, or even in vigorous disagreement with Hayek's claim. So I'm quite confident that the more strongly an economist opposes both regulation and the welfare state, the more strongly he or she endorses Hayek's claim. The more readily he or she sees the wisdom in Hayek's admonition to be humble about what we can design, what we can engineer from above. Opposition to both the welfare state and to government regulation can, I believe it typically does, reflect in large part the understanding that reality is vastly more complex than proponents of the welfare state and of regulation supposed to be. Let's call we need words. Dan is a stickler for proper terms. So let's call those who are skeptical of the welfare and the regulatory state marketists and those who support the regulatory state and the welfare state statists. Now, I can speak with more authority and confidence about marketers because I'm one. I have been for all of my adult life and because most of my colleagues throughout my life are marketers, so I'm quite prominent. So I know marketers better than I know status, but I read a lot of statists. I read The New York Times regularly, not just the Times. And so I think I have some good idea about what status, how status think. I'm not sure I'm doing psychology here or not. I'll leave that to the audience to judge. So here's one difference between marketists and status. We marketists understand, or we think we understand, that the margins on which private people can adjust their actions are many. The number of margins on which people can adjust to changes are just huge in number. And that's true whether the changes are brought about by the market or brought about by the state. And not only is the number of possible margins of adjustment large, many of these margins are so small in size or so fleeting in their existence that they're undetectable by outside observers. Status, in contrast, seemed to me to suppose both that the number of margins on which private people can adjust their actions is relatively small and that these margins are mostly detectable in an objective way, measurable by outside observers. This difference between marketists and statists results in marketists, at least compared to statists, being less pessimistic about markets and more pessimistic about state action. So why more pessimistic about markets? Because with many margins on which to adjust, private market actors have great scope to find or to craft market outcomes that are closely tailored to each actor's individual preferences. Why more pessimistic about state action? Well, the large number of such margins and the invisibility of the details to everyone who's not on the spot combine with the subjectivity of each person's preferences to make it practically impossible for government officials to assess how well or how poorly markets are working. Too much is unseen, indeed, too much is unseeable to render imposed collective decisions likely to improve the general welfare. So my thesis is this, marketists understand, appreciate, and respect the enormous complexity of reality, statists don't. Statists believe reality to be far simpler than it really is. Perhaps statists are misled into their misconception of, notice I'm on my elephant, statists are misled by their misconception of reality, by their theorizing, for example, the variables, for example, conventionally used in economic models to express economic relationships and connections are easy to mistake for being realistic and exhaustive representatives of real-world entities. You draw an economic model and you think you have a picture of the economy, just one that's smaller than the larger economy. Or perhaps people just don't think very deeply. Perhaps they're misled by words, often used to describe collections of people, low-skilled workers, the steel industry, retailers, college students, smokers. And being misled by these words, they miss the multitudinous differences that often separate the individual entities within any one of these categories from other individuals within the same category. Whatever the reason, the simpler one supposes reality to be, the greater are the prospects one supposes for outsiders to grasp reality fully enough to engineer it into a better state. And that's true whether we're talking about making people richer through the welfare state or improving economic outcomes through government regulation. Let me end by offering a related hypothesis. The simpler one supposes reality to be, the more readily one forgets Thomas Sowell's observation that there are no solutions, there are only trade-offs. Or put differently, the simpler one supposes reality to be, the more prone one is to fall for a good guy, bad guy account of reality. All problems are easily identifiable and are caused by evil doers if you think reality is simple and caused by deceitful business executives, hateful, racist, homophobes, stingy middle-class voters. And the solution is to send in the good guys to defeat the bad guys, to exercise the devil, and to undo his deeds, to replace Satan, if not with angels, at least with noble public servants bent on saving the day and doing what's right. When an economy is seen as a relatively simple mechanism when society is viewed as one views a passion play or a Hollywood movie in which a bad Hollywood movie in which good and evil are unambiguous and in which evil persists only because too few good people have yet to spring into action, then there seems to be a natural urge to call in a superhero to obliterate the evil and the misfortune. So I think that the, I think a decent