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Transcript
Rob Johnson:
I’m here today with Robert Akerlof, Professor of Economics at University at Warwick in the UK, and who I want to start by really underscoring to the young scholars who follow this podcast that he is one of the great pioneers and one of the pillars of economics or, say, the foundation stones of economics that has to be examined. He is focused on the questions of the relationship between the individual and society, the relationship between what your priorities are, what you might call, your self-esteem and esteem from others. He’s diving into a very fresh and vital research program that I have found very exciting and felt very fortunate to learn from him and to support.
Rob Johnson:
I’ll start before introducing our guests with a quote that he shared with me from Clifford Geertz about what is culture. “Believing with Max Weber, that man is a social animal suspended in webs of significance he himself has spun. I take culture to be these webs. Culture consists of socially-established structures of meaning.” Robbie, you got to take us on tour, because I feel like I’m at sea in the fog without an adequate chart when I think about traditional classical economics to even begin to interpret Clifford Geertz’ remark. Thank you for joining me, and how do I say, let’s go sailing together.
Robert Akerlof:
Thank you so much, Rob. It’s a pleasure to join you. Thank you for that very kind introduction. I think that that quote by Clifford Geertz is a fantastic place for us to begin. This idea that we are suspended in webs of significance that we spin and that there are social understandings that we spin of what’s meaningful and what is valued. I think that’s something that, as economists, we need to reckon with more than we have. This is something that sociologists, anthropologists know very well, but I think as economists, we need to think much more about. We tend to take it as given who people are and we then think about the equilibrium of how people behave taking who they are as given. I think that we need to spend more time thinking about an equilibrium of who people are, and what they value, what they care about, and what these webs of significance that they spin are.
Rob Johnson:
Robbie, I really think the questions that the great gadfly, H.L. Mencken, brought to the table in 1922 in his article, The Dismal Science, cut to the quick. He is saying, in essence, he trusts economists less than anybody except theologians. The reason he says that is because he says they’re not free. They’re not free to be individuals because they can imagine the consequences for their career, their social esteem, what have you, by, how do we say, espousing what they observe deep in their heart. That the magnetic field of social pressure and hierarchy is twisting their observations, and perhaps even creating an economics which is, what you might call, sterile because of, how do you say, aversion to controversy.
Rob Johnson:
I don’t want to beat up economists too much here, because I look back to the time of Adam Smith, Theory of Moral Sentiments and Wealth of Nations. When a feudal, oppressive ruler was supported by the military and by the church and speaking in moral and ethical discourse created a situation where the distrust of public officials and scholars was magnified because they were associated with the corruption. The scientific language emerged in an attempt to overcome that corruption in the transformation of society. Yet, Mencken is saying everybody who is an expert, everybody, who John Ralston Saul calls a rational courtesan, has to be mindful of the social consequences of his views or her views, attitudes, ideas, and essentially, how do we carve out the meaning in our life. Where do you go in your research? What nodes, if you might call it the building blocks of economics, do you begin with as you try to deepen and refine our understanding of how society operates?
Robert Akerlof:
I think that, as economists, we tend to model people as individualistic, as having their fixed preferences. We also tend to model people as having desires, things they wants, but not having senses of what’s right and what’s wrong and being driven by a sense of what’s right and wrong and what they ought to do and what other people ought to do. I think two key areas that we need to develop, and there is some work that’s doing so but I think there’s a lot more work to do, I think we need to work on modeling people as social, as subject to social influence, and I think we need to model people as being moral creatures who are driven by moral considerations.
Robert Akerlof:
Those moral considerations are also social in nature. What people see is right is wrong, what people value, what kinds of things people esteem is very driven by their social context. If you go to a particular high school as a student, you’re shaped by whether that school is a school that values athletics or it values academics or it values something totally different. You join a group in that school and it changes who you are. That’s the thing that I think we need to consider much more carefully.
Rob Johnson:
I have to tell you, I went to public schools in the Detroit metropolitan area, and then went to MIT. Boy, did I get a turbocharge from my peer group when I went to MIT. There was some really, really awe-inspiring, almost frighteningly intelligent people that became my classmates, how would I say, I confess to that influence. By the way, in one of your lectures, I also saw another thing that was very interesting, because I don’t want to beat up on economists like they’re some different creature. You had a little presentation about how referees at sports games tend to call what was its 15.5% fewer fouls against the home team. I guess that’s what we call home field advantage and with the Super Bowl coming up and the game being played in Tampa Bay, it will be interesting to see if those referees can maintain their independence, with Tampa Bay being in the finals.
