The Anti-Economist — From the September 2013 issue

Saving Your Children from a Harvard Education

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In 1972, the economics department at Harvard denied tenure to the leftist professor Samuel Bowles. Responding to the decision in the Harvard Crimson, Bowles asserted that he had been passed over because he believed in democratizing the department, reducing the power of senior professors, giving students a greater voice in shaping the curriculum, and addressing problems — from poverty and inequality to the increasing power of corporations and financial institutions — too often neglected by the conventional economists who had come to predominate at the university. Bowles made a pointed distinction between the proper practice of economics as he understood it and the rising conservative orthodoxy he opposed. “Our definition of economics and of our roles as economists,” he wrote,

stems from our commitment to serve the people who suffer under the capitalist system, not those who run it. The differences between us and the conventional economists is thus intensely and (on our part at least) openly political. What is “useful knowledge” to us is often outside of, or even in conflict with their definition of their discipline, not to mention their own personal role in the capitalist order.

In the forty years since Bowles’s tenure was denied, Harvard’s economics department has become increasingly committed to a narrow, conservative agenda, thereby lending the university’s imprimatur to economic ideologies that have done terrible damage around the world.

Nearly every bad economic idea that has held some sway over the past two decades has had support from Harvard. When the Tea Party took over the House after the 2010 midterm elections, they called for deficit reductions based almost entirely on spending cuts rather than tax increases. Years of evidence and solid economic theorizing suggested that cutting spending during a recession was a bad idea, but the deficit hawks were armed with the research of Alberto Alesina, who along with a number of his colleagues at Harvard had issued statistical papers arguing for the possibility of “contractionary expansion.” Spending cuts, Alesina suggested, would produce economic growth, because they would quell fears of more dramatic cuts in the future. Alesina’s research has since been rubbished — not only by progressives but by establishment economists at the International Monetary Fund, who found that cutting debt when economies are weak usually leads to slower growth or outright recession, and ultimately to higher debt ratios (exactly what’s happened in those European nations that went down the path of austerity). Meanwhile, the tentativeness of the U.S. recovery owes much to the cuts in government spending that thinking such as Alesina’s justified.

Dubious work originating at Harvard has had serious consequences dating to well before our current troubles. Take the widespread use of stock options in executive compensation packages. For half a century after the Great Depression, this practice was uncommon. This changed in the early Nineties, after Michael Jensen, a Chicago-trained economist at Harvard Business School (from which, I mention in the interest of disclosure, I have a degree), published work encouraging corporations to pay executives with stock options, which he said would lead them to act like owners rather than mere managers. Jensen’s argument rested on the belief that stock price accurately reflected long-term value, meaning executives could benefit from options only if they ran their companies well. Instead, these rewards for boosts in stock price created perverse incentives. Many executives focused on cutting costs — particularly wages — in order to bolster short-term profits. Wages for American workers stagnated, while executive compensation soared.

Since theories developed at Harvard helped to exacerbate America’s inequality problem, it is appropriate that the so-called One Percent have found their most prestigious champion there. In a recent paper entitled, straightforwardly enough, “Defending the One Percent,” Greg Mankiw — former adviser to George W. Bush and current chair of Harvard’s economics department — writes that rising inequality is the natural result of socially productive work being fairly rewarded. His examples of typical One Percenters are Steve Jobs, J. K. Rowling, and Steven Spielberg, entrepreneurs who get rich creating things everyone wants. “My own reading of the evidence,” Mankiw writes, “is that most of the very wealthy get that way by making substantial economic contributions, not by gaming the system or taking advantage of some market failure or the political process.” Greater taxation of the rich, he continues, not only would be unfair but would reduce the benefits these well-paid workers bring to all of us.

[*] Not all students are oblivious to Mankiw’s biases. As part of Occupy Wall Street demonstrations in 2011, a group of students walked out of class in protest of his conservatism.

Such facile arguments are, unfortunately, more than some professor’s theoretical chatter. Mankiw teaches Harvard’s introductory economics course; the class is consistently the most popular on campus, with enrollment often exceeding 700 students. All economics concentrators are required to take it, which makes Mankiw’s influence particularly far-reaching.[*]

Embarrassing Harvard-spawned research has also found its way into the debate over immigration reform. In 2009, the university’s Kennedy School of Government granted a Ph.D. to a candidate named Jason Richwine, whose dissertation suggested that Hispanic immigrants have lower I.Q.’s than “native whites,” that this intelligence gap is unlikely to change, and that these facts have important policy implications. “When given the choice between a paycheck from a low-paying job and a welfare check, most intelligent people would realize that the welfare check offers them no potential for advancement,” Richwine writes. “Low-IQ people do not internalize that fact nearly as well.”

