‘How Efficiency Replaced Equality in US Policy” with Elizabeth Popp Berman

MARK BLYTH: From the Rhodes Center for International Finance and Economics at Brown University, this is The Rhodes Center Podcast. I'm the director of the Rhodes Center and your host, Mark Blyth. On this episode, I talk with Elizabeth Berman. Elizabeth is a professor of sociology at the University of Michigan and author of Thinking Like an Economist How Efficiency Replaced Equality in US Public Policy.

So here's how I understand the book. The standard story that most people have in their head, which isn't wrong lies at the level of macroeconomics. There was this thing called the Chicago School, Milton Friedman, monetarism, the Phillips curve, the end of Keynesianism. And then they invented a very different neoliberal world and we just get to live in it.

What Elizabeth adds to this story is that it's not just Chicago and it's not just macro. In fact, it's a very micro story about lefty technocrats coming out of the Kennedy administration who are really responsible for the shift prior to the Chicago schools moment, to what she calls an economic style of reasoning. They ended up constituting a whole new disciplinary field. And what they did was two things.

Number one, they colonized parts of the state bureaucracy and brought with them an economic way of looking at the world, which as well as the math and the models and the claims to efficiency, created a language and, if you will, a discursive field that pushed out other considerations over time. And you see this in everything from airline deregulation to considerations over antitrust to social policy, that this economic style of reasoning has basically come to dominate how we think about public policy.

And it comes via very unusual route. One is the RAND Corporation in California, which many people associate most with Bob McNamara and the Vietnam War. And the other is the other Chicago School, not of economics, but of legal scholarship. The effects of these kind of combined micro movements were profound. By Nineteen-Ninety, there were 1,500 MPA programs in the world. And the entire world of public policy is understood as an economic rather than a social or justice problem. So let's start there.

ELIZABETH BERMAN: There's all this literature that focuses on these sort of big paradigm shifts and focuses on macroeconomics and the shift from Keynesianism to the Chicago School. And to me as important as those were, I mean, it seemed equally important that we really changed how we think about policy problems. And I think that's true not only about these policy domains that are kind of obviously economic but to all these other areas, like education policy, or health policy, that people really truly did not think of in economic terms. People do not think of health care as a market in Nineteen-Sixty-Five.

And so I really was interested in unpacking how that different way of thinking came to be. And so I felt that the story of how microeconomic spread was really underplayed and why you see people talk about it here and there. Daniel Rogers talks about it in an Age of Fracture. It's not like it's totally invisible but that seemed to me at least as important as what kinds of economic paradigms do we think about.

MARK BLYTH: How did they think about it? Pick a couple of areas and give us the way that they thought about it and the people who governed it before this revolution happened.

ELIZABETH BERMAN: Yeah. Well, I think the easiest way to kind of highlight it is some of the examples of policies that later came to seem totally natural that seemed just off the table at the time. And so one of these that's a great example is somewhere in the late nineteen-fifties, Ronald Coase proposed that perhaps we might auction off the FCC spectrum, that we have the rights to the airwaves, and that instead of distributing them through just assigning licenses, which is what they were doing at that point in time, he wrote this whole explanation of wouldn't it be more efficient if we could auction these off and it would be a better way of distributing the public airwaves.

And this was so controversial at the time. He actually wrote this for the RAND Corporation, which is kind of one of the big threads in this story. It was so controversial that RAND suppressed it for a long time, they wouldn't publish it. He was later called in front of Congress and members of Congress just sort of like mock this idea that this was something that could even be considered. And then of course by the nineteen-eighties, this is at least something that's being thought about. In the nineteen-nineties, it kind of comes to fruition. And this is of course, how we do it now.

MARK BLYTH: Right. Another example you give is pollution. This struck me when I started studying economics in the nineteen-eighties and you highlight it in the book. Pollution is bad, pollution is dumping crap in rivers, pollution is making people choke. So the original approach to this was everyone should have scrubbers and all the towers get it done. This is very much just a simple administrative solution. And then along came the micro economists and they said something different. What did they say?