hypothesis is that people who believe the world to be simpler and don't appreciate the complexity tend to support state action because it's easy. You create an entity to deal with these relatively simple problems. People who are on the market side have for whatever reason, I don't know if it's psychological, it's due to training, due to upbringing, but understand at some level the enormous complexity of not only economic reality but of social reality writ large and that makes people much more skeptical of the ability of government to improve things whether it be in the welfare front or the regulatory front. Thanks. Thank you, Don. Scott. I'll 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 world views so that over time people's intellectuals' views of what fulfilled utilitarian goals would be different. So in classical liberals in the late 1700s and early 1800s believed 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. What are the, 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 like 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. 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 it 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 to grad school at Chicago. And one thing I noticed is that the Chicago economist seemed to take economic theory much more seriously. They were sort of like the true believers, the economist, the economist. 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 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 wanna 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 life-saving drug, there certainly higher prices won't discourage consumption. But then we find when they invent life-saving 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, life-saving 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 counter-intuitive. It's full of things that seem wrong. Like 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 counter-intuitive. 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 models 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. 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 a 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 in 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, 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 from the left in 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. We're 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. Okay. 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, 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 a 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 Grumman 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 that 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. Jeremy Rappkin. When I was in college, I took a course in anthropology, a very basic course like Anthropology 102. And they told us a story about a researcher from, I don't remember where he was from, but some prestigious university, Berkeley someplace. And he went to New Guinea and he found this very, very remote, very, very primitive tribe. And he asked people, I see you have babies here. He said, this anthropologist went to New Guinea and he asked, where do your babies come from? And they said, from the mother. And he said, no, no, no, but how is it that the mother becomes pregnant? And they said, jungle spirits, particularly during the full moon. And so the guy went back and wrote this up. And then somebody came maybe from the University of Chicago the following year and said, there was a guy here previously who asked you about where babies come from. And people in this very remote jungle village said, that was just amazing to us. That guy actually did not know where babies came from. We told him this ridiculous story and he just wrote it down and believed it. People in other places are just amazingly naive. I hope I won't offend you, Dan. If I say, when I looked at your questions, I thought, some people are so naive. How could this be a question? I mean, to me it just seems obvious that, which I think I'm just agreeing with my fellow panelists, liberals tend to believe liberal things and conservatives tend to believe conservative things. And I think that I'm not adding very much, but let me just restate what I would say in terms of what Scott Sumner just said. Yes, different epistemic worldviews. I'll give a slightly different formulation to the one that Don Boudreau gave. And I don't know why you wanna hear from a non-economist about how different economists think, but it just seems to me that common sense of this is. There's two questions, like basic ones. The line in the Federalist Papers. I think it's Madison who says, we want a government which has the wisdom to discern and the virtue to pursue the common good. And so I would slightly reformulate what Don Boudreau said to say if you are a, what'd you call him? A marketist. If you're a marketist, you believe the economy is incredibly complicated and therefore dispersed knowledge is the most important knowledge and private decision-making is likely to be much more informed. And so you believe society unconstrained or less constrained is likely to make better decisions than the government. The government does not have enough wisdom to improve on market processes. That's one way of putting it. Another way of putting it. Maybe I'm adding a little bit here. I'm sure you all know this, but if you subscribe to public choice theory, you think the government doesn't even have the virtue to pursue the common good. If you say let's have more public spending, you're gonna have a whole bunch of interest groups saying, don't give it to them, I