Assume a Democracy
There’s an old joke about a physicist, a chemist, and an economist marooned on a desert island with a can of food. The physicist says “I can open it by using physics!” and comes up with a plan. The chemist says “I can open it by using chemistry!” and comes up with a plan. The economist says “I can open it by using economics! First, assume a can opener….”
Through our educational system, a sort of tyranny of introductory economics has permeated elite discourse for decades now. Economics deems itself a “value-free science.” Economist Robert Heilbroner tackled this issue, pointing out that "science exists to explain or clarify things that exist independently of the values of the observer. It is the study of what 'is,' not of what 'ought to be.'"
But if we let value-free science dictate policy - "what ought to be" -- policy will also be value-free. Do we want a value-free society? Unless you’re a sociopath, the answer has to be “no.”
Of course, the claim of objectivity is false. Heilbroner went on to say that “{o}ne of my objections to much of contemporary economics is that it lends a gloss of such ‘objective’ validity to conclusions that in fact only follow from arbitrary and value-laden assumptions….” He pointed this out in 1971 - it's just as valid half a century later. But under this cloak of objectivity, some economists venture into smug lectures not on what is, but on what ought to be.
The lethal combination of faux-objectivity and incompetence in anticipating cataclysmic events (the financial crisis, the scope of manufacturing job loss after China's accession to the WTO, pandemic supply shocks) have contributed to the profession's crisis of credibility. There’s a reason Mark Carney, former central banker and current candidate to lead the Liberal Party in Canada, wrote a book called Value(s).
So-called value-free economics has suffused economics education for a least a generation. But the blurring of the lines between economics to describe what "is" and economics to describe what "ought to be" means that a whole lot of elites have been inculcated with a very particular set of values, while being assured that they were simply learning truth.
And it has contributed to the erosion of our democracy.
This is a particularly pernicious problem in international trade. Let's look at four examples.
1. Introductory economics doesn’t distinguish between democracies and autocracies.
In introductory economics, we learn about supply and demand, and efficiency, and wine and cloth. We learn that if a foreign government subsidizes production and drives domestic producers out of business, that’s net positive for the non-subsidizing country because it means cheaper goods, with the foreign taxpayer footing the bill.
Do we learn about what happens if it’s an autocracy subsidizing production of wine andcloth – or wine and cloth and active pharmaceutical ingredients and semiconductors and airplanes and tanks and ships? What happens if the autocracy drives producers in market-oriented economies out of business? What if the autocracy has the ability to cut off the supply of all these subsidized goods in a natural disaster – or a geopolitical conflict?
The oversight is ... weird. Because from the 1950s through the 1980s, when a lot of this value-free thinking was being propagated through textbooks, fighting the Cold War meant the United States and the USSR were effectively decoupled. Market and non-market economies were effectively decoupled. We didn't have to think about the interaction of market and non-market economies because it didn't really exist.
Market-oriented democracies won! One lesson you could draw is that, if you're a market-oriented democracy, it's a good idea to limit the interdependence of market and non-market economies. Yet when the Cold War ended, the victors did just the opposite. They embraced interdependence with a non-market autocracy. Whoops.
2. It teaches us to be ok with offshoring our neighbor’s job.
In introductory economics, we learn that efficiency is paramount. As John Kenneth Galbraith put it, "efficiency has long been a near fetish of economists." If someone in a foreign country is more efficient at making something than your neighbor is, it's ok if your neighbor’s job is offshored.
There are a few problems here. First, what do we mean by “efficient”? It should mean the optimal use of resources. But instead, in the global economy, it usually just means cost – the low-cost producer is the efficient producer. But you can achieve low costs through all sorts of practices that don’t reflect the optimal use of resources. You can even achieve it by using forced labor. Most people think forced labor is bad, not “efficient.” But if you’re value-free….
Second, as a society, shouldn’t we find it disturbing that we’re trained to be sanguine about putting our neighbors out of work? You can very much want working people in other countries to thrive: that’s what cross-border solidarity is about. But an education that encourages us to think offshoring our neighbor's job is a good thing – well, that seems likely to erode the social fabric of the country.
Pulitzer-prize winner David Leonhardt’s book Ours Was the Shining Future does an uncomfortably good job of breaking down how Democratic elites destroyed the FDR coalition in just this way – by becoming indifferent to the experience of working class Americans. We educated ourselves out of empathy for our fellow citizens. For our fellow voters.
If you’re cavalier about offshoring your neighbor's job, don’t be surprised when your neighbor votes for someone who isn't -- even if they don't mean it.
