Exceptions overwhelm the rules in economics

I wrote a short essay for the New York Times Room for Debate feature. The question was, “Have we given economists too much authority?” Here’s my answer, as edited by the Times. You can read the other essays and comments here.

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Exceptions Overwhelm Economic Rules

There is a lot to be said for the common critique of economists: They see society as the product of freely acting, rationally calculating individuals for whom monetary reward is the primary source of motivation. Free markets, to them, are the pure expression of social function and economic growth through their realization is the only outcome that matters.

But people do not simply act rationally to maximize their economic rewards, because they can have incomplete or inaccurate information, ideological biases, conflicting desires or collective interests. Exploitation, dishonesty, violence, ignorance and demagoguery set vast areas of social life apart outside the model. The multiplying exceptions overwhelm the rule bringing the model’s utility into question.

Group behavior and social structure are central to understanding society. Collective identity yields networks of solidarity that drive social interaction in ways individual self-interest alone cannot determine. Economic growth is one of many legitimate goals.

In reality, many economists don’t hew so firmly to these mainstream dogmas. But economists’ influence is largely proportional to the degree with which their analysis comports with the interests of those who make the most influential decisions. The free market orientation, individualist logic and materialist values of some economists serve well the captains of industry (or, nowadays, of finance), who in turn reward their compliant consultants with privileged perches around the seats of power.

Jeb Bush reflected this alliance in his speech to the Detroit Economic Club on Wednesday, when he asked, “If a law or a rule doesn’t contribute to growth, why do it?” Going out on a limb, other justifications for government action might include reducing inequality, improving social cohesion, reducing conflict, enhancing health or protecting the environment.

If their influence is dependent on their contribution to already-powerful agendas, maybe economists don’t have as much real influence as it seems. On the other hand, people with training in the other social sciences have more impact than we often think, partly because they work not as “sociologists,” say, but under job titles such as analyst, demographer, statistician, consultant, teacher, organizer or survey director.

Of course, the common belief that economists have outsized influence is not wholly false, and they have worked hard to build it, but the uncritical acceptance of that image is part of what makes it a reality.

5 Comments

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5 responses to “Exceptions overwhelm the rules in economics

  1. The average person lacks financial literacy which makes economic policies less effect.

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  2. “If a law or a rule doesn’t contribute to growth, why do it?” Going out on a limb, other justifications for government action might include reducing inequality, improving social cohesion, reducing conflict, enhancing health or protecting the environment.

    Agreed and additionally, growth isn’t always positive. Tax cuts, easy credit, and the housing boom seemed great until they weren’t. From 2005, and there’s plenty more where this comes from:

    “Mr. PRICE of Georgia. Mr. Speaker, in spite of all of what the
    pessimists have said, and regardless of what the mainstream media
    reports, the economy has greatly improved.
    The facts are plain and simple. Our Nation is producing more, and our
    government is spending less. The estimated Federal budget deficit is
    $94 billion less than the earlier prediction, and we have had 14
    consecutive quarters of economic growth.
    House Republicans have faith in America’s ability to grow our
    economy, and we look to the future with confidence. Our job in Congress
    is to hold the line on spending. And the unemployment rate has fallen
    to 5 percent, the lowest since September 2001, with nearly 4 million
    new jobs created in the last 2 years alone.
    Sustained job growth, falling deficits, low interest rates and a
    booming housing market: America’s economy is robust and getting
    stronger.”

    YAY GROWTH. Personally I’ll take stability over “house of cards” style growth any day but that’s a hard sell.

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  3. as to the question being asked, yes, I appreciate what economists do but think we do give a lot of (ok, too much) power to people who in many cases seem to be hammering the square pegs of data into the round holes of policy. Dynamic scoring etc.

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  4. vijay

    “see society as the product of freely acting, rationally calculating individuals for whom monetary reward is the primary source of motivation. Free markets, to them, are the pure expression of social function and economic growth through their realization is the only outcome that matters”

    err…, you are aware that there are several schools of economics, including, Marxist, Austrian, Chicago, Keynesian, and so on. Where are you getting the above definition from?

    “Exploitation, dishonesty, violence, ignorance and demagoguery set vast areas of social life apart outside the model”

    Why so? Economists such as Marxists consider exploitation. Game theorists do consider ignorance and lack of knowledge. I have no idea of what demagoguery is and how it contributes to anything.

    My feeling is that this little vignette is written without any knowledge of what economics is.

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  5. I deleted an obnoxious comment by Michael Enoch, whose website is here: http://therightstuff.biz/author/michael/. FYI, in case you want to read a website by someone who hated this post.

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