Robert Akerlof:
That’s right. This experiment that you reference on referees is a version really of a classic experiment by Solomon Asch that shows that if there are people who give a particular response that maybe it’s clear that response is wrong, and then you’ve heard that response, and now it’s your turn to answer, that you’re very influenced by that. In some ways, your beliefs may be influenced by what other people say, by some wrong thing other people may say. In addition to your beliefs being influenced, people are timid about saying something different. They’re scared to be disesteemed by the group if they say something different.
Rob Johnson:
When you look at, just how would I say it, the matrix of the United States and social problems or the mosaic of social problems, I should say, do you see these interactive elements related to esteem or the influence of neighbors or peers or elders or even, what you might call, rebellion against toxic elements of society playing a large role in the things we read about in the news?
Robert Akerlof:
I think that understanding our current political issues in the United States, one of the key useful frames for doing that is thinking about people’s desire for esteem and the problems that people have in obtaining esteem. I think there are a number of threats that we can talk about to people’s esteem right now. Let me start with one. There is a wonderful concept that was developed by the sociologist, Robert Merton. The concept is a distinction between locals and cosmopolitans. The idea here is that if you, let’s say you’re a college professor. If you’re a college professor, you can go more or less anywhere, and being a professor is something that’s recognized, and that people accord a kind of value to. That’s a notion for Merton of being a cosmopolitan. That your esteem isn’t particularly rooted in a place. But for a lot of people, maybe most people, esteem is very rooted to a place in a community.
Robert Akerlof:
For instance, maybe you were the star of the football team at your high school when you were growing up, and maybe people within that community remember that and recognize that, and on that basis, maybe you set up a business and, for instance, maybe you setup a car dealership. People give you respect in the community and come to your business, because of the fact that you are a star on that football team and that means something in that community. I think a concern is that as many communities are disappearing, many people are losing that key reservoir of esteem that they have and place and identity for themselves. That’s something that the cosmopolitans may fail to fully appreciate that that’s a threat because it’s not a threat that they themselves face. I think that’s one example of a threat to esteem. I think that’s one thing that’s putting pressure on people and causing them to be concerned about our current institutions. We can talk about some other threats to identity, but I think that broadly speaking, these threats to identity are causing people to question our institutions and lose faith in government.
Rob Johnson:
Well, I know my friend and the former senior fellow at INET, Michael Sandel has recently written a book on the Tyranny of Merit.
Robert Akerlof:
Yes.
Rob Johnson:
There is a sense in which those who get the credentials in order to rule, what you might call, develop habits of obedience and affirmation within a concentrated elite, and at the same time, those over whom they govern with all of the kind of things Michael Sykes in his book about what constitutes virtue and value appear to be very hollow or appear to be unavailable, therefore, lead to despair. I know in some of his conversations with me, both on this podcast and elsewhere, he’s been very concerned about the reconnection of the population’s faith in expertise and governments being a necessary condition given some of the challenges we face that are on the horizon.
Robert Akerlof:
Absolutely. I completely agree that that’s a major issue. I think one frame for thinking about this is that we face threats to our institutions when there are pressures in society that lead some people to adopt different values, different norms from others. This is something I’ve written about in my own work. I’ve talked about the idea that people care both about what I call peer esteem, a desire to obtain esteem from their peers. If you’re in a high school and let’s say that the dominant culture in that high school is one that values athletic achievement, you would care in that high school about how you’re viewed by these other students who care about athletic achievement, and have some desire to excel at athletics too. If you do choose to excel at athletics, you might then also choose to adopt those same values and value athletics. That would make you part of this general community of athletes. This desire for peer esteem leads to conformity of values and leads to forming of a common community.
Robert Akerlof:
There are other pressures too. In addition to people caring about peer esteem, they also care about what I call self-esteem. Self-esteem, rather than how your peers judge you, it’s about how you judge yourself according to your own values. In that high school, maybe you have trouble achieving as an athlete. If you do, that might lead you to want to adopt different values. You might, for instance, decide that it’s important instead to value something like academic achievement or achievement in something totally different. Maybe you’re good at music and so you value that you’re a good musician.
Robert Akerlof:
There are these pressures that come from the desire for self-esteem that can lead people to peel off of the majority culture and form, what one might call, an oppositional culture. I think that when oppositional cultures form, that can potentially be a real challenge to our institutions. Those folks who are oppositional may not feel that existing institutions are legitimate and that may be a real issue.
Rob Johnson:
I sense that you write, you can … what was the old song I think Linda Ronstadt or Laura Nyro sang, A Different Drummer.
Robert Akerlof:
Yes.
Rob Johnson:
People sometimes realize they can’t make it. I’ll tell you an example in my life. I got a girlfriend in high school whose older sister knew a lot of NBA players. One day we went to Cobo Arena, where the Detroit Pistons were playing in their star center was amending Bob Lanier, who is 6’11” and he had a beautiful pair of hands meaning he could shoot a three-pointer and a very high percentage making it. I walked out with my girlfriend and her sister and shook hands with him, and then he let me stand there while he was warming up, and he took a rack of balls and he hit six three-pointers in a row.
Rob Johnson:
Here I was at about 5’8” and him at 6’11” and he had the shots like a point guard, and I always envision myself as a point guard and I walked back to my girlfriend and I said, “God just told me I’m not going to be a basketball player.” She laughed. I was just in awe of the pure power of this man’s ability, and I could see it wasn’t going to be my calling. How do I say? You go in different directions. But I think right now one of the problems is that people feel that the avenues or the pathways to prosperity were satisfying life or being a leader of the family or whatever, or getting fewer and narrower and more expensive, more obstacles, not just monetary expense.
Rob Johnson:
I think some of the distrust in what I’ll call democratic capitalism is the feeling like the runs in the letter are withering or disappearing. How do you address that as a social policy when we do, as Emile Durkheim emphasized, have religious needs, communal needs and nourishment as a source of strength and support, at the same time is making the sacred object the individual, an individual freedom when a lot of individuals are despairing and don’t think they can make it in the system. It feels like a dangerous cocktail for, we might call, adherence to anything. That void, that despondency invites an authoritarian reaction.
Robert Akerlof:
Absolutely. I think we were talking earlier about threats that people face to building identity obtaining the esteem of other. One of them I identified is loss of community. I think that’s one major box that we need to think about addressing. I think … you’re raising others so I think another huge box to check is family. Family is a place that’s a reservoir of identity and esteem for people, at least traditionally. We’ve seen a big decline in the two parent traditional kind of family. There are a lot more single people at any rate.
Robert Akerlof:
One term that sociology [sues 00:22:46] is fragile families. There are many more fragile families. Families become a much less stable source of esteem for people. That’s often been, I think … Suppose you aren’t getting esteem from your community or another I wanted to address is jobs. Suppose you’re not getting esteem from your jobs, people traditionally have been able to fall back on family as a source of esteem. That’s something that people are less able to rely upon. Family is a problem, just as community is a problem.
Rob Johnson:
Let me just ask you. Is that inability to rely on family because of what you call modernization or transportation and geographic dispersement? Or is there some other dimension that is at the core of this?
Robert Akerlof:
I’ve doing some work recently with Luis Rayo, who’s at Northwestern, on families. What we argue is that … let me take a step back here. Economists normally, if you think about the Backer model of family, economists normally think of families as little factories. They’re very economic in nature. There might be a division of labor within the family, with a wife who is doing home production, a man who’s going out and doing market production, so this little factory notion of what the family does. What we argue is that there are very different things that people care about if you look at different families, that we have to think carefully about what exactly it is that the family cares about and values.
Robert Akerlof:
This comes back to the very first part of our discussion that what people care about is flexible, it’s changeable, it’s shaped by social context, so we argue that there are different things that families care about. If you look in the data, you can see very clearly that there are different types of families. In particular, one might distinguish between families that are more traditional and families that are more modern, and we argue that what these families care about and drives them is very different, and that over time, there’s been a change in what family, a broad trend with families more having this modern set of values. This is changing, and I think that that’s one thing that’s driving a decline in marriage rates, a decline in fertility rates of families. I think that’s one thing that we’re seeing that’s changing what families look like.
Robert Akerlof:
I think another thing is that for these more traditional families, there are economic pressures that they’re facing that’s also causing problems for them. In particular, there’s been a decline in traditional type of work that men do. In particular, there’s been a decline in manufacturing jobs, the kind of jobs that men have been able to do to be breadwinners within traditional families and support a family. For these men, they’re not able to occupy that traditional role that, in that family model, they’re supposed to occupy. That’s leading to break up of families. You’re seeing among these traditional families or these traditional types, you’re seeing a decline in marriage rates. One could call this a crisis of masculinity. That’s a term that’s often used for this.
Robert Akerlof:
One’s also seeing, I think, particular problem for those who are suffering from this crisis of masculinity, so they’re responding to that in various ways. It’s causing, for
Robert Akerlof:
instance, I think it’s a source of things like opioid use, which is a big problem. I think this is one of the things that’s been driving people towards Donald Trump.
Rob Johnson:
Do you see, what you might call, the traditional father knows best model disintegrating the, I think you called it in the paper you shared with me, the protector model.
Robert Akerlof:
That’s right.
Rob Johnson:
As opposed to the fulfillment model. How does that relate to, what you might call, the choices people make, both in time, the nature of partners, what you might call, the story of underlying satisfaction.
Robert Akerlof:
That’s right. That’s right. In the paper, we call this a story. These families have a story. I’ll just give a little bit of a sense of what we see as key kernel of this traditional family story. I think that’s useful. What we argue is that a key thing that drives these families in a variety of ways is a concern … I think if you … there’s this idea of purity and pollution. One sees this, for instance, in the work of Jonathan Height. His family think very much in terms of purity and pollution, we think, and there’s a concern about being made impure. Let me give a concrete example.
Robert Akerlof:
If you watch a film like the Godfather. In that film, there is this idea that going and working for the family business, being in the mafia, that’s something that’s polluting and they want to protect certain members of the family from that kind of pollution. The women of the family are kept out. We argue that this is a key thing that drives these distinct roles to form within those families, that there are certain people who are going to be protective and kept pure, and other people are going to do this work of breadwinning and going out and exposing themselves to a kind of pollution, and as a result, they’re going to have to adopt a tough veneer and be tough.
Robert Akerlof:
You get these two very different types of people forming in those families, and a lot of the identity for the men in these families comes from being protectors. The whole story of the Godfather is really a story of keeping a son pure, the son, Michael. The whole story is about the failure of the father to protect the son and the tragedy of his inability to protect that son and keep him out of the family business.
Robert Akerlof:
I think one way to view this crisis of masculinity problem is that these men who care deeply about this task of protection, that’s a lot of what their identity is wrapped up in, are finding that they’re having trouble being protectors. I think you mentioned also, is this model crumbling? I think that this model is becoming less prevalent. You can see that clearly in the data for the United States. For a number of other countries too, it’s become less prevalent, but it’s still a very strong strongly present narrative, so it’s not disappearing. It’s also becoming much more predictive which story you have, this more modern story, or this more traditional story. It’s becoming very predictive of your politics, whether you’re Republican or you’re Democrat.
Rob Johnson:
You’ve focused on the family and focused on some aspects of education, but we’ve seen, and I saw this in one of your lectures, that this, what you might call, the structure and the nature of education reform contrasting the woman from, what’s her name, Michelle Rhee.
Robert Akerlof:
Yes.
Rob Johnson:
In Washington DC charter schools without top-down incentives and control. Then Andrea Gabor, who I’ve had the good fortune to interview in the past that I met.
Robert Akerlof:
Fantastic.
Rob Johnson:
Her vision of the Deming type model of the, how do I say, bottom up, giving trust and faith to the locals who, I would say, should care and nurture the system for the satisfaction of their own community. How are you seeing, what you might call, the political lessons from what we’ve experienced and also how people align themselves vis-à-vis the structure of education?
Robert Akerlof:
That’s a great question. You’re getting to, I think, a really important issue, which is we have in economics a very particular notion of how people are incentivized. If one thinks, to give a very simple example of Gary Becker’s model of crime, what he writes is that the more you punish people when you observe a crime, even if it were say a very petty crime, the more you’re able to deter crime. More punishments, less crime. If you could, you should just boil people in oil whenever you see them committing a crime. That’s the kind of lesson. I think that’s a lesson that generally an incentive theory, we see that there’s that message that whenever you can punish, whenever you observe misbehavior, you should really punish it and that’s going to incentivize people well.
Robert Akerlof:
If we think about this in the space of crime, there is another idea. One sees this, there are a number of legal scholars who’ve written about this. People like Tracey Meares and Tom Tyler, who argue that actually we need to think really hard about how to make the legal system legitimate. If we don’t punish crimes in a way that people see as fair and measured and appropriate, if we don’t have processes of adjudicating things that is seen as fair and legitimate if, for instance, African-Americans are treated very differently by police and by the legal system from whites, that these are things that are going to de-legitimate the whole system for people. We have to think about how to create institutions that are legitimate. One gets very different answers if one thinks in that space of trying to create legitimacy.
Robert Akerlof:
The problem that you have in policing, if things aren’t seen as legitimate is no one will work with the police. The police cannot police effectively unless people work with them and report things to them. We now turn to schools which is where you started. I think the same issues come up within schools, the same issues broadly come up within organizations. It was a movement that maybe one could cite Jack Welch from General Electric, he’s an early proponent of this idea. His nickname is Neutron Jack. His idea was let’s just on a regular basis assess people and fire poor performance. Their idea was that’s really going to give people strong incentives to work hard and to behave. That kind of logic, there’s a rank and yank for this kind of system where people are regularly ranked, the worst performers are yanked. This has become quite a common practice for many businesses.
