Krugman Describes a Meta-Economic Problem in the Social Security “Debate”

In his “Conscience of a Liberal” blog on the New York Times website today, Paul Krugman calls attention to the inconsistency via which various “deficit hawks” account for the budget for the US Social Security system.  Krugman points out how leaders of the deficit commission appointed by President Obama alternate in an arbitrary way between two ways of accounting for Social Security and any shortfalls related to its finances:

  1. Sometimes it is referred to as a dedicated (payroll) tax which adds to a sequestered social security trust fund from which Social Security benefits are paid.  Complaints by deficit hawks that this will eventually run out of money in an unplanned way (soon) are used as one form of justification for cutting benefits by among other things, raising the retirement age.
  2. At different times, payroll tax revenue is viewed as part of the general federal budget.  The argument is made by deficit hawks that too much is borrowed from Social Security surpluses because of shortfalls in other programs, endangering Social Security.payments in the near term.

Krugman makes the point that you either say that Social Security has a current or near-term surplus or that you can say that it has a current or near-term deficit but you can’t say both.

Krugman during the course of the article appeals to a rule, that might be called either an epistemological or a logical rule:

“But here’s what you can’t legitimately do:  you can’t switch views in midstream..”

I agree with him, but to whom or what is he appealing?  There is no framework “around” economics or economic argumentation, a meta-economics, which would not make this simply an appeal to those who agree with him or to the skies above.

Thus, the notion of an ordered form of argumentation, perhaps even a “scientific” method, which made this inconsistency illegitimate, makes sense.  Economists and folk economists like those who head the deficit commission could at least be “cited” for their inconsistency or illogic.  On the other hand, Krugman and other economists would also be giving up some freedom to make up their own “creative” forms of argumentation, if they were to submit their own argumentation to such a framework.  Within such a framework, one could not continue to support distortions or poor argumentation just because you agree with the underlying sentiment.

Without a meta-economic or more rigid epistemological framework for social scientific argumentation and related political discourse, this type of accusation becomes an ad hominem political attack:  “my opponents are inconsistent (I’m not)”.   Krugman may intend this as well, and I too want to call into question the authority of those who wield power with poor arguments and little accountability.   But I believe such a form of argumentation is not as strong as presenting a clearer, more transparent means for everybody to make their arguments.

Of course, if one side adheres to such a framework and the other side does not, then you have imbalances in forms of argumentation very similar to the current situation.  Some are happy to reduce every issue to a contest of wills or ad hominem verbal blows but then something like the truth and the common good are left out of the picture.    Those who believe in frameworks that make human comity and increased human knowledge and self-knowledge possible, need to point out when such rules, if established, are broken.

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The Case for a Meta-economics 7: Knowledge, Truth-Seeking, and Science in Economics

One of the much-overlooked and little-examined values and assumptions in contemporary political discourse is the commitment or lack thereof to truth-seeking and truth-telling.  For instance, the public discourse on deficits is largely dominated by a position which is, according to a number of economists who make a well-reasoned and fairly well-substantiated case for their opposing position, relatively unmoored from much of the relevant data about the effect of deficits and deficit spending in a deep recession.  The responses from those advising deficit cutting do not address the main concerns of their critics and reveal a certain obliviousness to the need to respond to these often distinguished critical economists. Without widely-held methods of determining truthful representation whether through data verification and/or commitment to clarification of differences through argumentation, economic discourse and public discourse more generally eventually falls in on itself or becomes merely another form of hollow entertainment without content.  If there is a not a common commitment to truth-seeking on both sides or to a method that examines truth-claims, we have a major epistemological problem.

In parallel, we have a general political culture, often undergirded by folk economic theories, in which truth-telling is claimed by each to be their own virtue but is assumed by many to be a virtue of very few.  It may be that one side of the political argument is more detached from something like an objective truth (“reality has a well known liberal bias”) but this assertion by those on the left of the political spectrum will need to be explained and investigated more deeply before it can be established as having merit and truth in itself.  Critical characteristics of some highly influential folk economic and professional economic theories may play a role in this culture of diminished truth-telling, which will be dealt with in subsequent posts.

There are debates about whether the social sciences and in particular economics can be held to standards of truth at all, as some claim that economics is a creative or practical discipline that co-creates the reality which it analyzes.  In the 1950’s the distinction between positive economics (positivistic notions of economics describing a real world outside us) and normative economics (value judgments about the economy) was a matter of some discussion between Samuelson and Friedman, though contemporary economics has developed with often the unquestioned assumption that one’s own work is of the “positive” type and therefore describes an objective world.  Since then, almost entirely outside the economics discipline, a thirty year flirtation with post-modernism has called into question the positivist ideal of truth that was previously considered commonsensical.  As above, economists (and other social scientists) still draw authority from the notion that they are not creating, interfering with or influencing the object of their study: they are presenting a picture of the reality “outside in the world” that can be found.  Even if we assume that economists are completely enmeshed in the economy they describe, the notion that economics is itself reflexive or performative of economic reality does not necessarily mean that there can be no standards or constraints on its creativity.  Economics then becomes a practice which may be subject to ethical rules as are other practices such as medicine, that also claims to be science-based.

