* Know Your Enemy Podcast: The Windbag City (w/ Marshall Steinbaum)

Matt and Sam and are joined by Marshall Steinbaum for a deep dive into the Chicago school of economics and the baleful influence of libertarian ideas. Matt and Sam are finally joined by the show’s longtime bête noire, Marshall Steinbaum, for a deep dive into the Chicago school of economics and the wreckage it’s supported—from welcoming the birth defects caused by deregulating the pharmaceutical industry to justifying massive resistance to desegregation to being put in the service of Coronavirus truther-ism. Where did this iteration of libertarianism come from, intellectually and institutionally? Who are the key figures in the Chicago school? How have their ideas infected the way we all think about economics and politics? It’s a sordid, depressing tale of rightwing money, intellectual dishonesty, and a gleeful desire to discipline the forces of democracy.

Sources and further reading:

Marshall Steinbaum, The Book That Explains Charlottesville, Boston Review, August 14, 2017

Marshall Steinbaum, Economics after Neoliberalism, Boston Review, February 28, 2019

Isaac Chotiner, The Contrarian Coronavirus Theory that Informed the Trump Administration, New Yorker, March 30, 2020

Nancy MacLean, Democracy in Chains (Penguin-Random House, June 2017)

Edward Nik-Khah, Neoliberal Pharmaceutical Science and the Chicago School of Economics (Social Studies of Science 2014, Vol. 44(4) 489–517)

12 thoughts on “* Know Your Enemy Podcast: The Windbag City (w/ Marshall Steinbaum)”

  1. the Volcker fund that you mentioned, that is hugely important in the history of the American right, or the postwar American, right? Because you in the early days of the conservative movement, the Volcker fund was ceding money everywhere. And it’s very hard to read histories of some of these figures on the right, and some of the institutions on the right without coming across the Volcker fund. And as you mentioned, it sort of served as a model for the kinds of foundations we discussed in our episode on the Koch brothers, the Volcker fund really was important. So just wanted to underscore that, but maybe you could talk to about the kind of substantive distinctions we see in the Chicago school kind of once the money is planted at the universe versity of Chicago, and the kind of Chicago School develops What’s distinctive about it as a kind of school of thought.

    Yeah, so I think this is actually a really crucial point, because it has not been really fully crystallized either by intellectual historical scholarship that is, you know, friendly and kind of could be seen as boosting of the Chicago school or as the more critical scholarship that I’m pretty much drawing on in what I’m saying here. You know, it’s so If I had to give references here, it would be the work of Phil Moravsky and his students and collaborators characterizing what he calls the neoliberal thought collective. So speaking of the kind of formal economic background to it, it is the idea that you can make statements about how the economy works that derive from the individual optimizations that are undertaken by economic agents, and then group all of those optimizations together to create a picture of some sort of economic outcome or economic situation that you can then characterize and perform counterfactuals on. So for example, like what would happen if we raise the minimum wage? Oh, that would cause people to lose their job to take a written exam? No, no, no. I mean, that’s obviously a famous one. I don’t mean to be facetious, in that, in characterizing this, it’s important to understand what they came after and what they displaced because they were so successful intellectually, that there’s almost no institutional memory of economics as it was practiced, at the time that they were at the time basically, very minor Attarian critics or outsiders against.

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  2. It’s worth highlighting for the listeners, like how significant that is, because when every time you have like a conversation about the minimum wage, or about labor unions are about what like the government can do what progressive policy can do. And some random asshole says, you obviously don’t understand the basics of economics, like that person is, is using the language and the sort of like ideological foundations of this school, which was a initially marginal set of assumptions about like economic reality, which have become so normalized, in our academic institutions and our public life and our policy, thinking that like, every motherfucker who’s ever like taken an economics course, in high school, or college is spewing those exact set of assumptions with no sense of the fact that it actually like, is a historical phenomenon that intervened and fundamentally changed the discipline at a particular moment in time.

