23/10/2011

taking maxims from economics somehow



Did you ever think that making a speech on economics is a lot like pissing down your leg? It seems hot to you, but it never does to anyone else.

– Lyndon B Johnson, supposedly



...nobody can be a great economist who is only an economist – and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.

– FA Hayek



The claim is: there is humanity and honesty available in economics. Here's a reconstruction of folksy theorems and maxims: together they make for an surprisingly open worldview, one nowhere near as sterile as what the field is usually thought to instil. My point's not that a pure standard-model economic worldview is a complete one – the best thing Hayek ever said is the epigram above – just that the sterility and absurdity we often see in it is the result of monological extremism, not anything about the subject matter or even the method.

Few actual economists embody or articulate these maxims - but then, few economists admit to having any ideology, though in fact they all bear a third-hand positivist-utilitarianism auto-conservatism which stands in for a party-line. But there is a heterodox economics movement, who think of people as people, economies as economies, and of economics as one day becoming a real science. Note also that the ideology outlined below can't accommodate everything called good.


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1. It is hard to change people.

People change all the time, but trying to direct that change is notoriously technical and intensive work. This is why some people say, mistakenly, that incentives are the core of economics: they're just the easiest way to get folk to shift. (As always, McCloskey can give us a poetic rereading of an apparently boring thing: "All that moves us without violence, then, is persuasion, the realm of rhetoric.")

Take the environmental policy brouhaha - even when reasonable doubt is ruled out, we, the world, keep dumping. Appeals to reason have convinced very few of us to make significant changes. Hence, all the large structural proposals involve increasing emission costs one way or other, and then letting people reallocate around that. Whether this is because we're hardwired for certain myopic behaviour by biology or psychology or culture is besides the point at this level of abstraction.

Note that this maxim does not preclude social engineering, i.e. progressive politics. But along with #2, 3 & 7, it gives us an idea of the sheer effort and uncertainty it takes.

Giant thesis: Non-political factors are more powerful than political factors in the determination of the state of the world.

Countermanding: But economics is only one of the non-political factors.

Many economists just give in to "It is hard to change people". The remainder of us risk making what Adrian Leftwich calls the "technicist fallacy": the dubious assumption that all governance problems have a policy solution.



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2. It always depends.

Economies are 'complex' in the hardest sense: economic analysis takes place under such gross uncertainty and necessarily limited experimentation that unconditional answers are simply dishonest. Certainly the forecasting of economic trends is done out of quackery, theory-blind ignorance or getting paid for it. Admittedly the third thing you learn in basic ec is the phrase In ceteris paribus – i.e. "it doesn't depend!" – but at least that means they admit there's a problem.

A further gaping gap in the old theories has been sighted (that economics has been conducted under Modernist premises, and that modernism usually eats itself and shits the future). I'm talking postmodern economics, a seemingly unlikely creature, but one which actually follows easily from good economics' obsession with contingency, and the palpably post-structuralist nature of economies.
But scepticism is not a virtue in much of economics; this we know. Except, of course, when it comes to radical scepticism about moral or collective action, which they're mad for.


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3. Things fall apart, but sometimes they fall into place too.

The ghost of Kant gums up arguments on political economy: many of us have the vague intuition that the amoral intentions of markets trump any accidental good that comes of them. You hear things like "capitalists don't care about social outcomes – all social outcomes determined by capitalists will be to their advantage". Well, yes, if they're doing their job and are lucky, it will. Less unreasonable question is whether it is only to their advantage. This mindset holds exploitation to be any case in which people are used as a means. (Stronger definition: the act of using labour without offering adequate compensation. Broader definition: any relationship of unequal benefit.) Under each of these definitions, every employer* is an exploiter, since they wouldn't employ you if they couldn't milk more value out.
 
The only thing worse than being exploited by capitalism is not being exploited by capitalism.

–  Joan Robinson


But I can't see this as inherently or even generally wrong: there can be capability and existential relief in job creation, regardless of what the employer intended. Sure, let us refuse to use people - except that my participation in this economy and that history made that move for me. My conception of what is moral has to be larger now (sadly aposteriori as well as tritely virtuous).

Consider this (if it makes you angry then you have the ghost of Kant in you) "the dastardly and amoral oil cartel OPEC have done more to slow global warming than all activist efforts combined." (The argument is that by distorting the oil price upwards for forty years, they made people economise, and incentivised the development of cleaner energy. Shoddy discussion here.) Entirely accidentally - a thing fallen in place.

(*Every "rational" employer - see #4.)


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(2+3). Protection is sometimes unsafe.

The unpredictability of large-scale human affairs and the occasional emergence of order without giving orders mean even we Left economists have to worry about policy. Moral judgments tend to be one-step:
"People are poor? Oh. Give em money."
"People pollute? Oh. Make em stop."
"Landlords charge too much? Make em stop."

