More on the Origin of “The Dismal Science”

In an earlier post I promised to elaborate on my research into the origin of the nickname “The Dismal Science” for economics. For the sake of keeping that promise, and for the benefit of those who may not already know, I’ll share my finding that the term appears to originate with the 19th-century British “man of letters” Thomas Carlyle.

However, as some of you also may know already, there is much more than meets the eye behind that deceptively simple citation of historical fact. My exploration of the context in which Carlyle appears to have coined the phrase has taken on such a life of its own that it now appears that the best medium for sharing it will actually be a short e-book rather than a blog post.

Hence, I will take this opportunity to announce the forthcoming e-book Thomas Carlyle, Racism, and the Dismal Science: Clues to Hidden Truths About the Modern Conservative Movement?

I expect to release the e-book sometime in September, and will likely make it freely available to registered subscribers to Undismalization. To reserve your copy, please register per the instructions here.

The release of Thomas Carlyle, Racism, and the Dismal Science may also end up being the debut of the Undismal Press imprint. Stay tuned for further details as the project nears completion. Sphere: Related Content

Boring and Interesting at the Same Time

Recently some loosely related fragments of thought about economics were circulating in my mind. They seemed to be trying to find a way to coalesce into some form of higher level connection.

The first fragment was simple enough, on the surface. I was wondering what the origin was of “The Dismal Science” as a nickname for economics. One might think I would have looked into that before deciding to name my blog Undismalization, but I didn’t. So I finally decided to do some research into the question.

But before I began that research, I had already started to form some speculative hypotheses. One was that the name may have emerged as a reference to what some might simplistically think of as a “dryness” of the field compared to some other sciences, due to its focus on money and numbers. I reasoned that this supposed dryness, in the popular mind, might in turn make economists vulnerable to some of the same stereotypes to which practitioners of related fields, like accounting, fall victim.

As it turns out, I will need to deal in a separate post with the results of my investigation into the actual origin of the Dismal Science nickname, since it took me in a very surprising and unexpected direction that is quite different from the relationship that ultimately emerged among the original strands of thought that led to this post.

But meanwhile, as I continued to speculate about the nickname’s origin, my thoughts shifted to current representations of economists in popular culture, namely a couple of television advertising campaigns. One features Ben Stein and Shaquille O’Neil. Another uses actors to portray nerdy-looking economists who are, as they say, “with the government and here to help.” They go house to house and knock on doors--which, predictably, are peremptorily closed in their faces.

So the popular mind thinks of economists as dry, monotone, socially awkward types. According to the stereotype, they are all nerds. And they are all male, a misleading stereotype that in itself is worthy of further study. If you‘ll forgive my own indulgence, for the sake of argument, in a different stereotype, I know of some economists whom I would have to describe as “hot babes.”

I hope this point will be taken from my intended perspective of suggesting respectfully that being both an economist and a hot babe could be viewed as an empowering redefinition of what it means to be either. I approach this issue, of course, from a heterosexual male point of view, but the same principle could just as well apply to male economists who would defy the stereotypes.

But as portrayed in popular culture, economists are guys who probably didn’t get too many dates in high school. Or college. Or grad school. Or as postdoctoral fellows. Or as tenured professors, think-tank scholars, or investment analysts. And so on. So, I wondered, is this stereotype related to the origin of the Dismal Science nickname?

These two strands of thought made me think back in turn on how, years ago, I used to describe my undergraduate economics courses to people who would ask me how I liked them. Usually, the person asking the question seemed to be operating from a preexisting assumption that economics courses were boring.

The question always made me chuckle to myself, because my feeling about the issue was somewhat two-sided. The best way I could answer was to say that the courses were “boring and interesting at the same time,” or that they were “interesting but could still put you to sleep.”

I’ve mentioned this before in this blog, but I’ll repeat it for the benefit of newer readers: I’m not an academically credentialed economist. My formal training in economics is limited to an undergraduate minor. So I only got so far into advanced level coursework, and I have little doubt that if I had gone further in the field the courses would have become more stimulating.

