Any science is a model of some aspect of the world, and is useful as tool for predicting observable phenomena.
Sciences do not have platonic ideals, there is no most moral path for a particle to travel in physics, for instance. An element in the periodic table is not expected to live up to any ideals like honesty or chastity.
These may seem like obvious and fairly banal point. Observe.
Economists call economics a science, a science intended to predict how human beings allocate finite resources. This is fine, and I have no problem with that as stated. The problem I have is with those who think of economics as a religion. They come to believe that the field of economics does not predict how humans behave, but how they should behave. The Rational Man's decisions are platonic ideals to live up to. If you come up with a beautiful equation to predict how a ball travels through the air, and then you go observe a ball travelling through the air and find your beautiful equation got it about 60% right, you do not conclude that the ball is flawed.
I am not trying to pick on him, but he is a ready example. Look again at Yglesias's statement about the Tennessee fire,
it should be easy to set a pricing scheme that doesn’t entail any substantial adverse selection issues.A science based approach would say that our understanding of how people behave is flawed. Optimal pricing does not predict real world behavior, we should figure out why and update our definition of optimal pricing until our predictions are more in line with reality. The whole point of understanding optimal pricing is to be able to predict how humans are likely to behave under some set of conditions, not to figure out how they should behave.
I think there’s a surprising amount of inefficiency in the world deriving from the fact that people with various competencies—fighting fires, organizing rock concerts, cooking tasty food—don’t really understand optimal pricing.
The religious approach says something different, the people are not behaving as we expect them too, they must be flawed (in this case, ignorant of optimal pricing) and if we could teach them their condition would be improved. This is the approach of the Friedman's, George Wills, Yglesias's and others of their ilk who pick up a few economic terms, learn some of the basics, find some old time religion in that, and go on to tell us not how we are, but how we should be.
Yglesias is not alone in this. When John Nash and fellow economists holed up in the RAND corporation and invented game theory, they ran into a problem when they tested out their hypothesis on anyone that was not either a.) someone working on the project or b.) a diagnosed sociopath, it didn't do very well at predicting human behavior. When they first put their prisoner's dilemma before the secretaries working there, most of them chose to remain silent rather than betray their partner. In spite of this small set-back, however, their theories took a prominent role in the free-market work done at the Chicago School and is still influencing decision making today. You find this 'people are not acting as we expected because they don't understand what they are doing' when it comes to economics all the time. We have made the rational man behavioral model our nation's platonic ideals. Greed is good.
There is an uglier thought often found somewhere behind this first one and that is, "the people are behaving not as we predicted, and must be made to change." Few things are as terrifying as movements that lays claims to intellectual and moral superiority. That is the ugly coupling that inspires the massive blood lettings of the Jacobins, the Killing Fields, Purges and other intellectual revolutions that displaces and existing elite by killing or imprisoning the old standard bearers. It is this loose coupling that led a nitwit like Jonah Goldberg to write a crackpot thesis about liberals leading to fascism. The impulse toward controlling behavior is not liberal, it is borne in any belief system that makes claims to moral authority.
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The wisdom--and scarcity--of the analytical point of view becomes more clear when you look at foreign policy. When someone starts or joins a war to make the world safe for democracy or take down some evil dictator, it would be nice if there were some more people around to ask if the cure is worse than disease. All too often Green Lantern Theory wins the day.
But even in domestic economics, I doubt very much that it's cold reason that's driving support for cruel policies. Usually it's warped moralism posturing as economics. Things like Hangover theory--the idea that because we had a bubble that just popped, it only makes sense that we should "make up" for it by having a period of unemployment. It doesn't make any rational sense that having people sitting around unemployed would be necessary for anything--but it "seems" right that because we were too excessive in the past we should suffer more in the present.
Even with the firemen. Sure, you could get in a shouting match with economists. "You're a heartless bastard!" "You don't understand adverse selection!" Yglesias was smart enough to point out that even economically what that fire company did didn't even make sense. He's pretty good at that--undermining someone else's argument from their own premises. You can't do that if you're worried about your point of view being "warped" as soon as you think logically about what the other guy is saying.
I will concede to Consumatopia that there is some merit in using the logic of your opponent against him, and that I've sometimes chuckled to observe Yglesias doing just that. I will concede to the other commenters that sometimes Yglesias is using very dry humor.