ELIZABETH BERMAN: Right. Well, I mean, they are saying that if you're simply telling everybody to cut pollution by the same amount, this isn't taking costs into a consideration at all, right? And so you've got some companies for whom it may be very expensive to reduce pollution, you've got some companies for whom it may be relatively inexpensive to reduce it. And then on top of that, reducing it below a certain level is going to start to cost more than it's worth. So just sort of saying we should have no pollution and setting the bar really low is not necessarily economically a great idea either.

And so they said and this is not a new idea, but it was not politically salient until late '70s into the nineteen-eighties, that what we need to do is to price this, right? And so whether it's through taxing the pollution so that people are effectively paying for producing this externality or whether the idea that later took off was some sort of trading system, right? You have a market in pollution permits and then you can make sure that the companies for whom it's really cheap to reduce pollution will do that, the companies for whom it's really expensive will pay off the companies for whom it's really cheap and so it will be a better outcome for everybody, right? It's a pretty compelling way of thinking.

MARK BLYTH: Yeah, except for one thing. What it does is it takes the model clean completely off the table that you shouldn't do this because it's a bad thing. And in doing so, it kind of eliminates that model space from legitimate consideration in public policy and that is a fascinating point. Let's turn to the RAND Corporation. That bit was nuts for me, crazy though like these people were involved in this. Give us a quick feeler on who these folks were and how they ended up becoming an integral part of your story.

ELIZABETH BERMAN: Sure. Well, the RAND Corporation, I don't know if this is the case for people generally but at least for sociologists today kind of think of it as like a place that does like education and health policy and stuff but the RAND Corporation was very much a Cold War institution, right? It was created in the wake of World War II as a way to help the Air Force kind of solve some of its problems. And so it was very Cold War focused, very much about military and defense problems.

And they always had some economists and social scientists but originally it was kind of more of a natural sciences and engineering kind of place. And so these folks were really trying to figure out answers to questions about how do we make sure that we are defending our country as well as possible? And so they're very interested in where to place air bases and questions like that.

And it turned out the engineers and the scientists weren't great at answering these questions but economists at RAND turned out to be pretty good at it. And so they became the ones who were sort of putting forth proposals about, well, how can we make these decisions as effectively as possible?

They had sort of a framework of thinking that was about constrained optimization and making the best possible decisions through that lens. And eventually they kind of expanded it out from there, from thinking about defense problems to thinking about all sorts of other kinds of policy relevant problems through the same lens. And so that's sort of the origin story of one big thread that's in the book.

MARK BLYTH: And what's especially weird is that they get their moment in the Kennedy administration. So many people think of the Kennedy administration is the kind of high point, if you will, of the post-war labor friendly order. And what you're suggesting here is these folks from RAND and a handful of others, if not the elephant in the tent then at least perhaps the squeaky mice in the tent, and this is what the whole thing begins to unravel. So how does the Kennedy administration and then the subsequent Johnson administration really give the economic style of reasoning its moment?

ELIZABETH BERMAN: The Kennedy administration is really the moment where the RAND approach to thinking about, how do we make cost effective solutions or how do we make the most efficient solutions to policy problems kind of comes into policy-making in a real way.

Perhaps not so obviously, it comes in through the Defense Department. So you've got Robert McNamara is the Secretary of Defense. He was already well known for having forward having implemented sort of a lot of very similar methods of introducing cost effectiveness into production. And so when he found out that there were these guys at RAND who were trying to apply this kind of cost effectiveness thinking to defense problems, he was like, this is great, bring it in.

So the RAND folks came in and introduced this whole new sort of system for thinking about budgeting and decision making. And they rolled it out first at the Defense Department but what ended up being kind of a more lasting importance is that in Nineteen-Sixty-Five, Johnson said, I love how this is going in the Department of Defense, let's spread this out. Let's roll this out at all our agencies. And it affected some agencies quite a bit, others not so much.

But it particularly affected areas where social policy was happening because that was really a period of big expansion in social policy and so you had a lot of growth. And these folks were just there at the right time. And you had offices that were created that hired a lot of economists and kind of advanced this way of thinking. And within a few years this has been integrated into policy-making and new kinds of ways.

MARK BLYTH: So what about the people who were there already? Kind of the old school policy incumbents, were they sources of resistance or was it very much pushing on an open door? Or were these people actively saying, hang on a minute, these are not the tools you should use, these are. Was there any kind of to and fro or pushback?

