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September 06, 2011

My Wars Against Economic Fundamentalism

I spent most of my working life in the US Forest Service, battling fundamentalism. Most of the battles dealt with economics. My first job was to coordinate use of a linear programming model (FORPLAN) in the development of forest plans. The model may (or may not) have been useful in projecting overall timber sales volumes from big-timber forests, but to have used it as an overall planning model was a mistake. Forests are not factories. Multiple uses for timber, recreation, wildlife, minerals and oil and gas, livestock grazing (and so on) must be carefully balanced against preservation and conservation efforts in the dynamic self-organizing systems that we call Nature—forest and grasslands in particular. That balancing act is not the stuff of simple, formulaic problem solving.

I remember one day in 1979, before I joined the Forest Service, having lunch with FORPLAN developer K. Norman (Norm) Johnson when a memo came down from the Forest Service Washington Office declaring FORPLAN to be the primary analysis tool for forest planning. Norm said, "My God, we've just lost the war." No truer prophecy was ever uttered. But that was just the beginning of my nightmares with what I call economic fundamentalism. The problem extended beyond the FORPLAN follies, into project and program cost-benefit analysis generally. When passion for this type fundamentalism began to wane, a new threat appeared in the form of free-market fundamentalism. That latter threat is still very real, while the two former threats have faded into memory.

The FORPLAN Fiasco
During the early years of US Forest Service "forest planning" (1979-1985, generally) there was a big problem with what we then called "analytical determinism." The problem, simply stated entails placing too much faith in narrowly framed analysis, with too little synthesis, ignoring broader contextual relevance. It is a problem that plagued the Forest Service practice of Operations Research, narrowly focused on the linear programming model FORPLAN (Forest Planning). No matter how hard some of us tried to get beyond mindless application of the FORPLAN model — set up with a maximize "present net value" objective function — the message never took hold. In retrospect, the whole agenda was wrong-headed, as Oregon State University Dean of Forestry John Beuter and I finally tried to show in a Critique of Forest Planning by contrasting FORPLAN with a model we called MARVIN. [See: Beuter, J.H. and Iverson, D.C. (1987): FORPLAN: an economic perspective. In: T.W. Hoekstra/Dyer A.A./LeMaster D.C. (Eds.) "FORPLAN: an evaluation of a forest planning tool," U.S. Forest Service General Technical Report IRM-140, pp. 87-95] Marvin was not a real model, in particular not an algorithmic or formulaic model, but rather the name of a wise fellow who used to manage the Oregon State University school forests. No model was ever going to replace Marvin. Finally, the Forest Service abandoned FORPLAN in favor of simulation models projecting forest ecosystem trajectories. FORPLAN died with a whimper, with no death announced. But by then I had moved on to other wars against fundamentalists.

Rational-Planning Economics
In about 1983 I took a step upward (so I thought) in the Forest Service, moving from Regional Operations Research Analyst to Regional Economist for the Intermountain Region. I was hoping for higher standards than were common among the Operations Research crowd. Instead, I found the broader economics practice at minimum every bit as backward. During that era, the Forest Service Manual and Handbook championed an obsolete branch of economic thinking called Neoclassical/Rational Planning (See Alan Randall's classic article on resource economics schools of thought, 1985). Interestingly, Alan Randall had already declared "economic rational planning" dead just about the time I arrived on the scene. I spent a couple of years trying to get my Forest Service economic colleagues to recognize the death, or a least to engage in dialogue about various schools of economic thought—and what each school believed relative to other schools. But it was not to be. Nobody wanted to hear that message, neither to engage in that conversation. Instead they just wanted practice their economic priestcraft, narrowly framed around so-called "efficiency analysis"—concocting Present Net Value indices, alongside "economic impact assessments," trying to associate jobs and income with forest-related programs. My major "beef" was with the "efficiency analysis." I left equally vexing problems with "impact assessment" to my colleague Hank Robison. Since I could not practice what the Forest Service Manual and Handbook mandated, I set out to develop an alternative practice. I initially set out my "advice" in a small publication that I handed to people whenever/wherever I felt the need. I finally framed my advice (Economic Advice for Forest Managers) as part of a three-part series that I aired on Eco-Watch,1995.

But long before then I began research into who else was in the battle against government rational planning economics. It turned out that many were (and had been for a long time) waging a similar war in broader government settings. I compiled their findings and reconfirmed my view that I would not help people jinn-up formulaic, cost-benefit analysis numbers. I also advocated against the practice: Cost-Benefit Analysis: Wonder Tool or Mirage?

Leaving stuff around on the internet became my common practice, since I'd grown weary of trying to publish in so-called "refereed journals"—each associated with its own narrowly framed version of economics. Of course, none of it would make a dent in economic practice in the Forest Service, since FS Manual/Handbook materials were considered gospel. I often referred to it as the Gospel According to Marx, not Karl but rather Groucho. Finally though, just before my retirement in 2007, we whittled the Forest Service Economics Manual/Handbook down to two pages, that said in essence, go forth and practice economics according to the ideas/philosophies/methods of whatever school of economic thought a practitioner aligned themselves with. (Assuming that the court of public opinion could sort out economic wheat from chaff). I wonder what has happened since? [Note: In a world of my design, I would have just banished the Economics Manual and Handbook, right alongside almost all (or all) of the rest of Forest Service Manuals and Handbooks. But that was not to be]. This saga doesn't end here, there was yet-another fundamentalism to deal with, the fundamentalism of right-wing free-market fundamentalists.