But it is really just amazing to read this comment, and the ones on the other thread. It is amazing how Yglesias' defenders take it as such a given that the words "economic theory" are totally interchangeable with "logical thought".
That itself is demonstration of exactly Justin's point.
It's amazing to see that... coming right off of a decade of Enron, WorldCom, Lehman Brothers, etc. etc. etc. -- a decade which has pretty much been defined by gigantic disasters, deceptions and gross theft which the majority of American cutting-edge economic theorists lauded at every turn, shortly before each of these things came crashing to the ground, understanding them only in hindsight. And still economics gets called a "science"?
Economic theorists these days seem to have a batting average about like the C.I.A., (failed to predict the Soviet collapse, fooled in Iraq, clueless about the Georgian invasion and the Middle East democracy movements, and on and on; not to mention, like the CIA, used as a political tool by those in power). Yet still all somebody has to do is preface his favorite gross generalization or bad assumption with "people have an economic motivation to do X", and he'll get thousands and millions of highly educated and intelligent Americans to nod their heads in agreement. Is that how a "science" works?!?
I don't want to give the impression that this blog wasn't readable before (because this, SMBIVA and IOZ are where I started), but it's really, really been worth reading since the start of the new year.
Kudos.
Note that my exact phrase was "think logically about what the other guy is saying", which does not equate economic theory with logical thought.
A science based approach would say that our understanding of how people behave is flawed. Optimal pricing does not predict real world behavior, we should figure out why and update our definition of optimal pricing until our predictions are more in line with reality. The whole point of understanding optimal pricing is to be able to predict how humans are likely to behave under some set of conditions, not to figure out how they should behave.
Bolded portion assumes humans are behaving optimally.
The point of economics is not to predict how humans will behave, but to predict how humans will interact. If I behave differently, how will others behave in response? If their behavior, from my perspective, improves, perhaps I should consider changing my behavior.
When the fireman watches the house burn, we do not, as you would have us do, assume that fireman is being rational. We ask what would happen if the fireman behaved differently. Why not accept money to put out the fire?
Economics is not about simple predictions, it's about conditional predictions--how will other people behave if we do X? Note that is true for most sciences--they try to predict how the world responds to our actions. That's why scientists set up experiments. That's why engineers don't just assumer current engines are optimal.
And, yes, it's true of the warm fuzzy social sciences as well. They still do experiments, they still make policy recommendations. Economics is not alone in suggesting different ways for human beings to behave.
Equating economic theory with logical thought: Well, apart from Consumatopia's logging on to explain that Yglesias' discourse on optimal pricing contained no content whatsoever besides pure pristine logic, we have Chris Dornan in the other thread saying that our critique of economics is wrong because it's "romantic and nihilistic", Yglesias' style proves that he "knows how to think," and besides, everybody spoke logically in the Western movie, therefore, ummm, Q.E.D., says Chris.
-- When the fireman watches the house burn, we do not, as you would have us do, assume that fireman is being rational.
We are not saying any such thing about _you_ personally, we are saying that the field of economics in general is two-faced. The firemen stood there (really, the mayor ordered the firemen to stand there) on the basis of their personal interpretations of the very same premises and formulas that led Yglesias to call the firemen irrational: profit maximization and general principles of human interaction. A sociological field where two individual practitioners can have such diametrically opposed interpretation of core principles in response to something as simple, basic, and clear as a house fire, might well be called "useless". But our argument is that it is worse than useless, because the established power structure in America has mastered the manipulation of popular economic theories in order to get people to work against their own interests. Yglesias can certainly construct economic arguments against Scott Walker's union-busting, but Walker's economic arguments carry just as much imprimatur, if not more, from economic authorities as Yglesias does.
My experience here and elsewhere is that when somebody offers an economic argument that the listener happens to like at the time -- e.g., Yglesias vs. the firefighters, Enron pre-2001, Credit Default Swaps pre-2008 (both praised as "risk management"), Reaganomics from the point of view of Republicans, etc. -- it is hailed as "nothing but pristine logic and rational thinking," "financial innovation", "a new paradigm", "based on the science of human interaction," and so forth. When somebody offers an economic argument that leads to a conclusion the listener doesn't like, or has been proven wrong by events -- e.g., the people Yglesias has attacked with alleged economic irony, Stalin's and Mao's famines, the Hundred Years War, Enron post-2001, Credit Default Swaps post-2008 -- then it is because of "error," "greed," "emotion," "posturing", "lack of logic," (all from these two comment threads), ideology, non-"optimal" behavior, etc. Multiple opposing interpretations of any single event are supportable from the same economic premises & principles.
