Do Academic Reputation Systems Track Truth and Goodness?

An Entrepreneurial Solution to Truth-Seeking

The de facto mental model that many people have of academia is that it is an “efficient market” for truth seeking. That is, just as it is difficult to obtain alpha in stock markets because markets are highly efficient, so too in academia it is difficult to discover important truths about the world because millions of brilliant minds at prestigious universities are competing with each other in the race to publish new intellectual insights. From this perspective, reliable proxies for the most accurate “true ideas” are likely to be mainstream markets of academic prestige such as citation counts, h-indices, and rankings of university departments. For most of us, in our vast ignorance compared to prestigious professors, we should defer to their judgments, at least within their domains of expertise.

An implicit assumption for such collective truth seeking is that each scholar is rigorously identifying the strongest arguments against their own positions. If, instead, scholarly work is simply a matter of optimizing a professional career within the existing incentives of academia, then a successful scholar need only do what is necessary to publish articles in sufficiently prestigious journals (as defined by each academic discipline) to be hired, achieve tenure, and then advance. (Relevantly, a friend of mine is a scholar at an Ivy League university who says that for most scholars, academic work is simply a matter of having an inbox and an outbox, doing what it takes to succeed, with no regard for truth seeking). If, for instance, sociologists, geography, or history professors need not attend to the arguments advanced in economics, then of course they can be achieve academic success without any awareness of evidence in other academic disciplines.

Moreover, if academic disciplines are not tethered to empirical predictions, then there is no guarantee at all that they will converge towards truth. This is why Popper insisted that to be regarded as scientific, a theory needed to be falsifiable. If theorists could accommodate any empirical evidence, or was entirely divorced from empirical evidence, then there is no reason to regard such theories as scientific - or truth seeking.

Could Gambling Save Science?

Because we are integrating prediction markets into our STEM curriculum at The Socratic Experience, I began the year this year with a faculty Socratic discussion of Robin Hanson’s “Could Gambling Save Science?” It begins with an overview of the problems with academia,

Academia is still largely a medieval guild, with a few powerful elites, many slave-like apprentices, and members who hold a monopoly on the research patronage of princes and the teaching of their sons. Outsiders still complain about bias, saying their evidence is ignored, and many observers have noted some long-standing problems with the research component of academia. (Teaching is not considered here.)

Peer review is just another popularity contest, inducing familiar political games; savvy players criticize outsiders, praise insiders, follow the fashions insiders indicate, and avoid subjects between or outside the familiar subjects. It can take surprisingly long for outright lying by insiders to be exposed. There are too few incentives to correct for cognitive and social biases, such as wishful thinking, overconfidence, anchoring, and preferring people with a background similar to your own.

To my surprise, several faculty members were taken aback by Hanson’s critique of academia. I had forgotten that many people still take academia seriously.

To be fair, Hanson is being deliberately provocative. Moreover, for my purposes I’ll assume that mathematics and the hard sciences actually function pretty well in academia with respect to the pursuit of truth. But in the two domains I know best, economics and education, I don’t take academia too seriously as a source of definitive truth (without even getting into the replication crisis, the generalizability crisis, and fraud). Here I’ll focus on economics (I’ll focus on education at some point in the future).

A Brief History of Where Prosperity Comes From

To simplify the intellectual history of economic prosperity, I’ll divide economic paradigms into three types:

1. Adam Smith’s “System of Natural Liberty,” based on the classical liberal formulation of property rights, rule of law, and freedom.

2. Marxist socialism, government controlled economies.

3. State led economic growth based on an underlying substrate of property rights rule of law, and freedom (e.g. Industrial Policy).

The brief intellectual history is that most economists have recognized the first as the fundamental framework for economic growth, the second has always been batshit crazy from an informed economic perspective, and the third is sometimes plausible - but note that, like the first, the successful cases always include an underlying substrate of property rights, rule of law, and freedom.