    Yeah, I mean, the essay, I refer to the methodology of positive economics, you know, his intellectual history has shown, I mean, I guess kind of recovered, the fact that that essay was actually written directly in response to a publication by an institutionalist tech economist that said, Oh, look, I investigated whether increasing the minimum wage kill jobs, and I found out that it didn’t. And Friedman’s response to that was No, no, no, no, let’s step back, stroke our chins a little bit, doesn’t matter what you actually found the effect of the minimum wage might be. That’s not how we do economics, the way that we do economics. And here, he’s obviously lifting a gigantic epistemological load, because this guy had just wasn’t economists doing economics, the way we do economics is by ignoring reality. And instead, reasoning from a priori assumptions about individual behavior and the conditions under which it’s performed and how it’s aggregated.It’s worth highlighting for the listeners, like how significant that is, because when every time you have like a conversation about the minimum wage, or about labor unions are about what like the government can do what progressive policy can do. And some random asshole says, you obviously don’t understand the basics of economics, like that person is, is using the language and the sort of like ideological foundations of this school, which was a initially marginal set of assumptions about like economic reality, which have become so normalized, in our academic institutions and our public life and our policy, thinking that like, every motherfucker who’s ever like taken an economics course, in high school, or college is spewing those exact set of assumptions with no sense of the fact that it actually like, is a historical phenomenon that intervened and fundamentally changed the discipline at a particular moment in time.

    Yeah, I mean, the essay, I refer to the methodology of positive economics, you know, his intellectual history has shown, I mean, I guess kind of recovered, the fact that that essay was actually written directly in response to a publication by an institutionalist tech economist that said, Oh, look, I investigated whether increasing the minimum wage kill jobs, and I found out that it didn’t. And Friedman’s response to that was No, no, no, no, let’s step back, stroke our chins a little bit, doesn’t matter what you actually found the effect of the minimum wage might be. That’s not how we do economics, the way that we do economics. And here, he’s obviously lifting a gigantic epistemological load, because this guy had just wasn’t economists doing economics, the way we do economics is by ignoring reality. And instead, reasoning from a priori assumptions about individual behavior and the conditions under which it’s performed and how it’s aggregated.

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  3. Just to maybe lay out on the table now, listeners might be thinking, Oh, well, everything they’ve described so far. Marshall used the term how these models can be weaponized, or how these assumptions can be weaponized, and that the Chicago School sat to make it interventions and policy. And one thing I think it’s worth emphasizing is that, you know, you hear the term libertarian, you might think this meant simply rolling back regulations, that it was like anti status. But in a way, what’s interesting about this kind of iteration of well, it’s really an iteration of neoliberalism is that it was, it was not so much against the state is that it wanted to capture

    and control it.

