This recollection fits in the same corner of my brain with something my old and deeply cherished friend (and my colleague as a fellow at Oxford University in 1971-72 and earlier in team-teaching a graduate seminar at the University of Washington in the summer of 1969) Max Hartwell told me more than forty years ago. His colleagues, he complained, groused that he did not do enough research, by which they meant the usual cranking out of mathematical-theoretical models and related econometric effluent. Max’s response was to insist that “thinking is research, too!” At the time, occupied as I was in trying to meet the profession’s prevailing expectations, I had my doubts—it seemed like too easy an excuse—yet, as my own career has proceeded, I have become more and more convinced that Max had hit the target at its dead center.
I return to this thought frequently, never more so than when I consider how the economics profession has received—or, in far greater degree, not received—my research and writing on what I call regime uncertainty. I first wrote about this topic in 1997 in an article in the first volume of a new journal that I was editing, The Independent Review. Although the article contains some material that noneconomists might not understand immediately, it is for the most part nontechnical. It contains no formal mathematical model and no formal econometric estimation. Yet it does contain a great deal of empirical evidence and, to my mind, an analytical argument that has both theoretical substance and a respectable pedigree.
Although this article did not go entirely unnoticed, the mainstream profession paid little or no attention to it. My fellow Austrian economists seemed to find it persuasive, as did some economic historians, but mainstream macroeconomists, so far as I was aware, remained blissfully oblivious to it for many years. Eventually, during the past few years, a few such mainstream analysts took note of it, usually in passing. Meanwhile, the topic of policy uncertainty (a subset of my concept of regime uncertainty) was attracting growing interest from macroeconomists as recovery from the contraction of 2007-2009 proved so slow and, thus far, incomplete.
I continue to believe that the importance of regime uncertainty should be manifest to economists even as I have presented it. They need only think about it. They need only inform themselves well of prevailing political and economic conditions, whether during 1935-40 or during 2008-2013, and put themselves imaginatively in the place of a large investor. Does it really stand to reason that such an investor would regard the regime uncertainty manifest in these two episodes as so trivial a consideration that he would choose to disregard it in making his choice to invest or not to invest, especially in long-term projects? To me, the answer is obvious. Even someone completely untutored in economic theory or history should be able to understand that when the predictability of the future security of one’s private property rights becomes extremely difficult, with far more margins being “up for grabs” than before, more investors will choose to forgo commitments to long-term projects and to park their money in short-term investments in whose payoff security one can reasonably place relatively greater confidence simply by virtue of the short terms to maturity. To repeat, all one has to do is think about what’s going on and how such current and prospective events almost certainly affect investors’ thinking.
Yet, mainstream economists appreciate that one earns no professional plaudits for thinking in this way, and, sad to say, one usually incurs no professional disdain or other punishment by disregarding such commonsense thinking altogether. The mainstream profession rewards most highly the “smart guys,” the ones who wheel and deal with analytical apparatuses that even many economists do not understand well and cannot themselves employ. At Harvard, Yale, Chicago, Berkeley, Stanford, and similar leading departments of economics, one’s publications in top economics journals—and hence one’s tenure, pay, promotion, research funding, and professional reputation—gain little or nothing from mere thinking, regardless of how much common sense one embeds in it. The name of the game is pyrotechnics, professional showing off, to impress one’s colleagues. Small wonder that mainstream economics has become so disconnected from economic reality over the five or six decades in which such expectations have set the standard for succeeding generations of young economists, each new hotshot being hell-bent on doing something even “smarter” than what his grad school mentors and their contemporaries have done.
There’s no arguing with success. The advisability of taking this other-worldly approach has been proved repeatedly by hundreds of young hotshots over the years. But their success hinges entirely on the profession’s self-containment, on its insulation from the society that gains so little, indeed, that may actually lose a great deal, from how economists go about their business. To understand why the whole bizarre business continues to thrive, follow the money. It will lead you straight to the treasuries of state and federal governments, where academia constitutes an important player in the fascistic enterprise coordinated by politicians in office and their appointed bureaucrats at agencies such as the National Science Foundation. The payoff to society, however, is entirely another matter. One wonders how long this way of doing economics can survive as the state’s relentless expansion eats more deeply into society’s capacity to bankroll the silliness of people who would rather solve make-believe economic puzzles than—not to belabor my point—simply think about how the world works.