Waylaid Dialectic

October 3, 2011

An ideological and intellectual Wallace Line

Filed under: Random Musings — terence @ 6:42 am

While I’m in the field I’m automatically recycling some old posts, about 1 a week. This one from here.

A while back I jotted down what bugged me about neo-classical economics.

The first point I made was the fairly standard one about assumptions of rational self-interested decision making economic agents (that’s you and me).

There’s two points I’d like to add to this. First, just to be clear, (most) neoclassical economists don’t actually believe that humans really are wholly rational or self-interested, what they argue is that humans display these tendencies to a significant enough extent that if you assume them you can create models that relatively accurately reflect human behaviour (or, at least, models which do so better than any alternative models you can construct)*. This – as I wrote – strikes me as not only wrong, but also as a way of tailoring assumptions to produce outcomes that, ever so conveniently, reflect political beliefs.

There is, I think, something else that I should have added when making this original point though. That is that, above and beyond the actual assumptions of human behaviour that neoclassical economists use, there appears to be a further problem in that human behavior is also taken as being inevitable and unchanging. In other words, we don’t behave differently in different social models or in societies with different mores. Human nature is, according to neoclassicals, static.

Compare this with Marx, to whom the possibilities of social change were closely tied to the potential for human interactions to change in a fundamental way.

Even if you’re no way as radical as Marx I’d say that, if you’re a progressive, you probably still hope for a world where we treat each other slightly better. I know I do. And I also think that this isn’t a vain hope.

So I’d like to suggest that we have a Wallace line here: a clear division between most neoclassical economists and most progressives. All to do with whether human nature can change over time and in different circumstances (or, to be more accurate, whether different social structures might enhance different aspects of human nature).

*Joseph Stiglitz has a funny little coda to this:

Among the more amusing results that have come out of experimental economics are those concerning altruism and selfishness. It appears (at least in experimental situations) that experimental subjects are not as selfish as economists have hypothesised, except for one group – the economists themselves.

Is it because economics as a discipline attracts individuals who are, by nature, more selfish, or is it because economics helps shape individu als, making them more selfish? The answer, almost certainly, is a little bit of both. Presumably, future experimental research will help resolve the question of the relative importance of these two hypotheses.

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4 Comments

  1. Elsewhere, I read that Marx thought that people only change when the structures, mechanism and incentives the operate within (the system … technology of production?) changes … that sounds rather closer to how economists think of people rationally responding to incentives.

    (example, here: http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2011/09/values-and-the-crisis-of-social-democracy.html )

    Everybody knows that the simple max U approach that economists take leaves out a lot. But in my experience those who like to disparage it still tend to invoke it in practice. …. they often say “oh these greedy businessmen/bankers/politicians are doing XYZ because of [some self-interested rationale]” or even “farmers in poor countries do XYZ because it makes sense from their point of view”

    The strength of the economists approach is that it forces you to come up with explanations that “make sense”, that are not internally inconsistent, without having to invoke some non-rational human behavior in a fashion that just happens to explain whatever it is you are trying to explain. If you give yourself license to invoke “irrational behaviour” whenever it suits you, clearly you can end up explaining nothing at all (people do X just because people do X!). I think if “progressives” were to ignore rational choice, they’d lose a lot. I think progressives need to think about how things progressives don’t like come about and how they can be changed, and that imho requires (or is helped by) thinking like economists.

    There will of course be problems / settings in which the narrow approach of economists isn’t up to the job – things like altruism, behaving according to a sense of fairness, punishing others when not in self-interest to do so – are true and important. I am not sure what you mean by “neoclassical” economists (perhaps it is the bit that rules out these things) but mainstream economics is certainly up to incorporating some of these things (other-regarding preferences and so on). You can probably formalize cultural / social norms too, within mainstream economics, in some settings.

    Nobody should imagine that economics provides a complete account of human life .. what matters is whether it is useful for the problems it tackles. I think the assumption of self-interested rationality often the right approach these problems.

    Comment by Luis Enrique — October 3, 2011 @ 8:16 pm

  2. Whoa! what was I saying? A Complete Theory of Human Behaviour: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1889318

    Comment by Luis Enrique — October 3, 2011 @ 8:32 pm

  3. one last …. it sounds to me like you might find this book review of “Identity Economics” by Tom Slee very interesting:

    http://whimsley.typepad.com/whimsley/2010/05/identity-economics-by-george-akerlof-and-rachel-kranton-a-rambling-review.html

    Comment by Luis Enrique — October 3, 2011 @ 8:37 pm

  4. Thanks Luis – great comments – I agree with a lot, but I’m out of internet access for much of the next while. Sorry means I can’t reply properly now.

    Terence

    Comment by terence — October 14, 2011 @ 3:09 pm


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