But “boring and interesting at the same time” was only a slight indulgence in hyperbole for the elementary- to intermediate-level courses I took. On one level I was attracted to the elegantly pure logic of the process of thinking through how the basic market forces of supply and demand play out in scenarios at the macro and micro levels, ranging from the determination of energy prices or mortgage rates to the formulation of urban land use policies.

Yet I’d still often find myself dozing in class, or paying a lot more attention to unrelated distractions, such as how some fellow student a couple of seats away was crossing and uncrossing her legs (who knows -- maybe she went on to get her PhD and is now one of those “hot babe” economists I mention above!), than to the professor’s lecture.

Maybe this was all a random function of the personalities of the professors whose courses I happened to select. They were a notch above the Ben Stein stereotype in personality and charm, but not a very big notch. So, I wondered, is this further evidence that observations about common personality traits among some economics practitioners may have something to do with the Dismal Science nickname?

But I then thought about how engaging and unboring some of the most noted economists are--to me, at least. I’ll leave it to others to judge whether the fact that I consider the likes of Paul Krugman, Larry Summers, and Austan Goolsbee to be interesting people may simply mean that I am boring.

And then I thought about how ironic it is that Ben Stein, the figure whose public persona arguably embodies most closely the “nerdy economist” stereotype, has, to the best of my understanding, only a shaky claim to being an economist. Trained as an attorney, he holds only an undergraduate degree in economics.

Do these stereotypes discourage some bright and talented people from becoming economists, just as the nerd stereotype, in general, discourages some people from taking up other sciences? If so, that’s a shame--because the current crisis, and the dumbed-down, reduced-to-soundbites character of so much of the media dialogue about it, demonstrates just how much need there is for engaging, passionate economics experts who can communicate authentic, innovative ideas to the public on how to solve our problems and move forward constructively.

Yet the debate that is trickling down to the “man on the street” level seems to still be frozen in a language that dates, at the latest, to the Cold War, and that has limited relevance to complexities of the global, interdependent, technology-driven world we live in today. The language of this debate is simply inadequate to the task of helping the constituents of our elected officials make informed decisions on what policies and rules of the business playing field they should support. Yet maintaining this outdated language seems to help the cause of those whose interests are best served by conserving the status quo.

In some cases, conservative commentators seem to be deliberately perpetuating stereotypes about economists as part of their rhetorical strategy. Rush Limbaugh, for example, has verbally caricatured Austan Goolsbee as “one of those eggheads, those Ivy-educated economists,” in the Obama administration.

I know that there are professional economists among the readers of this blog, and I intend no offense to any of them. I am not suggesting that there are not plenty of economists who are among the best and brightest in intellect and who have personality, passion, and social and communication skills to match.

But given the fact that my undergraduate experience partially reinforced the negative stereotypes, and given the prevalence of those stereotypes in popular culture, it may be worth a pause to ask whether the so-called Dismal Science is doing a good enough job at selling itself for what it in fact really is: a very important and most Undismal science that focuses on one of the most fundamental ways that human beings in organized societies navigate their relationships to one another: through the medium of money. As such, it’s a science that should inspire excitement rather than a fear of being bored to death. It’s a science that should matter a lot to everyday Joes and Janes as well as intellectuals.

And, who knows -- maybe a Web gallery of “The Sexiest Economists Alive” would be a lighthearted yet empowering way to start breaking the stereotypes. Sphere: Related Content

The Strange History of Non-Bank Banks -- and its Link to the Origins of the Current Economic Crisis

Researching the origins of the current economic crisis makes me feel old. I’m used to thinking of the Reagan administration as a fairly recent era. But here I am reviewing policies that were put in place at the time I came of age, and I realize that what I’m doing is basically historical research.

