Never Let a Serious Crisis Go to Waste

by Philip Mirowski

  Many professional economists, and perhaps even the reader, may have been predisposed to argue that agnotology is an inquiry bereft of subject matter—that is, there is no such thing as the conscious manufacture and promotion of ignorance. All that exists, they insist, are people of differing opinions, and some groups that may, from time to time, provide them with support for their own purposes. People just say what they believe: full stop, end of story. I have heard some economists opine that “agnotology” is just another left-wing curse word, roughly on a par with “neoliberalism,” particularly back in the era when it was fashionable to bemoan a Republican “war on science.”150 Others might not go that far, but instead regard the public face-off of eminent intellectual figures as a matter of “intellectual capture,” say, after the fashion of Simon Johnson. Admittedly, journalists exhibit an unfortunate tendency to treat a proposition as “true” as long as someone in a position of ostensible authority is willing to be quoted saying it, mitigated by the defensive codicil that no one seems willing to sue the journalist over it; or perhaps they confuse objectivity with presenting “two sides” to an issue, pitting jousting authorities against each other. The signal characteristic of agnotology is that it makes use of these journalistic inclinations to venture beyond simple difference of opinion in order to promulgate artificial “authorities” and calculated deception, not just to sway public opinion, but to foster the widespread attitude that there is so much unfocused controversy rattling around in the rarified world of intellectuals that the poor average citizen might as well believe whatever he pleases. It is the predicament of the hapless consumer of modern news: one study tells me red wine is good for my health, and another insists it is unhealthy! John Cochrane says the crisis is all the fault of the government, while Joe Stiglitz blames it all on the banks! By a simple jujitsu move, the mechanical journalist’s appeal to objective presentation of “both sides” is turned into an imprimatur for the public to believe whatever their guts tell them is correct, at least until the marketplace of ideas delivers its final verdict. The aim of agnotology is not so much to convince the undecided, but to fog the minds of anyone lacking the patience to delve into the arguments in detail (which is pretty much everyone).

  If we define agnotology to be the analysis of this phenomenon of the intentional production and promotion of ignorance, then it has been the Fourth Horseman of the Absolution from Apocalypse for economists. Whether it be in the context of global warming, oil depletion, “fracking” for natural gas, denial of Darwinism, disparagement of vaccination, or derangement of the conceptual content of Keynesianism, one unprecedented outcome of the Great Recession has been the redoubled efforts to pump massive amounts of noise into the mass media in order to discombobulate an already angry and restive populace. Much of this emanates from the outer think-tank shells of the neoliberal Russian doll, as I have already argued.151 The techniques range from alignment of artificial echo chambers and special Potemkin research units to co-opting the names of the famous for semisubmerged political agendas; from setting up astroturfed organizations to misrepresenting the shape and character of orthodox discourse within various academic disciplines.

  Agnotology takes many forms, as we point out in the next chapter. One of the major techniques of agnotology is to simultaneously fund both “legitimate” and illegitimate research out of the same pot, in order to expand the palette of explanations as a preliminary to downplaying the particular subset of causes that is damning for your client. As Robert Proctor explains:

  “It is less well known, but tobacco companies also spent large amounts subsidising good quality biomedical research in fields such as virology, genetics and immunology. They funded the work of several Nobel prize winners,” Proctor says. “But they only encouraged this research to serve as a distraction. The idea was to build up a corpus of work on possible causes of diseases which could not be attributed to cigarette-smoking. In court cases involving the industry, its lawyers always highlighted viral risks, the pre-disposition of certain families and so on to play down tobacco-related risks.”152

  Simply replace “disease” with “Great Recession,” “cigarette-smoking” with “financial innovation,” and “biomedical” with “economics,” and one rapidly begins to grasp the parallels.