ELIZABETH BERMAN: I think it depends on where you were. Some of these were really whole new policy domains that were being opened up. But there were a lot of places where this was just a totally foreign way of thinking and it was very much the case that people found this sometimes a morally troubling way of thinking, sometimes they just didn't want to have to think about what they were doing in terms of its economic value or think about it in terms of cost and benefits. And a lot of times they were just completely baffled.

So like the US Geological Service said at one point that we're supposed to be measuring our output and its value and how much it costs us to produce that. And compare the most efficient ways to do that. What is it that we produce that we can turn into these kinds of numbers?

MARK BLYTH: You also have this great example in the book of teachers, basically the Department of Education at the time saying, what exactly is our output here? And they started as early as the '60s doing what we associate most with No Child Left Behind in the Bush administration in the two-thousands, which this focusing on test scores of all things. And guess what? Just like in the two-thousands, the more you press on that the more it kind of implodes because it's not a stable output in some sense.

So there are obviously bits of resistance when the rubber hits the road but before we bring it forward, do talk about the other stream in the book. It's not that the Chicago School is absent, it's just a different bit or a different annex of the Chicago School that you want to pay attention to. So bring that story in for us, will you?

ELIZABETH BERMAN: Yeah. So the second big strand of the story is about industrial organization economics and in particular that you've got kind of a broad network. Harvard has sort of a more liberal branch, Chicago has a more conservative branch, but they're all kind of interested in thinking about, how can government make the rules that are going to make markets work coefficiently? So they end up kind of coming in a little bit more of a diffuse way than the RAND folks do. There's not one key moment where they all arrive at the same time.

But as they gradually find their way into policy spaces, they bring new ways of thinking about antitrust policy, and importantly, they really bring new ways of thinking about deregulation. And so there are a lot of the intellectual energy behind the movement to deregulate different areas of transportation in the nineteen-seventies.

MARK BLYTH: So there was Chicago but there was also Harvard and they were kind of the opposition view that the rules that you're trying to make markets more efficient with are designed to put the state, if you will, on the back foot. They wanted to put the state more on the front foot but that was the only real distinction between them. They all agreed on the efficiency goal being the main thing. What was it about the language of efficiency and the concept of efficiency that it becomes such a powerful force?

ELIZABETH BERMAN: I think that it is the right language for the right time. I think that a lot of how you can think about what's going on in this period is that all this is happening sort of as a period of government expansion is kind of coming to a peak. And so whether it's in these social policy domains where you have the war on poverty and the Great Society are really expanding what we're trying to do with government, or whether it is environmental regulation in which we're creating new agencies and introducing new rules that just haven't been there historically, that this becomes a way if not to arrest this to think about how to do it better, right?

That I think as soon as you expand something you're going to find problems with it and it becomes a very important and powerful way of thinking about, well, how can we do this as well as possible. The thing is, I think, is that that also leveraged by people who are not interested in trying to improve these projects so much as they are in reversing them. And so it's a very flexible language in that regard that it can be used in both directions.

MARK BLYTH: And speaking of people who can speak in two directions at once, this brings us nicely to the third group of actors that show up in your story, the lawyers. So how does this whole legal law and economics movement thing, which is also very Chicago but a different annex again, fit into the story? How does this all bind together?

ELIZABETH BERMAN: I mean, so on the one hand, law and economics have always had some kind of relationship, right? You go back to the first half of the 20th century and you've got institutional economists who are also in law school but it was a very different type of economist from a different era. Where you see something that looks more like modern economics having influence on law emerges in the nineteen-sixties really, a little bit in the nineteen-fifties, and kind of comes out of antitrust policy and out of these industry regulation kinds of fields of law.

And so economists kind of come in and say, look, we have tools for thinking about these problems. They're kind of analytically sharper than what you all are working with, and people seem to find that pretty compelling. And so you've already got economic concepts becoming introduced into legal curricula in the late '60s early '70s.

By the mid 70s, this really expands dramatically. And this is where you have people like Richard Posner coming in and saying, well, we can think of law itself as an economic institution, right? Law moves in the direction of efficiency and so really applying a very broad economic lens for rethinking the entire legal apparatus. By the nineteen-eighties, you've kind of created a space in which lawyers are typically exposed to at least a little bit of economic reasoning in the course of their legal education. However, it might not seem like a lot if you're an economist but relative to what they would have been before that.

