Around Robin Hood’s Barn

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Posted in 2016 elections, History of economics, Uncategorized, US elections Tagged with: , , , ,

When Middle Tennessee State University defeated heavily-favored Michigan State University in the first round of the NCAA basketball tournament last week, I couldn’t help but thinking about how MTSU’s most famous graduate would have savored the upset victory. Nobody symbolized skeptical, critical, courageous resistance to the complacencies of elite opinion better than that Tennessee populist, Nobel economics laureate James M. Buchanan (’40).

But Buchanan died in 2013, at 94. So I consulted his liveliest inheritors, the frequent collaborators David Levy, of George Mason University, and Sandra Peart, of the University of Richmond. Peart wrote: “He would be so pleased to see the scrappy underdog beat the powerhouse!”

I find it hard not to think of Buchanan in connection with the turmoil of the present day, when “the unprotected,” as Trump voters are coming to be called, are represented by no better mouthpiece than the megalomaniacal billionaire. Recently the community of labor economics has sought to bring to the surface the grievances of US citizens who have borne the heaviest costs of globalization.  Buchanan, and the tradition with which he is associated, which took root in Virginia, not Tennessee, has something to say about this as well.

Levy and Peart’s Escape from Democracy: The Role of Experts & the Public in Economic Policy is slated to be published, by Cambridge University Press, in September. (I read it to furnish a blurb).  Their most recent service in carrying on the Buchanan tradition has been to illuminate the critical role of the Ford Foundation in declining to enfranchise, in 1961, the largely democratic Thomas Jefferson Center at the University of Virginia as an alternative to the more technocratic department of the University of Chicago (leaving aside the fact that UVA was still largely segregated at the time).

Ford was acting very much in accordance with the temper of the times; indeed, Ford was creating it. It’s useful to understand how relatively narrow was the consensus of those days. At least in retrospect, the Jefferson Center in Charlottesville was the nation’s best long-run insurance policy against the threat posed today by Trump-style authoritarianism, or so it seems to me.  The argument takes me, as Levy says, into “deep counterfactual.”

What happened, in brief: Buchanan, who received his PhD from the University of Chicago in 1948, had assembled a department of economics at the University of Virginia of considerable distinction.  It included Ronald Coase, like Buchanan a future Nobel laureate; Gordon Tullock, a near-miss with the Swedes; G. Warren Nutter, whose downbeat views of Soviet economic growth were ridiculed at the time but subsequently proved to have been largely correct; Leland Yeager, an advocate of monetary policy rules; and Alexandre Kafka, an international economist and distant cousin of the author. British-Hungarian polymath Michael Polanyi was a frequent visitor.  Members of the Virginia department conceived of themselves as sharing a philosophical point of view superficially similar but fundamentally different from the “second” Chicago school that had emerged under Milton Friedman – closer to the views of “first” Chicago school wheel horse Frank Knight. William Breit, of Trinity College, gave a good account of what went on in “Creating the ‘Virginia School:’ Charlottesville as an Academic Environment in the 1960s,” in Economic Inquiry, in October 1987.

Ford was promoting a “new economics” at the time, a more formal and empirical version that had emerged in the years after World War II.  Virginia applied for a big grant ($1 million went a long way in academia in those days).  Buchanan explained the logic of the Jefferson Center in a letter to the foundation:

There seem to me to be two essential ways of approaching the study of problems of political, social, and economic organization. The first way is that of setting up independently certain criteria or goals for achievement and to examine existing and potential institutions in the light of their performance or expected performance in meeting these criteria. This approach, for purposes of exposition here, may be called the “social welfare function” or “social engineering” approach. It seems to characterize much of the current scholarship in the social sciences, and in economics especially.

The approach of the TJC differs from the social engineering approach in that it takes group goals to be endogenous to discussion: The second approach is that which deliberately avoids the independent establishment of criteria for social organization (such as “efficiency,” “rapid growth”, etc.), and instead examines the behavior of private individuals as they engage in the continuing search for institutional arrangements upon which they can reach substantial consensus or agreement.

Ford turned them down. In an internal report on the application, Buchanan reported that the reaction of its representatives “must be considered to have been almost wholly negative.” Nutter was less diplomatic.

