Sunday, 6 November 2016

How to Strawman Mainstream Economics

I have a lot of criticism towards the very vague term 'mainstream economics' (not 'NeoClassical', guys..). Its emphasis of mathematical rigour and lack of economic history are probably the two most crucial ones. I mean, there is a reason I'm committing time and effort to the Real World Economics Society, attenting Rethinking events and the annual conference we organise at the University (Glasgow Economic Forum, March 11-12, 2017  don't miss out!); people in these circles tend to be slightly more interested in actually discussing economic ideas than your average utility-maximising economics professor, even though this commitment means I have to put up with an above-average number of marxists. Well worth it.

So, imagine my surprise when I feel this urge of defending mainstream econ. Clearly, it's not for any concern about mainstream econ itself. Rather, as Paul Romer so beautifully put it:
In a first-pass analysis, it seems reasonable to assume that all economists have the same preferences. We all take satisfaction from the professionalism of doing our job well. Doing the job well means disagreeing openly when someone makes an assertion that seems wrong. (The Trouble with Macroeconomics, p. 20, my emphasis)
Here I am, openly disagreeingly when people make seriously stupid arguments against mainstream economics. In the case depicted below, the critique of mainstream is so embarrasingly shallow and incorrect that I can't resist attacking it. Mindblowingly bad, in other words, and the very smart people who sometimes levy these charges against mainstream econ should definitely know better.

Consider what your average sociology student would tell you about economics, or the indignantly upset first-year student who read a few pages of Steve Keen. Or, indeed, more formidable opponents such as the economically illiterate writer for The Guardian George Morbiot. Or Aspromourgos, my great USYD professor in 'History of Economic Thought' (who really should know better...). I'm obviously talking about depicting economics as a science of the 'Economic Man', the 'Rational Representative Agent', the 'Homo Economicus': the perversely selfish psychopath, the perfectly rational optimising agent who take account of nothing but his (yes, his) own utility function.

The mistake? That utility functions were never constructed as self-centered or selfish, as implied by this critique. They can easily incorporate feelings towards others, altruism, concerns for the poor or love for those we care about. The mainstream format would be to simply put all those variables into the utility function. And the function would obviously become meaningless with so many unmeasurable and unquantifiable variables, but that didn't stop them for calculating 'utility' in the first place, so why would this, in principle, be a problem for 'love', 'affection', 'social status' or 'peer pressure'?

But hey, why listen to me when Erik Angner, the Stockholm University/GMU professor whose textbook we use for Behavioural Economics this semester, makes the point much more brutally, and much more convincingly:
It is important to note what the theory of rationality does not say. [...] the theory does not say that people are selfish, in the sense that they care only about themselves; or that they are materialistic, in the sense that they care only about material goods; or that they are greedy, in the sense that they care only about money. The definition of rationality implies that a rational person is self-interested, in the sense that her choices reflect her own preference ordering rather than somebody else's. But this is not the same as being selfish: the rational individual may, for example, prefer dying for a just cause over getting rich by defrauding others. The theory in itself specifies only some formal properties of the preference relation; it does not say anything about the things people prefer. The theory is silent about whether or not they pursue respectable and moral ends. Rational people may be weird, evil, sadistic, selfish, and morally repugnant, or saintly, inspiring, thoughtful, selfless, and morally admirable. (pp. 26-27, A Course in Behavioural Economics (2016), my italics and emphasis)
That means two things: a) Angner's real critique would predictably run along behavioural lines. That's a fruitful, and to my understanding, quite sound critique, and b) playing with optimally-adjusting indifference curves to budget constraints would be the target of more accurate critique. But that doesn't sound as revolutionary, and hence doesn't have the shallow media appeal these people are looking for. There are many things wrong with mainstream economics; (false) inability to take feelings of others into account is emphatically not one of them.

Ryan McMaken at Mises Wire made this point the other day, and anyone who ever criticised economics along the lines of 'Selfish Individuals' is obligated to read it. Right now. And think twice before so shallowly depicting mainstream economics again. Even they deserve better  and you should definitely know better.

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