Insofar as many Marxist academics outside of economics advocated for the 2nd for much of the 20th century, that fact alone should disabuse us of the notion that academic reputation provides a valid truth-seeking mechanism. As we all know, most Marxist regimes collapsed between 1989 and 1991. Meanwhile, China introduced Special Economic Zones (SEZs) which are among the most hyper-capitalist regions in the world. The remaining examples, Cuba, North Korea, and Venezuela, are a depressing reminder of just how ineffective and evil this system was.

Richard Cantillon, Hume, and Adam Smith developed the original framework for free market economics. Smith famously said,

Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.

By 1883, William Graham Sumner succinctly states,

The modern system is based on liberty, on contract, and on private property.

Classical liberal economists into the 1930s would recognize this formulation.

Austrian economists such as Mises and Hayek continued this tradition through the dark ages of the 30s, 40s, 50s, and 60s as mainstream economics became devoted to mathematical models that ignored the role of liberty, contract, and private property and Marxists became influential in economic development and across academia. Market advocates did so courageously and against tremendous resistance. They were marginalized and ridiculed across the academic mainstream throughout this period.

Hayek’s The Constitution of Liberty in 1960 brought the importance of rule of law back into the conversation, though it was highly marginalized at the time. It was not until many decades later that the importance of the rule of law once again became widely recognized in development economics. Indeed, Marxism had denigrated rule of law and any constraints on power as a fantasy.

In the 1960s and 70s, Hong Kong and Singapore gained attention for their rapid growth. John Cowperthwaite, the financial secretary of Hong Kong widely credited for its success, was an unabashed classical liberal in the mold of Adam Smith,

“Over a wide field of our economy it is still the better course to rely on the nineteenth century’s ‘hidden hand’ than to thrust clumsy bureaucratic fingers into its sensitive mechanism. In particular, we cannot afford to damage its mainspring, freedom of competitive enterprise.”

Lee Kuan Yew, who brought Singapore to prosperity, aggressively courted multinational corporations by means of business-friendly policies. At a time when much of the developing world regarded capitalism as exploitative, Yew basically said, “Come exploit us” and thereby made Singapore rich as well.

Today there is an active discussion among development economists between those who advocate for prioritizing an institutional framework that would provide the foundations for market economies, on the one hand, and those who advocate for industrial policy, on the other. But none of those who advocate for industrial policy would deny that property rights, rule of law, and a certain amount of economic freedom are necessary for prosperity (For instance, here is Dani Rodrik, a leading development economist who is critical of an excessive emphasis on economic freedom acknowledging “a bow in the direction of conventional wisdom”). The Marxist fantasy is fully off the table among credible economists.

In 1989, socialist economist Robert Heilbroner acknowledged this truth directly,

"Less than 75 years after it officially began, the contest between capitalism and socialism is over: capitalism has won… Capitalism organizes the material affairs of humankind more satisfactorily than socialism."

An implication of this fact for me is that 20th century socialist academics should have acknowledged they were wrong. In the 1990s I was expecting a major mea culpa from these figures. Instead, one finds pieces such as Ronald Aronson’s “Mourning Marxism” in 2003. Most of the academic left has never had the intellectual honesty of Heilbroner’s blunt, “Capitalism organizes the material affairs of humankind more satisfactorily than socialism.” For that refusal to acknowledge reality alone I can’t take anti-capitalist academia seriously (i.e. most of the social sciences and humanities).

But my disappointments are deeper and longer standing.

The Assumptions of Economics

In the fall of 1986, I went to the University of Chicago with the intention of proving the Chicago economists wrong. I had finished my B.A. at St. John’s College where I had developed a deep interest in the philosophy of science, on the one hand, and moral and political philosophy, on the other. Because all respected intellectuals knew that socialism was morally superior to capitalism, and yet the Chicago economists claimed to be “scientists,” I wanted to study them up close to see exactly where they had gone wrong.

One obvious place they had gone wrong, of course, was to assume rational self-interest as the foundation of human behavior. Again, everyone knew that this was false. Why did they persist in such an absurd assumption?

I accosted Gary Becker, the arch-rational choice theorist of Chicago, with these criticisms. He graciously pointed me towards his 1962 article, “Irrational Behavior and Economic Theory” along with Armen Alchian’s 1950 article, “Uncertainty, Evolution, and Economic Theory.” Becker’s article showed that even if one assumed that choices were random or inert (continued past choices), then the basic economic principles of supply and demand would be the same. Thus the core of economics does not “depend” on the assumption of rational choice. To get a sense for how robust a conclusion this is, a 2009 paper critical of Becker in light of experimental economics notes, “Indeed Becker’s convergence results hold only if one is interested in aggregate rather than individual demand and concentrates on the expected or average outcome of random choice” And, indeed, insofar as most of economics is focused on aggregate demand, Becker’s approach has been robust.

Alchian’s article basically shows that the simple fact that only profitable firms survive leads to de facto similar results as the assumption of “profit maximization.” Thus although I continued to believe that the assumptions of economics were behaviorally unrealistic, I saw that most of economic theory was robust even without those assumptions.

More importantly, I was disappointed that the dozens of critiques of the “rational choice” assumptions of economics that I had read by academics and public intellectuals at no point mentioned Becker nor Alchian’s articles. It was immediately apparent to me that academic and intellectual debate was not an “efficient market” in ideas.

Capitalism Makes the Rich Richer and the Poor Poorer

The other, even greater, shock that I discovered came while taking a class from Nobel laureate George Stigler. He mentioned that the standard of living of the working class had improved during the Industrial Revolution under laissez faire capitalism. This was an outrageous falsehood! Every intellectual I had read up to that point recognized that capitalism made the rich richer and the poor poorer.

So I went deep into the bowels of Regenstein Library to the economic history bookshelves to prove Stigler wrong. To my horror, at that point the debate among economic historians was not whether the working class standard of living had improved in 19th century Britain, but merely at what point and how quickly it had improved. Some argued that wages only began to increase after the end of the Napoleonic Wars around 1815, others that it wasn’t until the 1840s that Britain saw significant and sustained wage increases. But it was absolutely clear that by the mid-19th century, long before unions and progressive reforms had had time to have a significant impact, the working class was seeing wage increases and had widespread access to goods that had previously been considered luxuries, such as sugar, tea, cotton clothing, books, travel, etc.

Debates remained about diseases associated with urban working class life, especially before cities developed adequate sanitation. Thus the debate regarding whether or not the Industrial Revolution was beneficial to the working class no longer centered on Marx’s claim that capitalism would lead to the immiseration of the working class. By the end of the 19th century, even Eduard Bernstein, Engels’ literary executor, realized that Marx’s prediction of the immiseration of the proletariat was false.

Learning that essentially every anti-capitalist intellectual, whose entirely world view had been premised on the idea that capitalism made the rich richer and the poor poorer, was empirically wrong left me profoundly distrustful of academia. If a fact of such moral significance could be ignored or denied by most scholars outside of economics for decades at a time, how could I take anything they said on political economy seriously anymore?

Economic Growth and Economic Development

Another prejudice I had against capitalism and economics was their fetishization of economic growth. As a humanist intellectual, disgusted by the crass commercialism of American society, it was perfectly clear to me that quality of life was much more important than economic growth. Moreover, there are so many legitimate intellectual critiques of Gross Domestic Product as a metric (e.g. the fact that gambling and porn contribute to GDP but important human work of mothers does not).

Of course, anyone who spends much time in looking at economic development soon discovers that almost all metrics of human well-being rapidly increase along with GDP per capita. For instance, because of critiques of GDP per capita, in 1990 the U.N. launched the Human Development Index (HDI). But by 2005 it was clear that changes in HDI were statistically indistinguishable from changes in GDP per capita because the two tracked so closely. While it is less clear that increased GDP per capita leads to greater well-being at higher levels, certainly up to perhaps $30K it is unambiguous that the global poor would be better off being much richer.