This is not a field of science, this is soothsaying to curry favor with power. You can certainly have conflicting interpretations of the same facts in other fields such as Evolution, but there is no "Chamber of Evolution" lobbying Washington about tax cuts for the rich, no "Council of Evolutionary Advisors" with a direct dial line to Obama.
To borrow a phrase from the Stalinists, apparently the science of economics can never fail. It can only be failed by fallible humans and their mistakes. The idea that economic theory produces "conditional predictions" is apparently not falsifiable even given numerous recent and historical examples (e.g., 2008) where the conditions were met but the expert predictions were wrong.
Well, apart from Consumatopia's logging on to explain that Yglesias' discourse on optimal pricing contained no content whatsoever besides pure pristine logic
Didn't say that.
we have Chris Dornan in the other thread saying that our critique of economics is wrong because it's "romantic and nihilistic"
That doesn't equate economic theory with logical thought, that equates your particular critique of economic theory with romanticism and nihilism. Which isn't far off the mark.
I'm glad that you're no longer saying the that economics should assume the mayor was behaving optimally (that's good, it was a ridiculous thing to say.) There are, indeed, economists who fail to take contrary evidence seriously. (I find it strange that someone would find economists worse offenders here than psychologists). But this firefighting business is not at all an example of that--no one predicts that human beings always behave optimally.
You don't like it when experts disagree and layman can justify whatever they feel like justifying. Sorry, you've just described every sociological field. Any scientific field which is capable of being used to give policy recommendations has sometimes been used to justify great, even obvious evils. Psychologists, psychiatrists, and physicians have advised and justified torturers. Biologists, sociologists and anthropologists have supported "race science". Not most of them, no, but most economists don't support letting houses burn down, either. And all of them contain enough difference of opinion that whatever your belief, you'll probably be able find a peer-reviewed study somewhere backing you up.
Actions have both obvious and non-obvious consequences. Sometimes non-obvious consequences outweigh the obvious ones. Moral action requires understanding of a complex world full of unintended consequences. If you just stop thinking as soon as something is "simple, basic, clear", you're going to screw up in non-obvious yet terrible ways.
It is easy enough for me to agree that the Tennessee fire episode was both loathsome and stupid.
But ... given that fires are not put out by a generous human spirit, but by firefighters, suitably equipped with firetrucks, firehoses, and such - how should those things actually be arranged for?
But isn't the whole point of economics to provide an ideological facade to obscure the rape and pillage carried out by dominant institutions--and, incidentally, to provide hacks with comfortable, tenured careers? Just as what I believe most people call "religion" is really just a path to power for an elite known as the clergy (even when many theological texts, such as the Gnostic gospels, explicitly oppose such a development). Expecting economics be a science because it claims to be a science is like expecting the US to bring democracy to Iraq because it (sometimes) says that's what its doing.
By the way, it seems doubtful economics could become a bona fide science even if it wanted to at this point. One would need a very in depth understanding of psychology (attempts at studying behavior even in lesser animals are fought with problems) and the relevant variables would have to be few, since accounting for every potential factor is practically impossible. But even then, predictive success my falter, as is apparently the case with incredibly simple molecular interactions, as history is seemingly fraught with contingencies that aren't predictable even in principle.
Peter,
Yes, I think it is clear that economics functions not so much as a science, but as an intellectual weapon for elites to rationalize the building and maintenance of their wealth.
"By the way, it seems doubtful economics could become a bona fide science even if it wanted to at this point. One would need a very in depth understanding of psychology"
I think that's interesting. The bigger problem is that I think the assumptions of how man behaves, which is what makes many of their models work, is too contingent upon cultural or regional differences in how people divide up resources. See my point about the Rational Man.
But to get back to what you are saying, I don't think you need to understand human psychology to model their behavior. Our psychology can be a black box, as long as the model predicts reasonably accurate outputs based on inputs, it does not need to know how those outputs came to be.
Yglesias was smart enough to point out that...