Harvard Ph.D. in hand, Richwine got a job at the conservative Heritage Foundation, where he co-authored a report published in May that estimated the cost of immigration-reform legislation at $6.3 trillion, in part because so few immigrants would work productively in the economy, opting instead for the dole. The report was denigrated across the political spectrum. In the wake of this response, Richwine’s Harvard dissertation came to light. It, too, was roundly criticized for political bias and lack of analytic rigor. When contacted by the press, members of Richwine’s dissertation committee — all of them very distinguished social scientists — showed little willingness to defend his conclusions. Later it emerged that Richwine had contributed an article about Hispanics’ alleged propensity to commit crimes to a white-nationalist publication. Within a week of his report’s release, Richwine resigned from Heritage.

But for sheer institutional embarrassment, the prize must go to Niall Ferguson. An Oxford-trained economic historian and conservative celebrity, Ferguson was appointed professor of history at Harvard in 2004, while former Treasury secretary Lawrence Summers was the university’s president. Before the most recent election, Ferguson wrote a Newsweek cover story about why America should vote out President Obama. In it, he argued that half of Americans are “not represented on a taxable return,” which is true so far as it goes, since they don’t pay income tax. But Ferguson went on to claim that “half of us [are] paying the taxes, the other half receiving the benefits.” This is simply not true: most Americans “not represented on a taxable return” are nonetheless paying payroll tax and significant sales tax. Many of them pay property tax as well. In addition to such deceptions, the article contained unambiguous errors of fact. Ferguson wrote that the Congressional Budget Office had concluded that Obamacare would increase the federal deficit; in fact, the CBO had reported that it would reduce it. Much was made about Newsweek’s failure to properly fact-check Ferguson’s work, but the article also raised another question: When a writer brandishes academic credentials in a general-interest publication, shouldn’t some semblance of scholarly rigor be maintained? Do distortions and outright falsehoods meet the standards of an institution that prides itself on intellectual integrity?

At least some members of the Harvard community have started asking these questions. After Ferguson’s Newsweek article appeared, the longtime Harvard professor and former dean of the college Harry Lewis had harsh words for the university. “Ultimately I keep coming back to old fashioned concepts like dignity and honor that have gone missing from the daily dialogue of academic life,” he wrote in a blog post. “There have been conversations about instituting an honor code for students at Harvard. Perhaps we need one for faculty first.”

Ferguson wasn’t finished. At an investors’ conference in early spring, he suggested that John Maynard Keynes, the eminent economist who provided the intellectual support for higher budget deficits when economies are weak, did not care about the long-term consequences of his policies because he was gay and had no children. Ferguson quickly apologized — in part, he said, for having “forgotten that Keynes’s wife, Lydia, miscarried,” as if this had anything to do with it. The university accepted the apology without further reprimand.

Samuel Bowles eventually left Harvard for the University of Massachusetts at Amherst, where he helped to develop perhaps the best department of alternative economics in the nation. Given his long and distinguished career, he hardly needs vindication, but he might have felt some recently when a graduate student at his school rebutted the heralded work of two highly influential Harvard economists in the most embarrassing way.

Kenneth Rogoff and Carmen Reinhart were the authors of a study claiming that a nation’s rate of economic growth falls off sharply or even stops cold when its debt reaches 90 percent of GDP. Rogoff and Reinhart’s work provided the intellectual ammunition for misguided austerity policies around the world, helping to make the reduction of government debt the top priority for international fiscal policymakers. Pundits and politicians alike treated the 90 percent tipping point as almost axiomatic. In January, a typical Washington Post editorial worried that “debt-to-GDP could keep rising — and stick dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” Congressman Paul Ryan (R., Wis.), who produced a budget of draconian social-spending cuts, referred to their report as “conclusive empirical evidence” of the dangers of debt. Rogoff and Reinhart were reportedly the favorite economists of the British chancellor of the exchequer, George Osborne, whose government recently imposed strict austerity to get debt down in the United Kingdom and caused a recession in the process.

The trouble was that nobody else could duplicate the results, in part because Rogoff and Reinhart didn’t make the specifics of their data analysis available. At last they provided their working spreadsheets to Thomas Herndon, the UMass graduate student, who proceeded to find fundamental mathematical errors, selective exclusion of relevant figures, and even basic flaws in data entry. When analyzed properly, Herndon wrote with faculty members Michael Ash and Robert Pollin, historical statistics revealed no debt threshold above which growth comes to a halt. Reinhart and Rogoff insisted that there was still some reduction in rates of growth, but even the most sympathetic interpretation of the facts showed no more than a modest decline.

The embarrassing fate of Reinhart and Rogoff’s work has helped to quiet some of the calls for austerity. Perhaps it will also encourage more soul-searching of the kind Harry Lewis has undertaken.

“One of the reasons that moral courage is lacking in the [United States] is that it is lacking in universities,” Lewis wrote recently.

As institutions, they now operate much more like ordinary corporations, fearful of bad publicity, eager to stay on good terms with the government, and focused on their bottom lines, than as boiling cauldrons of unconventional ideas sorted out through a process of disputation, debate, and occasional dramatic gestures.

It may be a very long time before the change Lewis describes is reversed. Until then, we should at least be less willing to accept an idea just because a name-brand university is attached to it.

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  • Marianne

    Well written and very illuminating article-thanks so much. I wish information like this had more circulation in the media.

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