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  4. I would say that the they’ve been masterful at both executing and instantiating exactly the set of priorities you just outlined, which is we need the government and the exercise of power to suppress bottom up social movements to tamp down on popular sentiment affecting the policies of government, and also affecting a kind of populistic anti establishment pose in the way that they presented those ideas. I mean, I’m thinking, here’s especially Milton Friedman, who was very good at saying, you know, I agree with your overall priority of, say, reducing inequality or helping the poor, it’s just that the ways you want to go about it won’t work like raising the minimum wage because of economics. Instead, we have to eliminate regulations reduce taxes, that’s actually the egalitarian populistic policy agenda. It so happens to be the exact things I’m being paid to advocate for by large corporate interests, but leave that aside, he was very good at presenting that in a sort of populistic garb. Okay, so libertarianism, as an idea brings up small stage rollback regulations, everyone should be autonomous in their own sphere, laissez faire, in social and economic affairs, whether or not that is a good summary of libertarianism, it is definitely not a good shorthand for what the Chicago school is all about, as you alluded to, you know, these were people who had a very defined policy agenda. And I think, certainly more so than small government, it would be accurate to characterize it as anti New Deal. And the one illustrative data point, in that that happens to be the subject of all of their scholarship that I have studied the most, or nearly the most, which is antitrust. So in the 1930s, when the Roosevelt administration’s policy was the National Industrial Recovery Act that involved cartelization of most industries, the publication of set prices agreed to by industry and labor and government representatives, and basically the planning of the economy at the federal level. The view of the Chicago people was antitrust is great, we should not be having all these businesses get together to control the economy. Instead, we should have lawsuits brought to write them up and prevent their cartels. That’s actually how you preserve the free market, as Adam Smith intended it. That was not the view that they that they expressed about antitrust policy when it was actually part of federal policy in the progressive era, in the early 1930s. When they were saying, oh, antitrust is great at that point. And I trust was like totally off the table. Basically, the Sherman Act was a dead letter. It was like that was a forgotten relic of the you know that we tried 20 years ago to tame corporate power and it failed. Then the Roosevelt administration kind of out of nowhere, adopted a very robust antitrust policy in the late 1930s. I could give you a whole podcast episode about that. In fact, I did on max Alvarez, his podcast. And basically that became a much more prominent aspect of federal economic policy starting in the late 30s. And through the late 40s, with a bunch of critical, crucial Supreme Court decisions and some more legislation. The Chicago School totally did a 180 when the Roosevelt administration did a 180. On antitrust, then antitrust this thing that they had been saying was small government and preserving the free market became the heavy hand of the state that was actually crushing competition in the exercise of the policy. So It’s not so much a principled adherence to free market, but rather opposition to any effective policy apparatus in the hands of egalitarian political and economic movement and a state that is answerable to that movement.

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  5. Stigler is sort of making this case for a, like a priesthood right like that, that economic affairs have to be administered by a small group of people who are insulated from Democratic impulses and democratic instincts, the Democratic instincts and proper At the public, because if we allow the democratic impulse of the public to, you know, orient economic policy, it will be, you know, a totalitarian disaster or just a economic disaster for the country. And there was a quote that was in one of those essays that Marshall, you sent along from Edward Nica. This was a Stigler quote, where he says, affairs of science and intellectual life generally, are not to be conducted on democratic procedures, one cannot establish a mathematical theorem by a vote, even a vote of mathematicians, therefore, an elite must emerge and instill higher standards that the public or the profession instinctively desire, the best economics in the US is not the one the public would elect, a science must impose the standards of an elite upon a profession. I think that is like a really great synthesis of of the thing that that was alluding to earlier. And then you described martial art, which is this sort of anti democratic impulse, the point is, to speak to the small group of enlightened economists who share a set of presuppositions our priori assumptions, who will, you know, direct to the economy, according to those priorities, which is shields a massive normative agenda behind the idea of sort of like iron laws of economics, but which, in order to be successful, specifically has to be a conversation amongst people amongst the priesthood and insulated from the impulses of the masses.

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  6. for example, the Higher Education Act of 1972, that replaced basically funding of institutions at the federal level with the student loan system. I mean, that’s what it became, it wasn’t obvious that’s what was gonna happen in 1972. You know, that was basically heavily influenced by the scholarship of, you know, among other people, James Buchanan, who I think well, we’ll get to basically said, you know, that, in a world where university is free, you have students who don’t take their work seriously, and just screw around and go to protests. If we impose student debt on them, on the other hand, that will discipline them, make them a pen to attend to their studies, because they know they’re going to have to pay those loans back and then, you know, go out into the workforce and get jobs like they’re supposed to, and, you know, get a haircut basically. And, you know, that policy was carried out by Democratic administrations, it was espoused at the federal level by officials who are career Democrats, in terms of how they got their career, how they navigated their careers in Washington, they were basically carrying out the policies under the policies of the Chicago school under the same ideological kind of assumptions about the dangers of democracy and mass movements and bottom up demands that the Chicago School operated under.

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  7. in 1962, Congress passed regulation that well regulated the pharmaceutical industry, especially with kind of how drugs were tested, what claims could be made about them, kind of the flow of information to doctors and the public about the uses of various pharmaceuticals. It was called the Kefauver Harris amendments to the Federal Food, Drug and Cosmetic Act in 1962. And basically, this caused both the pharmaceutical industry and various economists affiliated with Chicago school to become quite worried. And they it’s kind of the story told in this article is, is of how they fought back.