But the world is anything but one-step! The analysis of behaviour in terms of incentives - for all that it often justifies self-congratulatory cynicism - is at least capable of looking ahead, a little way beyond the second domino. "Higher-order intentionality", they call it. Properly moral action demands it.


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4. People aren't stupid

Huh! Hold on, hold on: first let me set up my easel and my astrolabe.
a. By this I mean the assumption of economic rationality. This "rationality" is quite different from the real thing, note - it corresponds to the will to more stuff and the rarer, derived will to efficiency.) The assumption has come under fire, being as it is a ridiculous caricature of human inner life. Traditionally there's two ways for theory to succeed: either it's true, or it'd be good if it was. Since rational choice is neither, it is rejected and despised.

The kicker comes when we consider the alternative assumption: that "people are often irrational". How do we shape policy around this? What kind of road do we build? How do we design insurance schemes or benefits? It turns out that it is punishingly hard to do without: #4 is the behavioural version of Donald Davidson's principle of interpretative charity. Rational choice "theory", reconstructed this way, is not a substantive theory at all, but a dummy methodological principle.

Now, the behavioural economists - actual scientists! - will inherit the earth one day soon. But policy prescription won't easily follow from their discoveries regarding our many perversities - because while there's only one way to be economically rational*, there are uncountable ways to be irrational.

How can rational choice accommodate macro events like the 2008 financial disaster? Surely that really was the lord of the flies set loose in stock exchanges? In part, yes. But the good choicist's answer is to decouple rationality from efficiency; it is in the deluded conflation of the two that the neoclassicals' malfeasance lies. If there is no necessary link between the two, crises can be explained in terms of rational but revoltingly inefficient collective action problems, rather than by positing mass hysteria or stupidity and so getting sad.

(*This is not technically true.)


All models are wrong but some are useful.

– George Box


b. The egalitarian conservatism that can be read into "People aren't stupid" also explains why few economists take false consciousness seriously. The processes that generate our "metapreferences", like our omnipresent social conditioning, are thus invisible to them. The upside of this is that economists are able to respect people's choices in a flawed world. This is also a kind of courtesy: "You're prudent until proven otherwise". Unlike Marxism and the new economics of happiness, even the nastiest neoclassical theory does not presume that it knows better than you what is good for you.

But ideology is too powerful and illiberal a force to ignore. You just have to recognise that there's a cost involved in calling people, or stupid people, or most people brainwashed.
The groundwork for an economics which includes metapreferences (and virtues other than shrewdness) is hot off the press.



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5. You are the system. 

The pure commodity view of existence is disturbing. Economists have viewed healthy life as a stock of capital to offer for sale (aka "labour"); babies as the investment capital of the poor; immigrants as human pollution; and any outcome below the utter numerical maximum that you squeeze out as a loss ("opportunity cost"). There's obvious reason to think that this framework does harm wherever it becomes commonsensical, increasing inequality, corruption and, occasionally, letting capitalism loose on one of our last few sacred redoubts. But provided it's kept contained as one perspective among many, the commodity perspective has some important moral and policy implications:
Every pound you spend is a vote for whatever you're buying. Every seven pounds you spend is another hour of your life sold.


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6. Efficiency is humane.

Somewhere along the way in rejecting the Victorian era's hypocritical bullshit, an idea arose that being efficient is inimical to some basic human will. (The will to piss about, perhaps.) This is agreeably romantic. But, in losing its social prominence, efficiency lost its moral connotation as well. (The word "economy" originally meant good household management, "thrift" comes from the same root as "thrive".)

This loss of moral charge is a mistake: the economical is ecological! Simple waste and planned obsolescence account for a headbreaking amount of the pollution and price hikes in the world. If you ain't using it, someone will; if you don't need it or particularly want it, don't use it. And more: in high-powered contexts, efficiency saves lives, and the rejection of efficiency in the name of sweet warm human imperfection is, here, inhumane.


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7. Sometimes there is no right answer.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.

– Friedrich von Hayek


common idea: "capitalism sucks but it probably sucks less than the other current options".

But fuck "There Is No Alternative" too. Since we are talking about the replacement of capitalism on capitalist keyboards paid for with capitalist pounds: capitalism obviously doesn't totally stifle future systems. And remember #3: it accidentally clothes and feeds us, it accidentally enables state spending on education and health and law. It was forced to grant us surplus time in which to think, sometimes in which to think about alternatives. For all else that it callously does, do not deny this.


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8. Most things fail.

Even before we consider De Beauvoir's more fatal sense: things don't work. Worse, most fail silently, creating a false sense of security. This is the least mainstream insight on this list, but watch its space.



1 comment:

  1. See also Thomas Sargent's 12 basic points of the field. 9 is a little dodgy (paying back debts is a transfer, not a [deadweight] cost (unless you view it as a new cost for the future people paying it)) but the others mostly stand:

    http://www.businessinsider.com/thomas-sargent-shortest-graduation-speech-2014-4?IR=T

    ReplyDelete