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Escape from Democracy: The Role of Experts and the Public in Economic Policy

Author(s):Levy, David M.
Peart, Sandra J.
Reviewer(s):Persky, Joseph

Published by EH.Net (November 2017)

David M. Levy and Sandra J. Peart, Escape from Democracy: The Role of Experts and the Public in Economic Policy. New York: Cambridge University Press, 2017. xvii + 275 pp. $35 (paperback), ISBN: 978-0-316-50713-1.

Reviewed for EH.Net by Joseph Persky, Department of Economics, University of Illinois at Chicago.

 
What do the Ford Foundation, eugenics, Soviet growth, the Mississippi Bubble, and the corporate bond project of the NBER have in common? The answer can be found in an engaging new volume, Escape from Democracy: The Role of Experts and the Public in Economic Policy, by David Levy of George Mason University and Sandra Peart of the University of Richmond. There Levy and Peart argue that each item on this diverse list involves experts who have private interests. Those private interests must be weighed by both clients and the public.

Starting with the assertion that the twenty-first century is the “century of consultants, advisors and experts” (p. 3), the authors acknowledge that experts have made life easier. As a result many of us defer to experts. Such deferral is dangerous according to Levy and Peart. In particular, experts are just people. Levy and Peart have previously developed the concept of “analytical egalitarianism,” which holds that “people are all approximately the same messy combination of interests” (p. 7). They mention no exceptions. In particular, they include economic experts among the bulk of people who while they have an interest in doing “good for all,” most definitely also have an interest in doing “good for themselves.”

As they readily admit, their position is hardly a new one. Indeed, they offer in Part II of the book, a reconstruction of Frank Knight’s understanding of democracy as “government by discussion” (p. 7, italics in original). The point is to constrain experts by “discussion and transparency.” Discussion is a “cooperative quest” not an attempt to “‘sell’ a solution already reached” (p. 48, quoted from Knight). This tradition according to Levy and Peart draws on Adam Smith and J.S. Mill among others. Moreover, they draw support from the modern work of experimental economics, which shows that “discussion strongly enhances cooperation” (p. 39). Levy and Peart’s heroes in this respect are the “Knightians of the University of Virginia’s Thomas Jefferson Center, [James] Buchanan, Warren Nutter and Ronald Coase,” who were harshly treated at the “Knightian moment” by the Ford Foundation and Kermit Gordon, reflecting the new consensus of the profession. Levy and Peart trace this new consensus to the “new welfare economics” which “in opposition to the Knightian approach…proposed to focus exclusively on increasing physical output” (p. 66).

According to Levy and Peart the new welfare economics “spell[ed] an end to the tradition in which social goals emerged out of wide, possibly prolonged discussion” (p. 70). Instead, the question of achieving greater material output became the province of economic experts using cost-benefit analysis. Levy and Peart do not suggest that economists shouldn’t do policy analysis, but they “agree with Robbins that their [economists’] warrant for doing so is rather more fragile than Hicks’s ‘purely object test’” (p. 84).

What follows is a reconsideration of eugenics, a potentially dark pit of expertise. The authors make clear that experts such as Karl Pearson failed to follow their own principles of evidence. At the same time a man as accomplished as Charles Darwin held that couples couldn’t be left to their own devices (such as birth control) in making the right decisions about sex and procreation and seemed to play with at least positive eugenics policy. And a raft of diverse economists from Irving Fisher to Sydney Webb have viewed poverty as rooted in biology, with little serious evidence. The authors acknowledge the complexities of biology, but warn of too quickly accepting broad policies of marriage, adoption, and constraints on reproduction. Presumably what is needed is a serious discussion, in this terrain where experts have stumbled easily.

Two chapters then deal with the financial sector, the first on John Law, the Mississippi Bubble and alchemy and the second on the NBER Corporate Bond Project. These are both interesting, with their emphasis on how a lack of transparency can generate expert bias. Too easily private interest can produce an “alchemical disconnect” when a lack of transparency prevails and we are left with a “Great Mirror of Folly.”

