It's a normative theory
August 28, 2011 2:43 AM Subscribe
As is well known, having six legs is the only possible defence against Dutchmen but, in unrelated news, Brad DeLong comments on the tendency of economists to blame prediction failures on irrational people failing to model the theories rather than the theory failing to model the people. He also highlights how this applies to waltzing with Darwin on starships. Or something like that.
Hat tip to Cosma Shalizi for the post that lead me to both links. He's also the author of the first.
There are also some quite good comments on Brad's post. I'm particularly fond of "There's nothing wrong with the system, we just need better people!!! That is the rallying cry of every failed society in history, and forever will be"
Hat tip to Cosma Shalizi for the post that lead me to both links. He's also the author of the first.
There are also some quite good comments on Brad's post. I'm particularly fond of "There's nothing wrong with the system, we just need better people!!! That is the rallying cry of every failed society in history, and forever will be"
I'm looking, and I'm still not seeing the Vinge reference. Am I missing it or do you mean the Heinlein reference?
posted by DRMacIver at 4:29 AM on August 28, 2011
posted by DRMacIver at 4:29 AM on August 28, 2011
Hexopodia is the key insight.
posted by pharm at 4:36 AM on August 28, 2011 [2 favorites]
posted by pharm at 4:36 AM on August 28, 2011 [2 favorites]
(um, my spelling is obviously wayward today: Hexapodia)
posted by pharm at 4:37 AM on August 28, 2011
posted by pharm at 4:37 AM on August 28, 2011
Oh! Right! I had forgotten about that bit in fire upon the deep. Thanks
posted by DRMacIver at 4:43 AM on August 28, 2011
posted by DRMacIver at 4:43 AM on August 28, 2011
So the answer to the first riddle is: people have 2 legs. Is the answer to the second riddle: the markets are irrational?
posted by Potomac Avenue at 5:26 AM on August 28, 2011
posted by Potomac Avenue at 5:26 AM on August 28, 2011
They constantly try to escapeposted by wobh at 5:32 AM on August 28, 2011 [1 favorite]
From the darkness outside and within
By dreaming of systems so perfect that no one will need to be good.
But the man that is shall shadow
The man that pretends to be.
I think the answer to the second riddle is "People don't behave like economists want them to and this is the economists' faults".
The combined answer to the riddles is "If your theory requires people to be rational value maximizers in order to work, you may as well assume they have six legs".
Or possibly "Beware ye who seek to create normative theories, lest instead you create religions".
posted by DRMacIver at 5:34 AM on August 28, 2011 [14 favorites]
The combined answer to the riddles is "If your theory requires people to be rational value maximizers in order to work, you may as well assume they have six legs".
Or possibly "Beware ye who seek to create normative theories, lest instead you create religions".
posted by DRMacIver at 5:34 AM on August 28, 2011 [14 favorites]
Economists expect people to act in ways that maximize the potential of the market.
However, people have other values, including good-will and a sense of right.
Business schools and economists have taught a generation of business leaders that:
3. Markets are the best way to organize pretty much everything.
In this current economic crisis, everyone is screaming at politicians and business leaders.
Yet, business schools are the root cause of the problem.
How many years have they been teaching profit before community?
The Wall St banksters that believe that they are more important than Main St, they are just doing what they were taught to do by the frauds that pass themselves off as business school professors.
posted by Flood at 6:07 AM on August 28, 2011 [14 favorites]
However, people have other values, including good-will and a sense of right.
Business schools and economists have taught a generation of business leaders that:
3. Markets are the best way to organize pretty much everything.
In this current economic crisis, everyone is screaming at politicians and business leaders.
Yet, business schools are the root cause of the problem.
How many years have they been teaching profit before community?
The Wall St banksters that believe that they are more important than Main St, they are just doing what they were taught to do by the frauds that pass themselves off as business school professors.
posted by Flood at 6:07 AM on August 28, 2011 [14 favorites]
1. Grow 4 more legs
2. Defeat Dutch nemesis
3. ????
4. Profit!
posted by arcticseal at 6:10 AM on August 28, 2011 [2 favorites]
2. Defeat Dutch nemesis
3. ????
4. Profit!
posted by arcticseal at 6:10 AM on August 28, 2011 [2 favorites]
It's been interesting to watch mainstream economists like Delong and Krugman discover:
a) Somehow, without knowing it and despite their work being essentially "neoclassical," they have become left-wing radicals within the economics community.
b) the somewhat oblique relationship between economics theory and economics policy as implemented by government and business. They've become effectively intellectual radicals by staying in one place, intelllectually.
But, I don't think they really are able to grok the relationship between politics and economics i.e. if you follow the Reagan revolution you can see a sort of two-step between theoretically bogus economic theories and political rhetoric leading to policy leading to economic changes, so that our economy and society has been, over the years, remodeled... grafting on a leg or two and some punishments for not having six.
But, from the perspective of an academic economist it started with 'bogusity' i.e. the Laffer curve supply-side arguments. I think it's dispiriting to see that honest academic work can become entirely irrelevant to real economic policy decisions... I wonder where Krugman et al will be, intellectually, ten years from now.
posted by ennui.bz at 6:31 AM on August 28, 2011 [8 favorites]
a) Somehow, without knowing it and despite their work being essentially "neoclassical," they have become left-wing radicals within the economics community.
b) the somewhat oblique relationship between economics theory and economics policy as implemented by government and business. They've become effectively intellectual radicals by staying in one place, intelllectually.
But, I don't think they really are able to grok the relationship between politics and economics i.e. if you follow the Reagan revolution you can see a sort of two-step between theoretically bogus economic theories and political rhetoric leading to policy leading to economic changes, so that our economy and society has been, over the years, remodeled... grafting on a leg or two and some punishments for not having six.
