George Akerlof, an economics professor at the McCourt School of Public Policy, released “Phishing for Phools,” co-written with Robert Shiller of Yale University, Sept. 22. The co-recipient of the 2001 Nobel Prize in Economic Sciences, Akerlof served as a visiting scholar at the International Monetary Fund from 2010 to 2014. His career in teaching began in 1978, and he taught at the London School of Economics and the University of California, Berkeley before joining Georgetown’s faculty last year.
In his book, Akerlof argues against the idea that economic markets solely provide citizens with material well-being and can actually harm more than help. “Phishing for Phools” is Akerlof’s second collaboration with Shiller, after 2009’s “Animal Spirits,” which also examined economic policy making, but on a macro level.
In an exclusive interview with The Hoya, Akerlof discussed the economic ideas in his new book and how his experience in academia influenced his work.
What are the main ideas of your book and what are you trying to convey?
Economics is mainly about equilibrium. Psychology is about how we mainly make dysfunctional choices. So what this book does is combine psychology and also sociology with the notion of equilibrium, and we discover that there is another serious problem with Adam Smith and that is that people make those dysfunctional choices. … Markets are very efficient if we know what we want, but they also give us what is not good for us when we can be tempted.
What would you say the main thesis of the book is?
The main thesis is that this basic ideology that markets should just be able to let us choose also fails to take into account that markets will also tempt, dupe, manipulate us into making choices that are not good for us, so long as there is a profit to be made.
You have been an economics professor for a very long time. How do you feel like your time in academics has contributed to your book?
This book is really aimed at what economics is. I think when I first began as an assistant professor at Berkeley teaching economics, they emphasized what is known as general equilibrium theory, and at the time I don’t think that I really appreciated general equilibrium theory, but being there and knowing that this was something that people took seriously actually led what to I think is the key idea of the book. The key of the book is to go back to Adam Smith, who says that markets are essentially good for us. This says that there is an important codicil also is that markets will do is that they will fool us and manipulate us as long as they can make a profit out of us. You don’t see economics writing about this.
For the past 50 years American economics have been very similar in policy. Would you have changed any of those? And clearly we are now in a very different type of economy. What economic ideas should account for the economic theory that you put out?
The original title of the book, before we got “Phishing for Phools,” was going to be “Common Sense.” We used to have economics which was rather pragmatic. If there was something that you would need, you would look at the costs and look at the benefits. … You did something if you thought it was going to work. Unfortunately, I think we have come to view government as a problem rather than a solution. Now, government may not be a perfect solution. We don’t have perfect solutions to all of our problems. We work toward them by a sort of trial and error and we sort of get there.
The view of the book is that over a very long period of time, over the whole progressive era, that we evolved solutions to problems that were better than having no government involvement at all. These things make major, major, major differences in people’s lives. One example is social security. There’s environmental regulation. There is regulation of businesses in all kinds of ways. There is the national highway system. Regulations regarding employment, which means that they are nondiscrimination. The list goes on and on and we all depend on this, but the thing is that we depend on them so much that we tend to take them for granted. … So my view is that we should appreciate what we have. That government insofar as it should play a role does play a role and we should act cautiously so that it continues to work.
Is there anything else you would like to add?
The more I am here at Georgetown, the more I admire the Georgetown community and the values that it has. I think that this book is supposed to be basically about. The book is about going back to the values of the Georgetown community where people care about each other. That is a very important aspect of an economic system that works right. That says that I can do anything and then you go out and whatever markets allow is going to in some sense need all of pulling together to help each other, and that’s not just the government, but is everybody. It’s government. It’s businesses. It’s all sorts of people, and I think that’s what Georgetown is all about.