Of course the next line of criticism is that only the rich benefit from economic growth. But that turns out to be false as well. By 2001 it was clear that under most circumstances, people at every quintile benefit from economic growth. That is less true when wealth is due to natural resources (e.g. oil or diamonds). But when an economy is actually transformed from agricultural to manufacturing, real economic development, then everyone wins.

Yet to this day there is a degrowth movement in academia, led by Jason Hickel. Certainly when applied to poor nations, it is appalling. But Hickel is as economically illiterate as they come. For instance, he believes that rent control can be part of an effective degrowth strategy,

“If the cost of housing is halved by rent controls, my ability to access housing improves without any increase in my income; in fact, I could work and earn less and still meet my needs. If any of these policies cause GDP to decline, that is okay, because people’s well-being will go up - and that is what matters.”

Meanwhile, Swedish economist Assar Lindbeck once wrote, “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing” and “In the late 1970s, a poll of American economists found that ninety-eight percent agreed that “a ceiling on rents reduces the quantity and quality of housing available.”

Hickel remains a socialist in 2024. I’d be happy to set up a reputational bet with him on a variety of topics.

From Socialism to Capitalism in Economic Development

Moreover, it was clear from the 1980s onwards that market economies outperformed socialist economies. In the 1930s many intellectuals had come to believe that the Marxist socialism of the Soviet Union was a successful economic model and that the Great Depression demonstrated that capitalism was a failure. Even after the West resumed economic growth after WWII, many economists believed that the Soviet Union was growing faster than the US, demonstrating the economic superiority of socialism into the 1960s.

Sadly, most colonies liberated themselves from their colonial masters in the 50s, 60s, and 70s while socialism was en vogue and falsely believed to be superior. For instance, many newly liberated African nations were founded as socialist regimes. Even ostensibly “capitalist” nations in Africa such as Nigeria used “five year plans” in the 1960s for state-led development. Similarly, in line with the development economics of the time, there was essentially no focus on the need for classical liberal institutions of property rights, rule of law, and economic freedom.

John Kenneth Gailbraith, an economist and the leading public intellectual of the 1960s, believed that the two systems were converging, and that there was no longer a role for entrepreneurship in the mature industrial state. In a 1973 book documenting a visit to China, A China Passage, he celebrates Mao’s system and believes that it is right for China and as effective as capitalism. He was accompanied by two Nobel laureate economists who did not disagree.

But by the 1970s Milton Friedman and Alvin Rabushka were celebrating the rapid growth of Hong Kong. Hong Kong was the most free market jurisdiction in the world and the fastest growing in the world. By the 1980s there was a literature on the four Asian “Tigers,” Hong Kong, Singapore, Taiwan, and South Korea, as the most successful models of economic development. Although today many development economists emphasize the role of industrial policy in the development of Taiwan and South Korea, relative to all socialist nations they were exemplars of free market capitalism.

In the late 1980s, a group of economists began working on the first economic freedom index to measure the extent to which economies were organized around market principles. The result, The Economic Freedom of the World, has consistently shown high correlations between economic freedom and prosperity. One of the benefits of such an index is that it shows that as different as Scandinavian nations, East Asian nations, and Anglophone nations are, they all have high levels of economic freedom relative to controlled economies such as Venezuela, Zimbabwe, or Argentina (pre-Milei).

In light of the clear benefits of economic freedom for prosperity, I can’t take any academic seriously who makes disparaging remarks about “neoliberalism.” Yet at this point, the epithet “neoliberal” is ubiquitous in academia. Matt Yglesias has a good recent piece on how uninformed it is when applied to U.S. policy. But when applied to economic development it is even more uninformed.