But, from the perspective of an academic economist it started with 'bogusity' i.e. the Laffer curve supply-side arguments. I think it's dispiriting to see that honest academic work can become entirely irrelevant to real economic policy decisions... I wonder where Krugman et al will be, intellectually, ten years from now.
posted by ennui.bz at 6:31 AM on August 28, 2011 [8 favorites]
Yeah, it really makes me sad to think that the influence of science fiction on economists has helped make the world a shittier place.
posted by wobh at 6:41 AM on August 28, 2011 [1 favorite]
posted by wobh at 6:41 AM on August 28, 2011 [1 favorite]
Ha-Joon Chang talks about this at length.
posted by cthuljew at 6:49 AM on August 28, 2011 [2 favorites]
posted by cthuljew at 6:49 AM on August 28, 2011 [2 favorites]
if you follow the Reagan revolution you can see a sort of two-step between theoretically bogus economic theories and political rhetoric leading to policy leading to economic changes, so that our economy and society has been, over the years, remodeled... grafting on a leg or two and some punishments for not having six.
Well, no. Reagan and his progeny have convinced policy-makers to act as if people had a few extra legs (or that "tax cuts for the hyper-rich" is the correct policy for any situation that comes along), but they never changed reality. Meanwhile, the "honest academic work" of Krugman et al continues to describe the real world and its two-legged humans. The fact (and sadly, it appears to be a fact) that they're being ignored doesn't change the reality that they accurately describe.
posted by Zonker at 7:03 AM on August 28, 2011 [3 favorites]
Well, no. Reagan and his progeny have convinced policy-makers to act as if people had a few extra legs (or that "tax cuts for the hyper-rich" is the correct policy for any situation that comes along), but they never changed reality. Meanwhile, the "honest academic work" of Krugman et al continues to describe the real world and its two-legged humans. The fact (and sadly, it appears to be a fact) that they're being ignored doesn't change the reality that they accurately describe.
posted by Zonker at 7:03 AM on August 28, 2011 [3 favorites]
To all two-legged foreigners:
VERZET IS NUTTELOOS
posted by Sourisnoire at 7:40 AM on August 28, 2011 [1 favorite]
VERZET IS NUTTELOOS
posted by Sourisnoire at 7:40 AM on August 28, 2011 [1 favorite]
Is there a transcript of the Ha-Joon Change talk available, by any chance?
Yeah, some economists that I've know like to pretend that they are mathematicians or scientists, but:
(i) mathematicians check that their hypotheses are valid before applying a theorem;
(ii) scientists check if their models actually actually agree with reality and have some degree of predictive power before attempting to apply them in any sort of normative manner.
sigh.
posted by eviemath at 7:44 AM on August 28, 2011 [13 favorites]
Yeah, some economists that I've know like to pretend that they are mathematicians or scientists, but:
(i) mathematicians check that their hypotheses are valid before applying a theorem;
(ii) scientists check if their models actually actually agree with reality and have some degree of predictive power before attempting to apply them in any sort of normative manner.
sigh.
posted by eviemath at 7:44 AM on August 28, 2011 [13 favorites]
the Nobel Prize in Economics should be eliminated.
posted by longsleeves at 8:01 AM on August 28, 2011 [4 favorites]
posted by longsleeves at 8:01 AM on August 28, 2011 [4 favorites]
Hexopodia is the key insight
Thus, logically, normative economic theory is the infectious edge of mind-controlling, aggressive hegemonizers from the edge of intergalactic space? I always knew something was off about economics.
posted by bonehead at 8:15 AM on August 28, 2011 [2 favorites]
Thus, logically, normative economic theory is the infectious edge of mind-controlling, aggressive hegemonizers from the edge of intergalactic space? I always knew something was off about economics.
posted by bonehead at 8:15 AM on August 28, 2011 [2 favorites]
Can we just admit that capitalism doesn't work yet?
posted by overglow at 8:44 AM on August 28, 2011 [3 favorites]
posted by overglow at 8:44 AM on August 28, 2011 [3 favorites]
VERZET IS NUTTELOOS
Schoppen mensen is zeer onbeleefd.
Geen pannenkoeken voor je!
posted by louche mustachio at 8:44 AM on August 28, 2011 [1 favorite]
Schoppen mensen is zeer onbeleefd.
Geen pannenkoeken voor je!
posted by louche mustachio at 8:44 AM on August 28, 2011 [1 favorite]
Can someone explain why he's using that--is it a photograph of a draft copy of one of Heinlein's novels? It totally derailed my reading of that article trying to figure out what was up with that.
posted by straight at 8:45 AM on August 28, 2011
posted by straight at 8:45 AM on August 28, 2011
And I don't know much about economics, but for a lot of social science it seems more like the "assume a spherical cow" situation.
That is, we can't really measure and test things as they are, so we'll assume a drastically oversimplified version that we can measure.
posted by straight at 8:48 AM on August 28, 2011 [1 favorite]
That is, we can't really measure and test things as they are, so we'll assume a drastically oversimplified version that we can measure.
posted by straight at 8:48 AM on August 28, 2011 [1 favorite]
It seems to me that the field of armchair economics is particularly prone to these types of opaque, context-free snipes that are impenetrable to outsiders who haven't been following the story:
So the writer in this case probably means something more than he says, but I haven't been reading his blog, I don't know anything about him, so I have no idea what he's driving at.
posted by Western Infidels at 8:50 AM on August 28, 2011
I conclude that some people aren’t very good at looking for jobs and further some people are not very good at accepting job offers.This is a conclusion so obvious, so self-evident, so trivial that it's not worth the bandwidth it consumes. "Some people aren't very good at X" is always true. Some people aren't very good at juggling. Some people aren't very good at rearing children. Some people aren't very good at communicating their thoughts through written language.
