To the Editor:
The main contribution of Melville J. Ulmer’s article [“What Economists Know,” July]. . . is to substantiate once again the dictum of the contemporary English philosopher, Karl Popper, to the effect that social planners should be cautious in their social engineering lest they make a bad situation worse. This applies as much to Reaganites as it did to advocates of the Great Society. For economics, in the words of John Stuart Mill, is an “inexact science”: this means that its postulates would hold true only if extraneous events and factors did not interfere in the proper working out of the predicted economic scenario. . . . But there is no way for economists to predict such events, whose cumulative effect, eventually, is to transform the structure of the economy itself. This further compounds forecasting, because a specific economic model that worked reasonably well in the past for both prediction and policy formulation may begin to generate misleading and undesirable consequences. Thus, no matter how much in the way of economic statistics are generated by governmental and private bodies (which, after all, only tell us about past performance), our specific economic models can never provide us with a completely reliable projection of what will happen in the future. . . .
The problem is not only that of the limitations of economic theory. At times, politicians sacrifice economic necessity for political expediency: thus, taxes were not raised in 1965 to finance the Vietnam buildup, possibly initiating our current inflationary woes, and there is substantial pussyfooting in the present Congress about making necessary changes in Social Security.
As far as particular policies are concerned, there is far less justification for applying today’s “new” supply-side economics than there was for employing measured doses of Keynesian techniques in the postwar period. At least Keynes’s theory was something new under the sun and had some degree of a priori plausibility. Trickle-down economics, with its uncritical veneration of the market, is old hat—it led to the debacle of 1929 and is not likely to solve the problems of the 80′s.
Sunnyside, New York
To the Editor:
. . . The central tenet of economic theory is that man acts to advance his personal happiness, as he himself defines it. Melville J. Ulmer quotes with approval Irving Kristol’s formulation, the first part of which reads: “The overwhelming majority of men and women are naturally and incorrigibly interested in improving their material condition.” Mr. Ulmer remarks that, with the exception of the intellectual Left, the vast majority would accept this view “as consistent with personal experience and the lessons of history.” Mr. Ulmer thus endorses the view that human behavior is explained by an unrelenting and purposive search for material things.
But such a view of human behavior is at variance with the views of all the other social sciences as well as with the Jewish experience. In recognition of this, a number of economic theorists have broadened the concept of self-interest to include adherence to an ideology, in order to explain unrequited altruism. According to this revised formulation, the pain of guilt and remorse for behavior which offends one’s being, and the joys of unrequited giving, are to be included in the calculus of economic decision-making. Withal, economic behavior is still viewed as rationally egocentric and individualistic.
For me, as a Jew, this revised formulation remains unsatisfactory. Even if the Jewish sages did not tell me so, . . . I know that I am part of a community of Jews—past, present, and future. If I fail in my obligations as a Jew, I suffer guilt. How can I be egocentric, rational, and free, when I am compelled . . . to fulfill ethical mandates placed on the Jewish community?
What is true for me, . . . and for Mr. Ulmer, . . . who was my mentor lour decades ago, is undoubtedly true for all mankind. Each of us, as a social animal, is part of one or more collectivities. By conditioning or otherwise, we act in solidarity with our group. . . .
The implication of this is therefore contrary to what Irving Kristol asserts in the remainder of the passage quoted by Mr. Ulmer. Kristol says that only if the marketplace is permitted to rule can we improve our material existence, while preserving freedom. Thus, Judaism has nothing to say about our economy, except to hold its tongue; Judaism is relegated to family life or to the support of Jewish causes. Mr. Ulmer does not go this far. He recognizes that an unmanaged economy is subject to business cycles, but is wary of state intervention in economic affairs. He does not apply a social-moral test to economic affairs, although, of course, he exercises moral judgments on the acts of individuals.
As an economist, I am cognizant of economic breakdowns caused by technical deficiencies in the market mechanism. As a social scientist, I am informed of the norms of certain groups in our society (e.g., corporate managers) and feel them to be incompatible with market efficiency. As a student of human behavior, I observe the violations of even those codes which do exist, partly because individuals working for corporations sometimes accept no moral responsibility for their own acts. As a Jew, I have a moral view not only of acts of individuals but of the mode of operation of a society.
Having made a moral judgment about how our economy operates, I am under an obligation to act. If I were rich, I could perhaps content myself with charitable acts. But since I am by profession and nature a teacher, my moral obligation is to spread my understanding of how the economy does work and ought to be corrected. The prerequisite is to make a moral judgment about the operation of our economy. Finding the remedies is another question; I share with Mr. Ulmer a distrust of government intervention in the economy. But an important part of the explanation for counterproductive government intervention in the economy is the subversion of governmental processes by those possessing great economic power. . . .