    Well, I mean, I think what the article recounts is that, basically, they saw that so the scholars, I think, specifically, Stigler saw funding from pharmaceutical companies that were obviously directly affected by the Act, and the funding that they provided to his center, basically supported scholarship that was designed to show that actually, the regulation of the pharmaceutical industry produces innovation, this is kind of so one of the kind of sets of, of by bought, like bodies of scholarship that arises or that that’s associated with the Chicago School is this idea that basically patents are good. You know, it’s like a, you know, it’s contained within the patent powers of the Constitution. But the idea is, you know, more protections for intellectual property cause more innovation, because they allow inventors to reap higher returns. And so that’s gonna, you know, put people to work. So it’s kind of, in some ways, the opposite of the usual free market economics, you know, we want the economy to be as competitive as possible, because that reduces distortions and rent seeking and makes everything super efficient. When it comes to intellectual property. The Chicago School line is we want it to be as onerous as possible, because that’s going to cause innovation, and it’s actually dynamically efficient, because that will increase economic growth in the long run. So, it is basically from that what I mean, the crucial thing that Nikka shows there is, you know, it took this massive funding from the pharmaceutical industry to shift the the line, so to speak on pharmaceuticals, and or I should say, on intellectual property more generally, from you know, this is a distortion to the free market. Why would we create a monopoly? Why would we want the government to create a monopoly in another context, Stigler was scathing, and attacked directly the idea that regulation reduces competition because it means that only the best, only the most connect politically connected firms are allowed to retain in the context of intellectual property was nobody want maximum regulation, maximum monopoly power on the part of companies with intellectual property, because that’s actually good for the rest of us. Because even if we’re paying high prices for drugs, that there’s going to be more drugs and better drugs developed in the long run. That is basically the argument. You hear that argument all the time. In the current context, and urine outs, well outside pharmaceuticals, since we’re now in the middle of a global pandemic, the Libertarians are all about saying like, no, no, no. Why would we price control pharmaceuticals, then we’ll be sick forever. You know, the great minds need to emerge from their cave and hand down a Coronavirus vaccines so that we can all survive. And of course, if they do that, then they should be be rich by right. You know, and you had this kind of thing. I mean, I, I had a little back and forth with the prominent libertarian. Well, Wilkinson, because he had a thing in the New York times a year or so ago, that was like billionaires are good, stop attacking billionaires. They’re good, because, you know, look at this guy who invented some treatment that caused them to be a billionaire. And it’s like, okay, yeah, but also the Sackler family. You know, anyway, this whole this whole, specifically the Chicago School line on intellectual property and drug development arises from this very direct funding of the opposition, the intellectual opposition and academic opposition that came to reinterpret federal pharmaceutical policy in a way that was much much friendlier to to incumbent firms with, you know, valuable intellectual property, your intellectual property that became much more valuable as a result of this higher protection.

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  8. this legislation is passed in 1962. And one of the things that spurred it was that there was a congressional investigation into in the late 50s, about like wonder drugs and claims may be half on drugs and how drugs were marketed and, or off label use of drugs and that kind of thing. And one of the drugs they investigated was one called felittle. Mine, and it was found to cause 1000s of birth defects. It was like a sedative that was commonly used. So what happened was, the legislation is passed in 1962, like resistance to it builds. And by 1972, you have a big conference at the University of Chicago, called the conference on the regulation of the introduction of new pharmaceuticals. But it was all bankrolled by the pharmaceutical industry, Pfizer, Smith, Merck, etc. And of course, a number of prominent figures associate with the University of Chicago where they’re like Friedman, like Stigler, and out of this conference comes a book that kind of collected the essays and it really received like as sort of thrashing in among reviewers because of some of the views it held. But it really was an important kind of gathering of these forces. One of the things I wanted to ask you about Marshall that really comes through in this article, is the capture and deployment of regulatory capacities that we just mentioned, is one of them. But another one was a kind of the way they talk about the knowledge the market contains that kind of no human mind could comprehend. And so one of the one of the arguments very high in hierarchy, yes, no, yes. And so one of the things that comes out of and this might get to the more populous elements, one of the things that comes out of this is the idea that patients should be able to decide what medicine they take, doctors, and patients should be able to make those decisions. And, and like to have a single kind of government agency, do elaborate trials on which drugs are safe or not, you know, that’s just one expert opinion. And there might be countervailing opinions from different doctors or patients who are who want to take a certain risk, because they think the rewards outweigh it, or, you know, so you get the, again, the capture of regulations that are friendly to certain businesses. But then when it comes to, again, using drugs in different ways, how drugs are deemed safe or not, and kind of those sorts of regulations. There’s this populist appeal to kind of the common sense of ordinary people. It’s also,

