May 09, 2003

A Bizarre Piece from the Economist

A very strange piece indeed from the Economist:

Economist.com: ...The most striking development has been a move at Harvard, which has one of America's biggest and most influential economics faculties, to offer an alternative to the basic undergraduate economics course.... The new course is being proposed by Stephen Marglin, a tenured professor who earned his chair largely for research that attempted to square a Marxian approach with Keynesian demand theory. One basis of the proposed course and others like it, however, is the rapid uptake of the ideas of behavioural economics. This uses lessons from psychology to undercut the idea of Homo economicus as a rational being. Many of these ideas are based on the work of Daniel Kahneman, a psychologist and winner of last year's Nobel prize in economics, and his collaborator, Amos Tversky, who died in 1996. They highlighted, through a number of experiments, the various ways that people perceive and misperceive risks.

Behavioural economics is a fascinating field. On its face, moreover, it seems to undermine the neoclassical orthodoxy. It suggests that people, contrary to the basic assumptions of the standard approach, do not always behave rationally. They may avoid slight risks, and yet take wild gambles. They may fail to save for the future, although they have the means to do so and a good prospect of a long life. They may not be able to choose how to spend their money in a way that maximises their ?utility?, economists' jargon for happiness. They may have no idea how to attain happiness. More than this, people are not entirely selfish. Parents seem to give up a lot for their children. People give money to charities, churches and buskers with no apparent gain to themselves.

What are the implications of these ideas for policy? According to Mr Marglin, they are profound. What if people cannot even calculate the amount they are willing to pay for a pound of butter or a haircut, or have any idea what prices will be in the future? In such a world, such basic constructs as demand and supply curves?which show the quantities that people and firms would be willing to demand or supply at given prices?lose their meaning. The normal economic calculations of costs and benefits?for example, of the costs created by a tax increase or the imposition of a tariff?depend on estimates of these curves. These calculations, and the policy conclusions that follow from them, may therefore be threatened by the behavioural approach.

This helps unorthodox economists in a range of debates with those in the mainstream. Support for school vouchers, for example, relies crucially on the notion that people know what is best for them, or at any rate for their children. Free trade relies on the benefits that occur to many from lower import duties, set against the costs suffered in the form of lost jobs in industries competing with imports. But if these things cannot be measured, or even theorised about sensibly, the rationale seems to melt away. Mr Marglin would have students read about the travails of unemployed textile workers in the American South who have lost their jobs thanks to NAFTA, rather than wade though econometric studies of the net benefits of the trade agreement to the American and Mexican economies.

Um. No. It does not. Behavioral considerations make the economics of social welfare and of supply-and-demand more complex. But supply and demand curves do not lose their meaning. And there is nothing in behavioral economics to suggest that American textile workers deserve a weight of one and Mexican (and Pakistani) textile workers a weight of zero in the social welfare function.

Posted by DeLong at May 9, 2003 01:44 PM | TrackBack

Comments

What if people cannot even calculate the amount they are willing to pay for a pound of butter or a haircut, or have any idea what prices will be in the future?

This is silly. It ignores the calculations of those supplying the services. If Mary will cut hair for $10 dollars, then Alice will adjust her price around the $10 range to be competitive for customers. The customers don't calculate how much they are willing to pay for a haircut, but choose between Mary cutting hair for $10 and Alice cutting hair for $11. You might be willing to pay $20. or $5 for the haircut, but you will pay $10 or not get the haircut. The future price of a haircut means little if the big job interview is tomorrow and the slacker look needs to go.

Supply and demand curves will hold whether or not the customer does the calculations because the merchants certainly are.

Posted by: bakho on May 9, 2003 02:36 PM

That *is* a weird article. It wouldn't be at all out of place had I read it in The Nation or TAP, but I'm rather surprised that The Economist did that.

I wonder -- is this some kind of move to discredit modern economics so that special interests will have more of an oppurtunity to say things are in the national interest without being checked? Rather than saying "Hey! Those steel tariffs are damaging the national interest in favor of a politically powerful minority!" people might say "Well, economics doesn't have anything to say on this matter since you can use behavioral models to show anything since rational preferences are discredited for modeling purposes, so there's no right or wrong trade policy with respect to national interest!"

