Commentary on the “The Road from Serfdom”

Danielle Allen writes eloquently in the December issue of the Atlantic Monthly in the “The Road from Serfdom” about how too many Americans rightfully feel disenfranchised today and many of the reasons why they feel that way. Her description of how we got here is well worth the read. However, she misattributes the roles of economists (and lawyers) and errors in their recent prognostications on how economic progress would unfold.

Allen blames much of the current economic woes on the rise of economists in policymaking. She talks about how economists superseded lawyers in that role, implying that lawyers were somehow better connected to society. The real transformation happened several decades earlier when lawyers took over from the broader set of general citizenry. Just as she identifies how economists (of which I am one) are trained to think in one fashion, lawyers are similarly taught to think in another way that tends to focus on identifying constraints and relying on precedent. Lawyers are also taught that the available solutions require directives through laws and contentious conflict resolution. Lawyers are rarely instructed in how actual institutions work, contrary to Allen’s assertion–lawyers usually learn that as on-the-job training. In fact, it is economists who developed institutional economics that studies the role of such organizations. Economists arrived to propose solutions that could work through incentives and choice and negotiated solutions. So we traded one set of technocrats for another set. Perhaps we have not done well by either set, but we also should not ignore why we chose those professions guide us.

The mistakes that economists made were not as simplistic as Allen describes. She points to a claim that economists did not understand how disruption would impact specific communities and what two decades of disruption would look like in those communities. As contrary examples, I wrote here about how climate change will impact communities, and about how we need to compensate coal mining communities as part of our reductions in greenhouse gas emissions, and even the shaky foundations of benefit-cost analysis.  Instead economists did not foresee two important transformations since the 1970s. (Economists made a similar mistake after the fall of the Berlin Wall, failing to acknowledge that markets need well functioning institutions and laws to facilitate beneficial transactions.)  The first was that agglomeration of knowledge industries (technological and financial) would be so geographically intensive and that these industries would accrue so much wealth. The second was that Americans would become so much less mobile, both geographically and socially. There are many social and policy factors that have led to these trends, but these stories are much more complex than Allen describes. No one could have foreseen these unprecedented changes that have shattered the lives of too many people that have remained behind in communities emptied of economic purpose.

That said, identifying the rise of the ideologies of Nobel Prize winners Friedrich Hayek and Milton Friedman (who were economists) as a key source of our conundrum is accurate. Allen does not discuss the parallel rise of the fantasies of Ayn Rand that fueled the mythologies of Hayek and Friedman. Rand’s work was a surprising path for spreading those ideologies, particularly given how bad her writing was. We now have a core of elites who believe that they somehow are “self made” with no outside help and even overcoming the “parasites” of society. That will be a difficult self image to overcome.

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