He needs food, constantly, to consume amounts well in excess of what's needed for effective, efficient operation of his corpus, which yields a fat, slovenly, chairbound "thinker" who isn't remotely a doer.
Oh yes, that's snarky ad hominem. Indeed it is. Devoid of example, devoid of factitious logic.
But it's a comment created and phrased using the same "wisdom" that Tubby the Merit Tugboat uses -- "I think this is so, therefore it IS so, because I, in my vast experience of 27 years which includes a Fancy Parchment from Our Nation's Finest Schools, know all."
Consumatopia, if your aim is to discuss Popper v Kuhn, wouldn't you be better off commenting on a thread where that's the focus?
I appreciate the religious analogy. (I alway appreciate religious analogies). Anyway, the only quibble I have is with the notion that economists care whether people know what they are doing.
Really insightful stuff. Thanks.
@ Consumatopia: Gawd, this has gotten pointless. As Justin says, talking past each other. This will be the final time (this week) that I will stoop to counter-quoting of snippets.
I'm glad that you're no longer saying the that economics should assume the mayor was behaving optimally (that's good, it was a ridiculous thing to say.)
You twice accuse me of attributing things to you that you never said. Here, I never said anything remotely like what you're accusing me of, in fact Justin and I have been arguing from the opposite viewpoint. You and I are apparently talking past each other.
Any scientific field which is capable of being used to give policy recommendations has sometimes been used to justify great, even obvious evils. Psychologists, psychiatrists, and physicians have advised and justified torturers. Biologists, sociologists and anthropologists have supported "race science".
Yes, and all those evils have eventually been condemned and/or outright forbidden. We have laws against torture, even though it hasn't completely stopped. Race science has been utterly discredited. When will outsourcing be outlawed? What tools can we use to get mortgage speculation to be utterly discredited? There are no such tools and laws because the science of economics is incapable of discriminating between good and bad ideas. That doesn't mean it never has any good ideas, it certainly does. But the bad ideas from economics march through our society with at least equal force.
Moral action requires understanding of a complex world full of unintended consequences. If you just stop thinking as soon as something is "simple, basic, clear", you're going to screw up in non-obvious yet terrible ways.
Yes, and our point is that people following economic theory also screw up in non-obvious yet terrible ways, but nevertheless they and the larger American culture keeps describing economics as nothing more than simple, basic, clear, logical and rational thinking.
Thanks for the enjoyable debate.
I'm glad that you're no longer saying the that economics should assume the mayor was behaving optimally (that's good, it was a ridiculous thing to say.)
What is the mayor's optimal behavior? Define the system and show your work.
Ahhhh, now I start to see the source of the disconnect. When I said that the firemen (and mayor) were acting on "the very same premises and formulas that led Yglesias to call the firemen irrational: profit maximization and general principles of human interaction", Consumatopia took me to be saying that both the firemen and Yglesias could be assumed to be "behaving optimally". Despite Justin's clear condemnation (on my behalf) of the firefighters as "horrifying", etc.
That is not what I'm saying. My whole proposition is that economics gives the Mayor (via the firemen) an excuse to publicly claim they are "behaving optimally" when they are not, in fact, behaving optimally.
Consumatopia interprets any use whatsoever of the words "profit maximization" to mean that the subject is behaving "optimally" and rationally. That is Justin's point about the myopia of economics, and that is my point about the conflation of economic theory with any and all logical, rational thought.
The fact that you and Matt can use Economics to construct an argument that the firemen were not behaving optimally, puts Consumatopia & I on the same side regarding the firemen.
But it puts us on opposite sides regarding the merit of economic theory.
You're saying that Matt's judicious use of economic theory redeems the "science" of economics, whereas I'm saying we wouldn't have had the problem in the first place without bullsh#t economics giving the Mayor a fig leaf for malicious action.
Meanwhile, the two sides are not on equal footing, because the accumulation of money by nefarious means gives that Mayor, and Goldman Sachs, Enron, etc. etc., a huge platform to push their warped economics on the country, time and time again despite obvious failures, injustices and deficiencies in their economic theories.
Meanwhile Matt Yglesias pecks away at a blog.
You're saying that Matt is using the weapons of the enemy against him -- using the sterile logic of formulas to show that the soulless, dehumanizing actions of the "big players" are inconsistent with the very same sterile formulas used to justify those soulless actions. Then you seem to be surprised when Justin and I refer to Matt as a soulless android because he relies on those same formulas. It's a little inconsistent.
