Not So Dismal After All

Economic Principals: Masters and Mavericks of Modern Economics, by David Warsh, New York: The Free Press, 525 pages, $29.95

Economists, as a class, are not the most popular people in the world. Often they are seen as out-of-touch theoreticians, absorbed in mathematical calculations and oblivious to real human needs. Economists come under regular assault from environmentalists (who denounce them for pointing out the costs of environmental regulation), from protectionists (who decry their advocacy of free trade), from their academic rivals in a variety of disciplines, and from journalists. Every few years, somebody writes an article proposing that the Nobel Prize for economics be abolished.

For a more sympathetic treatment of the profession, turn to David Warsh, a columnist for The Boston Globe. In Economic Principals, a collection of his weekly columns, Warsh seems determined to give a fair hearing to a wide range of economists—living and dead, famous and obscure, free-market and statist. Indeed, frequently he is too reverent, showcasing a given economist's ideas while making only a halfhearted effort at skeptical, journalistic scrutiny.

Warsh is a good-natured guide, cheerfully leading the reader through even some of the more difficult terrain of economic thought. His subject matter extends beyond those formally in the field, taking in a variety of non-economists who have contributed, in some form or another, to economic debate. These include business-school gurus, financial-market types, historians, the occasional philosopher or computer expert, and even Oliver Stone (whose Wall Street and other films are castigated in an uncharacteristically angry Warsh essay). In general, Warsh is gentle in his treatment of those whom he profiles, occasionally indulging them with quotes that run for paragraphs at a time.

There is little ideology, and much intellectual agnosticism, in Economic Principals. Warsh sometimes seems to agree with whomever he last interviewed and often appears intent on finding a reasonable middle ground between conflicting arguments. He has kind words for such disparate economists as James M. Buchanan and John Kenneth Galbraith, but he criticizes the writers of a Commentary symposium for providing "an oil-and-vinegar array of extremes." Karl Marx and Frédéric Bastiat, polar opposites in 19th-century economic thought, both are extolled for their modern-day relevance. Was supply-side economics a "shabby little insurrection" or an important intellectual development? Depends which of Warsh's chapters you're reading.

Most of the columns were written in the 1980s, and all were written before Bill Clinton was elected president, but a number of the people and ideas that would find their way into the Clinton administration receive attention in Economic Principals. A column from 1982 anticipates that more will be heard from Robert Reich. Another piece recounts Ira Magaziner's failed attempt to bring industrial policy to Rhode Island. Yet another looks at the appointment of Harvard professor Lawrence Summers to be chief economist of the World Bank. Summers, now an undersecretary in Lloyd Bentsen's Treasury Department, became a bogeyman to environmentalists by suggesting that high-pollution industries might bring economic benefits to the Third World.

Newspaper columns are not written for the ages, and some of Warsh's writings have not fared well since their initial publication. A 1985 item offers a misleading snapshot of the legislative jockeying that preceded the following year's tax reform. A column expressing a dismissive view of the junk-bond market, written in 1989, itself is easily dismissed in light of the market's subsequent resurrection. And there is little lasting value in Warsh's ruminations about what might happen if Paul Volcker leaves the Fed.

Reporting on Washington and Wall Street is not Warsh's forte. What he knows best is the world of academic economists—their ideas, institutions, and idiosyncrasies. And while Warsh is a keen (and geographically proximate) observer of Harvard and MIT, the two leading citadels of Keynesianism, he pays equal attention to the countervailing tradition led by the University of Chicago.

In large part, the history of economics in the second half of the 20th century is a story of conflict between "fresh-water" and "salt-water" approaches to the subject. The fresh-water school, centered in Chicago and extending to universities throughout the vicinity of the Great Lakes, emphasizes the efficacy of free markets and the unwisdom of most government efforts to manage the economy. The saltwater school, espousing a far greater role for government intervention, dominates universities on the East and West coasts; its capital is Cambridge, Massachusetts.

Both of these approaches have had profound effects on public policy in the United States. Salt-water economics helped fuel the rapid expansion of the federal government's size and scope that took place in the 1960s. The Reagan years were influenced by monetarism, rational expectations, and other doctrines of the fresh-water school. The Clinton administration, it is clear, looks to Cambridge for intellectual support. But the doings of academic economists tend to be hidden from public view, obscured by the profession's esoteric terminology and advanced mathematics.

Warsh offers a series of glimpses behind this veil. He chronicles bureaucratic infighting at prestigious economics departments and shows competing intellectual schools striving to capture the high ground in the textbook market. He sketches the histories of elderly Nobel laureates and follows the progress of young hotshots who fly off to bestow policy advice upon distant countries.

The far-reaching impact that individual economists can have, both on their profession and on the wider world, is illustrated in Warsh's telling of how Ronald Coase converted the entire University of Chicago economics faculty to his views on regulation and property rights during the course of a single dinner party in 1960. Coase's insights eventually gave rise to a flurry of market-oriented reforms in pollution control, accident compensation, and other areas of public policy. He was awarded a Nobel Prize in 1991.

Yet Economic Principals also tells stories of the insularity of some academic economists, of their aloofness from the phenomena that they study. Consider the case of MIT professor Franklin Fisher. A rising academic star, he took time off to serve as an expert witness for IBM during the computer company's epic antitrust case in the 1970s. He helped IBM fend off the Justice Department but became suspect in the eyes of his MIT colleagues, who saw such corporate partisanship as beneath the dignity of an economic theorist. They viewed him, Warsh writes, as a "nobleman who stooped to trade."

Warsh avidly probes the boundaries of economic theory. He sits in on meetings at the Santa Fe Institute, a think tank where economists trade ideas with their counterparts in the physical sciences. He listens to critics of the economics profession, such as Philip Mirowski, a historian who thinks that economists already have borrowed far too many of their ideas from physicists. Warsh's columns often shine a spotlight on thinkers who have lumbered in obscurity; at times, the reader may suspect that the obscurity was well-deserved, but it seems wrong to fault Warsh for his intellectual curiosity.

The reader also will have to grow accustomed to supplying the critical attitude, the determination to think carefully before embracing a new doctrine, that Warsh sometimes lacks. Still, this book provides a valuable service. Many undergraduate economics courses give little hint of the intensity with which economists have conducted their theoretical disputes in recent years or of the high stakes involved, in terms of influence over public policy. Economics, as it is taught to thousands of students each year, is a boring subject. Warsh shows that it need not be so.

Kenneth Silber, an economic journalist in New York City, has written for Commentary, Insight, The City Journal, and other publications.