Robert Akerlof:
I think this is then something that’s been applied to education. That’s the kind of practice that was motivating Michelle Rhee as the DC commissioner for schools in doing things like firing. She fired a principal on television. I think there’s a logic to it, and she was very passionate about it. He view was these are poor-performing people and we need to put incentives in place for them. I think there is some truth to that, but I think what’s missing from that way of thinking is that it’s not just about putting incentives in place, but it’s also about changing who people are and getting them to value the things that the organization values. The most important thing is not that people have clear, monetary incentives to behave, but that they really care as teachers about being teachers. That they care about their jobs, that they’re mission-driven. It’s important to treat them in a way that’s consummate with that.
Robert Akerlof:
In the work of Andrea Gabor, she really argues that the job of schools is to do that, to create the right values. she has a small D, democratic view of how schools should operate. That it’s important to listen to teachers to give them voice and by giving them voice, by including them, you will hopefully make them more mission-driven.
Rob Johnson:
I’m quite taken by this, what you might call, subchapter in our conversation I wanted to share with you. You sent me back to what I find was a very powerful experience in my life. When I read about a gentleman named Ramsey in merchant marines, because you talked in that instance about or presented in your deck about how when officers appear to create rules, expect obedience, that if there isn’t a deep sense of justice or understanding of why it’s for the collective good, people engage in, what you might call, destructive rebellion. I thought that that story, which you can elaborate on, was a very important one, now it gets to the law enforcement issues.
Rob Johnson:
The experience I had was that I had a father who was a physician, spent four years in the Pacific around the time of the Korean War. He was the physician on the ship and a gentleman whose name was Admiral Robbins. His name was Captain Robbins at that time, asked my dad to come home with him to Coronado near San Diego, as he was promoted to an admiral. As it turns out, I was named Robert because I was conceived at the time when my mom and dad met when my dad came home. My dad wanted to name me Robbins, my mother was from Scotland, she said, “No, it’s got to be Robert.” My dad said, “Okay, but it can’t be Bob. It can only be Rob or Robbie.” That, you and I share.
Robert Akerlof:
Indeed.
Rob Johnson:
But the interesting thing was that I gave a talk one night in New York where somebody said, Q&A said, “Can I call you Bob?” I said, “No, you can’t.” The audience looked at me like I was a jerk. I said, “No, no, folks. My parents are both deceased, and they had this big agreement. If I said, “Yeah, you can call me Bob, I’d be afraid you might get hit with a lightning bolt.” Everybody laughed and it dispelled it. I walked off the stage and a gentleman says to me, “Do you know that I lived in Coronado and I knew Admiral Robbins?” I said, “Wow! That’s great.” He said, “I didn’t know your dad. It was after the time your dad had left.” But he said, “Do you know Robert Coombes? Because he has a naval program that people go and they spend time like on the aircraft carriers.” I said, “No, I never heard of him. Never met him.”
Rob Johnson:
The next day, Robert Coombes called me, we talked about it, I had an urn of my father’s ashes he wanted distributed in the Pacific. About a year and a half later, the guy called me and said, “You’re on deck this July in 2019. You’re going to go on the Nimitz.” I went there and I have to say my propensities to worry that the military industrial complex maybe through rent-seeking gets too much of our resources given our other needs, but I went on the Nimitz and I watched this captain and this crew and men and women and people of color with about as high a level of functioning and morale. I’m talking about on an aircraft with 44,200 people. It’s like a little city afloat.
Rob Johnson:
But I watched from the top, the gentleman was the captain, was a graduate of Duke University. I watched how people acted in the dining rooms, I watched when they were briefing me on intelligence and how they monitored things all over the world. African-American and Latina women, sharp as a tack and totally building their confidence. I came home and I said to myself, “We have to be able, whether the mission of military preparedness taken to the level of the United States is the right place to allocate money, we have the learn from this culture about how to run companies, societies, school systems. I still, to this day, marvel at the experience I had for those few days.
Rob Johnson:
At night, they take me out with earmuffs and sound insulation like headphones, and watched the planes take off from the deck and then to land and catch on the wire. They took me through the whole medical system. They had nine different religious chapels built within this ship. It was absolutely spellbinding because it was almost like I went in knowing my dad was reverent. I got to spread, how do I say, my enthusiasm to them about his reverence for that period of his life, but I never thought it would get inside me and it did.
Rob Johnson:
Anyway, that’s a long-winded thing, but that is in marked contrast to the merchant marines, and I would say, if you want to say you’re skeptical about government, go take the tour on the Nimitz or other aircraft carriers and see how effective these people are and reimagine whether other elements of the public sector could play a role in our society with that kind of vitality, with that kind of human capital accumulation that all those young people, they achieve but partly they achieve because they felt the place cared for them and nurtured them, and expected a lot from them.
Rob Johnson:
How would I say? I saw a lot of people over those days, they would come and sit and talk to me for a few minutes. A lot of them had come from very despondent places, had not want to enlist but did out of despair or a sense of not knowing where they were going, and they emerged vital. I guess what I’m saying in conclusion to this episode, I think, you can build people and communities, and the kind of, what we might call, the endogeneity of values, and preferences, and morals, and systems of cultivation that your work entails, is a much more optimistic vision than, what I will call, mechanical IC economics suggests.
Robert Akerlof:
I think the military is a perfect example of an institution that views incentives in these broader terms. It’s not just about taking who you are as given and viewing people as self-interested and taking that as a given and then trying to give them incentives to behave. They view their job is to shape who people are, and they’re very effective at that, as you’re saying. They do a great job of taking people who come from disadvantaged backgrounds and giving them a tremendous sense of purpose in their lives. They do a fantastic job, as you’re saying, of bringing people from different groups together and giving them a sense of common identity and common purpose. I completely agree that we need to make that a model for other organizations to follow.
Robert Akerlof:
I think, there are various counterpoints to this. I think one thing I’d noticed that economists often have recommended giving big bonuses to people and giving them stock options and things. I think that that attitude … this comes back to our discussion of stories, that changes people’s stories, and it makes people more concerned with money and it diminishes their sense of being oriented toward a broader mission for the organization. I think it’s very important that we view incentives in these broader terms and take this view of it’s the organizations job to shape who people are.
Robert Akerlof:
Coming back to your point about the merchant marines and this book by Ramsey, so Ramsey wrote this book after spending several years working in the merchant marines. This is an organization that, where incentives seem to be working less well. I think this is a case where it’s less about the organization taking an economic view of things and, for instance, giving people bonuses. It’s more about they’re not building the right culture. This is an organization where there were people who were defined as crew, and there were people who were are defined as officers. The officers really looked down on the people who were the crew. Ramsey relates one poignant incident that shows how this worked.
Robert Akerlof:
He talks about how there was … this is the officers mess and the crews mess, and the crew, their coffee machine had broken and the officers, rather than giving them a nice, new coffee machine, they had a machine from their own mess that they had stopped using that had broken and wasn’t working well, and they just gave them that one. You could say this is insignificant and this shouldn’t have been a big deal, shouldn’t have affected how hard people work very much, but it reinforced for the crew that they just weren’t valued and they weren’t respected. It provoked all kinds of acts of sabotage by the crew. The kinds of things that the crew did on the ship, they did things like, people who are washing dishes, rather than just washing them, they would take some dirty dishes and throw them out of the window into the sea. Or they would do things like in ironing an officer’s shirt, they would purposefully burn their shirts.
Robert Akerlof:
There are all kinds of things they were doing to act out in the only ways really that were open to them because they didn’t have much voice. They were acting out against this sense of disrespect that they felt. This gets back to this idea we’re talking about about oppositional culture. They were looking for a path for self-esteem. That desire for self-esteem drove them away from being in-line with the values and mission the officers had. I think that also gets us back to this theme of what’s happening more broadly American society right now. I think we have people who are acting out in the way that these crew were acting out, and who are rebelling against the system.
Rob Johnson:
I think that’s, how would I say, perhaps an understatement. They really are acting out and it’s broad-based and it’s a symptom of a lack of, what you might call, faith in the pathway that we’re on. By the way, I want to underscore a book that you and I haven’t discussed. Jon Shields and a woman named Sarah, I think it’s Muravchik. Let me get her name correct. They wrote a book called Trump’s Democrats. They really did field research about what kind of people were the ones that had been historically Democrats? What kind of communities? It really got to that notion of patronage and local control and local connection dissipating in traditional places that had been part of the democratic party or a democratic machine, and then all of a sudden, it, how would I say, the way Donald Trump presented himself in 2015 and 2016. The system is rigged, and you got to rise with me to change this.
Rob Johnson:
He was reconnecting in a way they felt disconnected from. It was really quite, how would I say, a powerful book not from the standpoint of what we want, but in diagnosing the tragedy. The woman’s name, by the way, was Stephanie Muravchik and John Shields. I remember a book in England David Goodhart wrote, The Road to Somewhere, where the somewhere was a local connection and community and the nowhere’s were essentially with the globalized elites. I really think these, how it’s called, the human connections are important. One of the things, by the way, we haven’t discussed is this recent movement by places like the business roundtable and others to emphasize that shareholder value is no longer the ethic that stakeholder value.
Robert Akerlof:
Yes.
Rob Johnson:
They’re acknowledging responsibility to environment workers. When you’re told about stock buybacks, I look at the very intense and well-developed work of William Lazonick, some of which is on that grant. He talks about how it’s not just creating the incentives and the bonuses, it’s creating the incentives to do stock buybacks to enhance the stock option bonuses rather than investing in the, what I’ll call, modernization or expansion of the capital stock, which provides a higher productivity platform for everybody in the future.
Robert Akerlof:
Yes.
Rob Johnson:
When top management’s fear that they could, through things beyond their control, be removed from office, they have an incentive to shorten their horizons and do too much in that realm. I’m curious how you see with your investigation of norms and values and interhuman relationship, this movement of corporations away from the Milton Friedman model of shareholder value or the Michael Jensen carried it on after that.
Robert Akerlof:
My hope is that we will see a real change in the models that corporations follow. I think if you look at the history of corporations, there have been some profound changes in the models that they follow over time. You see, for instance, following Sloane, the rise of these multi-divisional organizations, and that becomes a huge trend. There are these trends that happen. If you look at, coming back to schools, I think schools used to offer a somewhat more like the military. They saw it as their job to shape and mold their students. I think schools have gotten out of that game. I think, arguably, one of the reasons that they got out of that game is, then it became something that was seem to fraught for them to try to impose values on people.
Robert Akerlof:
There’s a very good book I’d recommend called Shopping Mall High. I don’t remember the name of the author right now, but this book looks at a particular school and how it changed. A key factor that led to this change, the images they turned from a school where they shaped who you were like the military to a shopping mall, it was up to you to choose who would it be and what classes to take, and that was all that’s left to use. They got out of the values business.
Robert Akerlof:
A key thing that changed the school was integration following civil rights. In that time, when the school is being integrated, there was tension between whites and blacks, getting into this business of shaping people’s values became something very fraught. I think we need to think about how to get back into that business. I hope we are. We also have to, I think, reckon with some of the challenges too that organization may face in trying to do that. Maybe that’s easier for corporations than for schools, but I think … I hope that we’ll see a change in model. I hope that economics will … I think economics has propelled the set of shifts in the organizational model towards things like these bonuses and stock options. I hope that will propel now a shift back toward firms molding who people are.
Rob Johnson:
Well, I guess there are so many more things we could talk about. There are other parts of this mosaic of exploration. You’ve talked about family, talked about education, you’ve talked about self-esteem versus the influence of the group. I’m curious, what have we not touched on? I, obviously, like to come back and do some deeper dives with you on the specifics to actually make a course together.
Robert Akerlof:
That would be great.
Rob Johnson:
I’m curious right now what else would you like to explore today.
Robert Akerlof:
I think that taking a step back, that I think as economists, we have to do more than just criticize the classical model that fails to think about how people are socially-influenced, that fails to take into account people as being driven by moral considerations. We need to try and build an alternative model. I think that’s the real way to take a step forward is to do that. I think we’ve touched a little bit on some of the progress that’s been made in that regard. I think there’s a nascent movement within economics, which is very exciting toward doing that. I think somehow we need to, in particular, develop new economic theory. I think there’s a lot of empirical work these days, which is showing that these things are important, and that’s important and that’s exciting.
Robert Akerlof:
I think there’s less work, there’s some work, but there’s less work in the theory space that is trying to tell us what if people aren’t individualistic, what are they like? It’s not a completely simple challenge to do that. I think we’ve talked about some elements of that, so I think esteem is one critical element that drives people, this desire both for self-esteem and peer esteem and that plays a role both in shaping individuals but then shaping people, I think, formed in a culture out of that.
Robert Akerlof:
I think understanding what people’s individual motivations are that drive them and shape them socially and morally. Then there’s the further task I think we need to think about, which is that that creates an inequilibrium. These people who socially influence each other, there’s inequilibrium there. I think I mentioned this at the beginning of our conversation, we normally talk about the equilibrium, what people do taking who they are as fixed. But there’s also inequilibrium of who people are. I think that’s an important space that I’ve been trying to explore in my work and there are others, people like Roland Benabou and Jean Tirole, who are trying to explore that in their work.
Robert Akerlof:
I think we need to think about how that process of cultural formation works. I think that one lesson there is that there tend to be multiple equilibrium in this space, which is another way of saying that culture isn’t something that is totally reducible. I think as economists, we tend to want to always come back to individuals and always reduce things to individuals, but culture is something, because there are multiple equilibrium that is non-reducible. I think that relates to this Clifford Geertz quote that we spin these webs of meaning. That’s the idea of we interact with each other and we create an equilibrium. There are things we value, there are things we believe, there are stories we tell, these are things that we collectively create, but then have a life of their own. We can’t reduce it to individuals, and that’s something that as economists, we need to know what those stories are if we are to know how people will behave, because there are systems of … they’re part of the system we can’t predict just from looking at the individuals. We need to know also what those stories are.