Looking back from here in the late 2000s at the administration that was in power in the 1980s is not too different from someone in the 1960s researching the Roosevelt administration. And that thought makes me feel old.

The topic du jour that sent me once again back to the 1980s is the concept of the “non-bank bank,” to which a Reuters UK article indirectly alludes in an analysis of comments President Obama made on Saturday in an interview for the New York Times magazine.

Discussing the Obama administration’s outline of expanded financial regulatory powers to prevent a future crisis of the sort that the U.S. is now currently confronting, the Reuters article says that part of the proposed strategy is to create a regulatory body “with the authority to seize large non-bank financial firms, such as insurers, hedge funds, or private equity companies, if they are deemed to threaten the stability of the financial system.”

This made me recall the concept of the “non-bank bank.” It’s a term that I suspect most of us, like me, haven’t heard in some time -- which is probably an indication of just how much of a taken-for-granted fixture this kind of institution has become since its origin in the 1980s.

Although I don’t precisely remember what year it was that I first heard the term, I do have a fairly vivid recollection of the incident. I was in the kitchen at my parents’ house, where I was still living as a commuting college student. My dad and I were going through the evening ritual of dinner among the avocado appliances, accompanied by a news broadcast from a local AM radio station on the NuTone radio/intercom console built into the wall of the eat-in kitchen.

The kitchen, wallpapered in an early-American country pattern of reddish-orange flowers, would have served as a perfect model for the set designer for That 70s Show. Mom, due to a bad back that made it uncomfortable to sit on the hard kitchen chairs, usually didn’t join us at the dinner table. She was enjoying her repast in the living room which, with its rust-colored carpet, could also have served as an exhibit of 1970s decor.

One of the stories on the news broadcast Dad and I were listening to as we dined was about non-bank banks. I don’t recall what specifically was being reported about them, but perhaps it was September 1984 when, according to an article in the January 23, 1986 edition of the New York Times, a Federal appellate court ruled that the Federal Reserve Board did not have the power, without new legislation, to broaden its definition of a bank in order to exercise regulatory authority over an emerging category of financial institution sometimes referred to as a non-bank bank.

“What in the world is a non-bank bank,” Dad wondered out loud after hearing the news story. It was a rhetorical question, of course, because neither one of us knew the answer. It was the 80s, after all, so a quick hop on to Google to find out wasn’t an option. But we did have a vague awareness that certain types of financial organizations, such as insurance companies and investment firms, were trying to get into services traditionally provided by banks. Little did we know that this news story was just one indicator within a much bigger picture of a vast wave of change in the financial landscape that, about 25 years later, would have such profound consequences for the U.S. and world economy.

The Fed appealed the non-bank banks case all the way to the U.S. Supreme court, but lost in an 8 to 0 decision on January 23, 1986. That decision was the main subject of the New York Times article referenced above. Prophetically, the article went on to say that the Court’s ruling was “likely to speed the movement toward interstate banking and the expansion of insurance, retail, securities and other companies into financial services traditionally performed by banks” and quoted Federal Reserve Board Member Charles Partee, in what reads like a warning of dire consequences to come, that “Every merchandiser in the country will have a bank” [with “have a bank” presumably meaning “operate its own bank”].

Now, do you remember who was Chairman of the Fed in 1986, when the Supreme Court made this decision? It was none other than Paul Volcker, who now happens to be one of President Obama’s top economic advisors. So in 1986, under Volcker’s leadership, the Fed appears to have been fighting what it found to be alarming efforts to expand, outside of its regulatory authority, financial activities traditionally associated with banks.

But the story gets even more interesting, because the New York Times article goes on to say that “the Reagan administration, which favors more competition and less regulation,” joined the large companies that wanted to offer financial services competing with those of traditional banks in “urging the court to invalidate the Fed’s regulation.”

So we see the Fed, under the leadership of Volcker, an appointee of President Carter, at odds with the Reagan administration, advocating for a more cautious and controlled approach to the development and growth of the financial services industry.

