By Austan Goolsbee, speech at the 486th convocation of the University of Chicago

“Congratulations to you graduates. You made it. That’s the good news. The bad news is that it’s extremely hot and I am going to spend the next fifteen minutes telling you about economics. Let me start, though, by reminding you that we always have a faculty member get up and talk about ideas at our commencements. We have always done it that way. Some people say that it’s because we are a place of ideas and we want the parents to see that you have been a serious person these past several years. Others say we have a hard time getting more famous people to speak. I don’t know why. Perhaps we are afraid that, starting this afternoon, everywhere you go they will assume you know something because you are a Chicago graduate, so we try to stuff in one last thing before you leave. Personally, I think it’s something completely different. I think these commencement speeches are for the faculty. We may get only twelve minutes to talk, but it’s the only time in our Chicago careers we get to stand up and say whatever we want and you aren’t allowed to challenge it. I mean, what are you going to do? Get up and leave?

So today I thought I would talk about why people hate economists and why we don’t care. Nobody likes an economist. In fact, some students who are here today from the Divinity School are thinking that if they have learned anything in school it’s that an economist like me should not be talking from a pulpit like this.

It’s almost like the cartoon where the guy is at a party talking to someone and says, “You’re a terrorist? Thank God. I thought you said you were an economist.” My granddad used to say that 80 percent of the world doesn’t care about your problems and the other 20 percent is glad. In our case, economists know that 20 percent is way too low. People hate economists, and they hate economists from Chicago most of all. But we don’t mind. So in the next twelve minutes, I will give you the lowdown of how the field of economics has changed in the last twenty-five years and of how economists think about the world. I think it will be pretty clear why we aren’t popular.

First, let’s begin with some misconceptions you might have about “the Chicago School of Economics.” If you aren’t one of the students from the Graduate School of Business who are here in the front pews, you probably think that’s just some right-wing thing. You may have visions of a five-foot-tall bald man—Milton Friedman—and something about monetarism. Well, that is so 1950s, dad.

In the last twenty-five years, much of the action of economics has come from major parts of the field turning away from big macro topics like inflation and unemployment, as well as away from the political stuff, toward microeconomic topics like why there has been a rise of income inequality since the 1970s, what leads to technology adoption in developing countries, or how much people value new products like cereal or minivans.

From our turn toward microeconomics, it wasn’t long before we started getting our noses into just about everything—how to stop crime, how to improve our schools, what medical treatments work, how TV affects kids—we could get data on and apply the basic principles of economics. Now you know how people hate that. “What does an economist know about crime?” “You have no business talking about medicine, you don’t even go to the doctor.” You get the idea.

But I would say that although economists are irritating, the new ideas we have brought to these subjects are important. And often they are things the fields themselves would not have come up with on their own. Economists love markets. It’s true. Even when they think about something gruesome like organ donation, they start asking market questions, like whether people being allowed to sell one of their kidneys would eliminate the grim wait lists for transplants. Although there is no public sentiment for an explicit market in organs, it did lead another economist to think about the issue. He figured out that people objecting to the idea of trading organs for money wouldn’t automatically prevent a beneficial market. He showed that if there was one person who had a brother, say, who was willing to donate a kidney but was not a proper match, we could create a donor bank where they could make a “trade” with a mother in some other location who was willing to donate a kidney to her own child but was not a match. Instead each one donates to the bank, which gives their relative a credit at the bank. Such a bank can save the lives of thousands by encouraging more people to be kidney donors and by making it so that your survival doesn’t depend on you finding a match among close relatives. And it’s an idea that comes straight from the principles of economics.

The “new” Chicago School of Economics is not really about politics at all. It’s not right wing or left wing. It’s about a way of thinking about the world. It starts from the basic theory that, for the most part, people try to do better for themselves. If this is true, they will respond to incentives so that, in most cases, competition will drive them to be more efficient. That theory then says: Let’s get the data and think hard about causality, because we don’t have much in the way of controlled experiments. And let’s see how far that will take us. But that simplicity of purpose is quite a large part of why people hate us. We really don’t deal with the loftiest ideals of humanity. We deal with humans at their most mundane. We aren’t about narratives and inspiration or how people would behave in their finest hours. We are about how people behave in the everyday marketplace. I think we are especially hated because of the nagging fear on the part of idealists that we might be right about people. Our world view begins with a few of the following points:

First, economists typically ignore what people say and only look at what they do. We pay no attention to what you say in surveys about how much you love the environment, about how you intend to buy a Prius and start taking public transportation to reduce our dependence on foreign oil. Instead we know you are lying because we can see that people continue to buy a lot of gas even when the price goes up. What people say they are going to do and what they do are barely correlated. People say they don’t care about taxes but make sure to buy books from sellers out of state so  they don’t have to pay sales tax. Even in their dating, what they say they want in a partner and the kind of person they actually date are often far apart. Economists have derived ways to use the information about choices you make to infer what your internal “utility function” must be. People hate having their statements ignored and their choices examined.

