In 1992, John Carroll and Robert Manne published Shutdown: The Failure of Economic Rationalism. This was the book that prompted me and two university friends, Chrises Jones and James, to co-edit A Defence of Economic Rationalism.
Eighteen years on, Carroll has written to The Australian to explain that he no longer supports the book’s conclusions:
To me now, the past two decades support the maxim: if in doubt, trust the free market.
Moreover, if the GFC signals anything it is to beware irresponsible government
Shutdown co-editor Robert Manne is hoping that he will be second-time lucky with Goodbye to All That: On the Failure of Neoliberalism and the Urgency of Climate Change.
It’s rare that public intellectuals will admit that they were wrong, so Carroll deserves congratulation for doing so.
Andrew Norton 
Caroll repented once before in relation to Shutdown, if I recall correctly, and I agree that he warrants respect for this.
However, his letter to The Australian is probably a bit unbalanced the other way, in my view. He suggests that government intervention in various forms was the main cause of the GFC. While no doubt the Fannie and Freddie stuff-ups and imprudent US interest rates and deficits etc had a hand, the point that Quiggin would make is that some key elements of the free market – particularly the ratings agencies – failed dismally in their own terms and that the market, rather than government, was the main problem.
Of course, even if the market was the main problem in this case, one needs to look over the course of history to judge between market and government – and clearly the piece by Robert Manne is little more than glib sloganeering from that perspective. There is some sense in Caroll’s line that, “if in doubt, trust the free market”. I think, however, that there is enough evidence of why free markets are dangerous in the financial area to warrant a fair degree of intervention.
Let’s face it, ultimately we’re after efficient markets, not free ones.
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Let’s face it, ultimately we’re after efficient markets, not free ones.
That to me epitomises the governing principle of most right-wing governments around the world and that mantra, in my opinion, shows why “liberal” governments still grow the size of government rather than shrinking it as they should!
I think that liberal politicians have lost their way when they become pro-business or pro-economy rather than pro-markets.
Markets may get it wrong, occasionally, but it’s a rare case when politicians get it less wrong. The knowledge deficiency associated with central bodies makes it so.
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I agree it is a huge credit to Carroll that he has so publicly and clearly recanted his earlier views. It would be nice if Michael Pusey might also now admit that the rise of economic rationalism was driven by good sense rather than the bureaucracy’s narrow training, private school backgrounds or some inbuilt hatred of the state.
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It’s great to see this, I am still startled that the words “economic rationalism” can be seen by some to be a slur. What could possibly be bad about rational use of economics? (and it is nice to see someone publicly admit error and a change of mind.)
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However Caroll seems to have swung to opposite ends of the political spectrum without changing the quality of his arguments. Few serious economists believe that government action was the primary cause of the GFC (although Freddie and Fanny certainly didn’t help.) There is plenty of room for debate on the cause, Krugman gives an unusually balanced overview today.
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My personal view is that boom and bust cycles arise naturally, and that government intervention can help minimise the extremes. In particular I think leverage is a primary culprit.
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Oh dear, I sense a Libertarian in our midst. The problem, Shem, is that it is never ‘markets vs government’; it is almost a question of when, where and how government should intervene in markets. From mandatory seat-belts to contract law, there is a huge array of government interventions that we take for granted and that only a Libertarian would take issue with – in other words, where politicians get it ‘less wrong’ than markets. Admittedly, there are also quite a few things governments do that only a socialist would agree with, but that really is another matter, because the choice isn’t either/or.
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I’m a libertarian, but agnostic about my libertarianism. As far as I can see libertarianism is more morally justified, but I’m not sure that it always leads to the best outcomes.
I do think that every liberal whether a hardcore anarcho-capitalist or a moderate should be concerned about the creeping size of government and I hold that it’s a mentality that is more concerned with being pro-economy, as opposed to being pro-market, that is causing that.
Government regulation, has potentially good outcomes, but I think we need more discussion of removing government that where it isn’t working. Governments, on both sides of politics, seem to think that the only solution to a bad government program is a good government program. I think the option of no government program needs to be considered more often.
The idea of more efficient markets over free markets, to me, makes me cringe. A criticism of efficient markets can be seen in the socialist mantra “people over profits”. A paradigm where efficiency is the goal, in my opinion, leads to emphasising profits- a paradigm of freedom, on the other hand leads to an emphasis on people and their autonomy. Under freedom even if poor decisions are made it is autonomous decision making.
