Branko Milanovic on the Big Questions of Economics
What this covers
Branko Milanovic and Russ Roberts conduct a wide-ranging conversation about what economics as a discipline has chosen to study and what it has left behind. Milanovic argues that academic economics has contracted itself into studying small, answerable questions within the last 40–50 years of capitalism, leaving untouched the largest economic events in human history: China's transformation, the rise and fall of socialist systems, slavery, colonialism, and the Industrial Revolution. The core complaint is structural. Young economists face incentives to pursue narrow, solvable problems with measurable outcomes; the Nobel Prize reinforces this preference by rewarding methodologically tight work on recent capitalism; and ambitious scholars tackling irreducibly complex historical questions find little institutional reward. Roberts and Milanovic explore what it might look like for economics to return to its roots—studying the evolution of all economic systems and the material welfare of ordinary people—rather than treating the last few decades as the only legitimate subject.
The conversation moves through specific cases where neoclassical economics falters. In socialist economies, Milanovic explains why chronic shortage emerges not from failure but from rational behavior: soft budget constraints cause enterprises to hoard inputs, creating simultaneous gluts and scarcities. On slavery, he argues that the neoclassical economics dismissal of it as merely irrational cannot explain why millions sustained the practice across millennia; that it required wars and legal action to end suggests it made economic sense. He tracks how [personal goods becoming capital](concept:Personal goods becoming capital)—homes rented on Airbnb, cars on Uber, time monetized as influencer content—reshapes behavior through visible pricing, pulling individuals into commercialization even reluctantly. Throughout, the pair wrestle with whether examining unanswerable questions still advances understanding, whether competition truly functions as a public good, and whether the signaling function of prizes could redirect economics toward the questions that matter most.
Milanovic argues that academic economics has narrowed itself to small, solvable problems within a 40-50 year window of modern capitalism, and that the discipline (and its Nobel Prize) should instead reward ambitious work on the biggest unsolved questions—China's rise, socialist economies, slavery, colonialism—even when definitive answers are impossible.
- The biggest economic events (China's transformation, the Industrial Revolution, slavery) resist narrow neoclassical theory and are therefore left unstudied and unrewarded.
- Academic incentives and gatekeeping push young economists toward small answerable questions, while a good unanswered question can still advance understanding.
- Economics should return to its roots—studying the evolution of all economic systems and the betterment of material human conditions—rather than treating recent capitalism as the only subject.
Economics gatekeepers cannot perceive research outside their methodological framework, causing systematic neglect of major historical topics and alternative systems.
- Gatekeepers in economics are not malicious but genuinely cannot perceive what exists outside their methodological framework; the grooves of their way of thinking are so deep that they cannot understand a different way of looking at issues, mistaking dissent for failure to grasp the obvious.
“they honestly don't know what exists outside of that.”
- The work rewarded by the Nobel Prize in economics is methodologically narrow and treats the last 100 years of capitalism as the only subject economists should study, systematically leaving aside big questions and alternative economic systems.
“the type of work which is being rewarded, not only this year but generally speaking, is the work, which is from a methodological point of view, and from the view of economics as science is relatively narrow.”
- Dismissing socialism from study because 'it didn't work out well' is wrong; socialism was a huge economic and political system that existed and functioned, and like medieval economies, Roman economies, or slavery, it is an economic system we need to understand rather than confining economics to the last 30-40 years covering about 8% of the world's population.
“this is a huge economic and political system that existed, that worked; and then we have to understand it.”
- Economics should return to its roots as a social science whose objectives are to study the evolution of all economic systems (not only capitalism) and to improve the material conditions of ordinary human life, following Smith, Marx, Ricardo, and Marshall, rather than confining itself to recent capitalism.
“economics is a social science whose objective is to study the evolution of economic systems. When I say systems, that's not only capitalism, that's all the others”
- Economics is uniquely self-referential within its own current time, being the only social science that does not relate in a sustained way to its origins (Ricardo, Marx, Smith), unlike jurisprudence or political science which engage with their founding thinkers.
“it's the only social science that does not really relate in a sustained way with its origins.”
China's economic transformation is the largest economic event in modern history but remains vastly understudied and cannot fit any single dominant economic theory.
- China's economic transformation cannot be subsumed under any narrow confined theory—it is neither neoclassical, classical, nor Marxist, but a unique and often haphazard recombination of globalization, market orientation, dual-track pricing, partial privatization, and continued state involvement that resists single-cause explanation.
“It's neither neoclassical, it's not classical, it's not Marxist. It's really a combination, which is very unique.”
- China's transformation is the biggest economic event of our lifetime and possibly one of the biggest in economic history, transforming the lives of one fourth of mankind, ranking it alongside the Industrial Revolution and the rise of the United States—yet it is largely unrewarded as a research topic.
“if you were to select one topic which has really transformed lives of so many people, one fourth practically of mankind.”
- The share of The Wall Street Journal devoted to the economics of China has grown from roughly 1% in the 1980s to now the second-largest country coverage after the US, and the consistency between visible street-level observations and official macro figures lends credibility to Chinese growth numbers despite doubts.
“one half, I think literally, of the daily edition of The Wall Street Journal would be spent on economics of China”
Literary and historical evidence, including 19th-century fiction and socialist economies' soft budget constraints, provides reliable data for understanding economic systems and their actual functioning.