So the writer in this case probably means something more than he says, but I haven't been reading his blog, I don't know anything about him, so I have no idea what he's driving at.
posted by Western Infidels at 8:50 AM on August 28, 2011
This is brilliant. It is, of course, far above the heads of the cretins on my local paper's message boards (I know, I should stay away), who seem to think that anyone out of work should prefer work at any price to taking unemployment, whereas businesses should think hard-headedly and refuse to hire all those unqualified people gumming up the queues. Frankly, I think the situation of full employment -- which as I well remember had be stashed as a warm body into various org charts -- is abhorrent to them. They think that people should be begging for scraps at the table and should be willing to deflate their wages at a moment's notice. In the Wisconsin labor tussle, you have lots of people thinking that teachers should do this or that, well, just because, when the new normal that is being promoted by the anti-labor people running the state is a complete abrogation of the idea that public entities should negotiate with their employees over wages: Hey, we just cut your salary 5 to 15% depending. Take it or leave it. What, you're still standing here? Well, you're representing the fucking taxpayers, you're attempting to maximize your economic position; why the fuck shouldn't they?
posted by dhartung at 9:00 AM on August 28, 2011 [5 favorites]
posted by dhartung at 9:00 AM on August 28, 2011 [5 favorites]
The comments at TC's blog point out that this is perfectly rational behavior within the realm of standard micro. Accepting a lower wage now will lower your asking power for life. Accepting a low-wage job and keeping looking labels you as a job-hopper for a long time should you succeed. Accepting a part-time job does not do either, and does not detract as much from your ability to job search. The time you spend natural decreases with duration since you exhaust most of the obvious opportunities quickly and get better and weeding out unlikely ones.
posted by a robot made out of meat at 9:06 AM on August 28, 2011 [2 favorites]
posted by a robot made out of meat at 9:06 AM on August 28, 2011 [2 favorites]
And I don't know much about economics, but for a lot of social science it seems more like the "assume a spherical cow" situation. That is, we can't really measure and test things as they are, so we'll assume a drastically oversimplified version that we can measure.
I think that economics modeling started this way, and for some it still is. However, if a spherical cow doesn't give you good predictions, then one starts looking into the assumptions, especially those that are known to be wrong. And many people have done that, don't get me wrong! However, from what I've heard talking to friends in the field, there is still a cultural bias in academic economics that tends to blame people for not being "rational" in very particular ways instead of seeing their job as modeling human behavior better. It is blaming the cow for being spherical. I think that to some extent, this is part and parcel of economics basing much of their theoretical ground on mathematics as opposed to disciplines with more descriptive modeling (e.g. population genetics, ecology, much of physics), because the type of rigorous proofs that comprise the bread and butter of math is extraordinarily hard, often impossible, to do in messy, complicated situations. How this approach took over in econ and is only slowly starting to change, I don't have the background to say.
posted by Schismatic at 9:09 AM on August 28, 2011 [3 favorites]
I think that economics modeling started this way, and for some it still is. However, if a spherical cow doesn't give you good predictions, then one starts looking into the assumptions, especially those that are known to be wrong. And many people have done that, don't get me wrong! However, from what I've heard talking to friends in the field, there is still a cultural bias in academic economics that tends to blame people for not being "rational" in very particular ways instead of seeing their job as modeling human behavior better. It is blaming the cow for being spherical. I think that to some extent, this is part and parcel of economics basing much of their theoretical ground on mathematics as opposed to disciplines with more descriptive modeling (e.g. population genetics, ecology, much of physics), because the type of rigorous proofs that comprise the bread and butter of math is extraordinarily hard, often impossible, to do in messy, complicated situations. How this approach took over in econ and is only slowly starting to change, I don't have the background to say.
posted by Schismatic at 9:09 AM on August 28, 2011 [3 favorites]
Having had to interact with several "warm bodies stashed in the org chart" I think on balance I'd prefer just paying them to stay home.
posted by Skorgu at 9:10 AM on August 28, 2011 [2 favorites]
posted by Skorgu at 9:10 AM on August 28, 2011 [2 favorites]
so wait, the human centipede is a rational value maximizer? I'm still not getting this
posted by demonic winged headgear at 9:25 AM on August 28, 2011 [3 favorites]
posted by demonic winged headgear at 9:25 AM on August 28, 2011 [3 favorites]
> here is still a cultural bias in academic economics that tends to blame people for not being
> "rational" in very particular ways
That certainly reaches far beyond academic economists. See What's the Matter with Kansas, as a token for all instances of the notion that economic self-interest is the only political motivation there is (or, normatively, "Well, it ought to be the only one.")
posted by jfuller at 9:52 AM on August 28, 2011 [1 favorite]
> "rational" in very particular ways
That certainly reaches far beyond academic economists. See What's the Matter with Kansas, as a token for all instances of the notion that economic self-interest is the only political motivation there is (or, normatively, "Well, it ought to be the only one.")
posted by jfuller at 9:52 AM on August 28, 2011 [1 favorite]
The west is, by and large, a collection of intertwined post-industrial economies. What we are seeing now, with wage stagnation, union busting and demonization, is the emergence of a new 'post-employment' paradigm, where the only way workers can feel empowered is to refute the one-way street of employment and diversify their sources of income.
US tax and healthcare systems are currently designed to punish independent contractors (or reward employees; six of one half-dozen the other); however, constant increases in healthcare premiums, co-pays, and prescription expenses, coupled with a disastrous job market, are tipping the balance steadily in favor of the contractor. Consider this: I pay $14,000 annually for the right to have access to a given healthcare discount network (that's all this is anymore; health insurance is not at all what employer-sponsored healthcare plans provide). Apparently my employer makes some kind of contribution, too. It is now time to look for alternate plans, because I sincerely believe I can beat $14,000/year. And once that's arranged, I will resign my position. I will offer my services to the highest bidder, and I will not sign a non-compete agreement if I don't want to. I'll take a huge hit on self-employment tax, but I will learn to game the system to minimize my tax exposure, because, unfortunately, that is a productive (in dollars and cents) use of mental energy in this screwed-up country of ours.