Free Market Fundamentalism
About the time my rational planning wars were winding down, the Republican "right" gained much power in the United States and around the world (late 1990s – 2008). Part of their pitch since at least the time of Ronald Reagan was that markets will free us, government with its red-tape will bury us. In short: Markets Rock! Government Sucks! The agenda, according to spokesperson Grover Norquist was to "Shrink Government down to the size that we can drown it in a bathtub." These some call free-market fundamentalists, or market fundamentalists, some call them theoclassical economists. In the mid-1990s, Dick Behan called them Economic Taliban.

Free-market fundamentalists believe that individuals are supremely qualified to make all value decisions — or at least almost all — and that allowing government to interfere is pretty much a slippery slope to socialism. They do allow for voluntary collaboration of individuals—as long as it is done outside the purview of "government." They elevate "the market" to the end-all-be-all for providing for social benefits (allowing minor space for faith-based and other non-government institutions), and denigrate government wherever possible. To earn the title free-market fundamentalists, practitioners must subscribe to some form of market worship.

Ed Cone sums up the idea of "market worship", talking about the 2007-2008 financial implosion:

[T]he latest iteration of the old boom-and-bust story has reached the part where a few people get led away in handcuffs, while the legal crooks on Wall Street slink into the background until the next promotional cycle begins. The plot is timeless even as the details change with the decades.

This time it was supposed to be different. This was the millennium of the market. That may yet prove true in some ways, as the market economy is not about to join communism on history's ash heap. But things look depressingly familiar here in the era of capitalism triumphant. America's near-religious faith in the magic of the market has been revealed as idol worship.

The truth is that markets and corporations are not good or evil. They are machines, often very powerful and useful machines, but no matter how well you build them, they are run by human beings, and they are thus subject to the frailties of their designers, owners and operators. Only a think tank economist could be surprised to discover that business people are venal more or less in proportion to the general population. Certainly this is not news to anyone who has ever spent time in close proximity to an actual business.

Market worship goes way beyond the belief that private property and open economies can do the most good for the most people, or the assumption that there is a moral quality to economic freedom. Even the no-more-business-cycle claptrap of the Internet bubble was just an offshoot of the ideological view of markets that took root in this country during the '80s, flourished in the '90s and was last seen buried beneath a pile of worthless WorldCom shares.

The greatest impact of this market cult has not been on the economy, which is, after all, treading a beaten path, but on politics. A corollary of market perfection has to be the undesirability of nonmarket forces, especially in the form of government. Whatever else was driving the anti-government fervor of the late 20th century, the certainty that markets always knew best was part of the equation.

Some have argued that Free-Market Fundamentalism died sometime in 2007-2008 with the implosion of world financial markets. But that tragic event more likely emboldened free market fundamentalists in their quest to return the world to what they perceived as the wonderworld of yesteryear, with small shopkeepers and other independent entrepreneurs—as if that could happen in a world ever-more globalized—ever-more dominated by large global corporations.

I believe that free market fundamentalists helped lead us to that 2007-2008 day of financial reckoning, postponed at minimum by bad decisions by the US Federal Reserve—led by a supposedly reformed free market fundamentalist, Alan Greenspan. Many of us thought that the financial market bubbles would burst in the late 1990s, but even with the dot-com bubble burst, the markets (with the help of the government) were just catching a second breath. And no, I don't let other government players off the hook either, neither Wall Street's self-proclaimed "titans of finance," nor the so-called independent ratings agencies. There is plenty of blame to go around, but free market fundamentalists get their fair share of this blame. The battle against free-market fundamentalists goes on. I do my small part.

Free-market Environmentalism
A curious branch of free market fundamentalism attached itself to public lands and the environment. It was/is called "free-market environmentalism."This group too are fundamentalists: too narrow a perspective, too much emphasis on exorcising devils they believe they know, while allowing devils they don't know to gain power.

Free-market environmentalists, like their broader libertarian fellows seem to cluster around a narrow "Austrian School" or "Classic Liberalism" view of economics.

Practitioners tend to demonize the role of the state, and champion the workings of the market, based on deeply help principles necessitating, then elevating to near divine stature the idea of private property ownership. They leave little room for public ownership or control—mostly just the military. The Cato Institute, a hotbed of Austrian economic thought and "dedicated to the principles of individual liberty, limited government, free markets and peace"—sounds good so far—favors abolishment of these branches of the US Government (partial list): Department of Education, Department of Energy, Department of Agriculture, Department of Interior, Department of Transportation.

As for the public lands, they want the government to disappear. Specifically they advocate for either privatization of public lands, else some kind of fiduciary trust where money is a main driver. See, Chapter 23 of the Cato Handbook for Policymakers, 2009 (pdf). Or for a shorter version, see here. And it's not just Cato. The whole crowd of self-proclaimed free-market environmentalists have a similar agenda.