want it more, I'll take care of you, do it for me. If you say let's have more regulation, you're not gonna say what will improve the country overall or the economy overall, you're gonna have a whole bunch of people pushing and shoving, including a lot of people who work in the government thinking about what is this doing for me? So it's not at all surprising, I don't think, that the sort of people who think, no, I trust the government not only to know better but to act on its knowledge. They believe this both about regulation and about spending and it's not surprising to people who are skeptical about government knowing better or actually having the discipline to follow its supposed insights. The people who are skeptical are skeptical both of regulation and spending. I mean, it just doesn't seem to me a lot to be explained here, it seems to me like, of course, this is what you would expect. But I had to talk for 15 minutes, so I'm gonna just add some other things. I think those two things are probably quite enough, but let me add two other things. And one is the way that Dan is presenting this. It's like, ooh, really a little bit interesting. It needs to be explained because these are like really different categories. I don't know, somebody could think they're different categories, but maybe the people answering this actually are paying attention to government policy and they know that in the real world they're actually not that different. I mean, they are actually tangled up with each other. Just to give two examples from the questions. Do you support tighter water quality regulation? Well, anyone who knows a little bit about that knows that it isn't just regulation, it's gonna be the government, the federal government, financing, sewage treatment plans, water treatment plans, it's going to be actually a package of regulatory controls and spending. Those are not different categories. I would say the same with spending more on public schools. Anybody who's paid even a little attention to it is aware that, well, local communities feel kinda like we're spending as much as we can, so the money has to come from some higher level of government from the state or even better from the federal government. They don't just give away money, they give away money with strings. They wanna make sure the money is spent for what they think it should be spent for, so you're gonna have a combination of not just spending, but spending in regulation. So maybe people answering this survey don't even have the background assumption that you do that these are different categories or should be different. And then finally, just to pick up on what Scott Sumner was saying, it may be, this is very much my suspicion about this, people look at this survey and they think, I know what you're really asking, and they're not actually responding my considered judgment because I know a lot about it, it is yes, I'm for this, but no, I'm not for that. Maybe they're just responding to use your excellent word, tribally. Like my team is in favor of this. Let me just give you two examples where I think, not from this list, but just how this works in the world. If somebody asked me, I'm from the Gallup, Gallup Company Corporation, I'm from, we're from Gallup and we're just calling you up, are you for sensible gun control? Well, I'm not for crazy gun control. I mean, if we're gonna have gun control, I hope it's sensible. And actually, I mean, I'm not, I don't believe the kind of controls we have now, it's absolutely perfect. So maybe we should go more in the direction of the sensible, but I wouldn't respond that way because I'd understand that what they're actually asking is, which team are you on? And I do not own a gun, I've never had a gun, but I'm not on the gun control team. And all my colleagues are big gun enthusiasts, so I really don't wanna undermine support for their view. But I would just say no, even though I don't think anybody in America could, with total honesty, say, no, my view is I hate sensible control, right? But it's coded, people get it. I mean, I tried to think of a sort of liberal counterpart to this. I think if somebody asked you, are you in favor of government help or programs to help teenage girls or unmarried women deliver healthy babies? Again, I think no sensible person could say, I'm in favor of unhealthy babies, but a lot of people might hear that as you mean they should be discouraged from having abortions and I'm not on that team. So they might answer this just by saying, are you really asking about abortion and actually I'm in favor of pro-choice? I suspect a lot of people going through your questionnaire thought they were being asked, what team are you for? Cass Sunstein, that was the most amusing thing I thought in the published responses, right? I don't know if any of you saw this, but Cass Sunstein was the head of the office in the Office of Management and Budget that reviews new regulations and he said, well wait, these aren't good questions that you're asking. Should we have tighter water quality regulation? The question you need to ask is at what cost with what benefit and that's what we think of in OMB and that's where I have to think of it and this was, I thought, comical, right? Because it was completely irrelevant to what you were obviously seeking, which is which team are you on? And if Cass wants to be on a team which is just him, just him alone or him and Mrs. Obama, I mean okay, but yeah, when you get a very short questionnaire like this, I mean you just ask a bit of less than 20 questions which are kind of unrelated to each other