The Wonk Room

What Kind Of Economist Is Phil Gramm?

Our guest blogger is James K. Galbraith, author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too. A former executive director of the Joint Economic Committee, Galbraith teaches at The University of Texas at Austin.

Phil Gramm is not John McCain’s pastor. He’s his closest economic adviser, and according to many reports practically the designated Secretary of the Treasury in a McCain administration. John McCain believes Phil Gramm to be a great economist. To the extent that John McCain has economic ideas, he gets them from Phil Gramm. Or did, until yesterday. So it is perhaps worthwhile to ask, what kind of economist is Phil Gramm?

The public record is clear, and I summarized it a few months ago for The Washington Post: “Phil Gramm’s career was the most aggressive advocate of every predatory and rapacious element that the financial sector has. He’s a sorcerer’s apprentice of instability and disaster in the financial system.” (It is worth noting that when the Post asked Gramm about this, he denied it.)

Back in 1995, when Phil Gramm was politically invincible in Texas, various so-called friends suggested that I should be the sacrificial lamb to run against him. I ducked, as any sensible person would have. But (at their request) I did supply the Dallas Morning News with a referee report on Gramm’s dissertation, along with a few notes on that of his wife. Needless to say, hers was much better.

To inject a note of academic sobriety into this election campaign, my review follows.

To: Susan F—

From: James Galbraith

Subject: Phil Gramm & Wendy Gramm Dissertations

Date: June 8, 1995

Thank you for sending the Gramm dissertations. I have read them through with considerable interest.

Phil’s is a curious document. It is mainly an exercise in the history of economic thought, though I doubt that Gramm thought of it in those terms at the time. His topic is an issue in the theory of consumer demand, namely, what is the precise meaning of the idea that consumers have well-formed and unchanging preferences? His method is essentially, a critical review of literature.

For a Ph.D. dissertation, especially one which is not mathematical (and it isn’t), this one at 79 pages is short. It contains no advanced mathematics, no data or analysis of data, no archival or otherwise original research. It is based solely on published sources available in any well-equipped library at the time, and there is only one reference to anything written after 1960, which for a thesis submitted in 1967 is astonishing. The writing style is for the most part graceless and involute, marred here and there by misused words like “fecundities.” It is belabored and repetitive, with chapters that overlap each other. It is basically an extended discussion of a single idea.

Gramm’s basic point is that “the constant utility demand schedule is the only theoretically valid formulation of the demand schedule…” (p. 29). This is not without some interest. The point is quite subversive of modern empirical microeconomics, particularly in view of this statement, which is also possibly the only vivid metaphor in the thesis:

“Movement off the utility level from which the utility surface was projected in a dynamic context, with the specification of a time period of adjustment, alters the form of the utility surface and it flaps like a sheet blowing in the wind.” (p. 30)

What this means in English is that you can’t draw welfare conclusions (that is, inferences about whether people are better or worse off) from an empirical analysis of their changing choices under changing economic conditions (changing prices or technologies) — which is a lot of what applied microeconomics tries to do. The structure of preferences in the course of changes is unlikely to remain stable, Gramm argues, and therefore data cannot be interpreted along the lines that traditional theory requires.

It is probably not useful to speculate on what this dissertation means for Gramm’s later political views. His references are weighted toward Chicago and the conservative economists he is identified with.

However Alfred Marshall, author of the first modern principles text and a distantly historical figure even thirty years ago, seems to be the economist with the strongest influence over him.

Perhaps more significant is the skeptical attitude toward data and evidence. If you take Gramm’s methodological position, you are left with a real quandary as regards research: other than introspection, pure math and literary criticism, what is an economist to do? This may account in part for Gramm’s migration out of academic economics and into politics, where an unapologetic life can be built around simple verities. But then again that may be giving the man too much credit.

On the whole, Phil Gramm’s thesis could have been condensed to an interesting article at some point in the development of twentieth century microeconomic theory. My guess is that the proper moment for that article would have come in the late 1940s, or some twenty years before Gramm actually wrote his dissertation. By the time he did write it, the mathematical character of the field had long since outpaced the very modest display of technique here, and the concerns Gramm writes about would probably have already been considered antique in most quarters. It would be interesting to know if Gramm got anything published out of this, and if so, where.

Wendy Gramm’s dissertation, done three years later at Northwestern, is a striking contrast. It is a display of mastery over a wide range of techniques, ranging from the development of theoretical model to the collection of data and application of econometric technique. Wendy’s writing in contrast to Phil’s is clear, well-organized and purposive. Her math is certainly competent for the time. You don’t have to have a deep immersion in her field to know what she’s getting at.

There is an interesting potential conflict between the two dissertations. Wendy’s is an empirical analysis based on the utility theory that Phil does not believe can underpin an empirical research agenda. One wonders what role this issue played in their marriage.

On the whole, it is obvious that Wendy was trained to be a working professional economist — which she became. It is equally clear to me that Phil got his degree in order to move on and do something else. Had he stayed in economics, he probably would not have prospered.