Donald Luskin, for example, seems to favor this "economics is meaningless" approach. I wonder if the general milieu of rightist think tanks and foundations are mobilizing support for such a campaign to discredit economics. I know this has been an objective of parts of the far left for a long time, but they've generally openly disdained academic economics, while the far right has generally attempted to masquerade as it.

Again, though... it's weird seeing The Economist print such stuff.

Posted by: Julian Elson on May 9, 2003 03:59 PM

I think Professor Stephen Marglin is on to something with regard to undergrad Econ. In rebutting Bakho's comments: pricing haircuts is one thing. Evaluating and demanding rational responses on issues -- then voting for school budgets, defense systems, energy and environmental policy -- while under bombardment by mass volumes of directed emotional advertising yields an uninformed/uncaring electorate ... even if they have Harvard Baccalaureates (IMHO). It may not enhance the profession of Economics. Maybe it'll stir an unemotional understanding of basic Economics and Citizenship.

Posted by: donmaj on May 9, 2003 04:04 PM

Brad, thank you very much for writing this. I'm tired of people abusing the rationality assumption to dump on economics. I wish that someone would write a more detailed piece on what behavioral economics does and does not do. This piece is a complete dereliction of journalistic duty, especially the part about free trade, which Brad thankfully debunks.

I've followed this story, but didn't realize that Marglin would turn introductory economics into an ideological free-for-all (that is if this story accurately depicts him, which I doubt). Besides what exactly is Martin Feldstein teaching that the students find so offensive (with the exception of the Social Security privatization thing and the offensive blaming of poverty on low cognitive ability).

Posted by: Bobby on May 9, 2003 04:28 PM

By the way, doesn't welfare economics take into account both the American workers and foreign workers welfare gains without the behavioral approach? What about the Heckscher-Ohlin model, and other models in trade that don't involve behavioral economics? I don't see the Economist's connection between the two.

Posted by: Bobby on May 9, 2003 04:31 PM

Oh I see my mistake. The economist's point is that the traditional approach does take it into account, but that it can't be measured (not true). And somehow reading emotional personal stories will teach economics. Yeah right.

Posted by: Bobby on May 9, 2003 04:41 PM

Anyway, I don't really have a point here, so I think Brad's "behavioral considerations make the economics of social welfare and of supply-and-demand more complex" pretty much says it all. As well as the Economist's ignorance of foreign laborers in por developing countries who gain from trade.

Posted by: Bobby on May 9, 2003 04:45 PM

Behavioral economics certainly has something to contribute to the field; supplying various interesting caveats here and there to traditional assumptions of rationality. The contributions in the realm of risk aversion and its ramifications are particularly intriguing. However, it seems to me that it should NOT be part of an introductory course. Rather, perhaps as a separate course taken later like econ.102b.

I know that many students taking econ 101 have a hard time with concepts like the rational consumer. They just don't seem to relate to that type of thinking. Often they vehemently deny that they employ it themselves (sometimes they really don't. This is especially true of students who are not in an economics track, but are more or less forced to take the course because they are in Public Administration, MBA, Finance or something else related in some way.


I would hazard a guess that the switch is primarily due to the difficulties faced by this group of students. In this light, replacing traditional econ 101 with behavioral econ seems a bit like replacing traditional English 101 with Ebonics.

Just plain a bad idea.

Agreed that the article is silly and irresponsible in its assertions regarding supply and demand and social wellfare.

Posted by: arslan on May 9, 2003 05:35 PM

I wasn't gonna comment, because trying to talk sense to neoclassicals is like trying to teach pigs to sing, but this is just too rich...

Arsian, is economics a discriptive or a perscriptive field? That is, does it attempt to discern the ways in which human beings in their natural habitat actually behave, or is it's purpose to convert people into the "rational utility maximizers" (i.e. antisocial psychotics) that neoclassicals use as thier unit of analysis? Since I know some economists I've always suspected the latter, but I've never heard it put quite so baldly before...

Posted by: jimbo on May 9, 2003 06:08 PM

But Brad, NAFTA wasn't sold to, or bought by, American voters on the basis of the benefits it would bring to Mexican textile workers.