  It might seem that agnotological interventions in an academic discipline could be greeted as an unwelcome source of meddling; for instance, many a climate scientist might ruefully wish that he had never drawn the attentions of the NTC. But in this, as in so many other respects, economics has been the outlier, because one might argue that the corporate body of orthodox economists has actually benefited enormously from the escalation of cacophony, rendering it relatively more immune to the wrath of a disillusioned populace. Precisely because of the material and intellectual conditions identified above, economists generally are not so very offended by the gush of tainted money and dubious activity pouring into the various extremities of the professional citadel of economics since the crisis. In short, the promotion of doubt over “what orthodox economists really believe” has proven a convenient smokescreen behind which the profession can evade the pitchfork-wielding populace, all the while pursuing its conventional practice of telling its patrons what they want to hear.

  Causality and intentionality are notoriously hard to prove when one deals with such large and diffuse hypotheses. In this volume, I approach this claim by means of a couple of exercises: one, relating a truncated narrative of the utter confusion that surrounded the initial passage of the Emergency Economic Stabilization Act of 2008 here, combined with descriptions of the crucial role of some economists in promoting paralysis around the understanding of the TARP in the next chapter; also in the next chapter, I shall recount a few more substantial instances of neoliberal application of the techniques of agnotology to the economics profession in the ensuing three years, especially with regard to the most successful red herring of the Neoliberal Thought Collective, that it was all the fault of Fannie Mae and Freddie Mac.

  Laying Down the TARP

  The intense sequence of events that transpired during the government takeover of Freddie Mac and Fannie Mae, the failure of Lehman Brothers, and the passage of the widely disparaged “bailout” or TARP legislation on October 3, 2008, has been related in fair detail in a number of books and articles;153 but one overlooked aspect has been the curious role of economists during its initial phases. Because it was largely conceived in haste in the crisis-consumed Treasury Department of Hank Paulson, the initial draft of a plan to purchase mortgage-backed securities, or, as we now know, the “toxic assets” of journalist parlance, the Treasury needed congressional approval to purchase up to $700 billion of these securities in the Paulson plan, so Paulson and Ben Bernanke sought to frighten the congressional leadership into hastily granting them this authority just before September 19, presenting them with a bald three-page proposal and Hobson’s choice: this, or the collapse of Western Civilization.

  Many members of Congress balked at the proposal, as explained in detail in the histories cited. But it is of equal interest to observe the reactions of the economics profession. One informant suggests that in the first hours of confusion, a couple of economists with close congressional connections were called in to canvass possible grounds for opposition to the plan: for instance, Jamie Galbraith was summoned by some Democrats led by Congressman Brad Sherman; the Skeptics’ Caucus on the Republican side conscripted Bill Isaacs, former Reagan head of the FDIC. Issacs suggested that no expenditure was necessary, and that the crisis could be averted merely by changing a few rules. Staffers started making cold calls to economists down the list on Sunday, September 28, and another conscript was David Levy of George Mason University and the Mercatus Institute. Levy was not an expert on finance, so could not provide an alternate plan, but did talk to some staffers about the role of the ratings agencies. But Mercatus and George Mason were destined to play a more significant role in the weeks to come.

  We need to wait fo
r the verdict of future historians to get some sort of standard narrative, but it seems that the first vote on TARP was conducted in the face of sketchy and incomplete economic notions. My point in this section is to suggest that economists did not help clarify the situation, but instead swooped in to pump more doubt into an already baffling predicament—and that is the essence of agnotology. Clearly, most orthodox economists were flummoxed by the mere onset of the crisis, but a few neoliberal economists at the University of Chicago had the presence of mind to gear up the think-tank network of the thought collective in order to sign a petition calling for a flat-out rejection of the rescue package, and counseling pure delay on taking any action whatsoever. (Delay and stasis was a major agnotological objective in disputes over CFCs, tobacco smoke, and global warming.) The petition, arranged by the Chicago economists John Cochrane and Luigi Zingales, essentially preached delay, due to the precept that, as the text stated, “Investors who took risks to earn profits must also bear the losses. Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise.” The capacity of the Russian doll to mobilize the thought collective was demonstrated by the ability of the organizers to deliver the petition with the signatures of more than one hundred economists to the media on September 24.154