I'm not the only one. I have several friends who've been laid off from high-paying creative jobs who are not even looking for employment; they are looking for assignments. This is the new reality, at least for people employed in creative fields. The uncertainty associated with traditional employment is now at least as great as the uncertainty of going it on your own, finding clients, etc. What really tickles me about this situation is the fact that, as a result of capitalist policy excesses, creative people are becoming capitalists in their own right, and negotiating from a position of greater power than they could enjoy as employees.
posted by Mister_A at 9:59 AM on August 28, 2011 [3 favorites]
US tax and healthcare systems are currently designed to punish independent contractors (or reward employees; six of one half-dozen the other); however, constant increases in healthcare premiums, co-pays, and prescription expenses, coupled with a disastrous job market, are tipping the balance steadily in favor of the contractor. Consider this: I pay $14,000 annually for the right to have access to a given healthcare discount network (that's all this is anymore; health insurance is not at all what employer-sponsored healthcare plans provide). Apparently my employer makes some kind of contribution, too. It is now time to look for alternate plans, because I sincerely believe I can beat $14,000/year. And once that's arranged, I will resign my position. I will offer my services to the highest bidder, and I will not sign a non-compete agreement if I don't want to. I'll take a huge hit on self-employment tax, but I will learn to game the system to minimize my tax exposure, because, unfortunately, that is a productive (in dollars and cents) use of mental energy in this screwed-up country of ours.
I'm not the only one. I have several friends who've been laid off from high-paying creative jobs who are not even looking for employment; they are looking for assignments. This is the new reality, at least for people employed in creative fields. The uncertainty associated with traditional employment is now at least as great as the uncertainty of going it on your own, finding clients, etc. What really tickles me about this situation is the fact that, as a result of capitalist policy excesses, creative people are becoming capitalists in their own right, and negotiating from a position of greater power than they could enjoy as employees.
posted by Mister_A at 9:59 AM on August 28, 2011 [3 favorites]
Schismatic: " It is blaming the cow for being spherical."
Do you mean for not being spherical?
I'd blame a cow for being spherical. A little decorum is not too much to ask, even if you're a cow
posted by vanar sena at 10:17 AM on August 28, 2011 [1 favorite]
Do you mean for not being spherical?
I'd blame a cow for being spherical. A little decorum is not too much to ask, even if you're a cow
posted by vanar sena at 10:17 AM on August 28, 2011 [1 favorite]
Schismatic: "How this approach took over in econ and is only slowly starting to change, I don't have the background to say."
Neither do I, but that doesn't stop me from opining that it surely is driven by a lack of responsibility for predictions. An engineer can be blamed for a poorly-designed bridge falling down, a physicist can lose a grant for publishing results with verifiable errors, a doctor can go to gaol. Until recently, there was really no real reason to fear repercussions for bad economic models, so bias and ideology have run rampant.
What is changing is that economists are feeling the effects of having economic policy based on their models go horribly wrong, and being held loosely responsible (loosely because I assume there's no legal protection from bad economists yet). The anti-Globalization movement seems to me to be the first world-scale - if disorganized - uprising against a formalized economic model. (Does anti-communism count?)
posted by vanar sena at 10:30 AM on August 28, 2011 [1 favorite]
Neither do I, but that doesn't stop me from opining that it surely is driven by a lack of responsibility for predictions. An engineer can be blamed for a poorly-designed bridge falling down, a physicist can lose a grant for publishing results with verifiable errors, a doctor can go to gaol. Until recently, there was really no real reason to fear repercussions for bad economic models, so bias and ideology have run rampant.
What is changing is that economists are feeling the effects of having economic policy based on their models go horribly wrong, and being held loosely responsible (loosely because I assume there's no legal protection from bad economists yet). The anti-Globalization movement seems to me to be the first world-scale - if disorganized - uprising against a formalized economic model. (Does anti-communism count?)
posted by vanar sena at 10:30 AM on August 28, 2011 [1 favorite]
> I assume there's no legal protection from bad economists yet
I once created a fictional setting for a game which included an inquisition/men in black style organisation charged with protecting the financial stability of the realm. Of the crimes they policed, numbered amongst the most serious was "practising economics without a license".
While the whole setting was designed around the fact that the people in charge were ruthlessly unscrupulous and cared for nothing except their own long-term power, I can't help but feel they occasionally had good ideas...
posted by DRMacIver at 11:10 AM on August 28, 2011 [1 favorite]
I once created a fictional setting for a game which included an inquisition/men in black style organisation charged with protecting the financial stability of the realm. Of the crimes they policed, numbered amongst the most serious was "practising economics without a license".
While the whole setting was designed around the fact that the people in charge were ruthlessly unscrupulous and cared for nothing except their own long-term power, I can't help but feel they occasionally had good ideas...
posted by DRMacIver at 11:10 AM on August 28, 2011 [1 favorite]
The anti-Globalization movement seems to me to be the first world-scale - if disorganized - uprising against a formalized economic model. (Does anti-communism count?)
Wouldn't communism itself count, as well?
posted by hattifattener at 11:14 AM on August 28, 2011 [1 favorite]
Wouldn't communism itself count, as well?
posted by hattifattener at 11:14 AM on August 28, 2011 [1 favorite]
Business schools and economists have taught a generation of business leaders that:
3. Markets are the best way to organize pretty much everything.
The most funnest part of this is that if it were true -- if markets were the best way to organize everything -- then there wouldn't be any firms for the MBAs to be middle-managers in.
posted by ROU_Xenophobe at 11:15 AM on August 28, 2011 [8 favorites]
3. Markets are the best way to organize pretty much everything.
The most funnest part of this is that if it were true -- if markets were the best way to organize everything -- then there wouldn't be any firms for the MBAs to be middle-managers in.
posted by ROU_Xenophobe at 11:15 AM on August 28, 2011 [8 favorites]
hattifattener: "Wouldn't communism itself count, as well?"