The remainder of the book is concerned with what is to be done. Knight hoped for open and fair discussion. The authors think in a world characterized by the potential nontransparency of experts more will generally be needed. In particular, they hold “experts function best when they are not fully trusted” (p. 191). For openers they support the disclosure of monetary and associational interests. Key here is to open up what Gordon Tullock characterized as faction in his description of the “racket” of economics. And, the problem of “sympathetic expertise” may be just as pressing as direct financial gain.

Levy and Peart suggest a possible parallel to the legal justice system, in which a jury recognizes competing experts as potentially biased for their clients, but the nontransparency is itself made transparent. The authors point to evidence that such an arrangement leads to juries splitting the difference. An improvement perhaps, but as they observe such an approach encourages an arms race of competing biases. An alternative they suggest might have the experts’ “models” reviewed by a third court-appointed expert with a fixed rule to pick the model with “the smaller bootstrap variance” (p. 227). The authors view this approach as a variant on final-offer arbitration.

As can be seen, Levy and Peart cover a great deal of ground. And for all their idiosyncrasies, or rather because of all their idiosyncrasies, the topics are novel and challenging. We are grateful. Still, in a spirit of cooperative discussion a few criticisms might be raised. The book holds that the new welfare economics played a central role in cutting short discussion. I find this hard to believe. The generation of expert cost-benefit studies such as those on subjects as diverse as the value of nineteenth century railroads, the Valdez oil spill and climate change have hardly shut down debate on either methodology or broader values. Rather they have helped to provide evidence, however imperfect, on which to base discussion and in some cases decision. The authors’ case here is not supported by their interesting discussion of eugenics, which has little relation to the new welfare economics. And their chapter on confusions and errors in the recording of Soviet growth in economics texts is strained by drawing a connection to some of the analytical machinery of the new welfare economics. It seems more likely that the results in this case are just the product of sloppy and inadequate revision.

A second set of overstatements seem to surround the telling of the story whereby the Ford Foundation turned down the Virginia “Knightians.” The Ford Foundation was at the time clearly a liberal (in the mid-twentieth century sense) institution. They were not likely to fund proposals from either the right or the left. While the Knightians might have had some excellent ideas on the need for democratic discussion and no one likes to have their center closed, they were clearly barking up the wrong tree. This seems quite consistent with well-known rules of grant writing. If at that time there was something of a liberal consensus in the profession, it didn’t last that long. Surely some economists at universities in Virginia have since this episode fully appreciated the ample sources of funding that are more open to those with a liberal (in the nineteenth century sense) world view.

The authors at several points touch on the growth of inequality in the modern period. But it would seem obvious in this case to push their point further. The centers of corporate and individual wealth have more than ample resources to purchase first-rate expertise. I’m not sure if this is a question of what James Madison, Tullock and the authors call faction; I would be more tempted to label it a question of class. The rich have through most of history been in a much better position than the poor to purchase the talents and skills of experts. For all the hostility today vented on government, government and its experts in the twentieth century promised at least some democratic resistance to wealth and their experts. I don’t know what happens to this countervailing model when the mega-rich take over government in an explicit fashion. In any case, Levy and Peart make an exciting proposal to adjudicate competing experts in a trial-like atmosphere. But who shall pay for the experts to represent the poor? The judicial model is appealing, but how well is that working out for the poor with their underpaid and overworked public defenders?

Levy and Peart are impressively knowledgeable in the primary and secondary classics of history of economics, not to mention statistics, game theory and archival research. They get excited by the subject and have produced an engrossing and relevant volume. As these notes may suggest, their book encourages discussion, even debate. Given the line of their argument, I can’t imagine that the authors could have any higher hope for it.

 
Joseph Persky recently published The Political Economy of Progress: John Stuart Mill and Modern Radicalism, New York: Oxford University Press, 2016.

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Subject(s):Economic Planning and Policy
History of Economic Thought; Methodology
Geographic Area(s):Europe
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII