Mitchell List and Kurt Schuler serve as interlocutors in “An Interview with James D. Gwartney on His Life and Work in Economics” (August 2023 (Johns Hopkins Institute for Applied Economics, Global Health and the Study of Business Enterprise, SAE #238, August 2023). The interview offers an in-depth overview of his pathway to and within economics. here are a few of the points that caught my eye.
A One-Room Schoolhouse
I went to a one-room school, and when I was in eighth grade there were only 12 students in the entire school from kindergarten to eighth grade. The interesting thing about that is that when you were, say, in the fifth grade, you’d be able to follow what the sixth and seventh graders were doing, and as a result, it was easy to sort of work ahead and be doing things that the more advanced students were doing. We had some cold winters in Kansas, where you couldn’t be outside for lunch hour or recess, and the older students would often explain to younger students
how they could do certain kinds of things. Vernon Smith, a Nobel Prize-winning economist, also went to a one-room school in Kansas, and Vernon and I have talked about this. We both feel that at the elementary level we actually received a superior education compared to what students are getting today because of this interaction with students at a more advanced level. Then, as we progressed into the upper grades, we started explaining things to the younger students. As anybody who’s been in teaching knows, you often learn a lot about a subject yourself by communicating it to somebody else.
From his time with the Joint Economic Committee in Congress starting in 1999:
Even though we weren’t a legislative committee, we played a central role and we provided supporting research for eliminating the earnings test associated with receiving Social Security. After age 65, in those days, if you earned more than just a few thousand dollars, your Social Security payments would be reduced by 50 percent of your earnings. It meant that when you paid the payroll tax and maybe a little income tax and faced the 50 percent offset in loss of Social Security benefits, there was very little incentive for people over age 65 to work, so their labor force participation rate was low. We put together some estimates indicating that there would be a rise in the labor force participation rate, and projected that the government would actually gain revenue rather than lose revenue from eliminating the offset. That was, I think one could argue, the most important piece of legislation during the time that we were there. It exerted a lasting impact on the U.S. economy. Still today, the U.S. has one of the world’s highest labor force participation rates for people over age 65. Today, the U.S has a substantially higher labor force participation rate for people over age 65 than Western European countries primarily because of the legislation removing the loss of Social Security benefits as earnings increased.
About the motivation behind his well-known intro economics textbook, now in its 17th edition, and now co-authored by Richard Stroup, Russell Sobel, and David Macpherson:
The motivation to write the text was that it seemed to me that … there did not seem to be a general framework about how the political process worked. I wanted to integrate public choice analysis into a principles of economics text. Around 45 percent of [U.S.] GDP was allocated through the political process in 2020 and through most of the history of the book it’s been in the 30 to 35 percent range. So, you’re allocating a large share of resources through government, and we need to know something about how the political process works as well as how markets work.
In the very first edition in the preface, I made a statement that at the time economists [i.e., authors of other textbooks] were doing three things in economics. The first thing was that they used supply and demand to explain how markets worked. The second thing was, they explained why markets might not work so well for certain categories of activities, mainly externalities, public goods, and monopolies, which one would expect would be sources of economic inefficiency. Finally, they explained ideally what government could do to correct these failures, and that was the end of it. There was no analysis at all of the political process.
The political process is merely an alternative form of making decisions. We need to know something about how that process works as well as how markets work. This is the contribution of our text. Merely stating, “Here’s what the benevolent, omnipotent dictator” (an expression my friend Randy Holcombe likes to use when talking about the political process) “would do” is not very useful. Political decisionmakers may not be very benevolent, but even if they are benevolent, they’re not going to be omniscient, therefore there’s no reason to expect that they’re going to come up with ideal solutions. Even today, much of economics reflects this misleading view. Our book integrating public choice was really an attack on the idea that government is a corrective device that’s lying around so that if something goes wrong, we’ll just call on the corrective device and fix it. That seemed a very naive view of what the role of government in the economy should be. I believe this integration of public choice accounts for the staying power of our text.
As Gwartney tells his story of becoming an economist, I was struck by how his path through college and graduate school brought him in contact with economists who were at that time relatively early in their careers, but who became quite well-known. As one example, when Gwartney attended Ottawa University in Kansas, he took a number of classes from Wayne Angell, who later ended up being on the Federal Reserve Board of Governors from 1986-1994. When Gwartney took a first try at attending graduate school in economics at Washington State University, he didn’t make close connections with faculty members, and it went poorly. But when he ended up attending the University of Washington a few years later (with stops to work as an engineer at Boeing), he made a close connection with department chair Douglass North (Nobel ’93), as well as getting to know Walter Oi, and hearing a series of lectures from a visiting James Buchanan (Nobel ’86). Other personal connections, a blend of Gwartney’s own passions and serendipity, led to a stint of teaching at at Central European University in the mid-1990s, his involvement in the genesis of the Economic Freedom of the World volumes, and his time at the Joint Economic Committee. Thus, Gwartney’s description of his path seems to me a story of contingency, like many of our stories: it’s not just who you are or what your interests are or how hard you work that determines outcomes, but also the context in which you are operating and some key people you meet along the way.