Students Are Leaving the Politics Out of Economics

New York Times ^ | January 27, 2006 | LOUIS UCHITELLE

[USFRIENDINVICTORIA]

We seem to be talking at cross-purposes.

"Rational" in the economics context simply means that you aren't acting against your self-interests. These self interests can be much broader than simple greed. They include acts of altruism toward one's family, community and country.

The concept of "economic man" doesn't mean that everyone is always rational -- just that enough are, so that we can make some predictions about the economy.

The article starting this thread mentioned some of the newer research being done in economics. In part, this is an attempt to come up with better explanations about what makes people tick. The concept of "economic man" will probably be replaced in economic theory -- just as theories in any other field change.

Here's a snippet about Adam Smith's views:
"Smith laid the intellectual framework that explained the free market and still holds true today. He is most often recognized for the expression "the invisible hand," which he used to demonstrate how self-interest guides the most efficient use of resources in a nation's economy, with public welfare coming as a by-product. To underscore his laissez-faire convictions, Smith argued that state and personal efforts, to promote social good are ineffectual compared to unbridled market forces."

Economists are careful to separate out "what should be" from facts about what is and what will be. When decision makers know what the options are -- they use their value system to chose amongst them. If you mix the ethics in with the facts, you wind up with a muddle something like the biased news reports in the MSM.

[A. Pole]

Economists are careful to separate out "what should be" from facts about what is and what will be.

But this is the fundamental error. They want economy to be like physics. But economy same way as the law is about what people do. As such it CANNOT be separated from

values. BTW, the notion of "value" is necessary.

The economical thinkers who deny it, in fact promote particular interests or values hiding them under the cover of "scientific objectivity". The "invisible" hand of English "free" market robbed whole nations blind.

Free market was behind slave and drug trade, behind exterminations (Tasmanians for example) in modern times behind people like Gusinski, Khodorkovsky and Bierezovsky.

[USFRIENDINVICTORIA]

We'll just have to agree to disagree, I'm afraid.

[nmh]

There is no such thing as an "objective reality".

[nmh]

If it's something like what you are pedaling on your other reply, I won't waste my time reading it.

[A. Pole]

There is no such thing as an "objective reality".

Physics by definition deal with OBJECTS, psychology, sociology, economy, ethics by definition deals with SUBJECTS/persons. So economy is and should be SUBJECTIVE and deal with SUBJECTIVE reality. Subjective things are real, your pain is real even if others do not feel it.

[Tench_Coxe]

""Rational" in the economics context simply means that you aren't acting against your self-interests. These self interests can be much broader than simple greed. They include acts of altruism toward one's family, community and country."

Actually, 'rational' encompasses a bit more than that, IMHO. It assumes that faced between putting food on the table and buying a luxury car, one opts to put food on the table ( a simple example, but it should illustrate ). Its not quite the same as the self-interest you describe.

[USFRIENDINVICTORIA]

At one level, I agree with you. In fact, we could go further and put physics into the subjective category -- because each observer has a subjective view of even objects.

A great deal of social science today is practiced on the subjective basis that you describe. To a postmodernist, there is no single truth out there -- and everyone's subjective take on society is equally valid. Similarly -- every culture is morally equivalent.

I simply said that economists tend to lean toward positivism in their work. That's why they measure things, plot trends, etc.

The alternative is something we see in the MSM every day -- subjective reporting substituting for "objective" (as in just the facts ma'am) reporting. Editorializing mixed in with reporting.

If we can't agree that there is an external reality, that can be measured objectively -- then how can anyone have a debate with anyone else about anything? The answer to every debate would be: "you're right, and so am I."

[USFRIENDINVICTORIA]

"Actually, 'rational' encompasses a bit more than that, IMHO. It assumes that faced between putting food on the table and buying a luxury car, one opts to put food on the table ( a simple example, but it should illustrate ). Its not quite the same as the self-interest you describe."

O.K. -- but what if you had to chose between buying groceries today and getting a car that was an absolute requirement for a job, which would put food on the table every day thereafter? A rational decision would take the longer term into account as well as the immediate needs.

A lot of college students have to make a similar decision. They eat macaroni and cheese, take the bus, and live in a dorm for years -- so that they can eventually qualify for a better job. Is that more or less rational than dropping out early to take a job?

[USFRIENDINVICTORIA]

"If it's something like what you are pedaling on your other reply, I won't waste my time reading it."

Not to be judgmental (although you don't like things being non judgmental); you've got it all backwards here.

You don't like situational ethics -- fine, I'm not a fan either. Also, I don't much care for moral relativism.

I was just saying that economists try to keep their value judgments separate from their fact finding.

That doesn't mean that values and ethics aren't important. For instance, an economist might predict that a certain government policy would improve the welfare of thousands of people, but it would also require a tax rise. Wouldn't you rather have elected politicians make the final decision about the policy -- i.e. the value judgment -- rather than a nameless, faceless economist?

