Saturday, January 5, 2008

Do Economists undermine community?

A book recommended by Amazon after I bought The Concise Encyclopedia of Economics by David R. Henderson (Editor)

The Dismal Science
How Thinking Like an Economist Undermines Community
Stephen A. Marglin

Some excerpts from the first chapter;
I am not confusing the messenger with the message: economics is an accessory, both before and after the fact. Surveys conducted by sociologists Gerald Marwell and Ruth Ames (1981) and experiments undertaken by economist Robert Frank in collaboration with psychologists Thomas Gilovich and Dennis Regan (1993) support the idea that studying economics is associated with less cooperative, less other-regarding behavior (but see Yezer et al. 1996 for evidence and argument to the contrary). It is not difficult to see why: economics celebrates the self-interested, calculating individual and the market as a means of realizing individual satisfactions, and this celebration is important in overcoming opposition to extending the sway of the market and, by the same token, undermining community. Economics is not only descriptive; it is not only evaluative; it is at the same time constructive—economists seek to fashion a world in the image of economic theory.

The problem with the idea that economics is purely, or even primarily, a descriptive undertaking is that the apparatus of economics has been shaped by an agenda focused on showing that markets are good for people rather than on discovering how markets actually work. And from this normative perspective has come the constructive agenda. If you believe that economics is or should be about describing the world, then it is a case of the tail wagging the dog. If you believe, as I do, that the normative agenda has been central to economics from well before Adam Smith’s time, then it is more understandable why the apparatus of economics is built on foundations that undermine community. Undermining community is the logical and practical consequence of promoting the market system.

This much is certain: if all we economists cared about was describing the world, we could easily forgo much of the framework that I find problematic. Take one of the most basic tool of economic analysis, demand. If we did not care about drawing conclusions about how well markets work, as distinct from how markets actually work, we could start directly from the demand curve rather than basing demand on choices made by rational, calculating, self-interested individuals. We do not take demand as the starting point because it would then be impossible to argue that—subject to some fine and not so fine print—a system of markets maximizes welfare. In making this argument, economics relies on value judgments implicit in foundational assumptions about the self-interested individual, about rational calculation, about unlimited wants, and about the nation-state, and it is these assumptions that make community invisible. In arguing for the market, economics legitimizes the destruction of community and thus helps to construct a world in which community struggles for survival...

I will be accused of setting up a straw man, an “economics” so drastically simplified and out of date that it caricatures the breadth and depth of the intellectual enterprise of contemporary economics. I have two responses. The first is that the enterprise of economics is better characterized by the content of elementary texts than by what goes on at the frontiers of economic theory. A perusal of leading texts leaves no doubt as to the core message: markets are good for people. This is a message found not only in what might be termed a conservative text, Gregory Mankiw’s Principles of Economics—which it may be noted is the largest selling text—but also in more nuanced form in texts written by leading liberal economists (Baumol and Blinder 2003; Krugman and Wells 2005).

Second, even at the frontiers, there is little questioning of the foundational assumptions of economics; for the most part, criticism focuses on issues outlined in Appendix A, issues of the structure of markets, goods, and information. The exception is the recent flurry of research activity in so-called behavioral economics. If the research agenda of behavioral economics were to be carried through unflinchingly, the results might well be devastating for the self-interested, utility-maximizing individual who has had the leading role in economics since its emergence as a separate discipline from more general inquiry in ethics, statecraft, political philosophy, and the like. But so far, as is made clear in the introduction to Advances in Behavioral Economics (Camerer et al. 2004), behavioral economists typically do no more than “modify one or two assumptions in standard theory in the direction of greater psychological realism” (Camerer and Lowenstein 2004, 3). Clearly the goal is not to provide an alternative normative and constructive agenda, or behavioral economists would not show so much deference to the need to save the appearances of mainstream theory. Judging from Advances in Behavioral Economics, which brings together some of the most important contributions to this field, behavioral economists seem almost desperate to fit their subversive conclusions into a utility-maximizing framework of calculation, the sine qua non of professional respectability, even while recognizing nonrational elements in the calculations

What We Are Up Against?
The Free Market: A False Idol After All?

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