  Senator Richard Shelby then went before the cameras on September 25, waving the petition and claiming that most prestigious economists at our leading universities were united in opposition to the bailout. As per usual, this was a bit misleading. Most (but not all) of the signatories were denizens of the financial–think tank nexus we have been describing in this chapter, and some were MPS members. It was not so clear that they so uniformly opposed a bailout, so much as they felt the need to head off the political dangers of government takeover of the financial sector. One might speculate that the banking sector wanted something like TARP that week, so there is no sense that the signatories were directly responding to any immediate bidding or specific objectives of the banks. The real practical effect of the petition was twofold: (1) to provide a list of whom in the economics profession might be available to be mobilized by Republicans in Congress, in the eventuality they might need to gin up opposition; and (2) to provide retrospective justification for the vilification of TARP, which is what happened once the Republicans suffered their rout. I doubt anyone had the foresight to imagine that this in turn would provide a basis for the reversal of the Democratic tide in 2010, so that the banks could get their cake and eat it, too. Rather, mostly it was the unceremonious jockeying for position in a highly fluid and confusing situation, with the neoliberals opting for the default position of cunctation and dissimulation. But of course, that is precisely when sharply drawn contraries can potentially have their greatest impact.

  What is noteworthy about subsequent events is the way in which agnotological activity rushed in to fill the apparent intellectual vacuum around the bailout bill, both prior to passage and for long thereafter. One node of activity became centered upon John Cochrane and his Chicago colleagues Luigi Zingales, Gary Becker, and Raghuram Rajan. Cochrane was explicitly identified by National Public Radio as the ringleader of economists in opposition to the Paulson plan, while the quartet were ubiquitous in sympathetic outlets like the Wall Street Journal, The Economist, and even PBS.155 However, in those contexts he was almost never publicly linked to his affiliation with the Cato Institute, one of the hardest-core shells of the Russian doll. A reliable bellwether, by October 14, Cochrane had already signed on to the incipient preferred story being developed by the NTC (more on this in the next section) in the Wall Street Journal:

  Most of all, I think it [the TARP bill] will “work” well enough to put a stop to the escalating political panic and the contagion of bailouts. My biggest fears, and those of the markets, I think, have been that some new “plan” comes along every two days which can wreck everything . . . If I were in charge I would announce loudly “and we’re going to sit on our hands for a whole week no matter what happens to daily stock prices.”

  But there are lots and lots of problems with it. Most obviously, now the government has stock in banks. OK, it’s preferred and nonvoting, but still, it is stock. And the government doesn’t need to vote its shares in order to profoundly influence how banks are run! There are lots of good practical reasons to fear government-run banking systems; governments inevitably use control over the banking system for political ends. Already ours has shown a wonderful track record in pushing Fannie Freddie and banks to make and hold bad subprime loans.

  Cochrane changed his tune in minor ways in subsequent months as it became increasingly apparent that the financial sector would be left more or less intact. He even was caught in an unguarded moment admitting one of the principal tenets of agnotology in an interview: “The business of advice remains what it was . . . You have to be willing to become a sort of media person. You have to tailor your advice to what people want to hear, and then shade it in the direction of common sense.”156 In the same period, Cochrane pursued agnotology most directly by denying that his Cato-blessed position was ideologically right wing, or that it unsubtly served as a shill for the financial sector: “Milton Friedman stood for freedom, social, political, and economic. He realized that they are inextricably linked. If the government controls your job or your business, dissent is impossible. He championed economic freedom as much as a means to political freedom as for its own sake. He favored, among other things, legalizing drugs, school choice, and volunteer army. To call him or his political legacy ‘right wing’ is simply ignorant, and I mean that also as a technically accurate description rather than an insult.”157 Agnotology delights in preaching everything you thought you knew about politics was wrong. Cochrane, as already mentioned, went on to become president of the American Finance Association in 2010.

