American public policy includes a lot of economistic thinking. Policy analysts weigh costs and benefits, use economic projections and models, and try to calculate the value of almost everything. That may not have been inevitable. Elizabeth Popp Berman finds that a revolution in applied microeconomics brought about a shift in bureaucratic agencies, which led to self-reinforcing requests for more economics trainees and economistic ideas, with governments increasingly asking for a particular form of economic analysis that limited the scope of government action. This economic revolution explains how the Democratic Party moved rightward, foreclosing further left economic alternatives by changing the language and criteria for policymaking.
Guest: Elizabeth Popp Berman, University of Michigan
Study: Thinking Like an Economist
Matt Grossmann: Did economists move the Democrats rightward? This week on the Science of Politics. For the Niskanen Center, I’m Matt Grossmann. American public policy includes a lot of economistic thinking. Policy analysts weigh cost and benefits, use economic projections and models, and try to calculate the value of almost everything. That may not have been inevitable. The impact of economists and their fellow travelers, especially culminating in the 1970s may have set the nation on a different policy path. This week I talk with Elizabeth Popp Berman of the University of Michigan about her new book, Thinking Like An Economist.
She finds that a revolution in applied microeconomics brought about a shift in bureaucratic agencies, which led to self-reinforcing requests for more economics trainees and economistic ideas with governments increasingly asking for a particular form of economic analysis that limited the scope of government action paired with a growing academic sector willing to provide it. But Berman is not just interested in the academic and bureaucratic trends. She says this economic revolution helps explain how the Democratic Party moved rightward foreclosing further left economic alternatives by changing the language and criteria for policy making. I think you’ll enjoy our conversation. Why don’t you start with a summary of the book? What were your big findings and implications?
Elizabeth Popp Berman: Yeah, well, so the book is basically trying to do two things, right? So it’s trying to show how, what I’m calling an economic style of reasoning really entered Washington and moved around and became incorporated into a lot of different places in the policy making process. So one piece of it is just tracing that historical story. And then the book is also arguing that as this economic style of thinking was introduced and really institutionalized in a lot of ways, that it shaped the kinds of policy options that were considered and that it became a constrain on policy. And that that was particularly the case for Democrats.
Matt Grossmann: So why don’t you make that a little more concrete? So give us a few examples of what is an economic style of policy making and what might it entail [crosstalk 00:02:15]?
Elizabeth Popp Berman: Yeah, sure. I mean, I think so just to do a little definitional kind of thing, the way I think of the economic style of reasoning is not necessarily what PhD economists are doing. It’s sort of more of a microeconomic econ 101 approach to policy, a broad focus on choice, incentives, cost effectiveness, weighing cost, and benefits, thinking about trade offs, those kinds of basic concepts that you can use as a set of tools for thinking about policy. And in terms of what that actually looked like in practice, there’s one example I use in the beginning of the book that I like, because it really illustrates how much things changed over a period of time, that in… And I use the Clean Air and Water Act from the early ’70s, and then looking at the Clean Air Act amendments of 1990 as a good example of how the economic style of reasoning did become built into certain kinds of policy.
And so if you go back and look at those original pieces of legislation, they did not draw on economics as a discipline at all. In fact, there’s this great piece by an economist after who wrote about the Clean Water Act saying Why Did Nobody Listen to the Economist? Is the subtitle of the piece. And it was really grounded in ideas about ecology. It’s coming out of social movement spaces. There’s a lot of attention to health, and there’s also specifically explicitly no focus on costs in part for political reasons. And so it’s growing out of a theory about regulatory capture that if we make these pieces of legislation with these absolute goals in them, and don’t pay attention to costs, that will help to limit the potential for regulatory capture.
And so that’s what the before looks like. By the time 1990 rolls around, and you’re looking at the Clean Air Act amendments, the centerpiece of that ends up being the Acid Rain Program, which is the first big cap and trade program. And so now, instead of having this moral tend to the debate, this idea that pollution is wrong, we shouldn’t do it, instead we’ve got a very different approach that thinks of pollution as an externality, that if we can figure out how to price it, then we can figure out how to reduce it in the most efficient way possible. And that obviously becomes the model for a lot of other cap and trade programs in the decades that follow. And so that’s kind of the type of shift that I’m talking about here.