[earplug]

Most of your examples our choices the reflect self interest.
Rational.
I don't think you understand the rational choice idea.

[Clemenza]

Actually, we were the leader in innovation from Eli Whitney through the end of WWII, when that Euro-peon export known as organized labor gained power.

Tell me, how many union members does Apple, Microsoft, Dell, or Wal Mart have? How many of the engineers and designers at Boeing are unionized?

[A. Pole]

I don't think you understand the rational choice idea.

The main rational choice is the choice between right and wrong. Man is primarily a moral/ethical being. I resent the attempts to reduce him to the physical calculable object.

[USFRIENDINVICTORIA]

"More human, you mean?"

We've been talking about tiny parts of economics. I described how the concept of "economic man" is fundamental to classical economics.

A great many people, including probably most modern economists would agree with you that "economic man" does not completely describe how humans actually act. I'm one of them -- we're simply a lot more complex. That doesn't mean that it's not a useful concept, and that we can learn a lot from it. Adam Smith's "invisible hand" has done more for the public good than Marxism.

The article starting this thread mentions ongoing research into human nature, as it relates to economics. Even the concept of "self-interest" has gotten a lot more complex in recent years.

Whole branches of economics are concerned with equity (fairness) and welfare (public good -- not just the government handout).

Values and ethics are important considerations -- but economists are not necessarily the most informed about these. Especially since economics has become so mathematical. Moral philosophers, and religious scholars usually know more about these things. (Not that long ago, there was just "philosophy" -- today there are narrower specialties like economics.)

When it comes to public policies, economists can give us options. The actual decisions should be left to a political process -- not the economists.

[nmh]

"Not to be judgmental (although you don't like things being non judgmental); you've got it all backwards here."

And YOUR not being judgmental by still pushing this psychological, nonsensical vomit on me?

LOL!

You're worse than me and obnoxious to boot! Perhaps for you to live in a fairy tale world is best.

[nmh]

By example, evolution is far from being objective. Supporting evolution is all about what you prefer to believe even though the evidence does not support it. Science used to be objective. It isn't any more. It's agenda driven.

[USFRIENDINVICTORIA]

This was just a little play on words -- don't take it too seriously.

I think I've been very respectful -- I've taken a lot of time to explain things. You have strong views -- and I don't challenge your values. I've shown you how moral values can complement "inhuman" economic analysis -- you don't like that -- well I'd have to say it's you who are living in the fair tale world.

You don't seem to have any use for economics -- or any of the softer social sciences either. Fine, that's your prerogative. However, economic theories are important -- Conservatives tend to adhere to different ones than liberals. I have a strong moral code -- and I also occasionally do analysis using economics. If someone wants economics -- that's what I give them. If they want a moral judgment, they'd probably be asking someone who specializes in that area -- or using their own value system.

[justshutupandtakeit]

Attempts to keep economies local, bound by geographical and political restraints are Quixotic at best. Marx clearly saw that capitalism could not be stopped from achieving its maximum development potential. He was right about that. Nostalgic longing for days gone by are not helpful for anyone as well as being silly.

[justshutupandtakeit]

Attempts to complicate the questions and alternatives are not refutations of the definition of "rational" and are easily handled. I gave a example with two alternatives as a basic concept. Extending it to multiple choices and even multiple choices over time does not change anything.

Since most of your complications are easily handled I will only address a couple.

Of course, I can see the same product with two different prices that is not unusual. I have even seen them side by side with two different prices.

Inclusion of a preference for "local" stores in a decision-making function is not anti-rational merely an extension of the criteria used to make that decision. You have added something not considered by another who doesn't care about it.

Search costs are also part of the decision-making process and do not change matters wrt rationality either.

Purchases are not required to be "useful" to be rational. If the economy was restricted to "useful" purchases it would collapse across the globe.

Emotional decisions are not necessarily irrational. But no human can live on strictly emotional decisions. Interestingly though marketeers understand that shoppers buy "impulse" items and market products accordingly.

Giving money to bums is not a market phenomenon. Besides you may be purchasing a Good Feeling About Yourself.

Your other questions are just as easily handled by adding more elements into your decision making function. Economics always starts with the simplest formulations of events by assumption then gradually relaxes those restrictions.

Rationality comes into the picture once a goal is established then you evaluate the means you are using to obtain that goal. Economic theory is built upon an understanding that individuals do not all have the same goals but all use rational means of obtaining them.

[justshutupandtakeit]

There was nothing "free market" about the slave trade since the commodities were stolen to begin with. Nor with the drug trade since the requirement of freely available information is violated.

Your misunderstanding of economics is hard to overcome within a limited time and space. But that is all it is -a misunderstanding. Economics was not created to be like physics and no economists makes such a claim. Initially it was call "moral philosophy" then "political economy" and used logic, and eventually more and more math to spread its concepts and applicability. That can be taken to extremes which is a valid objection. But that approach has also led to valuable insight.

What is your alternative to "rationality", math and logic?