Yes, there is a large literature critical of the Washington Consensus. And there is also an economically informed literature that shows various benefits associated with the Washington Consensus policies of the World Bank. A 2022 summary from Brookings, which acknowledges the hardships resulting from many Washington consensus policies concludes,

First, the evidence across the papers and panels leaves little doubt about what policy ingredients countries need to grow: macroeconomic stability; openness (to trade and knowledge flows from the rest of the world); a role for markets in allocating resources; and high levels of saving and investment. But figuring out how to assemble these ingredients into pragmatic and inclusive growth strategies requires governance that holds leaders accountable, even as it gives those leaders agency to design country-specific strategies given local constraints and considerations.

Basically most economists agree that market-led economies are crucial for economic growth and prosperity. Academic critics of “neoliberalism” that neglect this perspective are simply ignorant (for a challenging Scavenger Hunt, find an academic outside of economics who defends “neoliberalism.”)

Zones in Economic Development

As an example of where even the economists were clueless, consider the role of Special Economic Zones (SEZs) in economic development. First of all, they arose spontaneously from nations seeking to increase exports without changing national policies. The were not recommended by development economists. Indeed, they have been almost entirely ignored by development economists. Development economist Bill Easterly acknowledged this in a conference I organized on zones around 2007. In the 1970s there were a few dozen zones globally. Today there are thousands. While development economists were writing thousands of papers purportedly providing cutting-edge research on how nations can transition from poverty to prosperity, the missed what was by far the highest impact strategy in the world.

The most dramatic success has been in China, where the SEZs led to an average increase in urban wages of more than 7x from 2000 to 2020, likely 10x from 1990 to today. These gains were mostly made through pure ruthless capitalism, without any significant union influence nor labor market regulation. They originated in late 70s post-Mao China which explicitly looked to Hong Kong and Singapore as models of economic growth. Shenzhen, the first one, was launched in 1979 and as late as 1986 was regarded as a failure. Today it is the world’s manufacturing hub.

Robert Haywood, who led the World Economic Processing Zones Association (WEPZA) was involved in the zone industry from the 70s until recently. He has worked on zones in dozens of countries and was instrumental to the success of the Chinese SEZs. He believes zones accelerated economic development in China, Mexico, Ireland, Puerto Rico, India, and elsewhere. He argues that they are a path around the oligarchical structures that constrain development in most nations (Nobel laureate Douglass North refers to oligarchy as the “natural state”). Typically zones are launched via people on the periphery of the oligarchy - nephews, cousins, younger sons, and so forth. They have the influence to get zones authorized but are not already part of the rent-seeking establishment. Then once the zones become successful through greater economic freedom, there is a mechanism for greater economic liberalization across the economy.

Charter Cities, Startup Cities, and Prosperity for All

In 2009, economist Paul Romer gave a TED talk on “Why the World Needs Charter Cities?” In it, he proposed city-scale special economic zones that would be governed by developed nations (he proposed Canada at one point). While his proposal was rightly regarded as neo-colonial because of the role that he assigned to foreign goverrnments, the fact that a prominent economist (he later won a Nobel Prize for earlier unrelated work) proposed city-scale zones featuring higher quality law and governance at TED brought the idea into the mainstream.

As early as the 1990s Milton Friedman had been working with banker Ricardo Venezuela to identify sites in Mexico for a “Hong Kong” style jurisdiction, a city scale project featuring high levels of economic freedom. I became involved in this movement in 2004 through Mark Frazier and soon afterwards Bob Haywood as well. In Honduras, Octavio Sanchez, Carlos Paneda Pinel and Mark Klugmann developed a similar idea and then leveraged Romer’s fame to get legislation for such zones passed there. Giancarlo Ibuerguen introduced me to the team in Honduras leading to my role in signing the first agreement to develop such a zone in Honduras. This ultimately led to Romer withdrawing from the project (the most accurate account of the drama is here). The Honduran Supreme Court then invalidated the original RED legislation. A few months later new and better legislation, the ZEDEs, was passed. Instead of using Romer’s concept of a “guarantor nation” with its associated neo-colonialism, the ZEDE legislation was designed as an expansion of municipal autonomy. Prospera is the successful result of this legislation.