Matt Grossmann: So tell us a little bit of the story behind the buck, how it builds on your prior work and how much it transformed from idea to execution.
Elizabeth Popp Berman: Yeah. So in some ways this grew out of my first book, which was about… And I think I’ve always been interested in the intersection, and how we think about governing markets, how do we organize markets? How do we think about what kinds of rules they should follow? And my first book was about universities. And so it was called Creating the Market University: How Academic Science Became an Economic Engine. And so I was really looking at how science became more entrepreneurial. And in the course of that, the story that ended up coming out of that ended up being much more of a policy centric story than I expected it to be. And so one of the takeaways from that book is that in the ’70s policy makers seized on the idea that technological innovation drives economic growth.
And that that became a really powerful argument politically for creating policies that ended up promoting entrepreneurship among scientists. And so that kind of partly was how I got interested in how this economic thinking actually affect politics, but I think the other piece of it is just a personal level, somebody who came in the age in the ’90s and grew up politically as a person who’s fairly progressive, growing up in that era and really thinking about… It always felt like the range of policy options were very constrained and it always felt to me like they were constrained in a particular way. And I think that was something that had been sitting at the back of my mind for a long time. And that shaped how I started to think about the question and why it really drove me at the same time that it was also growing out at these intellectual interests.
Matt Grossmann: So the book is a pretty concrete history. You have a lot of specific stories of people and institutions that brought about this transformation. So tell us a couple of your favorites of the actors and what they were actually doing to bring this about.
Elizabeth Popp Berman: Yeah. I mean, I think the one set of people that I really just enjoy reading and learning about are this group of economists who were coming from the RAND Corporation in the 1960s. So the RAND Corporation people today might not think of it purely as being about defense. It does a lot of research in education and health and these other areas, but at the time it was really a defense think tank and it hired a lot of economists to try to help solve these problems for the air force, basically figure out how we’re going to defend against the potential of a Soviet attack as cost effectively as possible, basically. And there were a set of people at RAND, the guy who was the leader of the Economics Department there was a guy named Charles Hitch, and he was one of my… I just think he’s a really interesting character.
He’s very mild mannered. Somebody in an oral history describes him as the kind of guy who wears a suit to a picnic. So he’s got a particular… He is a low key person, but he ends up coming to Washington in 1960 with Robert McNamara. So McNamara finds out what these folks at RAND had been doing, thinks it would be really great to scale up these budgeting methods that are really developed by economists and grounded broadly in economic thinking and introduce them to the defense department. And so Hitch is the one who brings them there, who really starts to implement them, and who is seen as doing this very effectively. And it becomes so effective that Johnson in 1965 decides to roll this out across all federal agencies.
And so this is a really critical moment where somebody who could have just had this influence in this very specific policy domain ends up creating a lot of changes that have all these downstream effects, because it becomes a way to think about how to budget and how to make budgeting decisions much more generally in government.
Matt Grossmann: So you say that this transformation helps explain the transformation of the Democratic Party to how it got in the ’90s when you were most familiar with it, but you say it explains how, but perhaps not why, or that there’s a whole set of factors that might have explained why. So make the case for that, explain that distinction, and maybe, I guess, convince us that this really is about trends in the Democratic Party rather than the resurgence of the Republican Party or the conservative movement.
Elizabeth Popp Berman: And I do think… I mean, most of what I focus on in the book is more something that’s happening on the Democratic side. I mean, there is a piece that’s the conservative economic piece that’s particularly more influential in antitrust, which is one of the areas I look at. So it’s not 100% a story about Democrats, but what you really do have is… So for one thing, most of the techniques that I’m talking about and most of the moments where you have spaces for economic reasoning being built new places in Washington, so you have policy offices being created, or you have something like the CBO being created, the Congressional Budget Office, these are all projects that are driven by people associated with the Democratic Party, and they are really people who for the most part think government has an important role to play, they’re just trying to figure out how to make it work better, how to make it more cost effective.