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  9. I want to pose this as a kind of question to you kind of statement that turns into a question, which is that another strain that comes out of this conference on the pharmaceuticals and the kind of the essays that came out of it that were put together in this book, one of the one of the people involved in that was a guy named Sam Peltzman. And he did this interview, and I thought this was such a telling statement. He did an interview and again, this goes back to the drug. thalidomide that the one that cuts the birth defects, where what he says is that short, like maybe you can regulate, maybe certain regulations would have prevented that drug from causing birth defects. But what about all the other great drugs were missing out on by the having these too rigid too onerous regulations, and this is what he said. He said, it turns out that the cost of the 1962 Amendment is far in excess of the cost of having thalidomide tragedy, again a tragedy involving those drugs. And then he says I will have to say, however very shocking, it might seem that we don’t have enough thalidomide tragedies in the United States today. And it’s that’s a shocking thing to say. He said, We don’t have enough kind of horrific examples of birth defects from drugs that aren’t carefully tested and regulated enough. But he said that he was willing to bear those costs, if it meant a kind of explosion of various drugs and research and pharmaceuticals being tried it that the regulations outweighed that the cost of the regulations were too high. And they, in fact, he’s willing to bear those risks if it meant a less regulated drug industry, Marshall, maybe you could tell us like what people like that mean by cost, and just what trade offs they’re willing to make. I mean, this guy said, I’m willing to risk 1000s of birth defects, if it means we have a kind of more creative or more loosely regulated pharmaceutical industry.

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  10. f you ask an economist what the Peltzman effect is, they’ll refer to another statement he made about misguided regulation, which was that the auto safety standards that were adopted in response to Ralph Nader’s, Unsafe at Any Speed in the early 1970s, would actually cause more auto accidents. He’s speaking specifically about the requirement that everyone wear, wear seatbelts are not just caused more auto accidents, but cause more deaths, because it would induce people to drive more recklessly and then driving more recklessly would kill more people than the seatbelt saved. And that turned out not to be true about those auto safety standards, just as his statement that solidified that the disasters and birth defects that caused actually are a price worth paying, so to speak for the benefits of other drugs that may that that would otherwise have been shut down by a more oppressive or more extreme regulatory apparatus. The point here is to construct a framework in which you can basically intellectualize opposition to whatever it is that you don’t like, in particular, whatever policy the government has adopted, that’s unfriendly to your corporate interests. So it doesn’t matter that it’s not actually true that requiring everyone to wear a seatbelt doesn’t cause more deaths, nor does it really matter what the welfare calculus is around the third or thalidomide. Birth Defects versus the drugs that were invented under a loose under a quote unquote, too loose regulatory regime. It’s the issue isn’t the truth or falsity of those claims? The issue is their utility in the weaponization process that we have previously been discussing. And so, you know, you can kind of get away with being an economics professor, if you spout off. I received wisdom and nuggets like that doesn’t matter whether as I said, Doesn’t matter whether the claim is true, because under this conception of what economics exists to do, it’s not a positive social science, it is a intellectual construct, or that enables you to argue in a certain way and make certain claims. So it’s funny that you refer to the argument in favor of intellectual property as from the psyche and perspective about how that makes use of decentralized information rather than having the government go around telling people what drugs to develop that actually, so we’ll probably the single tensest moment that I went through in graduate school. And we haven’t really discussed the fact that I myself was trained in the University of Chicago economics department. But it’s a crucial background into this. I’m so concerned a lecture that Gary Becker, who is one of its leading lights, now deceased, but was then the lecture in the course that they call price theory, along with Kevin Murphy, who’s his younger protege, still so active at the business school, they were giving a lecture about climate change. And they said that it was unnecessary to enact a carbon tax, because that would distort prices. Of course, they’re kind of defaulting to the free market take not that we want monopolies take because that that actually creates dynamic innovation. You know, we don’t want carbon taxes that would distort prices, the government can solve the climate change problem, essentially, by funding the research into the technologies that will decarbonize the atmosphere without humans having to change their behavior in any way. And I Basically returned that hierarchy and argument and said, Well, you’re saying the government knows what what technologies to invest in. I think the best case for a carbon tax is exactly that. It makes use of society’s decentralized knowledge to determine which technologies are worth pursuing, even when their external cost is internalized in the form of the carbon tax, and which technologies and behaviors need to be abandoned and the in favor of remediating the climate. And both Becker and Murphy were not pleased to hear that at all. And as a first year graduate student being yelled at by two of the most senior professors in the department in a lecture room filled with 50 or so people was not a very comfortable experience that I think Mark me out as not not one of the elect from an early stage, let’s just say that Marshall, you