MARK BLYTH: You'd be mentioning on a trust. Let's use this as an example now to bring it all together. In your talk today, you explained how US antitrust laws vary all. Sherman Act and Clayton Acts are over 100 years old and it was last modernized in the '50s. And since then that's been with a few tweaks the law that's been on the books.

But what happened was the DOJ just stopped enforcing the law. By the time you get to the late '80s, there was no antitrust then fast-forward 40 years we end up with Google, one company that dominates searches. We have four airlines, they all charge the same price, my crappy internet company and everybody else's crappy internet company because there's no competition. So link all this together. How does the growth of law and economics, industrial organization economists, and the RAND Corporation all think in this common framework? Some to a point where we just stopped doing antitrust, which is something the US specialized in for over 60 years.

ELIZABETH BERMAN: What you've got really is the broad microeconomic framework that sort of says, the role of government is to try to create efficient markets, at least in these market governance areas really came into conflict with the predominant ways of thinking about antitrust policy in the nineteen-fifties and '60s for example.

So the courts were thinking about antitrust policy in a way that involved a lot of competing goals that were sometimes conflicting. And so they were at different times. Sometimes they were trying to address issues around kind of corporate power broadly defined, sometimes they were concerned with issues around small business and kind of the protection of small business, and then at other times they were concerned with the welfare of consumers, and with ensuring competition.

And even as early as the nineteen-sixties, economists regardless of whether they were on the left or the right or the Harvard or Chicago side of the debate had a pretty strong consensus that thinking about this in terms of promoting efficiency and markets is really the only sensible way to govern this domain.

And so over the course of the next 10, 15 years through a fairly complicated set of steps, they were able to convince not only other economists but lawyers and importantly kind of critically the courts that theirs was the right way of thinking about the problem. And so what that meant was that antitrust policy because of court decisions, it became that you could only enforce antitrust policy if the case that you were bringing somehow enhanced consumer welfare defined narrowly as allocative efficiency.

And so questions about other forms of corporate power were sort of placed as beyond the pale of what antitrust does. They were defined out of antitrust. If you think about something like Two-Thousand-Eight, you've got these banks that are too big to fail. To a layperson that would seem like too big, that seems like that's an antitrust issue, but a question like that has just been defined as being completely off the table of what antitrust does because it's not tied to this narrower definition of consumer welfare.

MARK BLYTH: So when we talk about consumer welfare, just to be clear for people listening, what exactly do we mean by that? Because for example, if I'm a customer of a bank that crashes and has to get bailed out at the taxpayers expense, I'm not exactly clued in as to how that's enhancing my welfare. So what specifically do these folks mean by that statement?

ELIZABETH BERMAN: So consumer welfare, you could sort of use it in the colloquial sense and it might have a very broad definition that could mean consumer safety or all sorts of different things. But the definition that's usually used is much narrow and is really focused on ensuring that firms can't raise prices above the competitive level.

So the point is that you want to make sure that there's enough competition that a firm can't raise price above marginal cost effectively. And so you want to be able to say that if that was going to happen, then we might need to intervene. And that is how we're going to protect the consumer welfare so paying the lowest price as possible.

One problem with that is that as the Chicago School became more influential, you have arguments are rising that well, even if there's only one firm, they can't possibly raise prices above the competitive level because if they did, another firm would come in and join the market, right? So it's sort of a tautological argument almost.

MARK BLYTH: So barriers to entry, scale effects, all that stuff are just thrown out? One good example of this line of thinking would be Walmart, where the prices keep falling and so long as they keep falling, that's a consumer benefit. Oh, by the way, on the way to falling prices you destroyed the entire town that it's based on by pricing them out of existence. But on this reading of anti-trust that's not really our purview. Would you say that's a fair summary?

ELIZABETH BERMAN: Yeah, absolutely. And I think you see this with Amazon too, right? I mean, how can you argue that Amazon, which gives us so much cheap stuff can possibly be harming consumer welfare when it's defined as low prices, but it defines any other types of problems, any other types of issues that go along with the firm or the industry. It's just these may be things we need to address but they're beyond the scope of antitrust policy.