They become pretty influential within the party, and in part because their influence isn’t just about giving advice to specific politicians or specific presidents, it’s much more about building an infrastructure that supports this way of thinking. So you see the growth of new kinds of think tanks and research shops, places like the Urban Institute. You see the creation of public policy schools, which are a direct response to these new techniques that are being used and the demand for people who are, are trained in being able to produce these kinds of analyses. And it becomes much more built into what the Democratic Party does than it does for Republicans. So by the time that Reagan is elected a lot of this stuff is in place, but Reagan approaches economics much differently in that he tends to use it… He supports it when it lines up with his existing policy preferences and rejects it in cases where it doesn’t. So you see a much more selective use of economics in that case than you did, for example, under the Carter administration.
Matt Grossmann: So this is a story both about economist thinking, our economistic thinking and more conservative thinking as well. To what extent is economistic thinking inherently conservative in comparison to say something like sociology, and is there an alternative story where economics was very influential but did not have this effect, or that something like sociology was influential in a conservatizing effect instead?
Elizabeth Popp Berman: I mean, it’s a really good question. So I think there is a way in which disciplines don’t necessarily have any inherent moral or political valence to them. They kind of emerge as configurations of tools and frameworks and ideas that are responding to these broader outside pressures and that are a combination of responses to what’s going on in the world in combination with the new ideas that people are developing on the ground in these different disciplinary spaces. So I don’t think any discipline necessarily has to have a conservative or less conservative tilt to it. And I think sometimes you see a pretty significant shift within disciplines over time, too.
But I do think there’s a way in which economics, as it becomes an influential discipline, does end up having a lot of ties to money, basically, to business, to finance, to financial interests, that I do think indirectly point it towards a particular set of questions and shape the range of answers that people are willing to consider within that. So I think whatever discipline you have that most tied status quo in some ways is going to have some conservative tendencies to it, which isn’t necessarily to say that’s always going to be true of every person within the discipline or that’s necessarily how it’s always going to be.
Matt Grossmann: And what about… Is there an alternative history where something like sociology is influential and what kinds of institutions would it develop if there was some sociologicalization of government?
Elizabeth Popp Berman: I’m a sociologist, but I’m not sure I would advocate for putting the sociologists in charge, but I do think that it’s clear that people coming from different disciplines are going to bring different frameworks to policy problems and are going to think about them in different ways. And I think just one example of this might be how do you think about the concept of power in a policy context. And economists might talk about market power specifically, and a narrow form of power that’s really about the ability to raise prices, but don’t tend to theoretically work with a broader conception of power, whereas sociologists, or I think political scientists to a greater degree, you might mind that to be something that’s more central to their analytical lens, and I think that shapes then how you think about what kinds of policies might make sense, think about the political implications as well as the technical ones. It might just take you to some different places.
Matt Grossmann: So you track the development of masters of public policy schools as a instantiation of this economic influence, and then how it feeds back into academia. But at least from my perspective, it seems now like public policy schools are quite concerned with equality, have a more diverse range of disciplines represented. So to what extent do these institutions get set in motion by the economists and keep going, and to what extent do they take a different shape once they start?
Elizabeth Popp Berman: Policy schools are a super interesting space both historically and right now, but I think… One important thing to keep in mind is that policy schools were also always kind of liberal in a way. Policy schools are basically figuring out how to do government well, how to do policy well. So if you’re really starting from a point that government should be doing less, then the idea that you’re sorting build a career on figuring how to do it well doesn’t really fit that well with that. So right from day one I think policy schools have been liberal in some sense, but it is really interesting I think what you’ve got going on is that historically public policy programs have been quite interdisciplinary, but also broadly oriented towards microeconomics, and that it’s typically… Microeconomics are some of the core classes, they’re cost benefit analysis, which is closely tied to that, so it’s a central part of the curriculum even as there’s lots of disciplines represented in policy programs.
But it is really interesting. I mean, I think you do see this shift in really the last few years where there has been a much greater focus on equality, like you said, more progressive goals, I think, within policy schools, which is interesting. And I think maybe some of that is about… I mean, a piece of this is about the larger political fracture and the fact that there’s fewer conservatives within academia at all. So those people aren’t necessarily part of the same conversation anymore. And then I think there’s also a piece of it that is student driven. And just from the people I’ve talked to, the students enrolling in masters of public policy programs just look different than they did 10 years ago, and they have a different set of concerns. And I think in some way as the schools are responding to that. So at least that’s my perception is that there’s a little bit of this that’s a bottom up change.