  The other major agnotological juggernaut in the immediate crisis was the Mercatus Center at George Mason University (GMU), just a short drive up Route 66 from Washington, D.C. The precursor to Mercatus at George Mason dates back to the early 1980s, when Richard Fink was on the economics faculty at GMU.158 Fink was also highly connected to the many firms and foundations associated with Charles and David Koch, the infamous billionaire funders at the center of many neoliberal organizations, including Cato.159 Koch funded Fink’s Center for Market Processes at GMU, which was transformed into the Mercatus Center by the later 1990s, after Fink became vice-president of Koch Industries. Although GMU was nominally a state university, Mercatus was targeted by the Russian doll to become the premier one-stop shop for hard neoliberal economics in the nation’s capital. For instance, in 2001, the Charles G. Koch Charitable Foundation gave GMU $3 million to hire the neoliberal Nobel economist and MPS member Vernon Smith; although that did not work out as planned, Koch gave another $2.5 million to Mercatus in 2009. Public sources suggest Mercatus has benefited to the tune of $30 million from Koch over the last two decades. Its general director is Tyler Cowen, another neoliberal we have already encountered.

  Reuters has reported that this foresight proved prescient in helping deflect the interpretation of the “consensus” pronouncements of economists in testimony to Congress:

  The House Financial Services Committee and Senate Banking Committee heard from academic economists linked to the Mercatus Center about a dozen times during the financial regulatory reform debate. That is roughly the same number of testimonies by academics hailing from both Harvard’s business and law schools. According to a 2009 ranking of 31 economics programs at US universities by US News and World Report, Harvard ranked No.1. George Mason didn’t place.160

  The objective here is not to praise or exult Harvard (especially in this chapter), nor to excoriate the laziness of resort to local talent, but rather to highlight the economics profession as the agonistic field it has become in the war over the interpretation of the crisis.
Political expediency dictated the need for speed and cohesion in response to the numerous calls to understand what had happened in the crisis hard on the heels of 2008. The hubbub over the TARP revealed a field in discombobulation and disarray. Not least was there confusion over what it was supposed to accomplish, the topic of the next chapter. There was no luxury of waiting a generation for a synoptic account to emerge. The Koch brothers (and a rogues’ gallery of others) have redoubled their attempts to skew the economics profession in a more neoliberal direction, precisely in order to broadcast in a timely fashion the notion that neoliberals bore no responsibility for the crisis, and indeed, come fully equipped with everything that is needed to remedy it. This book documents an astounding level of achievement in that regard.

  Love for Sale

  Even though the Russian doll has developed elaborate recruitment strategies and a farm team to keep live candidates on tap, it clearly has become an imperative for neoliberals such as the Koch brothers to further transform the economics profession by further dispersing their influence. Indeed, precisely because of their avidity, a few intrepid reporters picked up on Koch donations to universities such as Clemson, Utah State, University of West Virginia, and most notoriously, Florida State, to have direct say in hiring new economists, as well as a veto in blackballing those with insufficient “appreciation for academic freedom.”161 Donors often wish to exert personal control over how their money is spent at a university; what makes Koch different is its depth of expertise in making this happen while maintaining a thin veneer of university independence. At Florida State (FSU), Koch gave $1.5 million to the economics department in 2008, in exchange for staffing an advisory board that would approve faculty hires, and vested a Koch representative with sole veto power, which it proceeded to exercise in the first 2009 hiring round. A Koch representative also prescreened candidates at the ASSA job meetings. Koch also stipulated as a condition a new course featuring the writings of Ayn Rand. The chairman of FSU’s economics department, Bruce Benson, had close connections to Koch, and signed the agreement without a departmental vote. When asked why the faculty had abdicated curriculum control to such a degree, Benson answered, “Students will ultimately choose.”162