Because most philosophies that frown on reproduction don't survive.

Monday, August 18, 2008

Economics, The Inhuman Science?

Economics is one of those fields which (like another interest of mine: evolution) has a bad reputation. A frequent line of criticism is: "Economics assumes that everyone is selfish. 'Market forces' is just a term for a Hobbesian struggle in which everyone is out for himself. It means treating people like animals."

There are two major claims in this critique which I think deserve to be addressed separately.

Does Economics Assume Everyone is Selfish?

The answer to this -- not to sound Clintonian -- depends on exactly what one means by "selfish".

When examining human behavior, economics assumes that people act according to the incentives placed upon them. As such, an economist's analysis of how people will behave in a given situation is only as good as his understanding of the incentives acting upon them. Some of those incentives are non monetary, and perhaps are even "altruistic" in a sense.

For instance, people often contribute time and resources to causes both for the recognition of doing something good and for the personal satisfaction of having achieved something they consider worthwhile. An economist, taking such incentives into account in his model, might successfully predict this altruistic behavior, but would succeed in doing so by taking into account feelings of personal virtue, admiration from others, and perhaps even beliefs about the effect those actions would have on the afterlife.

I think one could thus say that an economic analysis does assume selfishness in a certain sense, in that it assumes that we never do anything without an incentive, and that an incentive invariable is some sort of benefit which we expect to receive in return for performing an action.

The reason that economic analyses are so powerful is that we do indeed respond to incentives. If you tell me that I can do A or B with equal effort and cost, and that A will be me benefit X and B will give me benefit 2 x X, then chances are (all other things being equal) I will do B.

And yet, an analysis which states, "Mother Teresa spent her life helping the poor in order to receive recognition for virtue, an emotional feeling of well-being as a result of helping others, and in hopes of achieving rewards in the afterlife that she believed in," certainly makes it sound as if Mother Teresa is being accused of selfishness.

Boiling everything down to an incentive may produce a good working model for analyzing behavior, but it does not correlate well with our experiences of life. When I do something like volunteer at my parish or spend an afternoon sorting food at the food bank, it's not because I think to myself "I think I'd better achieve some recognition for virtue and personal feeling of well being, so I'll go volunteer to 'do good'." Rather, there are things one chooses to do simply because one believes that is the right thing to do.

There are two responses to that difference between how economic modeling works and how we experience reality.

One, which I think is wrong, is to say, "Well, that may be what you think, but in reality you're just responding to incentives. Because economics can make accurate predictions, that's obviously how you really work, and the rest is just an illusion." That approach, a form of determinism, is I think incorrect and is inhuman in the sense that it seeks to strip our experiences of much of what we perceive as their human element.

The other, which I think is more modest and more correct, is that economic analysis is simply a model. It can be powerfully predictive, but it is not something which taps into the underlying essence of reality. It's just a good way of modeling out how people will (assuming we know enough about the incentives they face) behave. Nothing more, nothing less. And if taken in that modest sense, it seems to me to be a good and powerful tool.

Are "Market Forces" a Hobbesian Stuggle

Again, I think this depends upon one's point of view. One models "market forces" by assuming that each party in a transaction will try to achieve the maximum benefit for himself. But since in any market transation, it takes two to tango, this invariably means that the market actors achieve the best possible balance between the desires of all parties involved.

Is this necessarily a brutal struggle in which everyone attempts to take advantage of everyone else? Not necessarily. One can just as well see it as a system of assuring that everyone benefits as equally as possible.

But it can result in some people being left "on the outside" if thehy find themselves unable -- by reason of skills, training, ability or inclination -- to do anything that benefits others all that much. This is why some degree of charitable work is always necessarily within the community -- one cannot simply assume that "the market will take care of" everyone. Markets are good at spreading around the benefits between productive actors, but they're very bad at taking care of those who are not able (for whatever reason) to be very productive.

So while I think it's wholly incorrect to define market forces as inherently cruel and Hobbesian, I think it would be cruel and Hobbesian to claim that no action other than market forces is ever required in society. Fortunately, virtually no one actually advocates that, though many like to accuse others of advocating it.


Anonymous said...

There have been a few occasions in history when pseudoscientific endeavors have matured into actual sciences. Astrology, for example, became astronomy, and alchemy became chemistry.

What is going to become of economics?


Der Wolfanwalt said...

There are actually some people who honestly do seem to try to predicate all human action on economics, and they hang onto it with an ideological passion. The one who comes to mind off hand is Richard Posner, if that name rings a bell.

Zachary said...

I hope people read and consider this.

Darwin said...

Der Wolfanwalt,

Indeed. Actually, I'd say there are quite a few people who think that economic models portray the way life _is_ rather than simply providing a good predictive methodology. I'd say they're wrong.

I suppose someone who tries to use economics to "disprove" altruism is working along the same lines as Dawkins claiming that evolution "disproves" God.