Matt Grossmann: So the book is told from the perspective of skepticism of some of these transformations, but I wanted to give you a chance to make the pro case for some of this planning, budgeting, and economic thinking. What are the most positive aspects of it and what is worth keeping.
Elizabeth Popp Berman: Yeah, no, I think anytime you’re talking about doing something that involves governance in some significant way, I think you’re going to need quantification and formal tools for being able to evaluate and think about what’s actually happening. And so when it comes to something like cost benefit analysis, which I talk about somewhat mildly critically in the book, I don’t see that as something that we should just get rid of or abolish or not do that. You’re always going to need to consider cost in some sense. That’s pretty fundamental to policy making. And I think what I would advocate instead is for both more explicitly revisiting some of the assumptions that are based into the way that we do it and also for more acknowledgement that these are not neutral tools, that the choices that you make about how to do something like cost benefit analysis have implications of their own.
But there’s a lot of places where I think economics brings a lot of value to policy. And I think the other big example that comes to mind is just the causal inference revolution of the last couple of decades and just the idea of how many new tools have come from economics to help us think about how do we measure what the effect is of a policy? How do we think about measuring outcomes and about doing that in a statistically convincing way? Those are some places where I think a lot of value is added.
Matt Grossmann: And you’re mostly focusing on microeconomic tools here, but you do do a little bit of comparison. So give us the compare and contrast for how economists have been influential in macro versus micro and why it took these different forms in each case.
Elizabeth Popp Berman:Yeah, so, right. I mostly talk about microeconomics in the book. I do have a chapter that looks at a little bit of the history of macro as well. And macroeconomics took its own trajectory into Washington and I think it has influenced through different kinds of channels. Macro really came to Washington much earlier than micro I did. You’re talking about the 30s and 40s, not the 1960s and 70s. And it has been very influential, particularly at some points in time, but it’s influence I think, it’s both narrower in some ways because it really is more concerned with specific policy domains. So you’re specifically talking about monetary policy or fiscal policy, inflation. It’s also got particular, I think it’s much more channeled through specific institutions. I think you’ve got macro economists are influential sometimes as policy advisors, depending on who is in charge and then also through institutions like the Fed.
I think what’s distinctive about microeconomics is not only the timeframe, but because it’s a way of thinking that you can apply to any type of policy that works in any policy domain, its influence is much more diffused throughout different kinds of policy making and different policy areas and is built into the institutions that we use for making policy, developing regulations, working out some of those details of how policy actually works in a way that’s distinct from macro.
Matt Grossmann: Many of the trends that you’re tracking seem to have happened to some degree across the rich world. What does that tell us? Does it tell us that the more specific stories you tell of how it came to power in the US weren’t necessarily necessary, that it could have come to power in lots of different contexts? Does it tell us that the US movement became worldwide and there’s a path from the US to explain the rest of the world?
Elizabeth Popp Berman: Yeah, I think there’s two ways to answer that. One is that, yeah, I think that given how governments developed over the course of the 20th century and given the way that broader systems of knowledge developed, I think there were going to be these trends towards formalization and quantification that were going to play out in governments in many places in some way, roughly during these periods, regardless of what happened. And in the US, it happened to be centered around economics and it took its own particular form. But there is this piece of it that I think is just a broader trend towards developing tools for managing government.
Matt Grossmann: What about on the political side? There’s sort of a case that the US was on a different trajectory by the 1970s. Most of the welfare state comparative literature doesn’t say that the trajectories changed after the 1970s as the US kind of story does. It more says that from the 30s and 70s, governments took particular turns and then since then there hasn’t been as much building of government.
Elizabeth Popp Berman: Right, right. No, and I think there is a piece in which the US was kind of an early over in this direction and it is at least partly a diffusion story too. And I think you see this particularly in some of the ways that public management techniques diffuse outward from US institutions, and it’s not necessarily happening through US government, but from US academia and then building ties to transnational organizations that build communities the people in other countries who are using roughly the same set tools and have roughly the same types of training. And so I do think there’s a piece of it that diffuses outward and takes slightly different forms.