You're probably right. I admit I drew an arbitrary line between what I saw as economic models rather than more broadly sociopolitical ones, otherwise I'd have to include things like serfdom, slavery and democracy.
posted by vanar sena at 11:54 AM on August 28, 2011
You're probably right. I admit I drew an arbitrary line between what I saw as economic models rather than more broadly sociopolitical ones, otherwise I'd have to include things like serfdom, slavery and democracy.
posted by vanar sena at 11:54 AM on August 28, 2011
The most funnest part of this is that if it were true -- if markets were the best way to organize everything -- then there wouldn't be any firms for the MBAs to be middle-managers in.
This might be the most insightful thing I have read in a year. Thank you.
posted by gauche at 12:00 PM on August 28, 2011
This might be the most insightful thing I have read in a year. Thank you.
posted by gauche at 12:00 PM on August 28, 2011
Can we just admit that capitalism doesn't work yet?
huh?
Are you suggesting that the current global economy (the West, the US, the World Trade Organization) is an example of capitalism? They are not. At its core, the current global economy is a command economy.
Do you realize that food, energy, and labor are all exempted from the WTO rules? Three of the most important elements in any economy are all explicitly under the command control of world leaders, as specifically laid out in the WTO charter.
Do you think the bail-outs that saved Wall St are an example of free market capitalism? Do you realize what the price of gas would be without subsidies? (High enough to greatly increase the search for alternative energy, that is for sure).
Do you actually think you live in free market capitalist democracy? You live in a command economy controlled by an oligarchy.
posted by Flood at 12:36 PM on August 28, 2011 [3 favorites]
huh?
Are you suggesting that the current global economy (the West, the US, the World Trade Organization) is an example of capitalism? They are not. At its core, the current global economy is a command economy.
Do you realize that food, energy, and labor are all exempted from the WTO rules? Three of the most important elements in any economy are all explicitly under the command control of world leaders, as specifically laid out in the WTO charter.
Do you think the bail-outs that saved Wall St are an example of free market capitalism? Do you realize what the price of gas would be without subsidies? (High enough to greatly increase the search for alternative energy, that is for sure).
Do you actually think you live in free market capitalist democracy? You live in a command economy controlled by an oligarchy.
posted by Flood at 12:36 PM on August 28, 2011 [3 favorites]
Flood: "Do you actually think you live in free market capitalist democracy? You live in a command economy controlled by an oligarchy."
Is there any reason to believe that this isn't the end-game of any capitalist society (ie, the most ruthless take over and artificially limit competition)? Because laissez faire types routinely use that argument when communists complain that the USSR and Maoist China can't be considered "real" communism.
posted by vanar sena at 12:56 PM on August 28, 2011 [5 favorites]
Is there any reason to believe that this isn't the end-game of any capitalist society (ie, the most ruthless take over and artificially limit competition)? Because laissez faire types routinely use that argument when communists complain that the USSR and Maoist China can't be considered "real" communism.
posted by vanar sena at 12:56 PM on August 28, 2011 [5 favorites]
The solution to any problem with capitalism seems to be "You're just not doing it right! Do it harder!" to a certain set always in search of the truest Scotsman/capitalist.
posted by Ghostride The Whip at 1:05 PM on August 28, 2011 [7 favorites]
posted by Ghostride The Whip at 1:05 PM on August 28, 2011 [7 favorites]
Graeber, the author of Debt: The First 5,000 Years (mefi thread) made a comment on negative responses to his book which seems relevant here:
The curious thing is that one’s ability not to have to do this, not to have to prove one’s assumptions every single time one writes anything, is the luxury of power. Let me give an example. Economics – the great power discipline of the moment. Economic theory is based on certain assumptions about human action, how a “rational actor” will allocate resources under certain conditions. These are just premises, they were never originally tested, just assumed. Recently some psychologists decided to see if they were true, and created experimental tests. It turns out people almost never really act the way economists predict and the basic assumptions about human nature are actually wrong. What effect did this have on economics? None. The economists just ignored the empirical studies and carried on just as they had before. Where, on Amazon, do you have readers giving economic theory texts three-star reviews saying the material is interesting but they are based on flawed theories of human nature? As far as I can make out, nowhere. If you’re running the world, the fact that all your equations are based on premises that we know to be wrong is simply irrelevant. Meanwhile, if you’re challenging the prevailing orthodoxy, if you don’t prove every aspect of everything, you can just be rejected out of hand. So while I appreciate the reviewers’ efforts and am glad he found the overall historical argument compelling and interesting, I’m afraid in this way he really is playing the same role of ideological police as so many others – setting standards for non-mainstream views that no one ever sets for other ones.posted by Estragon at 2:53 PM on August 28, 2011 [7 favorites]
@vanar sena I'd argue that the end result of capitalism is inevitably either a true monopoly or an oligolopy that is effectively a monopoly.
The people who most hate capitalism are successful businesspeople. Competition, critical for the functioning of a capitalism, is the one thing that any business hates above all else. For them the most rational behavior is to eliminate all competition they can either via merger, or buyouts, or what have you. If I'm selling widgets and you're selling widgets than we need to compete on quality, price, service etc. That cuts profits. If you and I merge, or I buy you out or vice versa than we don't have to compete and profits go up.
But I posit that capitalism is exactly and precisely a utopian system, exactly as the linked article says. It requires that people act differently from the way they do in order to work, and like communism that is going to inevitably result in horrible failures.
posted by sotonohito at 2:54 PM on August 28, 2011 [4 favorites]
The people who most hate capitalism are successful businesspeople. Competition, critical for the functioning of a capitalism, is the one thing that any business hates above all else. For them the most rational behavior is to eliminate all competition they can either via merger, or buyouts, or what have you. If I'm selling widgets and you're selling widgets than we need to compete on quality, price, service etc. That cuts profits. If you and I merge, or I buy you out or vice versa than we don't have to compete and profits go up.