Another thing they don’t like is having to make choices between imperfect alternatives. Economists are perfectly comfortable in a world of choosing between the lesser of evils. In our world, everything is an evil. Nothing is perfect. As long as we can see the alternatives and compare them, economics is in its element. Nor are we upset about sunk costs—crying over spilled milk. You’ll never see the economists crying over spilled milk. We’re the people getting up and walking out of the crappy movie because we have better things to do with the next two hours of our time. The $10 you paid for a ticket is a sunk cost. You can’t get it back, so it’s irrelevant. Sunk costs shouldn’t affect your decisions.

Next, economists don’t take anecdotes for answers. And that irritates people. Out of one hundred smokers, fewer than six will get lung cancer and less than 25 percent will die of something related to smoking. That means that there will always be millions of people who smoke all their lives with no health problems and die at age ninety in a car accident or something. But if you conclude from your uncle’s long life that smoking doesn’t harm people, you are no economist. People hate us because we really don’t care about their uncle. We just want the data on everybody.

And that plays into the last thing: We spend lots of time thinking about causality and indirect effects. Economists documented the big increase in income inequality throughout the 1980s. But we didn’t just wring our hands saying, “Look, inequality is up.” We spent the next two decades pushing hard on the data trying to figure out the root causes of rising inequality. We showed that the inequality was highly tied to an increase in the premium for skills—the earnings of college graduates skyrocketed compared to the earnings of high school graduates, for example. We then tried to figure out whether immigration was pushing low-skill wages down, whether the rise of computers at work was driving high-skill wages up, or whether the shift of consumer spending away from actual manufactured things to services could account for the hit to low-skill workers (since manufacturing industries tended to pay good wages to lower-skill employees).

We also look at indirect effects, which are, ironically, often quite easy to predict. I recently saw an exposé on TV about fat in our diets. They noted that education about fat in milk has led to a huge drop in the level of fat we get from milk. But the kicker from the report was that at the same time we have started drinking less high-fat milk, there has been an almost identical increase in the amount of fat we are eating in our cheese! I guess no one talked to an economist for this report. But they should have. Think about it: Cow’s milk has the same amount of fat no matter what. If people stop buying the high-fat milk, the farmers are going to put it somewhere. Did  you think they were just going to throw it away? Unless it’s going into dog food or something, cutting fat out of your milk is going to mean lower prices for cheese and more people buying cheese. The prices of cheese may change, but the farmers are always going to sell what they have in one
form or another.

But that’s the problem with economics. It’s always taking the fun out of everything. As I like to say, economics is frequently hated but seldom wrong. It’s like the guy in the movie My Cousin Vinny. Ralph Macchio (the Karate Kid) and his buddy are on their way to college when they mistakenly get arrested for murder in Alabama. They bring in Macchio’s cousin Vinny as their lawyer, but Vinny has only just passed law school and is really an auto mechanic. Macchio’s friend wants to dump Vinny as the lawyer, but Macchio tells him he shouldn’t. He says something like, “You know the birthday party magician Alakazam? Alakazam was at a party doing tricks. Every trick he did, Vinny was like, ‘No, no, wait a second. He’s palming it and the rings are breakable and the card is up his sleeve.’ It was Alakazam’s worst nightmare. But he wasn’t being a jerk. He was just being the quintessential Gambini.” But Macchio wasn’t thinking big enough. Actually Vinny was really just being the quintessential Chicago economist. It’s who we are. We live to argue. How does the world work? Where should we eat lunch? Anything.

We know that everyone hates us. The reason we don’t care is that we are too busy arguing with each other to pay attention. In our world, it doesn’t matter where you got a degree or how old you are or where you are from. It just matters what your ideas are. And that’s how it should be. Ironically, somehow the place that puts no status on being the grand old scholar of the field—the place where the junior faculty are chewing out the Nobel laureates for getting it wrong—is the very place that seems to extend the intellectual lives of its grand old scholars far beyond other universities. Come to a seminar any week of the year in economics, and you will find scholars in the thick of a debate that would long since have been considered “checked out” anywhere else. It’s actually quite thrilling.

After I gave my first talk at Chicago, I went to dinner at the restaurant in the Windermere—Piccolo Mondo—and they had paper tablecloths. Some guys in the audience continued to debate me out of the
seminar room and then in the car over there and then in the restaurant. We were writing all over the tablecloths and not ordering. After about twenty minutes, the waiter walked up and said loudly, “Ahem . . . may I get you anything?” The most senior person there looked up and said, “Well yes, we really need some more tablecloths.”

It’s not just Chicago economists, though, and you know it. It’s what Chicago is like. I had the pleasure (and pain) of serving on the search committee that selected our illustrious new President, who is presiding over his first convocation here today. There were faculty from all the divisions on the committee. I really knew only economists before that. Over the course of the search, I came to see that we all have that intensity. It’s just who we are. We are the only place in the world where you go into the classrooms, and not only are the boards full of writing but people have written off the edges and there are chalk marks on the walls. It’s why when you come back here in ten years or fifty years or whenever, you will still find us asking for more tablecloths at Piccolo Mondo and the classroom walls still will have chalk marks on them. As long as there is a seminar room, you will still find the economists in there arguing with each other about how the world works. There are people who think that a place like this cannot succeed—no $50-billion endowment, no cache of the social elite, no whatever it is. But as long as we have students and alumni with the spirit that you have and a culture with the intensity that Chicago has, and as long as there is a seminar room that the faculty can meet in . . . I have to tell you—I like those odds. “