The economist as an expert: a prince, a servant or a citizen?

When, in November 2008, Britain’s Queen Elizabeth II asked at an LSE meeting why economists had not foreseen the world financial crisis, she implicitly considered them as servants to the political powers and the general public — servants who (in that instance) had failed to fulfill their duties. Shortly thereafter, when the President of the Italian Republic, Giorgio Napolitano, in a moment of severe crisis called on the Economics professor Mario Monti to take on the job of Prime Minister, he assigned to the economist a role of prince: a leader for society, though not subject to electoral democratic contest.[1]

Both notions – economists as servants or as princes – have deep historical roots, and as I will argue below, both should be avoided. We should, instead, see the economist as a citizen, socially and politically engaged – as any citizen should be – in fostering her own ideas about (at the same time) the common weal and her personal interest — which, as discussed by Adam Smith, is a complex notion distinct from pure selfishness.[2]

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The expert-as-prince idea is reminiscent of Plato’s partition of society into three classes: philosophers, soldiers and peasants. The Greek philosopher maintained that philosophers should be entrusted with the political leadership, because they’re repositories of the knowledge necessary for best managing the community. Plato’s idea of the ‘government of the experts’ has been re-proposed countless times since then, and (much less frequently) put into practice. Selected events in Italian contemporary history may illustrate some of the advantages usually attached to this function.

First, in periods of crisis, recourse to the expert may have a reassuring effect.

Monti’s premiership, for instance, placated the financial markets: The interest rate spread between Italian and German treasury bonds fell from unsustainable levels, thus avoiding the risk of Italy following Greece down the path of a public debt crisis. But this effect did not derive from the quality of Monti’s policies, which most Keynesian economists deem responsible for originating a new crisis in the real economy as a result of tax increases that reduced personal disposable income and, thus, consumption. Yet, the very fact of Monti’s appointment was sufficient to obtain the desired effect on the spread, even before he was installed in his new position by the confidence vote of the Parliament.

Second, assumptions that the expert operates outside of politics may also help placate excessive partisan political fighting and achieve a policy consensus portrayed as in the national interest.

This was the role in Italian politics attributed to the prominent economist-turned-President Luigi Einaudi in the 1950s, and again more recently to Carlo Azeglio Ciampi, Governor of the Banca d’Italia, who was first appointed Prime Minister, and later also President: Ciampi’s political actions, bargaining skills and international standing were critical to securing Italy’s inclusion among the founders of the Eurozone, which had very significant positive effects on the Italian economy (among which a drastic fall in inflation and interest rates).

Yet, all this considered, the idea of the expert as the best leader for the community remains wholly undemocratic. That much has been true since the origins of the debate on the institutional arrangements of the polity, when government by the demos was opposed to oligarchic government, and when many ancient Greek philosophers and politicians favored the latter, or even a monarchic government, over the former. This majority opinion was reversed in relatively recent times. But, even after the French Revolution, the reaction to the Terror (as, later on, the reaction to the Paris Commune) favored the ‘government from above’.

This is not the place to trace the rise of democratic views, but let us focus on three specific points:

 First, even from our cursory overview it is apparent that the idea of a ‘government by the experts’ has been always present – with greater or lesser ascendancy – in the political debate, often in non-explicit and moderate forms.

Second, at least since the end of World War II, reference to experts has increasingly meant economists – or, perhaps more precisely, among the experts, economists have been playing a leading role. This is a delicate point, possibly deserving a separate treatment, because it needs a host of qualifications. For instance, because of the increasing cleavage between sociology and (mainstream) economics, economists engaged as advisors to the government have been increasingly relegated to ‘technical’ issues and excluded from debate on ‘social’ policy choices; their direct participation in the political debate on the ‘big issues’ is decreasing – migration policies or social cohesion policies, for instance, appear to be largely outside their field of competence. Thus, the economists’ role is increasingly that of (possibly high and even very high level) servants to the political rulers: a role discussed in the next section.

