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.
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."