    tried to use their own logic, you said by your own logic,

    yes, by your logic. Yes. I didn’t actually literally say that phrase out loud, because I don’t think that phrase had been invented, ironic or reused, ironically, as it is now, this is, you know, way back in the day of, I don’t know, 22,009, or 2010. But I could have, and it was beautiful. Very vindicating,

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  11. And I think they started working with other industries as well. But I would just say that Marshall, you noted that the kind of truth or falsity of these claims don’t matter. And a lot of the talking points about the pharmaceutical industry, that favorite came out of this group of people were describing, for instance, the claim that it costs $800 million to produce a drug. They call it the $800 million pill mean, that came out of this group, and that was that’s highly contestable. And also the drug. Basically, the the idea that the US lags far behind international markets, when it comes to getting drugs out of the market, that claim to the it’s just all information, spit out of these these kind of industry friendly, right wing groups. And it’s it’s part of a system that there’s an infrastructure around it now. Yeah, I

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  12. I remember one discussion among colleagues at the University of Chicago where somebody said to me, basically, the North should not have fought the Civil War, they should have allowed the south to secede. And in fact, you know, because that was the popular that was the popular will of the southerners was not to be part of the United States. So it’s like, alright, okay. Okay. So one thing you’ve just told me is that you don’t think black people are people, let’s start there, because there were 4 million slaves in the in the Confederacy, and they certainly didn’t get a vote on secession. Now. Secondly, that isn’t exactly that’s like nothing remotely like the political history of secession is that it was like the popular will of the Southern people to declare their independence, like Southern slaveholders weren’t getting what they wanted out of the federal government anymore, and saw their saw now as a threat to their power. So they had to not be part of it. And the idea that that’s like, it’s actually, you know, oppressive, big government to have the North enforce the union in the South. You know, it’s just exactly the kind of jujitsu history that like the Dunning school that ultimately the that was the sort of initial apologist for the reconstruction, or, I mean, it’s just just that, that like, revived, you know, in a kind of economistic, kind of mystic language, you know, from from the contemporary era. And it’s like, oh,

    yeah, well, that’s because, you know, even like, Thomas de Lorenzo, if you’ve ever come across his shit, writing books about how the Civil War was really just about tariffs, didn’t you know that Marshall, that it was just about tariffs? And so even though even the causes of the war themselves, race is kind of, you know, pushed aside in the Civil War itself is simply a dispute about tariffs and economics? Well, maybe that’s not the worst place to end actually.

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