Shock Doctorin'

On Thursday, Naomi Klein spoke at Stanford, hosted by the Aurora Forum. Her whole presentation will be aired Thursday, October 30th on KQED.

If what she's saying is really true, and I think it is, everyone needs to hear it. Her book, Shock Doctrine, articulates her theory about economic evolution through crisis and the discussion was great.

I can't imagine what it's like to be on a book tour claiming that, while it's actually happening. The current mortgage-backed securities crisis provided ample ammunition for the conversation.

If you've been following what has happened to our economy closely, then you're a rare person. It's entirely confusing and many of the editorials on the subject contradict each other. I appreciated the way that she didn't try to indict one party over the other, in favor of encouraging us all to act in ways that were focused on the future. She didn't ignore history though. And I was entirely grateful to hear her say something I've been trying to explain to friends for years: economics is a social science, not a hard science.

And its laboratory for neo-liberal policy was Chile. Under Pinochet, the military dictatorship partnered with the business community to provide services, directed by a group of economists from Chicago. The results seem to have been widespread poverty and environmental devastation.

You wouldn't know this to hear some economists talk about Chile. It's been described as an "economic miracle". Milton Friedman ignored the two recessions they caused experimenting there, and all the havoc they wrought, in favor of saying the underlying theories were sound. And I have a hard time disproving that, because so many economic theories actually require ignoring the real world.

That's what I mean when I say economics is not a hard science. The hard sciences, like biology and physics, are reliant on observing reality when it comes to generating and testing theories. Economics might have been more like that at one point, but there have always been two kinds of economists:

"In the extreme but common case, theoretical economists work in their offices, scribbling and running regressions, writing papers that play with variations on different mathematical equations. So, an economist’s theoretical work on industrial production likely involves tinkering with functions that convert variables labeled “labor”, “inputs,” and “capital” into “output.” His research will not involve trips to the factory. The vicious cycle of economic education helps keep this method alive by training them for exactly this kind of work. Meanwhile, the field economist, whose theories’ structures arise from observation, is an endangered species."

That's fundamentally unlike our expectation for say, geologists. You presume a geologist has at the very least, looked at a rock or two. I read that a year or so ago and I know it must be related to what Klein was trying to warn us about. Our culture is very reliant on experts, but economists represent a class of expert whose theories may never have been proven. And some economists are probably very ethical when it comes to applying their theories in the real world, but we know that others are not. We have ample evidence for deregulation experiments being run at the federal and state level. They probably didn't mean to produce any recessions, but now that we are experiencing one, we should be careful about what kinds of steps we take, when led by ideology rather than fact.

Klein points out the danger of relying on experts when they are actively destroying democracy. She said her purpose writing the book was to articulate this pattern of policy experimentation and crisis. So it's probably wise to pay attention to the revolution underway in economics schools all over the world. Those students are aware of how little the theories were jibing with reality. And they're ready to drag their professors back into reality. Now if only we can figure out how to follow them with our country. I think cracking her book open might not be a bad plan. And she even had a suggestion for treasury secretary over the course of the Q&A: Joseph Stiglitz. You might notice his quote on the homepage for the Real-World Economics Review (linked above):

"Economics [as taught in America's graduate schools]... bears testimony to a triumph of ideology over science.”
Joseph Stiglitz

We could do a heckuva lot worse.