Mr. Ulmer’s summary of the state of economic learning, while excellent as a report on the subject as traditionally understood, is inadequate in that it fails to present economic theory within the broader context of philosophical systems and the social sciences. . . .
Melville J. Ulmer writes:
Looking in the mirror, some people see only what they want to. In widely different ways, Messrs. Koutouzos and Burk serve as apt illustrations. Stan Koutouzos is an advocate of the now largely discredited neo-Keynesian approach to economic policy. Hence he perceives in its failures mainly insufficient caution on the part of “planners,” the weakness of politicians, and the inherent limitations of an “inexact science.” No doubt they all contributed.
Nevertheless, my article traced the economic failures of the past, during as well as before the reign of Keynes, to a much more important, currently relevant, and demonstrable source: the role of doctrinal faith, as opposed to reason and experience, in the formation of influential opinions on both the Left and the Right. In addition, I explained why, in terms of political biases as well as professional self-interest, these opposing faiths proved seductive enough to survive the repeated contradictory lessons of history. Without this insight, it would remain inexplicable how leading neo-Keynesians can insist to this day that they possess the key to prosperity.
It is true that I also implied a methodological critique, of which Mr. Koutouzos takes note, though I am afraid that he misunderstood that too. There is nothing wrong, per se, in reasoning from postulates, but useful knowledge can be won in the social sciences only when abstract deductions are disciplined by the empirical evidence of an ever-evolving world. Mr. Koutouzos apparently believes that static rigidity, and hence unrealistic assumptions, are inherent in the discipline’s methodology. There are too many examples to the contrary for him to be correct. One outstanding illustration appears in the work of Wesley C. Mitchell (mentioned in my article), whose instrumental techniques successfully and consciously overcame Mr. Koutouzos’s “inherent” limitation. Thankfully there are many others in the past and present who have operated in that same tradition.
As a moralist, Monroe Burk is impressed in my quoted passage from Irving Kristol only by the absence of a reference to ethical standards in human behavior, an interpretation a bit like rejecting a cardiogram for not revealing an abscessed gum. For neither Kristol nor Adam Smith (whose work Kristol was summarizing) overlooks ethics. In fact Smith devoted an entire volume, a predecessor to his more famous Wealth of Nations, to stressing the role of “sympathy” in personal relations. The simple message of the Kristol quotation is that self-interest is an attribute so common and pronounced in human economic behavior that it should be utilized in public policy, and not summarily blocked. Other interests, whether in compassion, love, or power, are not excluded. Nothing in “Jewish experience” or Christian experience, so far as I know, denies this.
The remainder of Mr. Burk’s letter I find confused and possibly dangerous. I was apparently not convincing enough as his teacher (though I must confess I remember him only as a fellow faculty member during my first two or three years of teaching) to impart the distinction, in judging public policy, between the verifiable weighing of actual or potential consequences for people in taking action A or B, and the contrasting simpler, but treacherous, procedure of appealing to moral authority. The weighing of consequences is in part a technical process that cannot be skipped in any case. What effect, for example, would abolition of the minimum-wage law have on total employment, on the employment of teenagers, on the prevailing wage for unskilled labor, on the price level, and on the nation’s output? But, in part, the weighing of consequences also embraces moral considerations, and these practically always require a balancing of shared but competing values. No respected moral goal of significance in economic policy—whether it be personal security, personal freedom, a right to a job, a right to a decent living, a right to profit by one’s talent, diligence, or property—is in itself absolute and without some qualification. Nor can any one of them be blithely ignored.
The danger lies in those who overlook the pluralism of values—the wild-eyed fanatics, mesmerized by their own presumptive rectitude, who would impose on the populace their most sacred code for behavior to the exclusion of others. Mr. Burk may complain of corporate power, but the most awesome power of all resides in such inspired minorities or resolute majorities who, in the words of a John Dos Passos character, “can command control of the means of coercion and the network of communications. . . .” One would expect that elementary democratic principles, no less than Jewish experience, would have warned Mr. Burk against that.
Finally, I don’t know what gave him the notion that I (or Irving Kristol) embrace laissez-faire. Of course I value the free market, and consider it essential for both personal freedom and efficiency. I’m also convinced that mistaken laws and regulations of the past have inhibited its potential contributions, at a substantial cost to all Americans. But even Adam Smith and Milton Friedman concede, pragmatically, that in economic affairs the state must play a significant role. It happens, as Mr. Burk must surely have known, that I would go well beyond either of those two in acknowledging the need for public intervention. What he apparently does not know is that any merit accorded to my position, versus theirs, would have to rest on a judgment of experience, on past and anticipated consequences, and certainly not on a claim to superior morals.