We saw the Ford Foundation today, and we came away with a bad taste in our mouth – a very bad taste. We were shoved onto [Ford program directors] Kermit Gordon and Thomas Carroll. The official line was that the Foundation was now (?) in the midst of an agonizing reappraisal of the institutional support program, and our proposal hinged, of course, on the decision as to the future of such programs. It became clear, however, that Gordon had made up his mind. The most disturbing thing about our proposal is that the Center is tied up with a “point of view” whereas the Foundation supports national programs “of unbiased institutions, like Harvard and Yale.” (He really said this.) Aside from being left-wing, Gordon is thick-headed enough to believe what he says. Carroll, on the other hand, is pure politician, expressing concern solely over what people will think of the Foundation if it makes this decision or that.

Within a year, Gordon had become a member of the Council of Economic Advisers under President John F. Kennedy, with Walter Heller and James Tobin.   The Virginia school began to come apart. The administration declined to match Chicago’s offer to Coase. The faculty began a “self-study” of its disreputable economics department (Nutter had been an adviser to Barry Goldwater’s 1964 presidential campaign). After the university refused to promote Tullock, Buchanan resigned and moved with several others, first to Virginia Tech, in Blacksburg, then after a decade to George Mason University, in suburban Washington, D.C. The Jefferson Center had been snuffed out by elite opinion; the standoff between Keynesian Cambridge and monetarist Chicago lasted the next forty years.

What might have been different had the Virginia School continued to flourish? For one thing, Virginia would have done a better job of criticizing the conduct of economic policy these last thirty years than has Trump. “Everything Buchanan taught had to do with the importance of rules,” said Levy. “Trump doesn’t believe in rules. Buchanan taught that you had to constrain your fury. The easiest thing to do is to drop that constraint.”

Levy continued:

In an important sense Buchanan brought back what the classics, like John Stuart Mill, taught about the need to couple compensation with reform of any sort. [Buchanan’s] phrase — politics as exchange — is central. One can of course ask the voters to trust the experts that a policy will make them better off, but voters have memories and do get angry.

Tennessee is, of course, Trump country. He tallied 332,702 votes, or 39 percent, compared to 25 percent for Cruz. (Hillary Clinton received 205,344 votes, or 66 percent of the votes in the Democratic primary.) There’s nothing surprising about that:  the state is among those that has been heavily affected by the China Shock. Murfreesboro, the location of Middle Tennessee State University, is no exception. When I looked yesterday, an advertisement for a Kmart store closing, was at the top of the Murfreesboro Post webpage: “Everything must go.”

But take a closer look at Murfreesboro itself, thirty miles from the state capital, Nashville  It is Tennessee’s fastest-growing major city, and one of the fastest-growing cities in the country.  MTSU, founded in 1911 as a two-year teacher college, has become the third-largest university in the state.  The metropolitan area unemployment rate is 3.7 percent. Another Post ad, this one on the business page, asked: “Hungry?  Don’t get up.  Deliverythunder.com” Prosperous people order takeout; poor people find work preparing and delivering it.

Tennessee, like other states hit hard by deindustrialization, is engaged in “the race between education and technology” that Claudia Goldin and Lawrence Katz, both of Harvard University, described in their landmark 2008 book of that title.  The centerpiece of their argument is the story of the high school movement that in the early years of the twentieth century equipped the American workforce for global leadership. The rise of colleges and universities like MTSU was a key to US industrial success in the years since World War II. (MT State College became a university is 1965.)

Thus we have come, all around Robin Hood’s barn, to Learning by Doing: The Real Connection between Innovation, Wages, and Wealth (Yale, 2015), by James Bessen.  It is by far the best thing I’ve read recently about what might be done to counter the sense of loss that is roiling this year’s presidential campaign – the forward-looking compensation to accompany trade reform. Its concluding words are these:

The practical skills of ordinary people have been a wellspring of widely shared wealth for 200 years, and the economic power of mighty nations rests on the technical knowledge of the humble. Provide the means for ordinary workers to acquire the skills and knowledge to implement new technology today, and the economic bounty will not only grow, it will be widely shared.

More on Bessen and his Research on Innovation.org next week.

.                                   xxx

As for Trump himself, EP’s shrewd Ottawa correspondent writes:

I can’t believe Trump wants it. He’s looking like the dog who chased the car and got his teeth into the back bumper and is wondering what to do next. I think his priority is trying to save his business, which is nothing more than brand value that, for any other person, could be evaporated by the likes of the Trump University lawsuits alone. With the Trump U. pre-trial set for May 6th, if that process mushrooms into a brand buster, it’s a stretch to imagine he could stay in the game for the oval office. So he seems to have doubled down on all or nothing, hoping the support he’s generated in the primaries so far will help him fix the business stuff before it all blows up.