And I'm wondering which of the usual intro textbooks include any discussion of the non-pareto aspects of things like NAFTA, and if any include such a discussion, how many classes actually cover the material?

All together children: Free trade is good for everybody! See Jane's comparative advantage in running. See Dick's comparative advantage in catching! Free trade is good for everybody! Woo hoo! That's how I remember it anyway.

Posted by: boban on May 9, 2003 07:16 PM

Did the story mention the fact that the faculty voted the proposed new class down last year and it's not going to happen? That seems like a relevant detail.

Posted by: Matthew Yglesias on May 9, 2003 07:22 PM

Did the story mention the fact that the faculty voted the proposed new class down last year and it's not going to happen? That seems like a relevant detail.

Posted by: Matthew Yglesias on May 9, 2003 07:23 PM

It's my understanding that rational economic behaviour simply implies an economic agent, when faced with a choice and a given information set, will opt to maximize utility.

My experience with undergrads is that the word "rational" was viewed through the lens of psychology or mental health (which I suspect is the same for most non-economists). Indeed some professional economists I know seem to have missed the point. The concept seems to be poorly explained right from the get go.

Posted by: Stephane on May 9, 2003 08:21 PM

Hmmm... come to think of it, I think that part of the issue is that the view of economics in popular culture view and the view that people who work with economics a lot have are very different in simple, easily explained, but nonetheless very significant ways. In many ways, the popular culture view of economics is similar to where actual economics itself was, perhaps, 100 years ago. Anyway, here are some of the key differences, in my view.

-Outsider's view: Utility is the primitive of economic behavior, and preferences an expression of the most rational way of raising utility.
-Econ-geek's view: Preferences are the primitives of economic behavior, and utility is a way of making preferences continuous functions subject to calculus, topology, etc.
-OV: Rational consumer behavior means that the consumer must use his/her resources to increase material wealth or physical pleasure to the maximum extent ("antisocial psychotics" as Jimbo put it).
-EGV: Rational consumer behavior could mean type of efficient satisfaction of consumer preferences whatever those preferences might be, including charity/altruism, a preference for austerity, or whatever any particular consumer prefers.
-OV: Conventional economics does not take the existence of market failures, such as imperfect information or market externalities, into account, or writes them off for analytical purposes.
-EGV: Conventional economics incorporates market failures into analyses where possible and relevant, even if it frequently finds that the government failures associated with correcting them is often (though by no means always) worse than the market failure.
-OV: Many actions taken by governments that have weakened welfare states and destroyed public services have been motivated by the considerations of academic economics.
-EGV: Governments occasionally listen to the arguments of academic economics, but as a whole it mostly provides advice on means, not ends, and even there it is often ignored (though individual academic economists have often advised on what ends governments should have). Economic arguments may have played some role in legitimizing the rollback of welfare states, but they were not the main motivation.
-OV: Economists believe that GDP is the only good measure of social welfare, and that the only objective of public policy should be to increase real GDP or real GDP per capita.
-EGV: GDP is one measure of output. The most basic objective of public policy should be to be as near as possible to Pareto optimality, but what particular Pareto optimum should be sought for is a matter of preference, not economic reason. (this is related to the previous one about the rollback of welfare states)

If anyone else can think of some, then they can add to the list. I think that some of these misconceptions are largely responsible for anti-economics views. The bad news is that they're prevalent, persuasive sounding, and entrenched, but the good news is that they are most about the core, conceptual parts of economics, not technical, mathematical issues. Perhaps there needs to be more clarification of what is actual meant by the concept of a "utility-maximizing consumer," for example.

Just a thought.

Posted by: Julian Elson on May 9, 2003 09:20 PM

WHOSE "idea" WAS "the idea of Homo economicus" in the first place ;?)


Main Entry: saˇpiˇent
Pronunciation: 'sA-pE-&nt, 'sa-
Function: adjective
Etymology: Middle English, from Middle French, from Latin sapient-, sapiens, from present participle of sapere to taste, be wise -- more at SAGE
Date: 15th century
: possessing or expressing great sagacity
synonym see WISE


Put your egos away now children it's time for today's lesson. And pay VERY close attention, because we're shooting at a moving target here....

