Oxford, England – The morning after my Feb. 20 debate at the Oxford Union, I walked from my hotel along Oxford’s narrow cobblestone streets, past its storied colleges with resplendent lawns and Gothic stone spires, to meet Avner Offer, an economic historian and Chichele Professor Emeritus of Economic History.
Offer, the author of “The Challenge of Affluence: Self-Control and Well-Being in the United States and Britain Since 1950,” for 25 years has explored the cavernous gap between our economic and social reality and our ruling economic ideology. Neoclassical economics, he says, is a “just-world theory,” one that posits that not only do good people get what they deserve but those who suffer deserve to suffer. He says this model is “a warrant for inflicting pain.” If we continue down a path of mounting scarcities, along with economic stagnation or decline, this neoclassical model is ominous. It could be used to justify repression in an effort to sustain a vision that does not correspond to the real world.
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Offer, who has studied the rationing systems set up in countries that took part in World War I, suggests we examine how past societies coped successfully with scarcity. In an age of scarcity it would be imperative to set up new, more egalitarian models of distribution, he says. Clinging to the old neoclassical model could, he argues, erode and perhaps destroy social cohesion and require the state to engage in greater forms of coercion.
“The basic conventions of public discourse are those of the Enlightenment, in which the use of reason [enabled] us to achieve human objectives,” Offer said as we sat amid piles of books in his cluttered office. “Reason should be tempered by reality, by the facts. So underlining this is a notion of science that confronts reality and is revised by reference to reality. This is the model for how we talk. It is the model for the things we assume. But the reality that has emerged around us has not come out of this process. So our basic conventions only serve to justify existing relationships, structures and hierarchies. Plausible arguments are made for principles that are incompatible with each other.”
Offer cited a concept from social psychology called the just-world theory. “A just-world theory posits that the world is just. People get what they deserve. If you believe that the world is fair you explain or rationalize away injustice, usually by blaming the victim.
“Major ways of thinking about the world constitute just-world theories,” he said. “The Catholic Church is a just-world theory. If the Inquisition burned heretics, they only got what they deserved. Bolshevism was a just-world theory. If Kulaks were starved and exiled, they got what they deserved. Fascism was a just-world theory. If Jews died in the concentration camps, they got what they deserved. The point is not that the good people get the good things, but the bad people get the bad things. Neoclassical economics, our principal source of policy norms, is a just-world theory.”
Offer quoted the economist Milton Friedman: “The ethical principle that would directly justify the distribution of income in a free market society is, ‘To each according to what he and the instruments he owns produces.’ ”
“So,” Offer went on, “everyone gets what he or she deserves, either for his or her effort or for his or her property. No one asks how he or she got this property. And if they don’t have it, they probably don’t deserve it. The point about just-world theory is not that it dispenses justice, but that it provides a warrant for inflicting pain.”
“Just-world theories are models of reality,” he said. “A rough and ready test is how well the model fits with experienced reality. When used to derive policy, an economic model not only describes the world but also aspires to change it. In policy, if the model is bad, then reality has to be forcibly aligned with it by means of coercion. How much coercion is actually used provides a rough measure of a model’s validity. That the Soviet Union had to use so much coercion undermined the credibility of communism as a model of reality. It is perhaps symptomatic that the USA, a society that elevates freedom to the highest position among its values, is also the one that has one of the very largest penal systems in the world relative to its population. It also inflicts violence all over the world. It tolerates a great deal of gun violence, and a health service that excludes large numbers of people.”
“There are two core doctrines in economics,” Offer said. “One is individual self-interest. The other is the invisible hand, the idea that the pursuit of individual self-interest aggregates or builds up for the good of society as a whole. This is a logical proposition that has never been proven. If we take the centrality of self-interest in economics, then it is not clear on what basis economics should be promoting the public good. This is not a norm that is part of economics itself; in fact, economics tells us the opposite. Economics tells us that everything anyone says should be motivated by strategic self-interest. And when economists use the word ‘strategic’ they mean cheating.”
Offer argued that “a silent revolution” took place in economics in the 1970s. “Economists,” he said of the 1970s, “discovered opportunism—a polite term for cheating. Before that, economics had been a just-world defense of the status quo. But when the status quo became the welfare state, suddenly economics became all about cheating. Game theory was about cheating. Public-choice theory was about cheating. Asymmetric information was about cheating. The invisible-hand doctrine tells us there is only one outcome, and that outcome is the best. But once you enter a world of cheating there is no longer one outcome. It is what economists call multiple equilibria, which means there is not a deterministic outcome. The outcome depends on how successful the cheating is. And one of the consequences of this is that economists are not in a strong position to tell society what to do.”
The problem, he said, is that the old norms of economics continue to inform our policy norms, as if the cheating norm had never been introduced.
“Let’s take the doctrine of optimal taxation,” he said. “If you assume a world of perfect competition, where every person gets their marginal products, then you can deduce a tax distribution where high progressive taxation is inefficient. This doctrine has been one of the drivers to reduce progressive taxation. But looking at the historical record this has not been accompanied by any great surge in productivity; rather, it has produced a great surge in inequality. So once again, there is a gap between what the model tells us should happen and what actually happens. In this case the model works, but only in the model, only if all the assumptions are satisfied. Reality is more complicated.”
“The standard in modern society is that government allocates between 40 to 50 percent of output,” he said. “This anomaly is not explained by economic theory. If people are making democratic choices in their self-interest, why have these large government structures been built up?”
“There is very little analytical argument in economics in support of government, but its benefits are so overwhelming it continues to hang on,” he said.
“One of the issues here is when those in authority, whether political, academic or civic, are expounding their doctrines through Enlightenment idioms and we must ask, is this being done in good faith?” he said. “And here I think the genuine insight provided by the economics of opportunism is that we cannot assume it is being done in good faith.”