MARK BLYTH: So they just stopped doing it. One of the things that they then started to do though, because it's not as if they sat on their hands at this point, is to spread these ideas beyond these agencies. One way they have done that is through the proliferation of literally thousands of masters of public policy programs around the world.

This was, in a sense, the growth of a profession but not just amongst economists within bureaucracies, rather it's taking this economic style of reasoning and producing it at scale to stop bureaucracies everywhere, pushing them out into the world. Can you speak a little bit about this? How these folks engendered the whole notion of a masters of public policy as a thing?

ELIZABETH BERMAN: Yeah. This was actually something that I found kind of surprising what I learned and most people that I've talked to have also been surprised by is that what we think of is like a masters of public policy or master's of public affairs is one, it's only a creature of the nineteen-sixties. And it very directly emerged from the RAND. It was called PPBS, the Planning Programming Budgeting System, that they rolled out across the federal agencies.

And so before that, it was more about neutral administration, it wasn't interested in policy. So you have in response to this new demand for people who can do RAND style analysis in government, people who can take a policy goal and evaluate what the most cost effective options are to reach it. University said, hey, there's a market for this, people want to hire this.

And so you had a bunch of programs all created within about the same five year period that started to produce these new masters of public policy. And so there again kind of microeconomic at the core, you get some statistics, I mean, there's a little bit of organizational analysis but really focused on economic ways of thinking about policy problems and those are very successful. They take off and yeah, now you have MPPs or MPAs in all over the place in government.

MARK BLYTH: And what they're doing is they're kind of anchoring a way of thinking in all these different spaces. Your question could be about racial justice for example, but as an MPA, you're taught to comment this in terms of an efficiency question, which is not what people would have at the top of their minds when they're thinking about a justice question.

So there are real if you will, to use the economic language because it's so hard to escape it, if you will externalities to this way of thinking. It really fits in some areas and it really is a bit of a stretch in other areas. What was the most surprising sort of example of the deployment of this logic that you found when you were doing the research for the book?

ELIZABETH BERMAN: Well, I'm not sure if I have a most surprising one off the top of my head but you're bringing up the environmental justice one. I mean, this is a really good example of how these values come into conflict. The environmental justice movement emerged in environmental policy, right?

And so the idea was that Black and Brown communities are being disproportionately polluted and their claims about changing that as a matter of justice. But what's interesting in this kind of reflects the flexibility of economic reasoning is that you can recast that in economic terms, right? And so you can say, OK. Our goal is to ensure that there's no difference, that Black and white communities are equally exposed to pollutants and so we're going to quantify that and figure out the most cost effective way of doing that but we're going to pay attention to racial disparities.

But by converting this from the language of economic justice in these sort of moral claims again, much like with pollution more generally, you both pull some of the steam out of the arguments and often end up with conclusions that are perhaps more modest than the original advocates would have proposed. And so even though they're sort of nominally seeking the same goals. I think you often see conflict between, for example, the environmental justice community and environmental economists who want to achieve racial equity in environmental policy but are coming at it from a quite different angle.

MARK BLYTH: Yeah, that's a really powerful example. You can imagine placing this framework on top of the question of let's say, climate justice the notion of a Green New Deal or decarbonization and a just transition, when activists talk about these things they're not talking about the most cost effective way of getting there. Is that why you say that the economic style of reasoning, despite the fact that it has center left antecedents, ultimately becomes more constraining for leftist ambitions than it does for goals on the right? Can you walk us through that?

ELIZABETH BERMAN: Yeah. So I mean, I think there's two parts to that. One is just that because of the time that economic reasoning was entering into policy is sort of a reaction to this expansion of government. The ways that it ended up being deployed in practice ended up typically being against Democrats, who were sort of further to the left than the technocratic economists.

And so, for example, you see this a lot. I think debates around universal health insurance are a great example of this where you had Ted Kennedy in Nineteen-Seventy saying health care is a right, we want universal health care. And economists who also very much wanted to expand access to health care were like, well, this is crazy, this is inefficient. People who can pay something for their health insurance should be doing that. So the effect is essentially as those arguments become more powerful and that you have to make these efficiency arguments. The effect is to constrain people who are making that rights based argument that it should just happen for everybody because health care is a right.