But I posit that capitalism is exactly and precisely a utopian system, exactly as the linked article says. It requires that people act differently from the way they do in order to work, and like communism that is going to inevitably result in horrible failures.
posted by sotonohito at 2:54 PM on August 28, 2011 [4 favorites]
Look, just being people means there are going to be terrible failures. We have bad ideas all the time. That's just how it works. We're flawed. We lie to ourselves. We get lost in fantasy worlds. We get caught up in manias. We follow the herd, even over a cliff.
This is the nature of humanity. It appears unlikely to change in the foreseeable future.
This guy seems to be arguing that because bad things happen in capitalism, it must be a failure. But in ANY system we make, bad things will happen, because we're very limited. Our intelligence is not adequate to modeling the interaction of billions of intelligences just as good as ours.
Capitalism's primary benefit is that you get regular failures. This is absolutely necessary. It is the check and balance against wishful thinking. Bad ideas go away. Sometimes they cause a great deal of pain when they go, sometimes they disappear with barely a whimper, but bad ideas are eventually knocked out of the system.
People look at our current system, with its catastrophic impending failures, and call capitalism the source of the problem, but it isn't. The source of the original problems were bad ideas. And when the system tried to wash them out, causing economic pain, the government stepped in, and prevented the adjustment from happening. It soothed the economy and told it to keep doing what it was already doing.
Bad ideas remain bad, even after government intervention, so by preventing the bad ideas from being removed, we let them continue to do damage. In order to avoid SOME pain today, we guaranteed MORE pain tomorrow. At this point, we've saved up somewhere between twenty and thirty years' worth of adjustments, and it sure looks like we'll be forced to make all of them at the same time, as soon as the government finance bubble pops. Once the market no long believes the American central government can keep propping up the system, the subsequent failure will be the worst in living memory, possibly the worst in human history.
We cannot create systems that will ever function perfectly. This will never happen. What we can do is make a system that fails in small ways, all the time, but never blows up the entire economy at once. And the only system I know that actually works to do that is market-based capitalism. It is savage, mean, and cruel in many ways. We can file off the worst of the rough edges with regulation, but for capitalism to work over the long haul, it has to be free to produce down years, even down decades. This is how new ideas and new approaches find fertile soil to grow.
It's a very great deal like forest management. For a forest to be healthy, it needs forest fires. If you prevent forest fires for long enough, the undergrowth accumulates, and eventually your firefighting techniques will be inadequate to stopping the blaze. At that point, the conflagration will be terrible, and even the huge, old trees that have stood for centuries will go up like matchsticks, when they'd easily have weathered the normal, small fires.
An economy is a lot like that. We have to stop fighting fires. We have to let them burn. That's how we find out which trees/ideas are the healthy ones.
Yes, it does have an element of Darwinism to it. But if you believe that all approaches are equal, and that all opinions are valid, and that everyone should be rich forever, you're living in a dream world. Here in reality, people are unequal.
And like it or not, LIKE IT OR NOT, not all economic ideas are good.
posted by Malor at 3:59 PM on August 28, 2011 [1 favorite]
This is the nature of humanity. It appears unlikely to change in the foreseeable future.
This guy seems to be arguing that because bad things happen in capitalism, it must be a failure. But in ANY system we make, bad things will happen, because we're very limited. Our intelligence is not adequate to modeling the interaction of billions of intelligences just as good as ours.
Capitalism's primary benefit is that you get regular failures. This is absolutely necessary. It is the check and balance against wishful thinking. Bad ideas go away. Sometimes they cause a great deal of pain when they go, sometimes they disappear with barely a whimper, but bad ideas are eventually knocked out of the system.
People look at our current system, with its catastrophic impending failures, and call capitalism the source of the problem, but it isn't. The source of the original problems were bad ideas. And when the system tried to wash them out, causing economic pain, the government stepped in, and prevented the adjustment from happening. It soothed the economy and told it to keep doing what it was already doing.
Bad ideas remain bad, even after government intervention, so by preventing the bad ideas from being removed, we let them continue to do damage. In order to avoid SOME pain today, we guaranteed MORE pain tomorrow. At this point, we've saved up somewhere between twenty and thirty years' worth of adjustments, and it sure looks like we'll be forced to make all of them at the same time, as soon as the government finance bubble pops. Once the market no long believes the American central government can keep propping up the system, the subsequent failure will be the worst in living memory, possibly the worst in human history.
We cannot create systems that will ever function perfectly. This will never happen. What we can do is make a system that fails in small ways, all the time, but never blows up the entire economy at once. And the only system I know that actually works to do that is market-based capitalism. It is savage, mean, and cruel in many ways. We can file off the worst of the rough edges with regulation, but for capitalism to work over the long haul, it has to be free to produce down years, even down decades. This is how new ideas and new approaches find fertile soil to grow.
It's a very great deal like forest management. For a forest to be healthy, it needs forest fires. If you prevent forest fires for long enough, the undergrowth accumulates, and eventually your firefighting techniques will be inadequate to stopping the blaze. At that point, the conflagration will be terrible, and even the huge, old trees that have stood for centuries will go up like matchsticks, when they'd easily have weathered the normal, small fires.
An economy is a lot like that. We have to stop fighting fires. We have to let them burn. That's how we find out which trees/ideas are the healthy ones.
Yes, it does have an element of Darwinism to it. But if you believe that all approaches are equal, and that all opinions are valid, and that everyone should be rich forever, you're living in a dream world. Here in reality, people are unequal.