“When I hear Republicans in the United States say that taking away people’s food stamps will do them good I ask, what do you know that allows you to say this? This rhetoric invokes the Enlightenment model. We all use it. It is improvement by means of reason. But Enlightenment discourse should not be taken at face value. We have to again ask whether it is being carried out in good faith.”
“Economics, political science and even philosophy, ever since rational choice swept through the American social sciences, have embraced the idea that an individual has no responsibility towards anyone except himself or herself,” he said. “A responsibility to anyone else is optional. The public discourse, for this reason, has become a hall of mirrors. Nothing anymore is what it seems to be.”
Our current economic model, he said, will be of little use to us in an age of ecological deterioration and growing scarcities. Energy shortages, global warming, population increases and increasing scarcity of water and food create an urgent need for new models of distribution. Our two options, he said, will be “hanging together or falling apart.” Offer argues that we cannot be certain that growth will continue. If standards of living stagnate or decline, he said, we must consider other models for the economy. Given the wealth and resources of industrialized nations, he said, a drop in living standards to what they were one or two generations ago would still permit a good quality of life.
Offer has studied closely the economies of World War I. Amid this catastrophe, he notes, civilian economies adapted. He holds up these war economies, with their heavy rationing, as a possible model for collective action in a contracting economy.
“What you had was a very sudden transition to a serious scarcity economy that was underpinned by the necessity for sharing,” he said. “Ordinary people were required to sacrifice their lives. They needed some guarantee for those they left at home. These war economies were relatively egalitarian. These economics were based on the safety net principle. If continued growth in the medium run is not feasible, and that is a contingency we need to think about, then these rationing societies provide quite a successful model. On the Allied side, people did not starve, society held together.”
However, if we cling to our current economic model—which Offer labels “every man for himself”—then, he said, “it will require serious repression.”
“There is not a free market solution to a peaceful decline,” he said.
“The state of current political economy in the West is similar to the state of communism in the Soviet Union around 1970,” he went on. “It is studied widely in the university. Everyone knows the formula. Everyone mouths it in discourse. But no one believes it.” The gap between the model and reality is now vast. Those in power seek “to bring reality into alignment with the model, and that usually involves coercion.”
“The amount of violence that is inflicted is an indicator of how well the model is aligned with reality,” he said. “That doesn’t mean imminent collapse. Incorrect models can endure for long periods of time. The Soviet model shows this.”
Violence, however, is ultimately an inefficient form of control. Consent, he said, is a more effective form of social control. He argued, citing John Kenneth Galbraith, that in affluent societies the relative contentment of the majorities has permitted, through free market ideology, the abandonment, impoverishment and repression of minorities, especially African-Americans. As larger and larger segments of society are forced because of declining economies to become outsiders, the use of coercion, under our current model, will probably become more widespread.
“One of the unresolved issues in social science is how does the system hold together,” he said. “We have the economic model of the invisible hand, the miracle of the market, but we know it is not true, since government allocates up to 50 percent of output and income. We don’t actually rely on the ‘free’ market for our prosperity. Even the market sector is mostly dominated by entities with large market power.”
“We have this model that we are all selfish and somehow this generates the miracle of cooperation,” he said. “But equilibrium is only a truism for the well-off. There is money in the bank. The car is in the drive. The shops are full. The semesters follow each other. There is an overseas conference. The world seems to be OK. But if you look the other way, look at these other people, there is a world of hardship, misery and suffering. These suffering people are not always visible to invisible-hand advocates.”
“Experimental economics has, in fact, demonstrated that when people are placed in experimental situations they do not behave as individualistic maximizers,” he went on. “Some of them do. Some of them do not.”
“Adam Smith,” he noted, “wrote that what drives us is not, in the end, individual selfishness but reciprocal obligation. We care about other people’s good opinions. This generates a reciprocal cycle. Reciprocity is not altruistic. That part of the economic core doctrine is preserved. But if we depend on other people for our self-worth then we are not truly self-sufficient. We depend on the sympathy of others for our own well-being. Therefore, obligation to others means that we do not always seek to maximize economic advantage. Intrinsic motivations, such as obligation, compassion and public spirit, crowd out financial ones. This model can also motivate a different type of political and economic aspiration.”
“The free market norm assumes a frictionless exchange which maximizes everyone’s well-being,” he said. “The existence of … coercive instruments, such as the prisons and the enormous military, makes you think that the theory is not all it is purported to be. There is a gap between what it pretends to be and what it is.”
Offer said that universities, which should be incubators of new and radical ideas, are being stripped of their ability to independently critique the widening gap between reality and the false models of reality that are disseminated by the elites.
“The kind of willfulness with which I can talk to you now is not guaranteed for future scholars,” he said. “The academic system has discovered it is no longer necessary to provide tenure. This system is fraying. And this is deliberate. This independence is a source of trouble. When Stalin carried out his purges he purged the best and the brightest. These were an alternative source of power. And I think there is a sense in government and business that there is too much independence in academia. We need to be put in our place. The spirit of free inquiry, free expression, and to some extent free teaching, and communality is alien to the corporate and political culture, which are repressive hierarchies.”
Those academics who deviate from the central core doctrines, including in economics, are finding themselves defunded. Oversight committees impose quotas on academics and insist that the work conform to what they call disciplinary norms.
“The golden age of the university was in the postwar years, especially in the 1960s,” Offer said. “You saw great expansion. The university thrived under the auspices of the Cold War. But once the Cold War imperative disappears it is no longer as vital to maintain national capacity. Universities could be privatized.”
“The idea of the autonomous scholar is disappearing,” he said. “I am not sure many people even remember it.”