If we are to have government invention and regulation the focus needs to be on people- not on efficiency. Efficiency can be good for people, true, but I think the right of politics needs to make this more explicit. It really comes back to the left having a monopoly on compassion, and trying to undermine that.
I don’t think I’d disagree too much with you, Tom, but where the disagreement lies is, I think, in the focus and wording.
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A nice, balanced response, Shem, and yes, perhaps there’s not too much distance between us. You mentioned that some of it may just be the meaning of words, and in this context you suggest “efficiency” sounds more like profits than people. Well, whatever it may sound like, in practice its the other way around – lots of efficiency-based measures (eg pro-competitive regulation and pollution taxes) would reduce profits, and all efficiency-based measures should enhance the wellbeing of people. That said, I accept that efficiency gives no special weight to the autonomy of people (beyond the value that individuals themselves give it), and a raft of efficiency-based measures could be seen to reduce autonomy and negative conceptions of liberty (though positive liberties may be enhanced by them).
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Feh, what’s the surprise? Dogmatic leftist becomes dogmatic rightist once he’s acquired money and age. It’s hardly a new turn, nor does it shed make his dogmatism more attractive.
Christopher Hitchens is a much more clearcut case – a full-on Trotskyist who became a full-on neocon overnight without once examining any of his habits of mind.
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DD – Carroll was never a leftist – he was an idiosyncratic conservative sociologist, in the great thinkers rather than number crunching tradition. He wrote extensively on art and culture. Like Manne, with this book he ventured into a subject, economics, in which he had no background. It was a ‘common sense’ layman’s approach to economics: I don’t like the current results of economic policy, therefore the theory must be wrong. I’d say he still has the same basic approach, except that results since the early 1990s recession reversed his conclusion: I like the current results, therefore the theory must be good.
The point of the post was not to say that we should take economic advice from John Carroll. We should not. Apart from noting my particular personal connection to Shutdown, the point was to praise someone for changing their mind when the evidence changed, which apart from being a good thing generally is a ‘conservative’ non-ideological approach.
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Tom N
Remember, Quiggin is a disciple of the discredited Manne school himself.
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Rajat
Tragically, in Manne/McKnight’s latest tome, the Pusey’s and Quiggin’s are still carrying on like it’s 1989. 😉
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I am convinced that if people like Quiggin and Pusey actually spent a few months trying to work within a government line agency (rather than inside a university whose administration they can easily manipulate), they would appreciate how difficult it is for governments to implement sensible policy. Unfortunately, I suspect they will go to their graves believing that if only given the chance, government could do things so much better than markets.
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Rajat
Or better still, if they got jobs in the wealth creation sector, rather than wealth spend sector.
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PLease, please, don’t let Pusey anywhere near government! He can do far less damage writing silly chapters in left-wing books.
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Just a note that “Peter Patton” is multiple sockpuppeteer (and therefore by definition, liar and fraud) “John Greenfield”.
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“Just a note that “Peter Patton” is multiple sockpuppeteer (and therefore by definition, liar and fraud) “John Greenfield”.”
I’ve noticed that too (as have a few others).
Speaking of multiple identities I’ve got the sneaking suspicion that Baz and Rebecca_23 may be the same person — is that correct Baz?
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Baz and Rebecca are using different computers.
I don’t require full or real names, as many commenters have legitimate reasons for not disclosing them.
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Like you, I have no problem with pseudonyms: people have lots of legitimate reasons as you say. But that doesn’t excuse sockpuppeteers.
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Irrespective of Peter Paton’s sockpuppet status, his point about Quiggin, Pusey and 1989 is, I suspect, not far wrong. I pointed out several times on Quiggin’s own blog that his characterisation of neoliberals, which at various times he equates with economic rationalists, among other un-pin-downable appelations, is just more straw economic man stuff in the Pusey vain. As I’ve mentioned previously (here), what is ironic is that Quiggin is about to release a book called Zombie Economics, and in doing so will breathe new life into the “nasty, narrow minded, New Right, neoclassical economic rationalist” myth that, depite being killed off several times over the years by people who actually no something about how economic policy is formulated, keeps being resurrected by dills like Manne and Pusey and, alas, now by people who should no better like Quiggin.