and probably for most people unrelated to their own expertise. It's not surprising if they say, you're asking which side am I on and I'm gonna answer accordingly. So I would say in conclusion, I think it's a somewhat interesting finding that there is as much polarization as there is which is what I take to be the finding here and I think that's kind of sad and disturbing but just give this caution, probably we shouldn't make too much of polls. Okay, great, thank you. Well, we have some time and I suggest we before we let you guys in but I wanna get to that soon. I mean, we act a little bit and maybe we'll talk. It's interesting how people do have babies in New Guinea. Yeah, you know, it might be, I might be playing the annoying person here who like David Hume, the radical questioner, like okay, here's the thing to be explained. Here's the explanation you give and I'm like okay, but I wanna know now about the explanation for your explanation. Like Don said, they don't understand complexity. Well, why don't they? Like that's kind of the next question. And similarly, Scott talked about different world views and why is it that Kenneth Arrow doesn't understand incentives? We know he's not stupid. And similarly, Jeremy, why is it that people differ? Why do they adopt these different views that you're saying that they adopt? These different teams, teams perhaps. I do think, I didn't mention Republicans and Democrats. I do think that two parties play a big role in this and do create that team effect. But I'm still really interested in the questions, the further questions, the explanation for the explanation. And I don't know, do you guys have any further explanation for your explanation or should we ask the audience? Well, I actually would defend your question. I actually think it is a good question. Ert, let me put it this way. I don't think it's as obvious as maybe some of the other panelists thought. And I was doing the best I could with this epistemic differences, but you're right, it does beg some other questions or raises some other questions. And I think it's also important to try to look at things from outside of your own perspective. So I mean, I'm certainly on one team in one sense and I'm known as a free market economist. But I think you have to be open to the possibility that free market economists find the free market model to be sort of aesthetically pleasing in a way that other economists don't, for instance. And that if they're looking at a completely new area that they've never studied before and they're going into it as a utilitarian. So I consider myself a utilitarian. And I study that area and the outcome is, oh, no government regulation is best. I find that solution more aesthetically pleasing than the alternative one, right? That doesn't mean I always oppose government. I'm probably compared to other free market economists more willing to compromise on some issues or here or there favor things like carbon taxes or some income redistribution and so on. But I think I personally do find the free market model more intellectually pleasing. And so there might be some sort of subtle biases that contribute to this forming of teams or tribes or whatever that is going on. And it also might be that, you know, when I talked about the different worldviews, it could be that people just have different worldviews and then they tend to form into these tribes with them. So, you know, there could be explanations at different levels in other words. One isn't necessarily incompatible with another. Anyway. I just want to say that this is a very, very common phenomenon in the world. I mean, it's not like, ooh, economists are so mysterious, right? I mean, if you look at, let me just give an example that I'm more familiar with than I'd like to be, which is not a common one, in particular, just professors. And there was a period in which all professors were so strongly for free speech because that is what universities were about. And then there was a period when they said, actually, sexual harassment is really bad and other kinds of harassment and it makes people uncomfortable and so we need to have speech codes. And it went from really one extreme to the other in the course of about two decades. And it's not that, oh, well, we repopulated academic departments with new people. It was some of the same people who had been very strongly for free speech in the McCarthy era and for some time afterwards into the 1960s and then they became actually in favor of controls. And if you ask, wow, how did that happen? I think the simple explanation, I mean, there's two explanations and one is, well, they were mostly on the left and they thought of the left as being the victims in the earlier period and then later on they thought of the clients of the left were the victims so the left wanted to protect the various groups that they thought were being harassed, fine. And then I think the other thing which is the one that's most responsive to you is I think it just cuts down on cognitive dissonance to say, oh, this is where my colleagues are going, the people I know, my peer group, not economists in particular, all kinds of professors, including professors of engineering. I mean, we're going that way, let's go that way. It was my observation at Cornell that the engineers were a little bit more dogged about, wait, I don't believe that. But most professors went from one extreme kind of to the other because that's where everyone else went and I'm not even saying this to be sensorious. It cuts down on, there's probably a term for this and it saves information costs. You don't have to think about it. I mean, this is what we all think now and most people do that most of the time. So it shouldn't be surprising that even economists do it. They just kind of go with the flow and people choose their peer group. 