3. It assumes your job and your community don’t matter.
One of the ways we're taught to justify our comfort with the offshoring of our neighbor's job is that when good jobs go away in one part of the country, The Market™ creates new ones in other parts of the country, and it all comes out even. “Learn to code” became a catchphrase to describe the elite view that manufacturing workers in the industrial heartland would become software engineers in Silicon Valley. That phrase has come to symbolize the glib elite response to economic precarity.
Abstract economic models aside, there is, of course, no law that says if we lose X manufacturing jobs, we will gain X service jobs. This is why affirmative government efforts to create jobs – through, for example, the kinds of industrial policy initiatives that are currently being thrown into uncertainty – are so important.
Moreover, job quality matters. What service jobs are available to displaced workers? Is it software engineering - or is it, in many cases, retail? Do those jobs come with benefits – health insurance, sick leave, retirement? In the real world, jobs aren’t fungible.
“There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Finally, a lot of people like where they live. They don’t want to move. They like what they do for a living. They don’t want to do something else. Yes, change happens – tomorrow is promised to none of us. But Dan Kaufman's recounting of the demise of MasterLock manufacturing in Milwaukee is emblematic of what offshoring does to our communities -- including Black communities established in the North as a result of the Great Migration.
We have to recognize that if you are ok with offshoringand have no real plan to make workers whole – well, a lot of folks will vote ... not for that. Let's remember that the people who have championed offshoring are the same people who liked cutting the already-meager Trade Adjustment Assistance program -- that is, until the offshoring agenda faltered and Team Offshoring desperately need to shore up support.
It’s hard to overstate the one-two punch of the financial crisis and the 2015 trade agenda. Even before then, back in 2006, Warren Buffett reportedly said "There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning."
4. It doesn’t care about national security.
In focusing on efficiency and assuming that means the United States is a services economy, introductory economics ignores not only the importance of manufacturing to manufacturing workers, but the importance of manufacturing to a country that wants to be in a position to defend itself – or to defend others. We need to have an industrial base to make airplanes, tanks, ships – the javelins for Ukraine. We won’t be safer by following the so-called value-free logic that production should be outsourced based on “efficiency.”
Even efforts to correct for the longstanding insouciance to national security, such as “small yard, high fence,” are too narrow, especially if your goal isn't just national security, but economic security for workers. If you’re a manufacturing worker and you’re not making semiconductors, are you inside the yard, or outside the yard? If you’re assembling an automobile, are you inside the yard, or outside the yard? If you make steel, are you inside the yard, or outside the yard? What happens when the fence isn't as impermeable as you thought it would be?
The pandemic highlighted the dangers of allowing so much manufacturing to be outsourced that you have shortages of basics, like masks and other PPE. We’re now seeing the same pro-offshoring economists who failed to recognize supply shock exposure deny that we even experienced a “huge supply shock” during the pandemic. The families of all the people – including frontline workers -- who died because of a shortage of protective personal equipment might like to have a word. The owners of manufacturing facilities idled because the PRC shut down, exposing our profound dependency on key inputs made there, might like to have a word - as would the workers.
“No huge supply shock” during COVID is the pandemic version of the "assume a can opener" joke: detached from reality.
Unlike the can opener joke, it’s not funny.
Even economists who recognize the dangers of hyperglobalization are challenged to talk about manufacturing in a way that doesn’t come across as another round of dunking on manufacturing. Saying "we’re a services economy now and that’s ok” sounds like “learn to code,” even if it isn’t meant that way. To be fair, those same economists offer an important nuance: when you move past the headline into the argument, they aren't questioning the value of manufacturing, but rather contending that there's a limit on the total number of manufacturing jobs you’re likely to create. But if the headline is some version of "restoring manufacturing is magical thinking," then it's reinforcing the very anti-manufacturing bent that has plagued us for decades.
Economic indoctrination not only allowed elites to get comfortable with Americans losing their manufacturing jobs -- it led us to believe that taking that position is sophisticated, elevating us above mere parochialism to the lofty heights of internationalism. Even election shocks didn't wake people up to the fact that if you can't bring yourself to care about your neighbor's job as a matter of empathy, you should at least care about it as a matter of democracy. This destructive line of thinking remains strangely persistent, in academia, in think tanks, amongst the pundit class – and in the government itself. People who think they're progressive are, on these issues, libertarian. And they can’t see it.
Economics can indeed help us understand what is. But it shouldn't dictate what ought to be.
In the real world, you can't assume a can opener. And you sure can’t assume a democracy.