THIS is the CART:

Main Entry: 1 culˇture
Pronunciation: 'k&l-ch&r
Function: noun
Etymology: Middle English, from Middle French, from Latin cultura, from cultus, past participle
Date: 15th century

5 a : the integrated pattern of human knowledge, belief, and behavior that depends upon man's capacity for learning and transmitting knowledge to succeeding generations b : the customary beliefs, social forms, and material traits of a racial, religious, or social group c : the set of shared attitudes, values, goals, and practices that characterizes a company or corporation

THIS is the HORSE:

Main Entry: 1 econˇoˇmy
Pronunciation: i-'kä-n&-mE, &-, E-
Function: noun
Inflected Form(s): plural -mies
Etymology: Middle French yconomie, from Medieval Latin oeconomia, from Greek oikonomia, from oikonomos household manager, from oikos house + nemein to manage -- more at VICINITY, NIMBLE
Date: 15th century

4 : the structure of economic life in a country, area, or period; specifically : an economic system

Posted by: Mike on May 10, 2003 03:41 AM

Brad wrote: "And there is nothing in behavioral economics to suggest that American textile workers deserve a weight of one and Mexican (and Pakistani) textile workers a weight of zero in the social welfare function."

No, that's a political question. To whit - "what economic duties does a country owe its' citizens."

I'd argue that it owes its citizens more than it owes a foreign country's citizens. If those textile workers don't find new jobs then they have been improverished regardless of whether those citizens who retain jobs can buy clothes for 5% cheaper and regardless of whether Mexican textile workers buy some other American goods.

Posted by: Ian Welsh on May 10, 2003 04:07 AM

Concerning free trade, free trade in most cases increases the real income of a country even if it engages in it unilaterally. Of course there are winners and losers within the country, but the pie has increased in aggregate. But many kinds of economic changes can have the exact same effect, like technological change, change in consumer tastes, etc. We don't want to try to ban or restrict these, or at least I think there is more of a consensus that we should not if indeed we do. Why is free trade so special?

I think it's pretty clear that any laborers who are put into worse jobs by any one of these changes are sacrificing for the sake of the entire economy. So rather than protesting free trade, why not protest for better insurance so that these people can be compensated for their loss?

I think that Ian's argument is countered by saying that the marginal utility of goods is much more for Mexican laborers since they have so little compared to American ones who are comparatively wealthy. I know this is an interpersonal comparison of utility, which is a no no (but don't you think that maybe there's a chance that a malnourished child would have been a little happier eating my Friday's steak last night than I would have been?). Also, I think that Ian's argument about a country owing its own citizens more than foreigners is a good policy prescription for the country itself, but of course not for someone who cares about the world as a whole. Since it's the economic and military leader of the world, I would like to see the United States should tend more towards the latter than the former.

Posted by: Bobby on May 10, 2003 07:12 AM

I'm surprised here, as elsewhere, to see so little reference to the notion of "the marginal" or what happens "at the margin."

Surely one of the main insights of economics is that it doesn't matter a whole lot what most people or institutions think or do. There is a situation somewhere where the smartest buyers run up against the stupidest sellers, and the latter go out of business; the stupidest buyers meet the most competent sellers, and get screwed. And out of this turmoil the smartest of both eventually have to come up against each other and negotiate the best that they can get.

All the dummies then get the benefits of what the smart folks on the edge have worked out.

You don't need the whole world to be rational to have a rational process. (Indeed you don't need anybody to be rational to have a rational process.)

Who the hell is teaching otherwise?

* * *

BTW, I'm happy to see Brad using "the Pakistani textile worker" as a throw-away example -- for indeed the Pakistani textile non-worker is being thrown into the hands of Al Quaeda or its local franchise by America's textile quota system. Can't Bush be impeached for aiding terrorism?

-dlj.

Posted by: David Lloyd-Jones on May 10, 2003 07:48 AM

Ian Welsh: the traditional economic answer is that we should pay those who lose out through free trade. Generally when economists do the math, it ends up being considerably cheaper than the cost of protectionism.

Which raises an interesting question? Why doesn't this ever happen? What makes politically unpalatable?

Posted by: Walt Pohl on May 10, 2003 11:12 AM

And the traditional repsonse from those who've been down this path a time or two before? Show me the money. As you rightly say, the compensation of the losers never happens.

Indeed, given the current policy direction, it is fair to say that the losers are losing again. Unemployment benefits have expired, state sponsered healthcare is being curtailed in cash strapped states, etc....

Posted by: boban on May 10, 2003 12:03 PM

I'd like again to emphasize that it's no different from technical change or taste changes in terms of making winers and losers. There really is not any reason to single out international trade. Unless one is a Luddite or wants to tell consumers whatto consume, etc., the only answer is better social insurance. There is no reason why international trade should be treated differently. In other words, those who protest international trade are fighting the wrong enemy.

Posted by: Bobby on May 10, 2003 12:21 PM

"If those textile workers don't find new jobs"

I wasn't aware unemployment could be permanent.

Posted by: Jason McCullough on May 10, 2003 01:27 PM

Actually Bobby there are a number of differences between change that arises from innovation and tastes, and change that is driven by differing trade regimes. You are obviously very bright and critical, and I would invite you to momentarily set aside your current framework and enjoy exploring these differences.

And how many times should we observe the pie NOT being redistributed to compensate the losers before we insist on their being paid in advance?

Posted by: boban on May 10, 2003 02:24 PM

Unilateral freeing of international trade is just a more efficient way of consuming the goods that you import, very much like new production technology. Instead of manufacturing the imported goods yourself which has a greater opportunity cost in terms of the exported goods forgone, you just produce more of the export goods at home and trade them with foreign countries for the imported goods which has a smaller opportunity cost in terms of the exported goods forgone.

Now what if someone invented a machine that automatically converted exported goods into imported goods and the same rate as the terms of trade that would prevail under free trade would dictate?

These two things would have the exact same results for the domestic economy.

There are differences between technical change and trade, but none that, as I can see, are relevant to our conversation.

Posted by: Bobby on May 10, 2003 03:06 PM

Well, boban: Bobby, I, and no doubt some others are both having difficulty seeing these differences between trade and technological change. Perhaps, since you can see them fairly easily, you should tell it to us yourself? Thanks in advance.

Posted by: Julian Elson on May 10, 2003 03:43 PM

Didn't Kahneman himself say, after receving
the Noble, that the "non-rational" aspects
of risk taking he and Tversky were considering
applied in 10% of the cases, while the standard
rational framework applied in the other 90%?

Posted by: radek on May 10, 2003 04:14 PM

So why did the Economist write such an irrational peice? I have two ideas why this article was rational...

1. A few years ago many, many people were proclaiming the end of pain, downcycles, etc. Time magazine was wondering why people were so upset in Seattle since, after all, Capitalism is soooo great. We got religion - believing that the Free Market was the magic solution. Funny thing, the Economist was one of the few magazines that was trying to keep a lid on much of the hype; nonetheless, the widespread perception was that the free market solves everything. If behavioural economics casts light on another aspect of market activity, it may demonstrate peculiarities within that system which are outside the scope of the "Free Market Religion," making it instantly heterodox. The rational thing for the devout would be to misidentify behavioural economics as a Straw Man, pretend that existing paradigms already handle the Straw Man's objectives anyway, and then knock that Straw Man down.

or

2. The idea of behavioural economics somehow recalls the concept of utils. Consumer choice relates to maximizing utility and assessing the behaviour of the consumer begins to look eerily like counting utils. When we count utils we realize that the marginal gain from additional utils at one end of society would better serve those on the other end of society. Therefore: we begin distributing utils accordingly. Before you know it, we're wearing identifcal worker's uniforms and hailing the People's Leader on May Day.

Of course this isn't the case, but perhaps the Economist had an unfortunate kneejerk reaction.

(Along with everybody else, I'll agree that until recently the Economist has consistently been the most level-headed in its analysis of economics. I'm surprised by this also.)

Cheers!
Saam Barrager

Posted by: Saam Barrager on May 10, 2003 07:04 PM

Demand curves very much *do* lose their meaning outside of a particular set of very restrictive assumptions; Sonnenheim, Mantel and Debreu went through quite a lot of hard slog to prove this.

Supply curves don't exist at all, of course, and no serious industrial economist would claim that they do. So actually, this course seems more like a matter of making "Economics 101" more representative of what the subject actually is.

Posted by: dsquared on May 11, 2003 02:25 AM

I had the pleasure of taking Richard Thaler's class in business school. Thaler, as many of you know, is somehting of a leading light in behavioral econ, especially as it relates to finance theory.

Anyway, on the last day of class, someone asked Thaler if he felt that all of his work poking holes in the standard rational model of economic choice had left him less enthused about free market public policies than his colleague on the University of Chicago faculty. He replied that no, he didn't think that behavioral econ should suggest support for leftist economics.

The reason, he pointed out, was that government officials were subject to the same decision making biases, the same anaomolies, as the man on the street. Taking economic decisions out of the hands of the market and putting them into the hands of the government would simply transfer them from the domain of one set of systematically irrational actors to another set of systematically irrational actors. And all things being equal, society is probably better off with less concentration of power in the hands of of a few such actors. The most un-equally wealth-distributed market economy still doesn't concentrate power like a command economy.

People may not know what they're willing to pay for butter. But they know better than a government official.

Posted by: sd on May 11, 2003 04:01 PM

Ian Steedman and friends showed a generation ago that the conclusions of the HOS model don't follow if there are capital goods and a positive interest rate. This Steedman and Metcalfe critique is not about the realism of utility-maximizing.

International trade, in their framework, is a lot like the choice of technique.

The English translation of Gunnar Myrdal's The Political Element in the Development of Economic Thought is also good for a critique of the policy conclusions of the argument of comparative advantage. This is about utils.

I think recent events at Harvard and Notre Dame should lead economists to some examination to how they run their profession, if they wanted to live up to academic norms.

Being against neoclassical economics != being against mainstream economics != being against modern economics. This whole trope of calling certain attitudes as "anti-economics" is just uninformed.

Posted by: anonymous on May 12, 2003 12:05 AM

There are telling differences between Mexican and
American textile workers. The Mexican is far away and cannot vote, while the American is close by, can vote, and owns a gun.

Posted by: Tom Strong on May 12, 2003 08:40 AM

The writer for the Economist seems to have missed out on all the "assume a can opener" economist jokes. Haven't Kahneman and Tversky just begun doing what economists have tacitly always promised to do? Once the tractible, simplified model is mastered, move on to relax some of the unrealistic assumptions and do a better, if somewhat harder, job of modeling economic activity? I understand that "rationality" has taken on a special status - all those decades of explaining to first year students that the simplifying assumptions aren't that ridiculous - but the writer in question seems to have taken that explanation far to much to heart.

Posted by: K Harris on May 12, 2003 09:26 AM

Assume a can opener, assume an import-export conversion machine, assume redistribution... Go boldly where economists have gone for 150 years!

Posted by: boban on May 12, 2003 09:32 AM

Boban. I think Julian Elson's question to you deserves an answer.

Posted by: Bobby on May 12, 2003 09:37 AM

"Supply curves don't exist at all, of course, and no serious industrial economist would claim that they do."

Hmmm...it seems like this might be surprising news to oil industry economists. (Not to mention economists in many other commodity industries.)

Here is a graph of total rotary oil rig count, as compared to the price of oil:

http://www.wtrg.com/oil_graphs/RIGCOUNT.gif

There appears to be a pretty good correlation between changes in the number of rotary oil rigs (i.e., production), versus changes in the price of oil.

Oil prices rise gradually from 1974 to 1979, so does rig count. Oil prices spike in 1981, rig count spikes in 1982. Oil price declines from 1981 to 1986, rig counts do also. Then, oil prices and rig counts both fall almost vertically in 1986. From 1986 to 1998, both are steady, or increasing slightly.

The only place where there isn't a good correlation is the oil price spike of 1991, due to Gulf War I. The only reason there isn't a good correlation for that case, is that the war was so short.