And like it or not, LIKE IT OR NOT, not all economic ideas are good.
posted by Malor at 3:59 PM on August 28, 2011 [1 favorite]
armchair economics
Oh Jeebus, this +100. 'You remember that crash? And Enron? And that book by the guy I didn't understand at all with some pop psychology in it that I latched on to with both hands because it fit in with my existing prejudices or gave me an a-ha moment most people got back in Psych 101 and then got over it? Well, I don't know a lot about economics, but I reckon all that just proves that economists are idiots!' *smug look*
posted by obiwanwasabi at 4:49 PM on August 28, 2011
Oh Jeebus, this +100. 'You remember that crash? And Enron? And that book by the guy I didn't understand at all with some pop psychology in it that I latched on to with both hands because it fit in with my existing prejudices or gave me an a-ha moment most people got back in Psych 101 and then got over it? Well, I don't know a lot about economics, but I reckon all that just proves that economists are idiots!' *smug look*
posted by obiwanwasabi at 4:49 PM on August 28, 2011
Malor, people are certainly fallible, but are influenced by the incentives of the systems that structure their lives: economic, political, cultural/social, etc. There are, for example, ways of running meetings that people in management "science" study that tend to produce better ideas and outcomes than other ways of running meetings. A good system will take into consideration how people actually behave, and build in incentives that reward and amplify positive actions and decisions, and penalize and restrict the consequences (at least to others) of poor actions and decisions. We seem to be not entirely in disagreement about this, but follow this idea to its conclusion.
How does capitalism take actual human behavior into consideration? Poorly, since it assumes blatantly false hypotheses such as that people are rational economic maximizers, who only interact with each other in economic contexts, and have complete information, among other assumptions.
What behaviors and attitudes does capitalism, in particular the version currently practiced, reward and amplify? Well, lots of anti-social behaviors and attitudes, like pure self-interest and greed, lack of concern for "externalities" and long-term effects( eg. on the environment, human rights, or political and social structures), etc. (for a complete list, I recommend watching "The Corporation"). It also provides some incentive for innovation, but capital re-investment in research and development and other innovation has been steadily decreasing since the 1970s (in the US and Canada, at least), in favor of shorter-term considerations, so I don't think that's a very robust positive effect of capitalism.
posted by eviemath at 5:22 PM on August 28, 2011 [4 favorites]
How does capitalism take actual human behavior into consideration? Poorly, since it assumes blatantly false hypotheses such as that people are rational economic maximizers, who only interact with each other in economic contexts, and have complete information, among other assumptions.
What behaviors and attitudes does capitalism, in particular the version currently practiced, reward and amplify? Well, lots of anti-social behaviors and attitudes, like pure self-interest and greed, lack of concern for "externalities" and long-term effects( eg. on the environment, human rights, or political and social structures), etc. (for a complete list, I recommend watching "The Corporation"). It also provides some incentive for innovation, but capital re-investment in research and development and other innovation has been steadily decreasing since the 1970s (in the US and Canada, at least), in favor of shorter-term considerations, so I don't think that's a very robust positive effect of capitalism.
posted by eviemath at 5:22 PM on August 28, 2011 [4 favorites]
Malor -
We tried running our economy the way you describe during the 19th and early 20th century. It didn't work. The economy was so unstable that we would constantly lurch between boom and bust times, which was one of the reasons why prosperity was not distributed widely enough to ward off ideological competitors to capitalism such as communism and socialism. We eventually settled on a mixed economy approach consisting of directed goverment spending and public ownership of certain areas of the economy alongside a heaviy regulated market economy weighted towards encouraging investment in productive activities and the widest distribution of wealth possible.
Since the eighties we've started to move back in the direction you advocate, with disasterous results at each turn. The reason is simply, the economic models upon which the economic theories advocating a return to 19th century economics are based contain an emprically false model of human behavior. As a result, they lead to predictions at odds with reality.
The last point is what the "guy" you are referring to is to (one of the leading macroeconomists in the country - I think he knows a little bit about what "capitalism is all about") is talking about. He not only understands the economic model that leads to your views, he is talking about one the reasons that it fails. Your reply, which focuses on bankruptcies and business failures, frankly misses and goes below his point. You act like no business went bankrupt and creative destruction didn't happen during the past 50 years. I'm sure there are several companies that would beg to differ.
posted by eagles123 at 6:17 PM on August 28, 2011 [4 favorites]
We tried running our economy the way you describe during the 19th and early 20th century. It didn't work. The economy was so unstable that we would constantly lurch between boom and bust times, which was one of the reasons why prosperity was not distributed widely enough to ward off ideological competitors to capitalism such as communism and socialism. We eventually settled on a mixed economy approach consisting of directed goverment spending and public ownership of certain areas of the economy alongside a heaviy regulated market economy weighted towards encouraging investment in productive activities and the widest distribution of wealth possible.
Since the eighties we've started to move back in the direction you advocate, with disasterous results at each turn. The reason is simply, the economic models upon which the economic theories advocating a return to 19th century economics are based contain an emprically false model of human behavior. As a result, they lead to predictions at odds with reality.
The last point is what the "guy" you are referring to is to (one of the leading macroeconomists in the country - I think he knows a little bit about what "capitalism is all about") is talking about. He not only understands the economic model that leads to your views, he is talking about one the reasons that it fails. Your reply, which focuses on bankruptcies and business failures, frankly misses and goes below his point. You act like no business went bankrupt and creative destruction didn't happen during the past 50 years. I'm sure there are several companies that would beg to differ.
posted by eagles123 at 6:17 PM on August 28, 2011 [4 favorites]
This might be the most insightful thing I have read in a year. Thank you.
Coase, "The Nature of the Firm," 1937.
posted by ROU_Xenophobe at 6:26 AM on August 29, 2011
Coase, "The Nature of the Firm," 1937.
posted by ROU_Xenophobe at 6:26 AM on August 29, 2011
Well, the good news is we won't have to listen to the capitalist vs. whatever arguments for much longer. Like mercantilism, feudalism, tribalism, etc capitalism will soon be dead and buried as technology changes and makes it as obsolete as the other forms of economics we've used during the history of our species. Technology determines the forms of economics available and workable, change the technology involved and the economics changes.
The bad news is that I fully expect the change from capitalism to whatever comes next to be every bit as painful as the change was from a largely agrarian society to a largely industrial society was. Worse, perhaps, in that we have a lot of people around today with an absolutely rabid religious devotion to capitalism. Fewer with an absolutely rabid religious devotion to capitalism's twin communism, but they too will kick up a fuss at seeing their religion rendered obsolete.