Let's just say that we agree to disagree on the net societal merit of Economic theory, shall we?
The Yglesias link doesn't go to Yggles.
What sense does it make to cast the Mayor as an "economic" actor, when he so obviously hails from the lower precincts of "practitioner of the law"?
That mayor standing there is a pygmy version of the Post Office, Amtrak, or Medicare. There's no economics in any of it. There's naught but small minds adhering to arbitrary rules, backed by the tin badges of self-anointed authority, where the rules trump the economics, and in most cases there's absolutely no one held accountable for the houses burned down.
They've done studies, you know. 60% of the time it works, every time.
Here is where you said the firefighters/mayor were behaving optimally:
A science based approach would say that our understanding of how people behave is flawed. Optimal pricing does not predict real world behavior, we should figure out why and update our definition of optimal pricing until our predictions are more in line with reality.
So here's the thought process you just described. The firefighters let the house burn. They would not accept any payment to put out the fire. Yglesias argues the firefighters would have made more money for the city and avoided the adverse selection problem if they had taken some price sufficiently high that it would still be worth it to purchase fire protection. Thus the firefighter did not behave optimally.
But, according to what you wrote here (not according to your larger argument) Yglesias is wrong because his theory fails to predict what the firefighter actually did--watch the house burn.
But that assumes what you probably least wanted to assume--that people's pricing decisions are always optimal.
This doesn't undermine your entire point, but it does undermine your "economics is religion because it fails to predict burning houses" point.
Re: torture, so far as I know, the American Psychological Association still hasn't condemned the involvement of their members at Guantanamo Bay.
Consumatopia interprets any use whatsoever of the words "profit maximization" to mean that the subject is behaving "optimally" and rationally.
Optimally and rationally relative to their own goals which may or may not be good, laudable, or fulfilling goals. Do I really have to argue that an entity willing to watch a house burn down because the owner didn't pay a fee probably has revenue maximization as a fairly high goal?
Yglesias is wrong because his theory fails to predict what the firefighter actually did--watch the house burn.
No, Yglesias is wrong because his theory is the wrong frame of reference in the first place.
Or not so much wrong as inappropriate and beside the point.
This turned out longer than I thought it would:
So exactly what mode of analysis do you have that is superior to economics? The method you used to determine that the benefits of outsourcing to American consumers, Chinese exporters, and American exporters of unrelated products of outsourcing is smaller than the cost to American producers of the product in question. That is apparently right with a higher percentage rate than economics?
If you can recognize in advance the nature of problems such as Enron and the financial crisis, rather than only recognizing the nature afterwards, why aren't you currently employed in one of the many firms that make economic predictions?
Predicting the future is hard. False confidence in economic predictions is bad. But I am not aware of any method that gives better predictions. Criticizing the past failures of economics is easy. (If you have evidence that you, unlike most economists, predicted all these things in advance, I will need to stop believing economics and start building some sort of altar.)
You make three criticisms of economic judgments. One is your argument that, as far as I can tell, the firefighters are motivated by some sort of bizarre sadism rather than merely poor designers and implementers of rules. If that is an accurate characterization, our views on human behavior are too different and discussion on this issue is fruitless.
The second is your claim that outsourcing is bad. I have already responded to this, by arguing for three benefits. The other is your claim that mortgage speculation is bad. Are you saying that mortgages are an especially evil thing to speculate on?
Both of the two activities you describe are hard to define in a way that can be used for regulatory purposes, which, (a) economics helps to clarify, and (b) may imply that they're not actually all that bad.
You will no doubt see that I am too far gone as I defended economics with an argument or two taken from economics. But perhaps my soul can still be saved?
Will, thanks for reading. Unfortunately, I think based on your response that you have really missed everything I was trying to say.
1. I explicitly said that economics is not an inherently immoral or wrong lens to see the world, I said that it has become considered too important in relation to other lenses.
2. I also made clear to separate what I call the religion of economics from the science of it in a follow up post. Its not the work of trying to understand how humans divide up finite resources, or economics, that I am objecting too. That is what I call the scientific approach that goes from theory - model - observations - correction.
The religious approach is departing at the model stage to say that people should behave like this because this is what economic models say is the rational response. That is approach the work of non-economist opinion makers
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