200 blogs, I was shocked that there were 200 economics blogs. So that's already part of the problem. Everyone's in their own little micro group, right? So you never have to encounter anyone who you disagree with and you're constantly getting reinforcement, it's worse than talk radio. Did you want to? Yeah, just real quickly then. I think the value of what Dan does with these surveys is to expose the fallaciousness that many economists have of the nature of their science. If you look at both what I call the marketists and the statists, many of them will say, well, my beliefs are purely based upon the empirical record. I look at the data and the data show me that regulation fails or that regulation works. So the data show me that more redistribution or more government welfare works or the opposite. And I don't think that this pose of being driven purely by the empirical data really works. I think this kind of evidence is evidence against the fact that economics is purely an empirical science. I think empirical work should be done. I think it has value, but we can't escape. No one can escape the theoretical priors and too many economists go about, I can't know about other sciences, too many economists go about their daily business thinking that they have escaped from their theoretical priors, thinking that they're just looking at the data and my mind's not contaminated at all with any kind of theoretical prior. And everyone's mind, a contamination's the right word. I don't think it's the right word. Everyone's mind has in it, a theoretical, this is Heide's point in the way, has a theoretical framework through which the data are filtered and interpreted. And no one thinks, in fact, that does thinking or theorizing, in fact, absent that set of theoretical priors, at least of all these economists who imagine that all they're doing is examining the data and then reporting objectively what they see. So let me just respond to Jeremy, thank you. So most professors are lean left, you don't. So why are most professors getting it wrong? You're saying at the deep level, what is it that made them gravitate to that? It doesn't, if you can do it at a shallow level, I'll take it, but yeah. Well, so one shallow explanation, which I think carries some force is it's easier. I mean, your career incentives are to be going with the flow. And I'm not saying this like to complain, like, oh, I suffered so, I mean, I didn't, I had a fine time. Given that most are leaning left to explain like the marginal unit, it's easier. You start off in graduate school, you like to please your dissertation committee. They kind of lean left, your incentive is to say, oh yeah, of course, yeah, I'm that way, yeah. You don't wanna start off by saying, actually, you don't know what a tough-minded, challenging person I am. You're on my committee, or you're gonna have trouble. That's no way, that's no way to get a job, right? And then you finally do get a job somehow, and most of your colleagues are kind of leaning left. And so you don't, as an assistant professor, get tenure by saying, I think all of you are wrong about almost everything. So why didn't you go into believing that? I have to say in retrospect, I'm shocked at how kind of faultless I was about, I mean, I just kind of lucked out. And I think if I had thought more carefully, I would have, I'm not saying I would have behaved differently, but I would have been more fearful. And I do know a lot of people who, you know, they just got really driven out of the academy, right? So that's the shallow thing. But then I would say the next thing is there's a certain amount of, so this is maybe a little more, oh, it's not that they're afraid, I'm not saying they're afraid. They have a kind of psychic investment in thinking research is gonna save the country. And they tend to think, like, I've found out a lot of stuff by researching in whatever their field is, and I'm gonna deploy this to improve the world. And if Professor Boudreau says, no, no, no, no, no, no, you can't improve the world, you just gotta make things worse. People are adapting as best they can already. Then they feel like, well, gosh, why did I do all this research, right? So I think they have a kind of, if you use the word psychological, I would say there's a kind of little bit of a twist in that direction that they tend to think that way. And then I would just say one last thing, which is related to the other two. I think people spend a lot of time in the academic settings are, they like the idea that there is a big theory that explains the world. I mean, it's almost an aesthetic, which I would distinguish from the, you know, incentive to say my work matters. They just like the idea that there's a theory that explains it. And I get it that in a way, Hayek is also a theory, but really it is famously, you know, a plan against planning. You know, it's a theory against theorizing. And it's not to the taste of most intellectuals, most academics. So I don't consider it surprising that it sort of torques that way. And I don't think it's surprising that the people who have resisted it, which they have to make an effort to resist it. They really have to make an effort. So pull your teeth to get this from you. Why did I have to pull this out of you? Because I thought it was going to be about economics, and what do I know about economics?