I do hope though that future economists will be more careful to make their models reflect actual human behavior than current economists are.
I know for a fact that I'm not a rational economic actor. Partially due to decision fatigue, partially due to the fact that the sheer volume of stuff I buy makes being a rational economic actor impractical (quick, of the couple hundred or so different grocery items you buy how many have you carefully researched and done a cost/benefit analysis on?), and partially just because I have other things I'd rather do with my time than cost/benefit analysis of every purchase I make.
Example: I buy Mrs. Baird's sandwich bread. I do not do this because I have any particular certainty that it tastes better, I have no idea what it's nutritional value is vs the values of other breads, I make enough money that I don't pay close attention to the price so I can't even tell you if it's more or less expensive than any other brand. I buy it because it's what my mother bought and I've never considered it to be worth the time and effort to do even the briefest bit of analysis on whether it's the best option for me.
posted by sotonohito at 8:55 AM on August 29, 2011 [2 favorites]
The bad news is that I fully expect the change from capitalism to whatever comes next to be every bit as painful as the change was from a largely agrarian society to a largely industrial society was. Worse, perhaps, in that we have a lot of people around today with an absolutely rabid religious devotion to capitalism. Fewer with an absolutely rabid religious devotion to capitalism's twin communism, but they too will kick up a fuss at seeing their religion rendered obsolete.
I do hope though that future economists will be more careful to make their models reflect actual human behavior than current economists are.
I know for a fact that I'm not a rational economic actor. Partially due to decision fatigue, partially due to the fact that the sheer volume of stuff I buy makes being a rational economic actor impractical (quick, of the couple hundred or so different grocery items you buy how many have you carefully researched and done a cost/benefit analysis on?), and partially just because I have other things I'd rather do with my time than cost/benefit analysis of every purchase I make.
Example: I buy Mrs. Baird's sandwich bread. I do not do this because I have any particular certainty that it tastes better, I have no idea what it's nutritional value is vs the values of other breads, I make enough money that I don't pay close attention to the price so I can't even tell you if it's more or less expensive than any other brand. I buy it because it's what my mother bought and I've never considered it to be worth the time and effort to do even the briefest bit of analysis on whether it's the best option for me.
posted by sotonohito at 8:55 AM on August 29, 2011 [2 favorites]
Malor: "It's a very great deal like forest management. For a forest to be healthy, it needs forest fires."
While I agree that allowing science to shape forest management policy is a good thing, keep in mind that a lot of non-first-world forest management involves selling the timber rights to the highest bidder, who subsequently cut down all the trees and sell them; forest fires don't enter the picture. This bears an unfortunate resemblance to the outcomes of modern economic policies.
posted by sneebler at 5:50 PM on August 29, 2011
While I agree that allowing science to shape forest management policy is a good thing, keep in mind that a lot of non-first-world forest management involves selling the timber rights to the highest bidder, who subsequently cut down all the trees and sell them; forest fires don't enter the picture. This bears an unfortunate resemblance to the outcomes of modern economic policies.
posted by sneebler at 5:50 PM on August 29, 2011
An economy is a lot like that. We have to stop fighting fires. We have to let them burn. That's how we find out which trees/ideas are the healthy ones.
I think there's a lot of truth in this. However, letting the fires burn is untenable for political reasons. When your ability to receive health care or shelter is dependent on your job, that kind of "pain" can be life threatening. While it is important that we have some kind of signal that moves people toward more productive labor, in our current system unemployment can lead to homelessness, the destruction of families, or death. In the end, I think this is costly for society as a whole in the form of the destruction of our productive labor pool, as well as a moral outrage.
I think capitalism is a fine system for allocating the production and distribution of most consumer goods and luxury items. However, when applied to whether or not people get to live it becomes arbitrary and unjust. People aren't machines - you can't just switch them off to save electricity when you have excess productive capacity.
If I had to sum up my beliefs in a sentence, I think it would be "socialism for people, capitalism for capital".
posted by heathkit at 9:31 PM on August 29, 2011 [1 favorite]
I think there's a lot of truth in this. However, letting the fires burn is untenable for political reasons. When your ability to receive health care or shelter is dependent on your job, that kind of "pain" can be life threatening. While it is important that we have some kind of signal that moves people toward more productive labor, in our current system unemployment can lead to homelessness, the destruction of families, or death. In the end, I think this is costly for society as a whole in the form of the destruction of our productive labor pool, as well as a moral outrage.
I think capitalism is a fine system for allocating the production and distribution of most consumer goods and luxury items. However, when applied to whether or not people get to live it becomes arbitrary and unjust. People aren't machines - you can't just switch them off to save electricity when you have excess productive capacity.
If I had to sum up my beliefs in a sentence, I think it would be "socialism for people, capitalism for capital".
posted by heathkit at 9:31 PM on August 29, 2011 [1 favorite]
heathkit: That's why sane countries don't tie healthcare to employment. Only the US sets up their system so that it penalises people trying to buy their own private healthcare whilst at the same time refusing to implement a national system of healthcare. Somehow the US has managed to choose almost the worst of all possible worlds when it comes to healthcare provision: least universal coverage, most expensive, most waste when compared to every other first world system regardless of whether the comparison is with a socialist-style national healthcare system or something almost completely privately run (like Singapore say).
I think Malor's point that the US has spent 30 years refusing to 'let the fires burn' is a valid one personally; the problem is what do you do now you've got yourself into a position where there's brush everywhere and a single fire will burn down the whole forest?
posted by pharm at 2:46 AM on August 30, 2011 [1 favorite]
I think Malor's point that the US has spent 30 years refusing to 'let the fires burn' is a valid one personally; the problem is what do you do now you've got yourself into a position where there's brush everywhere and a single fire will burn down the whole forest?
posted by pharm at 2:46 AM on August 30, 2011 [1 favorite]
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posted by pharm at 4:12 AM on August 28, 2011 [4 favorites]