And you see things like new public management in the 90s, which is not quite the same, but it has a lot of overlap. And so I do think there’s a space in which, because the US was both still the hegemon at that point and also because of the global centrality of US academia, that those ideas and tools and techniques really did spread outward from there.
Matt Grossmann: And what about the specificity of this story to government? A lot of these similar kinds of technique certainly are in use in the nonprofit sector and increasingly in the corporate sector as well and even part of the story of economic thinking is its increasing use in personal life and self help kinds of things too. So it seems bigger than a trend about economists infiltrating government. It seems like a broader rise of that kind of thinking. What do you think?
Elizabeth Popp Berman: Yeah, no, and I think if you wanted to you could tell this as a story of a century or more. You could start with scientific management and just kind of built your way up from there. I think this general idea that we’re going to continue to find ways to try to use calculation to make different kinds of activities as effective or cost effective as possible is something that just goes with the development of institutions in the 20th century.
I do think what ends up happening is that those tools in different kind of contexts end up being developed in specific ways that are locally specific. And so to the extent that some kinds of techniques actually are developed in economics as a discipline and then spread outward from there, then they tend to carry certain ways of thinking about problems with them, maybe certain standards of evidence, certain assumptions about the value efficiency or other sort of value based assumptions are associated with that. And so I think those kinds of things maybe actually grounded in a discipline. And so why you do have this broad spread of this broad category of techniques. It also matters that exactly where they come from.
Matt Grossmann: The Biden administration started with some talk that there was going to be a change to this as a trajectory and some real personnel differences with Clinton and Obama in terms of the kinds of economists and the non economists that they’ve brought in these roles. We’re to a point where that looks less likelier to result in major policy change in a different direction. I guess what do you think of the current prospects and does that suggest that I guess the ideational change or the change in the intellectual influence isn’t actually enough, that this is more about the constraints of the political system and where we are on the spectrum.
Elizabeth Popp Berman: Yeah, despite having just written a whole book about ideas and how they matter, I don’t think it’s enough. I think the structural constraints are ultimately going to be really important and that then even the ideas themselves are kind of evolve in response to the broader structural environment. Yeah, so I don’t think that the ideas are enough, but I do think that just the fact that sort of.
Do think that just the fact that the most ambitious things that Biden talked about at the beginning of the administration, that there’s no Green New Deal or something like that, those things not coming to fruition I don’t think necessarily means that there isn’t a real change. I think what you do see is that the Overton window has moved quite a bit in terms of what kinds of policies are seriously considered or seriously debated, and there’s a lot of things that are on the table now that just would’ve been pretty unthinkable 5, 10 years ago. I think it is a longterm story of change. I don’t think we’re going to see dramatic change in the period of a couple of years, but I think it’s pretty interesting how some of the new appointees have actually moved the needle in terms of what we’re talking about, even if we don’t see quite as much change in terms of what’s actually being done.
Matt Grossmann: What’s your assessment of the Biden administration in the use of these tools? Have these different kinds of advisors succeeded in any difference in practice in how government considers policy or these administrative centers that are used to policy planning work? In other words, is there some sort of internal story that could be changing behind the scenes?
Elizabeth Popp Berman: Yeah, I think there are specific examples where you see this kind of change. I think antitrust is the one where you see the most visible and pointed, in some ways, change or conflict between these two different approaches to thinking about it. Antitrust is interesting because it’s also, of all the policy domains that I look at, which are a bunch, it’s the one where economics really had the most influence in that it really was able to define what the terms of antitrust policy were, and then that ended up being written into case law and embodied by the enforcement agencies so that antitrust was really redefined around having specifically the goal that economists thought it should have, which was pursuing allocative efficiency.
Right now, you’ve got people who are not necessarily onboard with that framework who are leading the antitrust division and the FTC. It is interesting. I think it’s creating a lot of conflict. I think this is one of the places where… I spent a lot of time talking about why it matters that you have particular kinds of thinking that are built into particular agencies, but if you are at the antitrust division and you want to try to move the needle and say, “Oh, we should think about other kinds of corporate power beyond focusing purely on consumer welfare, focusing on prices.” There’s some challenges to doing that because you’ve got a whole agency that’s filled with people who are oriented towards this way of thinking. I think you see some of those conflicts being played out in interesting ways. I think it’ll be interesting to see what that actually looks like in the years to come.