- Young economists must follow the dominant stream to get jobs, and over time they absorb and come to believe the viewpoint they may have once doubted, so that by 45 or 50 they are firm believers in ideas they were skeptical of at 25.
“by the time you are 45 or 50, you are really a big believer in something that maybe you were somewhat doubtful when you were 25.”
- The fact that French and English literature is far richer in income and price data than Russian, African, or Asian literature implies that the level of commercialization and capitalism was much greater in 19th-century Europe than in more agricultural societies, so the presence or absence of economic detail in fiction is itself an indicator of a society's commercialization.
“the level of commercialization and the fact with capitalism has been much greater in, obviously, 19th century Europe than it was in more agricultural societies like Russia, or Africa, or Asia”
- Serialized 19th-century novels (Austen, Dostoevsky, Balzac) provide trustworthy data on incomes, wages, and prices because authors writing in installments would have been exposed and ridiculed for getting numbers wrong, making such literature a reliable source for reconstructing the economic history and class relations of their time.
“If you really don't know your topic well, you will be revealed”
- In socialist economies, chronic shortage is not a strange outcome but the rational result of soft budget constraints: each enterprise hoards as many inputs (labor, raw materials) as possible, producing the simultaneous presence of a glut of stockpiled inputs inside firms and a shortage outside as everyone bids for the same scarce goods.
“shortage is indeed a rational behavior, so it is not--in the socialist economy, it was not some kind of strange outcome.”
- Heavy subsidization in socialist economies forces them toward autarky: because products like sugar, oil, and gasoline are subsidized (subsidies reached 15% of GDP in 1980s Poland), the state must impose export controls to prevent foreigners from buying subsidized goods, so the rational individual behaviors aggregate into an outcome that looks bizarre from outside.
“if you subsidize your products--you don't want Germans to come and buy sugar, and oil, and gasoline in your country.”
- Major economic theories arise from observing real-world problems rather than abstract thought; Keynes's General Theory would not exist without the Great Depression, which he was confronting directly, demonstrating that empirical observation of large developments has been crucial to economics.
“does anybody not believe that without the Great Depression, there will be no General Theory?”
- The neoclassical dismissal of slavery as merely an economic mistake is implausible because millions of people across more than 4,000 years and many civilizations kept practicing it; that it had to be ended by wars and legal action rather than collapsing on its own suggests slavery made economic sense to those who used it, even if it was inefficient at higher levels of development.
“it just cannot be that millions of people all over 2,000 years--at least, there actually more than 4,000 years or 8,000--kept on making a mistake.”
- A waiter in a touristy area historically had no incentive to satisfy any individual tourist because the supply of tourists is effectively endless, but online review platforms create a new feedback mechanism that did not exist before and can push such providers to behave better.
“the advantages come from the ability of you to judge on the internet or to put your view about the service of the restaurant”
Major prizes should signal which topics and questions matter and elevate otherwise unknown scholars, but the Nobel Prize in economics narrowly rewards recent capitalist studies while ignoring socialist economics and other systems.
- Major prizes in economics should serve a signaling function (highlighting which topics and questions matter) and a didactic function (promoting otherwise unknown scholars and areas), much as the Nobel Prize in Literature elevates authors from smaller literatures.
“it should really signal the issues, the topics that are important.”
- Socialist economics, a system that existed and functioned for over 20 years during the Nobel Prize era (since 1969), was left entirely untouched by the prize, reflecting the broader neglect of non-capitalist economic systems.
“that is actually Socialist Economics. It was always, also, totally left untouched by the Nobel Prize.”
Capitalism and imperialism arose together with causal links, and oppressive systems imposed large unstudied economic costs through human talent waste and exclusion.
- Imperialism and capitalism arose together, and although co-occurrence is not proof of causation, there is likely a causal link because colonial exploitation and invasions generated surplus (for example through plantations) that fed into Western capitalist development, making the magnitude of colonialism's contribution a crucial but inadequately studied question.
“there was a surplus that was made from colonial exploitations or colonial invasions.”
- Systems of oppression imposed large but unstudied economic costs by wasting human talent: the Gulag was effectively unpaid slave labor that squandered creative and educated people, the Nazi extermination of Jews destroyed a significant part of Germany's intelligentsia and educated labor force, and excluding women from the labor force leaves half of a country's potential unutilized.
“the waste of human potential, I think was incredible. I think the same is true with the--if you calculate human potential of Jews in Germany, that's an incredible loss for Germany.”
Market logic and commercialization increasingly colonize personal life as individuals voluntarily convert non-market relationships into commodified transactions.
- The Wealth of Nations sphere of commercial, market interactions is increasingly encroaching on the Theory of Moral Sentiments sphere of family, friends, and community, not because of external coercion but because individuals themselves, by trying to maximize their income, voluntarily convert personal interactions into commercial ones, shifting the proportion between the two spheres.
“the Wealth of Nations-type of interaction is gradually encroaching more and more--or commercial society or capitalist society--is really making inroads in that first part.”
- Personal goods that were once used only for one's own needs—a home, a car, leisure time—become what Marx calls capital once they acquire a known market or shadow price (via Airbnb, Uber, influencer monetization), because that visible price reshapes behavior and gradually draws individuals into the commercialized economy even if they were initially reluctant.
“personal goods, which were not object of commercialization, now have become what Marx calls capital, because they're no longer personal good that you use for your own needs.”