Third, an important voice in opposition to the ‘government from above’ is that of one of the fathers of Classical political economy. Adam Smith (1759, p. 82) upheld that “Every man is, no doubt, by nature, first and principally recommended to his own care; and as he is fitter to take care of himself than of any other person, it is fit and right that it should be so”. This passage has occasionally been interpreted as a plea for laissez-faire in economic matters, but it is not. As Viner (1927) clarified, Smith was far from being a passionate advocate of economic liberalism; it is, rather, a general plea for self-determination, namely political liberalism. Here, as elsewhere, Smith is possibly reacting to the esprit de système in the Enlightenment culture represented inter alia by Bentham’s idea of the enlightened sovereign or by the strictness of Rousseau’s social contract; in any case, his diffidence towards ‘government from above’ is evident. We may perhaps notice here that – as Schumpeter stressed – political individualism should not be confused with methodological individualism; and we may add that political individualism does not logically imply economic individualism (laissez-faire), as soon as we recognize that ‘the invisible hand of the market’ is a myth.[3]

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The idea of the expert as a politically neutral aide to government is widespread among mainstream economists, who maintain that there is only one ‘true’ economic science and only one correct policy response to any given situation, and therefore that the role of the expert is simply to clarify to politicians in power what that ‘true’ science requires they should do, or avoid doing. Disagreements may exist, but not concerning theory; only in the interpretation of the current situation, which in turn prescribes the specific policy model required in response.

This latter statement is of course an excessive simplification: many mainstream economists share more nuanced views. However, in some important instances there has been recourse to the extreme view in order to justify accepting the role of the expert advisor to dictatorial governments: One example would be the ‘Chicago boys’ in Chile taking advantage of the powers of General Pinochet’s brutal dictatorship to suppress opposition to their preferred recipe, a free-market big bang.[4]

In any case, this view of the economist as a politically independent/neutral expert advisor to governments is marred on two accounts, discussed below: the difficulty of a rigorously objective interpretation of economic reality; and the existence (and importance) of approaches to economic theory different from the mainstream one.

First, when Keynes (and, before him, John Stuart Mill) say that economics is an art (hence, not a science),[5] he is drawing an implication from his methodological views: the role of uncertainty, and the refusal of ‘long chains of reasoning’ in favor of a ‘piecemeal’ approach whereby, when confronted with a problem, some bits of theoretical reasoning are chosen as the most appropriate ones to the issue in question. Thus, there may be different interpretations of each economic situation, and policy choices cannot be considered as univocally determined by deduction from economic theory.[6]

Second, and most important: there is not a unique worldview (‘vision’, in Schumpeter’s terminology) underlying theoretical research in economics. Notwithstanding the attempts by mainstream economists to re-read in their own terms authors belonging to different traditions — or simply to ignore their existence — such different traditions do exist, and have been and are quite important.[7]

Sraffa (1960, p. 93) sums up the contrast between the classical (and Keynesian) and the marginalist-mainstream approaches with two images: the “picture of the system of production and consumption as a circular process” versus a “one-way avenue that leads from ‘Factors of production’ to ‘Consumption goods’.” This points to the different ‘visions’ of the two approaches. Within the Classical approach, the economic problem is conceptualized as analysis of those conditions that guarantee the continuous functioning of an economic system based on the division of labor; for the marginalists, in contrast, the economic problem concerns the optimal allocation of scarce available resources to satisfy the needs and desires of economic agents.

This has a series of implications for the theory of value and distribution, of output and employment, and so on. Specifically, the central role of equilibrium between supply and demand in marginalist-mainstream economics implies a tendency, in a fully competitive economy, to full employment of all resources, including labor – namely, an automatic tendency to full employment. By contrast, though the news may surprise mainstream economists accustomed to thinking in those terms, Classical theory does not rely on equilibrium between supply and demand in its theory of price and income distribution, while the theory of output and employment is a separate game (so that the Keynesian notion of persistent unemployment is fully compatible with the Classical approach, while not with the marginalist-mainstream one).[8]

Obviously, when confronted with persistent unemployment, marginalist-mainstream economics seeks to explain the causes of such a situation in the distance between the real world and the model of perfect competition. As a remedy, they propose ‘structural reforms’ aimed at bringing the real economy into conformity with the perfectly competitive model — especially in respect of the ‘labor market’, which implies wiping out, as far as possible, the bargaining power of trade unions. As the recent experience of the European Union shows, insistence on these policies negatively affects income distribution while having minor effects, of uncertain sign, on employment.

By contrast, a Classical-Keynesian economist will look in other directions for an explanation of persistent unemployment: not only in deficiency of effective demand, but also in the world-wide institutional arrangements that are conducive to policy asymmetries favoring restrictive over expansionary policies (as in the constitutive rules of the euro area) and the dominance of financial speculation in determining the path of the economy.

Once again, let us refer to Keynes (1937, p. 159): “Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”. The role of expectations is particularly important in the Keynesian perspective, with the possibility of self-fulfilling expectations: As Soros (1998, 2008) highlighted with his notion of ‘reflexivity’, expectations coupled with the dominance of finance played a crucial role in the events leading to the 2007-8 financial crisis, and later again to the euro-area crisis in 2010-11.