I think the other piece that really plays into this as well, though, is that this only really, really starts with Reagan I would say. Nixon and Ford did not use the economic style in a strategic way but by the time Reagan comes to office, his administration is much better at embracing economics when it supports the underlying policy goals and rejecting it when it does not.

And so during the Reagan administration, you see an expansion of economics and antitrust policy where it points in a conservative direction. You see uneven use of it in regulatory policy where it's a little bit more ambiguous and you see him firing all the economists who are doing social policy because he just wants to get rid of the social programs, he doesn't want to make them cost effective. So some of it I think is just about the different parties having had different degrees of being deferential to economics.

MARK BLYTH: So when it comes to being deferential then, that really singles out the Democrats. Would it be fair to say that when we think of the modern Democratic Party, they really are the peak, the epitome of the style of thinking. Even though with Biden has been a bit of a change, we can only ever get a half loaf. There's no point struggling for big goals.

Obama, for example, spoke of big game of transformation but even a signature achievement in terms of health care as you point out in your book really was well within accepted economic policy boundaries. Given this, the Democrats are the ones that in a sense really believe these economic arguments whereas conservatives will use them for instrumental purposes, they're not bound by them. Is that fair?

ELIZABETH BERMAN: Yeah, and so what you have is the Democratic Party proposing, at least during the Obama administration, that the starting point for negotiation is something that is reasonable from an economic framework but it doesn't have the same moral appeal as these rights based argument. It tends to get very complicated and technocratic very quickly.

And so you have health care exchanges and all this kind of thing. And it tends to not be a very aggressive starting point. So even if you're going to have some kind of political compromise, ultimately starting with the economically reasonable policy ambition means that you're inevitably going to end up with something less than that.

MARK BLYTH: It's a bit like you're shutting the Overton window before you begin to open it.

ELIZABETH BERMAN: Right, exactly.

MARK BLYTH: So unfortunately our time is running out but I've got one last question for you. I think there's two things going on in the book or rather two explanations I can pull from this. One, I've read the whole thing and I want you to tell me which one is the most compelling to you.

The sociologist in me says this is a bit like Daniel Dennett talking about Darwinism and the whole notion of evolution. He called evolution Darwin's dangerous idea and he named it, called it a universal acid, whatever this idea touches it dissolves in terms of the idea. That is to say you can turn anything into an evolutionary story once you understand how evolutionary stories work. That doesn't mean, however, that everything is actually an evolutionary story. Is that the power of economics? It's kind of a universal asset. You recast everything in its terms and that's why it conquers.

Or if I put my economics hat on, I would note that what you said earlier is that to many people, this style of reason was very compelling and still with that hat on, I would say, yeah, you know why? Everything you've said true but it's still good that we did this. What would the world look like if we had no policy analysis, if we didn't care about efficiency? It would basically just be people tossing around values and hoping for the best. Surely this is better than what we had before. How would you place yourself between or among or with these two statements?

ELIZABETH BERMAN: Yeah. I think the universal acid point is a really good one. I mean, I think that really captures a lot of what the story is about that what is compelling about this way of thinking and the set of tools that it can be applied to so many contexts. It's not going to solve all your problems but it gives you a useful tool kit for thinking about all kinds of different things.

And to your second point, I think what I would say is that it's useful and it has a place but that it can't be our only lens for looking at questions. And I think particularly to the extent that we do our agenda setting through that lens, right? So not just thinking about, OK, we're going to tweak this policy area and how can we make this a little more efficient or function a little better?

But that it constrains the kinds of programs we can even imagine, that it limits what we can think of as reasonable. That then becomes very politically limiting so I'm certainly would not be on a mission to abolish economics or kick economics out of policy-making but I think it needs to be one kind of expertise among many and also that we need to be able to ignore economics when it comes at the expense of having some kind of political vision.

MARK BLYTH: That's a very nice place to end on. Elizabeth Berman, thank you very much.

ELIZABETH BERMAN: Thank you, Mark.

MARK BLYTH: This episode was produced by Dan Richards and Kate Dario. I'm Mark Blyth. You can listen to more conversations like this by subscribing to The Rhodes Center Podcast wherever you listen to podcasts. We'll be back soon with another episode of The Rhodes Center Podcast. Thanks.