Matt Grossmann: Is there any advice for… I don’t want to say the opponents of this viewpoint, but what can they learn from the success of this kind of thinking and the creation of sets of tools and institutions that made their way into policy?
Elizabeth Popp Berman: Yeah. This is not a very sexy sound bite, but I think that really one of the things that is an important takeaway of this is that it matters who is in these agencies in the guts of Washington. Right? That it’s important to think about. Where are the veto points? Where is it that regulations actually get hammered out and defined? If you are interested in advocating for other ways of thinking about problems, where are these very unglamorous places that economic thinking has really been naturalized? Those are the places that you need to think about making change in the long run. I really think it’s about thinking about how to build different infrastructure in the long run that either opens up some of these ideas or that creates some alternatives to them.
Matt Grossmann: What about within the disciplines? Economics certainly seems to be changing political science and economics are at least using the word inequality almost as much as sociologists now, and certainly there’s new agendas to some extent. But what can we learn from the internal story within the economics discipline of how this was brought about for people who might want the disciplines to take a different direction?
Elizabeth Popp Berman: Yeah. No, I think there’s been a huge amount of change within economics. Right? There’s just an explosion of research that’s focused on inequality or inequalities in some sense. There’s much more attention to labor right now. Right? There’s a lot of focus on things like labor market monopsony and the idea that concentration maybe has been a factor in driving wages down. The discipline itself, I think, has evolved quite a lot and I think has the potential to continue to do that.
I think this is one of the things where it’s the people who are just entering the discipline who are going to drive these changes. Right? Like I was saying about people who are currently enrolling in masters of public policy programs maybe looking a little bit different than they did 10 years ago. I think you’re seeing the same thing within economics and those people are going to drive the research agenda for the next generation. There’s lots of room for movement.
Matt Grossmann: What’s next for you? Can we describe the next buck project or the next route from here and anything we didn’t get to from this one that you wanted to highlight?
Elizabeth Popp Berman: Yeah, I think I’m not quite sure if I’m going to promise the next book project yet, but one piece of this story that I really want to continue to dive into is less about the economist. I might be done with economists for over a while, but I got very interested in the market governance piece of this story, and I think there’s a whole big story about how policy changes in the 1980s really restructured markets that hasn’t fully been told yet. I think we have this conventional account about business interests and tax cuts and deregulation. But the stuff that tends to appeal to me is the very, very wonky stuff, so I think there’s a lot of pieces of that story that haven’t really been told. That’s one thing I’m looking at.
Matt Grossmann: I guess, what about the reception of your book so far among economists and just, we’ve talked about before, I think the sort of… Is there a de taunt between sociology and economics, and is there a direction to that field?
Elizabeth Popp Berman: Yeah, it’s interesting. I really tried to walk this line in the book between… Obviously, it’s critical of economics in many ways, at the same time that I think economics has a lot of valuable tools and also just a lot of people who I would like to make common cause with. I think I’ve certainly had a number of economists express interest in it, and I think seemed to find some value in what it is that I’m trying to do here. At the same time, I’m sure there are people who are going to be put off by somebody coming from outside the discipline and offering a critique and who don’t necessarily see economics as having the kinds of effects that I do, particularly because I think it’s clear that there’s lots of ways in which economics doesn’t have effects. Right? Economists don’t go into a room in Washington and make some policy pronouncement and people listen to them. It’s these much subtler channels of influence that I think are important.
I guess the book just came out, so perhaps I will get a little bit better sense of that. But my hope is that, even if economists don’t like the book, that they will feel like it is a fair representation of what actually happened in US politics over the period that I look at.
Matt Grossmann: There’s a lot more to learn. The Science of Politics is available bi-weekly from the Niskanen Center and part of the Democracy Group Network. I’m your host, Matt Grossman. If you liked this discussion, you should check out our previous related episodes. I think you’ll like How to Change Americans’ Views of Inequality, How the Left and Right Undermine Trust in Government, Inflation Hurts Presidents and It’s Not the Media’s Fault, Why Rising Inequality Doesn’t Stimulate Political Action, and Why Lawyers Rule American Politics. Thanks to Elizabeth Popp Berman for joining me. Please check out Thinking Like an Economist and then listen in next time.
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