The differences between the two approaches is particularly evident in this latter respect. Rational-expectations theorizing and the theory of efficient financial markets express, in their purest form, the implications of the marginalist approach; other theories, such as the neoclassical synthesis or the ‘new-Keynesian’ theories, are obtained by adding specific restrictive assumptions (imperfect competition, imperfect or asymmetric knowledge, and the like) up – or better down – to menu costs. It is from that vantage point that the impossibility of a crisis was maintained (for instance, by Nobel laureate Robert Lucas in 2003).While it is from a Classical-Keynesian viewpoint that a few economists foresaw the impending crisis (for instance Sylos Labini 2003; or the articles by Kindleberger, Volker, Godley and Izurieta, Tonveronachi, Reati and Toporowsky) reprinted in a special issue of PSL Quarterly Review, 2009; or the writings quoted in Roncaglia, 2010 (among these, Hyman Minsky, 1982, deserves particular mention). After drawing a parallel between the situation in 2003 and the American situation in the early 1920s, and illustrating the various elements conducive to a very severe crisis, Sylos Labini concludes stressing the social tensions which are an unavoidable consequence of such crises: “The squalor of the economic prospects is accompanied by squalor in our civil life”. This points to an element that mainstream economists acting as advisors to politicians often forget to mention, possibly as being outside their restricted area of competence: the social tensions engendered by unemployment and highly unequal income distribution. Keynes, who considered such elements as important in his reasoning and policy advice, feared that social tensions could favor the rise of fascism and communism (Keynes, 1931); the present political predicament, mutatis mutandis, is evidence of a similar risk.

To sum up the reasoning, there is no unique ‘true’ economic science – and, if anything, the Classical-Keynesian approach fared much better, in the face of the crisis, than the marginalist-mainstream one has done. When confronted with different approaches, there is no possibility of an ‘objective’ choice of the expert: different economists will provide different interpretations of the economic situation and different advice on what to do. Often, success of one among contending viewpoints depends on its advocates’ relative institutional power — as reflected in their degree of access to research  finance, the media, etc. — rather than on its relative explanatory or forecasting power.[9]

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Economists are (or should be) social scientists, not applied mathematicians. This is not to deny the usefulness of mathematics in economic theorizing, but mathematics is a tool to be applied to an underlying ‘vision’ — and this vision should not be kept invisible, nor be considered as unique and obvious; it should be at the center of the economic debate. (The role of the history of economic thought in this account is crucial, as I tried to maintain in other writings.) Again and again, from Adam Smith to Deirdre McCloskey, economists have suggested that the method of the rhetorical debate is better adequate to economic enquiry than judgment from a (majority held) specific point of view. This implies an ethical attitude — in research, in advising policy makers, and in debate both theoretical and policy-oriented, which should be pursued in a systematic way, for instance by attributing full importance to conflicts of interest.[10]

Existence of different underlying ‘visions’ calls for an open debate between economists. As part of this debate, economists should recognize that they are not ‘external’ to the object of their research; they are part of the society they study and, because of this, their views, even their theorizing, are influenced by their own position in society.

Thus, the economist cannot be considered either as a servant to the politician in charge, or as the prince to be summoned to rescue the state in difficult times. The economist should rather be recognized as a citizen — which means, in a democratic society, allowing for different views on what is right and wrong for society. As a citizen, the economist will take part in the policy debate, with the specific abilities characterizing each specific economist, but also with her specific ‘political’ views — trying to get support for her views but intellectually open to the different views proposed by other economists.

This may seem somewhat abstract, but it is, in fact, the very concrete experience of a group of economists active in Italy in the early 1960s, when a new centre-left government took over. The economists participating in the events were politically active, with explicit political orientations: Fuà and Sylos Labini were Socialists, Lombardini was a Christian-Democrat, and so on. They were recognized as good economists, whose advice was to be listened to; but they also took (very) active part in the political debate.[11]

This is how I see the economist: a citizen of our society, more than a savior or a hired expert-advisor to the political leaders of the country.

Footnotes

[1] In what follows, I shall focus on the economist as an expert; however, most of what I shall say also applies to experts in other fields, such as law or the military.

[2] Cf. Roncaglia, 2005a, pp. 121-6, 149-52.

[3] Cf. Roncaglia, 2005b.

[4] Cf. Valdes, 1995.

[5] “Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the typical natural science, the material to which it is applied is, in too many respects, not homogeneous through time. The object of a model is to segregate the semi-permanent or relatively constant factors from those which are transitory or fluctuating so as to develop a logical way of thinking about the latter, and of understanding the time sequences to which they give rise in particular cases.” (J. M. Keynes to R. F. Harrod , 4 July 1938, CWK XIV: 296-7).