My wife, Magatte Wade, is now leading Prospera Africa, the initiative to bring the Prospera Governance Platform to Africa. She and I have met with several African governments and are optimistic that one of them will engage Prospera to develop a Prospera City (Imagine a hundred Singapores across Africa). Because of my 20 years of zone work, including working alongside such experts as Mark Frazier and Bob Haywood, as well as being directly involved with the Honduran government and several African governments, I know more about this movement than any academic economist. And I am a baby in this space compared to pioneers such as Frazier and Haywood. But I have bet a significant portion of my life to what I regard as the most morally important movement on the planet.

In 2018, development economist Lant Pritchett summed up his thinking on charter cities by saying,

In sum, a charter city approach to developing growth-promoting institutions clearly can work, I would like it to work, but I think the reasoning that leads to such a quirky solution is more a reductio ad absurdum than a call to action.

He thought of them as a “last resort” at the time. In 2023 he joined the Charter Cities Institute board of advisors. Welcome to the future, Lant.

Do Academic Reputation Systems Track Truth and Goodness?

In 1893 Eugene Richter published “Pictures of a Socialist Future” which predicted that government control of the economy, as envisioned by socialism, would lead to tyranny. Thus by the end of the 19th century, not only was it clear that socialism did not lead to immiseration of the working class, there was also an argument explaining why pervasive economic control on behalf of egalitarianism would require restricting liberties. Nonetheless, anti-capitalist intellectuals in and out of academia would celebrate Lenin, despite tyranny and mass murder, Stalin, despite tyranny and mass murder, Mao, despite tyranny and mass murder, and “revolutionary violence” across the developing world, despite tyranny and mass murder (Pol Pot being only the most extreme).

Nassim Nicholas Taleb’s 2018 Skin in the Game brought broader attention to “Intellectuals Yet Idiots,” those highly educated people who hold opinions but are not at risk for being wrong. Robin Hanson’s “Could Gambling Save Science?” has led to an increasingly diverse prediction market industry, where anyone can make public bets or forecasts on the likelihood of various phenomena actually happening (see Metaculus and Good Judgment Project).

What if, instead of distorted academic reputation systems such as peer review and institutional prestige, we required reputational bets or formal forecasts of future events in order to regard an academic as a credible source of information?

As economist Bryan Caplan notes regarding how Robin Hanson changed his mind on betting:

Hanging out with Robin didn’t just make me lose my prejudice against betting.  He led me to my current view: intellectuals who refuse to bet on their beliefs are tricksters, frauds, phonies, eels, and blowhards. 

In slogan form: I used to think people who bet were fools.  Now I think people who don’t bet are knaves.

And to his credit, he maintains a public record of his reputational bets (most of which he has won). This should be regarded as a superior model for intellectual credibility than current academic reputational systems.

Imagine what the 20th century might have been like if every Marxist scholar who believed that a Marxist revolution would lead to a positive outcome had been hired, fired, or promoted based on her track record in predictions rather than publication records? Or every development economist who ridiculed Milton Friedman had made bets against him on the benefits of economic freedom? This is not to say that Friedman, for instance, would always have been correct. He was certainly wrong from time to time as well. But being responsible for making forecasts or reputational bets would dramatically increase the extent to which all scholars would develop a real sense of moral and epistemological responsibility.

For much of the 20th century, academia was arguably the world’s leading social problem. We can’t afford another century in which our leading academic institutions elevate intellectuals who support beliefs that led to more than a hundred millions of unnecessary murders along with billions in unnecessary poverty and misery. (We need to hold Joe Stiglitz responsible for Venezuela now).

Current academic reputation systems do not track truth and goodness. If they had, we would not have so much uninformed nonsense published in academic journals by respected scholars. There are 736,000 entries in Google Scholar search on “neoliberalism.” I bet that fewer than 5% of them acknowledge the role of economic freedom in creating prosperity. Want to take me up on it?

Demand that scholars make forecasts, predictions, or reputational bets. And hold their feet to the fire with respect to their track records.