According to a recent poll from the Wall Street Journal, many of the policies proposed by Kamala Harris and Donald Trump that economists hate most are very popular with the American public. For example, the plan endorsed by both candidates to eliminate taxes on tips for service workers is favored by nearly 80 percent of the ordinary public. However, only 10 percent of economists support the measure.
A similar difference can be found with Harris’s plan to penalize companies for engaging in “price gouging” for food and grocery prices. 72 percent of ordinary people support the plan, while only 13 percent of economists do. Trump’s plan to impose a 20 percent tariff on all imported goods enjoys support from 47 percent of the public and 0 percent of economists. The rest of the big divergences came from plans to cut taxes on Social Security income and to make the 2017 Trump tax cuts permanent. Both enjoyed broad support from the public and wide condemnation from economists.
The discrepancy between economists and everyday Americans is very real. And the popularity of these economically illiterate policies (not including the tax cuts) could indeed be very harmful, especially as trust in economic experts continues to fall. But that is entirely the fault of the economics profession.
It’s hard to pinpoint exactly when the current problems with mainstream economics began as the field has bounced between good and bad phases since the days of the ancient Greek poet Hesiod, who Murray Rothbard considers the first economist. But a good argument can be made for the so-called Methodenstreit (or debate over method) between economists Carl Menger and Gustav Schmoller in the nineteenth century.
Carl Menger, representing the Austrian school, argued that economics is a causal-realist science, logically derived from the fundamental character of human choice. Schmoller and the rest of the so-called German Historical School rejected Menger’s approach and argued that theory had no place in economics. Instead, the economists of the German Reich believed the point of economics was to determine how government could promote the welfare of the working classes, exclusively with the use of empirical historical studies or, as we call it today, statistics.
As Jonathan Newman explained in an article earlier this year, while no modern economists identify directly with the German Historical School, the philosophy and methodology of Gustav Schmoller won out and now defines much of what we consider “mainstream economics.”
Most economic analysis these days is really applied statistics. Almost all of which is conducted from the perspective of government managers trying to restructure the economy to attain some sought-after outcome. If theory is present at all, it’s almost always in the form of highly complex, overly abstract mathematical models that have little basis in reality. Nothing like the causal-realist approach of the Austrian school.
Most modern economists have fully embraced the old German approach—seeing themselves as scientific managers of the economy. And, as such, have spent their careers approving of and advocating for all manner of government intervention. Glance at any top economics journal and you’ll see paper after paper arguing that government officials ought to restructure markets in various specific ways in order to achieve some economic or social optimum. The fact that serious-sounding academic economists are constantly appealing for more government involvement has made it easy for politicians and bureaucrats to keep intervening more and more in the economy.
The economics profession cheered on as government intervened in important sectors like housing, education, food production, and healthcare. Economists helped politicians draft thousand-page trade agreements filled with tariffs, taxes, and subsidies designed to structure foreign trade to benefit America’s political class. And they gleefully played along as politicians and bankers quietly took full control of the monetary system.
All these interventions and more have had disastrous impacts on the lives of ordinary Americans. Housing, education, food, and healthcare are egregiously expensive. Meanwhile, the government blocks Americans from buying all the foreign goods we may want or need while forcing us to pay a trillion dollars a year to fund what is effectively a global police force—further warping the structure of global trade to the political class’s benefit. And, perhaps worst of all, the government uses its control over money to purposefully orchestrate permanent price inflation that transfers wealth into the pockets of the politically-connected rich while trapping us in a recurring nightmare of relentless recessions.
At the very same time, economists are supporting and even working to expand this interventionist racket; many of them join with politicians and establishment opinion molders to absurdly call all of this “free market capitalism.” The mainstream narrative paints the decades since the Ronald Reagan presidency as a period defined by a total commitment to laissez-faire economics. This is often called the “Washington Consensus,” because it’s asserted that, to paraphrase a New York Times journalist, everyone in Washington believes that the government “ought not meddle” in the economy.
This characterization of America’s economic system is entirely incorrect, but it’s been hammered into our heads enough that many Americans believe it to be true. So it shouldn’t be a surprise when people conclude that the never-ending recessions, hollowed-out towns, and outrageously high prices we’re experiencing are the result of free market capitalism and free trade. Further, they conclude that the only way to address these problems is to fundamentally change the country’s economic system with more extreme versions of the interventions that academic economists spend most of their time defending. Only then do economists scoff at the economic illiteracy that they helped bring about.
Economists have lost the public’s trust, for good reason. If they want to regain it, they need to be honest about the nature of the American economic system. They need to stop helping the political class fleece ordinary Americans. And they need to reject the authoritarian mindset and easily manipulable statistical methods of the German Historical School and recommit to the kinds of logic-based, causal-realist economic theory that has contributed so much to human understanding and well-being.
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2024-09-22
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