[6] On the Keynesian notion of uncertainty, cf. Roncaglia, 2009; on the refusal of ‘long chains of reasoning’ (a point Keynes inherits from Marshall), cf. Roncaglia, 2005a, pp. 359-60, 393.

[7] Indeed, as I argued elsewhere (Roncaglia, 2010), the crisis should have led to abandonment of the mainstream in favor of a return to Keynes.

[8] For a full elaboration of this point, cf. Roncaglia, 2005a, 2009; Roncaglia and Tonveronachi, 2014.

[9] In Italy, for instance, the economics sector of Anvur, the national research evaluation agency, adopted evaluation criteria (different from those adopted in other sectors, as in the absence of normalization among research sub-areas and approaches) which gave a huge competitive advantage in career and research funding to the mainstream, and to such areas as econometrics and applied macroeconomics compared to the history of economic thought.

[10] Cf. Roncaglia 2016.

[11] Interest in their policy proposals has recently been revived by an Accademia Nazionale dei Lincei conference co-sponsored by Economia Civile held on 18 November 2015; the papers presented at the conference (by Alessandro Roncaglia, Mario Libertini, Roberto Weigmann, Maria Chiara Malaguti, Filippo Cavazzuti, Terenzio Cozzi, Michele Salvati, Aldo Montesano, Antonio Pedone, Michele De Benedictis) have been published in a special issue of Moneta e Credito (vol. 68 n. 272, Dec. 2015). The June 2015 issue of the same journal reprints an important testimony to a special parliamentary committee of enquiry on competition by Paolo Sylos Labini of February 8, 1962, together with articles on the centre-left government reform policies and their persistent relevance, by Roncaglia, Gianfranco Pasquino, Cavazzuti. (Moneta e Credito is freely available on the web, at www.monetaecredito.info). An important document of that period is also Fuà and Sylos Labini, 1963.

References

Fuà G. and Sylos Labini P., 1963, Idee per la programmazione, Laterza, Bari.

Keynes J.M, 1931. Essays in persuasion, London, Macmillan; repr. in J.M. Keynes, Collected writings, vol. 9, London, Macmillan, 1972.

Keynes J.M., 1936, The general theory of employment, interest and money, London, Macmillan; repr. in J.M. Keynes, Collected writings, vol. 7, London: Macmillan, 1973.

Keynes J.M, 1973, The General Theory and after, in J.M. Keynes, Collected writings, vols. 13 (Part I: preparation) and 14 (Part II: defense and development), ed. by D. Moggridge, London: Macmillan.

 Lucas R.E., 2003, ‘Macroeconomic priorities’, American Economic Review, 93:1, pp. 1-14.

Minsky H.P, 1982, Can ‘it’ happen again? Essays on instability and finance, Armonk (N.Y.), Sharpe.

Roncaglia A., 2005a, The wealth of ideas, Cambridge, Cambridge University Press.

Roncaglia A., 2005b, Il mito della mano invisibile. Roma-Bari: Laterza.

Roncaglia A., 2009, ‘Keynes and probability: an assessment’, European Journal of the History of Economic Thought, 16, pp. 485-510.

Roncaglia A., 2010, Why the economists got it wrong. The Crisis and its cultural roots, London, Anthem Press.

Roncaglia A., 2016, ‘L’etica dell’economista’, Moneta e Credito, 69: 273, pp. 7-19.

Roncaglia A. and Tonveronachi M., 2015, ‘Post-Keynesian, post-Sraffian economics: an outline’, in D. Papadimitriou ed., Contributions to economic theory, policy, development and finance. Essays in honor of Jan A. Kregel, Houndmills, Palgrave Macmillan, pp. 40-64.

Schumpeter J., 1954, History of economic analysis, ed. by E. Boody Schumpeter, New York, Oxford University Press.

Smith A., 1759, The theory of moral sentiments, London, A. Millar; critical edn., ed. by D.D. Raphael and A.L. Macfie, Oxford, Oxford University Press 1976.

Soros G., 1998, La crisi del capitalismo globale, Ponte alle Grazie, Milano.

Soros G., 2008, The new paradigm for financial markets, PublicAffairs, New York.

Sraffa P., 1960, Production of commodities by means of commodities, Cambridge, Cambridge University Press.

Sylos Labini P., 2003, ‘Prospects for the world economy’, BNL Quarterly Review, 56:226, pp. 179-206.

Valdes J.G., 1995, Pinochet’s Economists. The Chicago School in Chile, Cambridge, Cambridge University Press.

Viner J., 1927, ‘Adam Smith and laissez-faire’, Journal of Political Economy, 35, pp. 198-232.