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Why does it matter if someone’s a sockpuppet? It’s probably not a fun existence, but surely what they say is more important than who they are.
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Tom N: You seem to be contradicting yourself. On the one hand you continually claim that my description of market liberalism/neoliberalism is “iun-pin-downable”. On the other hand, you seem very unhappy that i’ve written an entire book pinning down specific theoretical and empirical claims I want to criticise.
In the context of the present post, the most important of these is the Efficient Markets Hypothesis or, more properly, the “complete efficient financial markets hypothesis”. Do you want to defend this hypothesis in the light of the global financial crisis? If the GFC doesn’t refute it, what conceivable event could?
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“Baz and Rebecca are using different computers”
One at work and one at home?
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I am happy for you to pin down theoretical and empirical claims that you wish to criticise, John – at least one can, if one is of a mind to, seek to rebutt your arguments in that case.
My criticism is of the implication in your book that those claims constitute the beliefs of an indentifiable group you call neoliberals, which you equate, amont other things, with economic rationalists. As you know, I work in a government agency that is probably the most “economically rational” agency of all – or at least that is how most people would view it if asked – yet few if any of my colleagues believe now, or did prior to the GFC, the various claims you seek to rebutt in your book, nor have the policies this agency recommends ever been based on such an approach. Yet if they read your book, like Pusey’s before it, they will come away with the false impression that people like me and my colleagues hold the beliefs you criticise and base our recommendations on them. As I have mentioned several times, you create a straw economic man and, in tarring him with your brush, have the effect of tarring me also.
I invited you some time ago to be specific in your book about who actually holds the views you criticise, and the extent to which policies are formulated according to them, but you chose not to. Instead, you have a lazy introduction that attributes policy over recent years to the work of ‘neoliberals’.
The value to the Pusey’s – and now Quiggin’s – of the world in using un-pin-downable element appelations that no one really identifies is that no-one can say: actually, you’ve said we believe X but that’s clearly wrong and here’s the evidence. As I mentioned in my previous post, the point in your introduction – that no one admits to these appelations because they see their ideology as just ‘common sense’ – is clearly false. I know my intellectual framework for appraising policies, and the results it gives, it often the very opposite of common sense. We do not identify with the labels because the things you, Manne and Pusey et al attribute to the groups you so label are not things we advocate or believe.
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While I had no idea that stating the simple truth that a number of Keating-era court scribes and other leftists were nowadays ashamed to be reminded that they were the “amen corner” for the Pusey/Manne push, I don’t think the debate is at all elevated by trying to distract these facts with schoolboy bullying taunts of “sockpuppet” and so on.
There were a number of questions posed by the early 90s “economic rationalism/neoliberalism” critique that were substantially answered during the 1990s. And therefore trying to re-market the same talking points in 2010 is kinda weird. Serious people surely legitimately ask why?
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Conrad – me thinks your imagination could be put to better use elsewhere 😛
Anyway, I dont mind that Peter Patton. He’s always interesting and has that knack of cutting through the intellectual malaise. Hope he’s not lost on us.
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Tom N, I don’t think you can have read too closely, since I use the term “market liberalism” to describe the general package I’m talking about, and in the course of the book, I name various people and governments (most clearly the Thatcher government in the UK and successive NZ governments in the 1980s and 1990s) who have put forward and implemented market liberal ideas. Most readers don’ have a problem with this.
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“Conrad – me thinks your imagination could be put to better use elsewhere”
Maybe, but if I’m wrong, you should meet Baz. You have almost identical views, you write in a similar style (apart from the first few sentences in longer posts), you popped up at exactly the same time, you almost never comment on other related blogs (unlike almost every other poster here), and you almost always comment on the same type of issues. Perhaps he’s your lost twin.
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John, this is what the Introduction to your book says:
Thus, while you have finished up with the term ‘market liberalism’, you have clearly equated this notion with economic rationalism. The effect will inevitably be to tarr people and instutions who in most people’s minds are “economic rationalists” with the criticisms that you make of the doctrines you set out in your book. While it is true that most readers of your book won’t mind, I suspect that’s because most readers (to date) are not the ones who will be unjustly tarred as a result of the labels you use. I further repeat that the reason people like me (and, at different times, Andrew) do not readily ‘sign on’ to the labels you use is because the labels are used to misrepresent us.
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