Posted by: Mark Bahner on May 12, 2003 03:20 PM

"Arsian, is economics a discriptive or a perscriptive field?"

Science is generally accepted to be a search for Truth. (Regardless of whether such Truth actually improves anyone's life.)

Engineering is generally accepted (by engineers, at least ;-)) to be, "Use of science (the truth) to improve people's lives."

One would hope that economics would have both "economic scientists" (those searching for Truth, for its own sake) and "economic engineers" (those hoping to use the Truth to better people's lives); i.e., different parts of economics would have both descriptive and prescriptive aspects.

Posted by: Mark Bahner on May 12, 2003 03:51 PM

"I wonder if the general milieu of rightist think tanks and foundations are mobilizing support for such a campaign to discredit economics."

Well, the U.S. "think tank" that is farthest to the Right (where Right is defined as "supporting the least amount of government") is the Cato Institute. (The Heritage Foundation, I know, and American Enterprise Institute, I think, both favor bigger government than the Cato Institute.)

The Cato Institute is unlikely to discredit economics in order to justify greater government intervention, and less liberty. If they do, they'd have to change their motto of: "Individual Liberty, Limited Government, and Peace."

http://www.cato.org

One comment on the phrase "think tank" that I think is appropriate to such places as the Cato Institute, the Heritage Foundation, and the American Enterprise Institute: it may be more appropriate to call them "policy shops."

Their general purpose is what I call "economic engineering" (using economics, to suggest policies that they think will better the world, according to their views of what constitutes a better world). I think this can be separated from "economic science"...pursuit of economic Truth, without necessarily desiring more than that.

Posted by: Mark Bahner on May 12, 2003 04:07 PM

Thanks for the response, Mark. I don't know whether I would strictly go with the definition of "rightist" as "supporting the least amount of government." (perhaps you aren't this kind of libertarian, but I seem to remember a libertarian-sponsored web test that takes how much of a self-governor you are in economy and personal life, and had five categories: authoritarian (bottom of the square), left-liberal (left of the square), right-conservative (right of the square), moderate (center of the square), and libertarian (top of the square). You've probably seen this test. I thought it was a bit oversimplified, but I suppose that's the nature of the beast (web quizes, that is). My all-time favorite way of ranking political views is from the game "Tropico," which had six political factions (with varying intensity levels of membership on the part of your citizens, with factions not being exclusive): militarist, religious, communist, capitalist, intellectual, and environmentalist. My guess is a libertarian would be high-ranking on the capitalist and intellectual scale. Generally, one might consider Democrats to be an environmentalist-communist-intellectual coalition and Republicans a capitalist-militarist-religious coalition. Essentially any combination is possible though. When I play, I usually please the capitalists and communists and piss off the religious and militarist types, with intellectuals and environmentalists being between those extremes. Because of the nature of the game, though, "capitalist-pleasing" policies aren't what most would consider as such: it's really state-lead industrial policy, just with an emphasis on economic growth for capitalist-pleasing, as opposed to social services for communist-pleasing: if you're good or playing at a low difficulty level though, you can please both.)

Nonetheless, accepting rightist = libertarian as a premise, the inspiration for my comment about rightist think tanks/policy workshops trying to undermine the legitimacy of economics DOES come from the Cato Institute. Well, not the Cato Institute, but a Krugman article about it. Here it is!

http://www.pkarchive.org/cranks/bionomic.html

It is from almost six years ago, so I don't know how accurate it is as far as the Cato Institute's current views of economic matters is (or, indeed, how accurate it was even then: I didn't do any fact checking myself on the issue. It was just a provocation for my curiousity about the efforts of rightist think tanks vis-ā-vis academic economics.).

Posted by: Julian Elson on May 12, 2003 09:33 PM

"Thanks for the response, Mark. I don't know whether I would strictly go with the definition of "rightist" as "supporting the least amount of government." (perhaps you aren't this kind of libertarian, but I seem to remember a libertarian-sponsored web test that takes how much of a self-governor you are in economy and personal life, and had five categories: authoritarian (bottom of the square), left-liberal (left of the square), right-conservative (right of the square), moderate (center of the square), and libertarian (top of the square). You've probably seen this test."