But the Fed did not prevail. And the rest, as we now know, is history. Interstate banking and the entry of other financial services institutions into traditional banking functions indeed expanded rapidly, paving the way for the folks who brought us such brilliant innovations as the credit default swap.

Local and community banks all but disappeared. In my home town, for example, Suburban Trust Company became Suburban Bank and then Sovran Bank, which before long was absorbed by NationsBank, which was in turn absorbed by Bank of America. My first credit card from an unsolicited, pre-approved offer -- with a whopping $5,000 line extended to me as a student in the 1980s taking home about $50 weekly from a weekend-only job -- was from an out-of-state bank I’d never heard of that ultimately became part of Chase.

In 1987 Volcker departed the Fed, not long after it lost the non-bank banks case. His successor, Allan Greenspan, was once a disciple and part of the inner circle of Ayn Rand. Rand espoused views that are perhaps among the most extreme in history on the supposed virtues of markets free of government regulation. On the subject of regulation, she believed that all that was necessary was the self-regulation of heroic captains of industry who, based solely on the motivation to protect their profitability and reputations, would never do anything lacking in integrity. In the context of the current crisis, those views look astonishingly naïve, given the reckless lack of self-regulation we have witnessed from certain key players.

There’s a certain poetic justice in the fact that Volcker is finally getting a chance to help clean up the same mess that the Fed under his leadership apparently tried to stop, during its earliest stages, in the 1980s. And it even helps put into perspective the issue I opened with of “feeling old” when I dig into the origins of the current crisis. While I was in college and still living with my parents during the non-bank bank controversy, Volcker was already old enough to be the Fed chairman. So imagine how old he must feel now.

I’m also amazed at how consistently, so far, the eye seems to fall squarely into the 1980s when one looks for the origins of the current crisis. It seems that we are truly witnessing the end and final outcome of an era that began when President Reagan, in one of the earliest and most famous speeches of his administration, proclaimed a freeze on new regulations and pledged to get rid of as many as possible. And so he did, including what appears, in effect, to have been a systematic dismantling of certain safety measures that were put in place after the Great Depression to prevent a recurrence -- to which as a consequence, we seem to have come alarmingly close. Sphere: Related Content

Economist Says We're Losing the Private Sector in the U.S.

During a broadcast of The Jerry Doyle Show Saturday evening, I heard Richard Ebling of the American Institute for Economic Research comment on the recently emerged allegations that Fed Chairman Benjamin Bernanke and former Treasury Secretary Henry Paulson strongarmed Bank of America CEO Kenneth Lewis into the acquisition of Merrill Lynch. Ebling said that this incident was a frightening indication that we have lost the private sector in the U.S.

Clearly the full story here has not yet been revealed, so in my judgement conclusions are premature. But, in the meantime, let's play devil's advocate for a moment and flip the argument around.

Given the widely held view that the crisis that made the acquisition of Merrill Lynch necessary in the first place was the result of extreme deregulation that allowed the financial sector to run amok, perhaps the correct view is that, since the Reagan administration, it has been the government rather than the private sector that, in effect, ceased to exist -- in terms of imposing any reasonable level of control over the parameters in which the financial sector could operate.

In other words, due to the extensive influence of business and financial interests over government policies (or non policies) during the past 25 years, government had become, in effect, an extension of the private sector, an instrument to further the interests of those with the resources to influence policy through lobbying, campaign contributions, and so forth.

So one could argue that the incident was one of government taking a measure, however drastic, to compensate for the effects of having surrendered regulatory authority that should never have been relinquished in the first place.

Whether this drastic measure may have constituted any wrongdoing on the part of the government remains to be seen as the facts continue to emerge, and perhaps this story gives further weight to the calls for an independent panel, with subpoena power, to investigate the origins of the financial crisis and the government's initial attempts to manage it. Sphere: Related Content