Rob Johnson:
I say, when I was a little bit younger I used to live in part of Manhattan where I’d walk to work down Madison Avenue. I used to walk down Madison Avenue by some of the offices of the very large advertising firms, and I used to smile and say, “Well, you don’t exist, and you don’t exist, and you don’t exist.” But then I looked one time at the curriculum for an MBA, either Stanford, Northwestern, Wharton, Harvard and the Sloane school as I was studying curriculum, then I realized that marketing plays a very large role in business school education unlike economics, where the preferences are assumed by presupposition to be preformed.
Rob Johnson:
I’ve always laughed about those days walking by and understanding that there was something, what you might call, intuitively understanding, there was a missing link in economics. I think you’re not just, as you said, criticize in economics, you’re trying to fill the void and I very much respect and appreciate that aspect all of your work, but I think that courage is in that realm between making a difference socially and self-esteem as distinct from, what you might call, the conformity to the trophies that the profession offers. You’re doing pretty good with those too.
Robert Akerlof:
Thank you.
Rob Johnson:
I guess if I were going to conclude, I would have to do something now, which has to do with the economics and family and everything else, which is … I, as you know, spend a lot of time with young people around the world, aspiring economists. I often give speeches about how the famous, how would I say, [inaudible 01:06:14] mythologist, Joseph Campbell. Used to talk about early in your life, you’re a warrior, you’re out to accomplish, you’re out to build things, and then later in your life, you become a wizard, you become a mentor, you start to impart and to teach others. Then I would say you’re as good a warrior as exists in economics and I would also say that you’re a wizard of wisdom well before your time.
Robert Akerlof:
That’s very kind. Thank you.
Rob Johnson:
I want to pay tribute to my dear friend, whose last name is Akerlof, who is your father. He is one of those people that you come across just a handful of times in your life. He has made as much a more difference to the Institute for New Economic Thinking than any person that I’ve encountered. He wrote a book with Rachel Kranton called Identity Economics that touched upon these areas. He’s maintained a purposeful conviction in his own progress in his own work even after winning a Nobel Prize that I would say in the pendulum of peer esteem and self-esteem, he’s a person who’s got all the trophies of peer esteem, but he’s done it through maintaining a focus inward on the self-esteem and what can be achieved and what’s got integrity. You come from a good place, but what I really wanted to do is congratulate your father on being the father of Robert Akerlof.
Robert Akerlof:
That’s very nice.
Rob Johnson:
Because unto yourself, you are marvelous. He should take pride in that, and I wanted to underscore that today.
Robert Akerlof:
I’ve been very fortunate to have him, of course, as a father but also as an intellectual mentor. I won the lottery there and I’ve been extremely fortunate. He’s played a big role in setting on this intellectual journey that I’m on, and I’m fortunate to be able to talk about these things with him. It’s a wonderful thing to be able to work on these things together, talk about these things together. I see, for a lot of people, I think about my own students that there are these difficult choices that they face as they’re starting their careers that the incentives really aren’t there to work on some of these difficult problems. These are things we need to do and the incentives aren’t there.
Robert Akerlof:
I’ve been fortunate to have guidance from my father, Rachel Kranton and a number of other mentors that have allowed me to do that. I think we should think about how to give more space to young people to take leaps and take more risks. I think that that’s critical for making progress as a field. I think economics changing is critical for a broader change in society that we need.
Rob Johnson:
I agree with you on all counts, and I also want to point out about you, Robert Akerlof. You had the good judgment not to rebel too much from your father. A lot of people get their identity from being different than dad.
Robert Akerlof:
That’s right. We’ve been talking about that.
Rob Johnson:
You had a certain inner strength so that you could go back to the nourishment that he provides.
Robert Akerlof:
That’s right.
Rob Johnson:
And help, how would I say, use it as an ally in cultivating yourself, and that’s a different source of strength. Once again, apple doesn’t fall far from the tree. I think there’s some internal strength and self-esteem that you’ve cultivated, but you’re on a very, very powerful path and I hope that you’ll come back and join me. We can continue to address these questions and visit about the challenges that the world and the Institute for New Economic Thinking, and you and I face.
Robert Akerlof:
I would be delighted. Anytime.
Rob Johnson:
Very good, thanks. We’ll talk again soon.
Robert Akerlof:
Great.
Rob Johnson:
Buh-bye.