Oh, yes. When there are *two* dimensions, you can have "rightist-leftist, upist-downist." But, if you're only allowed *one* dimension (a line), the only rational (i.e., repeatable, predictable) way that *I* know of, is to have "left" be 100% central government, and "right" be 0% government at any level.

If you *don't* do it that way, you end up with essentially changing the definition of what "right" and "left" mean, depending on how people who have been identified as "right" or "left" behave. For example, G.W. Bush and most of the Republican Party now support federal spending on education. By altering the definition of "right" to fit whatever Bush and most of the Republican Party do, you end up concluding, "The Right supports federal spending on education." But the problem is that the *Left* also supports federal spending on education. So one ends up with a line where NO ONE opposes federal spending on education. But Libertarians are completely opposed to federal spending on education. So they no longer are on the line at all! Which is rationally impossible, if you're trying to use a line to define everyone. So the only rational (predictable, repeatable) method of viewing this situation is to say that Bush and company are behaving like Leftists on the issue of federal spending on education.

But yes, I've seen the "diamond." And it's fine...it's better. The point of the diamond is to claim that the Left supports social freedom, but not economic freedom, the Right supports economic freedom, but not social freedom, the Top (notice how that's Libertarians ;-)) supports both kinds of freedom, and the bottom (authoritarians) support neither kind of freedom. I think that's better than a line, simply because two dimensions (left-right-up-down) allow more subtlety than one dimension (left-right).

By the way, I've read critiques of the "World's Smallest Political Quiz," which say it's basically a promotional tool...worded in a way to slant people towards thinking they share views with Libertarians. I think those critiques are correct; the quiz itself is essentially a sales pitch.

"My all-time favorite way of ranking political views is from the game "Tropico," which had six political factions (with varying intensity levels of membership on the part of your citizens, with factions not being exclusive): militarist, religious, communist, capitalist, intellectual, and environmentalist."

Boy, I don't see the value of *that,* at all. If factions are not exclusive, there's no way you can have gradations between them. But actually, the "communist, capitalist" DOES seem to be exclusive. (Except maybe not as the game you're describing uses the terms.)

In short, I think the "left-right" IS intellectually defensible, but only if left is 100% central government, and right is 0% government at any level. And the diamond is defensible, and capable of more subtle descriptions. But the six "factions," with factions not being mutually exclusive, doesn't seem intellectually defensible.

"Nonetheless, accepting rightist = libertarian as a premise,..."

Well, even farther to the right would be anarcho-capitalists, like David Friedman:

http://www.daviddfriedman.com/

He doesn't even support the government for police or military uses, as libertarians do.

"...the inspiration for my comment about rightist think tanks/policy workshops trying to undermine the legitimacy of economics DOES come from the Cato Institute. Well, not the Cato Institute, but a Krugman article about it. Here it is!"

Ah, yes, the always humorous (if unintentionally ;-)) Paul Krugman!

I like Paul Krugman. He writes clearly, and well. But his feigning of impartiality cracks me up! First off, he starts out by correctly labeling the Cato Institute as libertarian. But then, in the entire remainder of the article, he identifies the Cato Institute as "conservative."

That's complete BS. The words "libertarian" and "conservative" aren't even CLOSE to synonymous! In fact, one of the presenters at the conference, Virginia Postel, wrote an entire book about, "The Future and Its Enemies," depicting a whole range of technological issues where conservatives and libertarians don't agree.

Here is the Cato Institute summary of the conference:

http://www.cato.org/pubs/policy_report/cpr-20n1-7.html

Paul Krugman should have gone. (Or, since it was in Silicon Valley, he could have sent Brad DeLong with a Paul Krugman mask. ;-))

I'd love to see a Paul Krugman piece about how great Herbert Hoover was, for regulating the broadcasting (frequency) spectrum! ;-)

"Huber, author of Law and Disorder in Cyberspace, estimated that Herbert Hoover's mistake--nationalizing the frequency spectrum rather than letting common law work out ownership rules--might have cost the American economy some $2 trillion in the past seven decades."

Posted by: Mark Bahner on May 13, 2003 09:51 AM
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