Given Cato and fellow travelers' "abolishment agenda" I find their public lands ideas disgusting. Wallace Stegner once declared the national parks our nation's best idea. The national forests/grasslands are just a step removed, and often provide a scenic/re-creational "context boost" for the national parks. Call me a public lands fundamentalist if you wish, but I find no meaningful rationale for Cato's stand. I can not stand idly by and let CATO and friends denigrate our public lands institutions based on a flawed reasoning. It is the stuff of a "leap of faith," justified in the main by a predetermination that "Markets rock! Government sucks!" that seems to drive them into their dreamland. Instead I side with Thomas More in his paper "Privatization of Public Lands," which ought to be subtitled "A bad Idea,"

[Note: For more on why some things ought to be dealt with as "public interest" and not left to the vagaries of the market, see in particular Mark Sagoff's The Economy of the Earth, Elizabeth Anderson's Value in Ethics and Economics, and Margaret Jane Radin's Contested Commodities. Note too that not all who are heavily influenced by Austrian economic thought fall into the fundamentalist trap. To fall into that trap, one must, like CATO, declare government to be the enemy.]

I continue a long-standing joust with the free-market environmentalists, which for me began many years ago at Utah State University, and will not end soon. I fully expect them to once-again serve up the public lands for privatization (in whole or in part) as the Congress begins to grapple with US national debt that has for too long been ignored. If/when that prospect becomes reality I'll be back on the battleground. In the meantime I'll continue my studies in heterodox economics.

Heterodox Economics
As for me, I believe in economic heterodoxy. Like Stephen Jay Gould I view economics as a history of technology and development, not as some formulaic quest to tame wicked social problems via mathematical economics. I believe we can learn from various schools of economic thought, as long as we remember that much of our study is to "avoid being deceived by economists" as Joan Robison once put it. I've learned much from various schools of economic thought including Austrians, Marxists, Keynesians and Post-Keynesians, practitioners of Ecological Economics, Institutionalists (including Evolutionary Economics), Behavioralists, Complexity Theory economics, from Information Economics. I base my own practice on a belief in separation of powers. Markets AND governments are both beneficial and necessary, but both also tend to abuse power. I believe that a natural tendency (in our age) is for business/industrial combinations to get big and powerful and corrupt. So too with government. The best we can do is to be ever mindful of power and its tendency toward corruption. We can not abolish either government or markets by administrative or legislative fiat. On the other hand we can work toward ever-better checks and balances on abuse of power wherever it arises.

Posted by Dave on September 6, 2011 at 01:19 PM | Permalink


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Posted by: Travis

It is unfortunate that forestry does not have a forum for large discussions of issues important to forestry. Of course, your observation that foresters in large part are severely hampered by a ferocious metaphysical blindness (Andy Stahl will be completely befuddled by that) is correct (even though you did not express it in those terms). Critical thought is foreign to most in the forestry herd-cult. We have been well-conditioned to accept Pinchot's vision of forestry. Most accept it without thought or question.

Your observation that models failed because there is too much information, much of it specific to time, place, and circumstance, was voiced years ago by Hayek, one of those wascally Austrian economists. It is why government central planning can never produce the goods in a timely of ethical way.

Your market worship theory is flawed because markets are not entities capable of purposeful action. Only individuals acting in what Mises called the market process are capable of action. Markets do not fail (unless you're David Wear). Individuals in markets fail.

As for Cato, it could be more accurately described as an advocate of crony capitalism. (The Koch Brothers, who BTW own GP, are big contributors.)
Clearly, the individuals in government (includes bush and obama)and big business who support crony capitalism have done great damage to this country.

As you are a defender of government intervention with its monopoly of legalized violence, should your choice of the word "battleground" be taken literally?

As always, you are interesting.

Travis Cork

Travis | Oct 8, 2011 8:51:32 AM

Posted by: dave iverson

Travis: "market worship theory is flawed because markets are not entities capable of purposeful action. Only individuals acting in what Mises called the market process are capable of action. Markets do not fail.... Individuals in markets fail."

My reply: So-called "free markets" cannot fail by definition. OK, but remember that US-led financial markets are by no means "free markets" by classical Austrian definition. They are government dominated markets, and so sometimes fail. But we are left with a conundrum: Since financial crises have been a norm since at least the seventeenth century (remember the tulip bubble mania?), are all such events directly attributable to government failure? The Austrians are alone among economists (I believe), in making such an allegation.

Travis: "As for Cato, it could be more accurately described as an advocate of crony capitalism. ... Clearly, the individuals in government (includes bush and obama)and big business who support crony capitalism have done great damage to this country."

My reply: I would only quibble with painting Obama with the same brush with Cheney-Bush re: support of crony capitalism. I may be wrong about Obama and his approach to the recent crisis, but for now I'm anxiously awaiting his response to the Occupy Wall Street movement. We'll know more 10 years hence--or not, if Obama loses the 2012 election.

For more of my views on capitalism, try my Economic Dreams-Nightmares blog at http://forestpolicy.typepad.com/economics/

dave iverson | Oct 30, 2011 3:03:23 PM

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