To adhere to the position that there is no objective truth in economics or other social sciences means giving up a great deal in the way of usefulness of the discourse as well as places a great deal of strain on consumers of economic knowledge.  If truth claims must be always put into context of an individual’s perspective, more work is required of non-economists and the claims of any authority at all for the discipline come into question.

Truth-telling and Science

Conventional objective truth-seeking and truth-telling, implicit values of scientific endeavor, are extremely well enforced in the natural sciences by the process of data collection using electromechanical instruments, hypothesis testing, continuous development of progressively more unified or more explanatory theory, and peer-review. The generally accepted model for hypothesis testing, falsificationism is applicable to many though not all natural scientific statements, i.e. a statement must be falsifiable to be scientific.  While Thomas Kuhn questioned the notion of linear progress within the sciences with his notion of scientific paradigms, chemistry and physics, at least have benefited from progressively more granular understanding of their object of study, even with varying shifts in experimental or theoretical paradigms. Natural scientists are not necessarily more virtuous people but they operate within a community and culture within which there are mechanisms to determine whether writings and presentations reliably correspond to the universe outside themselves.   While throughout the 20th Century philosophers of science like Kuhn have disagreed about the exact nature of natural scientific endeavor, positivism is still a reasonable approximation of how natural science knowledge is consumed by technologists and viewed from the outside.

Outside the realm of the natural sciences, because of epistemological uncertainties as well as significant political and perspectival aspects, the values of truth-telling in the social sciences are not well enforced or perhaps not even completely enforceable.  The fragmentation of each of the social sciences into two or more paradigms or schools, enables isolated, parallel developments within these disciplines with the personal preferences of analysts and readers determining which theory “succeeds” for a time.  These successes, in turn, rarely lead to a progressive enhancement of knowledge within often fragile or transitory sub-disciplinary knowledge frameworks.  This leads to the temptation and propensity of individual analysts to create their own personal version of truth or to tailor their utterances and writings to the opinions of a peer group or a patron.

Perhaps the epistemology of the social sciences cannot and should not be measured against the yardstick of the natural sciences. If economics is not just an objective science but includes the subjectivity of the writer/analyst, then satisfying truth claims may necessarily involve some form of truthful SELF-representation not just the truth of a world outside the analyst.  Perhaps this necessary self-representation might involve disclosure of their own preferences in terms of what is the purpose of economic activity, theoretical frameworks, and funders for their work.   This meshes with the notion that economics is necessarily perspectival.  On the other hand, obscuring the object of study, economics, with talk of the studier, the economist, about him or herself is kind of a “bait and switch”.  Self-representation would need to be subordinated to the representation of the world outside the economist in order for non-economists to get value out of economic discourse.   Nevertheless, some transparency about the studier could increase the value of that discourse; perhaps this might be an area within which a meta-economics might have something to say.

Example:  Who was “Telling the Truth” about Housing?

An example will show how difficult it is to establish truth claims in contemporary economics.   The housing bubble and subsequent financial crash engendered a number of schools of thought that can be subdivided into two main groups: on the one hand were those who predicted or assumed continued asset growth and therefore inaction in the face of the bubble while on the other hand a collection of diverse economists emerged who predicted that a crash was coming.   Within each of these groups, particularly in the group who “got it right”, there was a range of approaches to the problem of housing prices that made each of the views of these economists seem personal and sui generis, though each may be describing an important aspect of a world “out there”.  Steve Keen, for instance, approached the bubble as early as December 2005 from the perspective of a systemic tendency towards private debt accumulation leading to financial crises that has its origins in the heterodox work of Hyman Minsky.  Others in the same eclectic group have praised Minsky, (Krugman), but are not nearly as committed to Minsky’s model and tools as Keen.  There is an “Austrian school” critique of bubble formation that suggests that speculative debt accumulation is either a government led phenomenon or an individual moral and management failing of economic actors which will be corrected by a downturn and bankruptcies of the most irresponsible debtors.   Ken Rogoff has ascribed the main failure in allowing the bubble to grow as one of arrogance and forgetting of the lessons of history. Robert Shiller who was an early predictor of the two major asset bubbles in the last 20 years (dot.com and housing) has analyzed these bubbles as a disproportionate growth in the housing sector versus other economic sectors that was fueled in part by an overvaluation of the role of speculator in the world economy.  James Galbraith, in his 2004 assessment of the housing bubble, sees the inflation of that bubble by political leaders and central bankers as a stopgap measure to paper over an economy that was increasingly failing to generate sufficient aggregate demand and meet human needs.  Finally, and most importantly, the opinion among the most powerful economic functionaries, central bankers, first Alan Greenspan and then Ben Bernanke, was to let the bubble grow, often in the background assuming along with neoclassical economic orthodoxy that economic equilibrium and individual self-control are the determinative economic forces rather than potentially destabilizing economic swings.  However these bankers were in all probability not simply stating personal opinions or reflecting upon an objective economic reality but balancing an “out there” economic reality with the needs of political leadership for economic growth, low inflation, and the appearance of economic stability.

Given the diversity of these opinions (and there are more) as well as the efforts of officials to hide their views of these matters, it was difficult for consumers of economic knowledge to come to an understanding of what WAS going to happen with housing and ultimately the world financial system as a whole.  Is a composite of these views correct?  Is it all based on your own values and standpoint as an observer?

Complexity and Truth-Telling

One counter-claim to the demand that economists deliver an objective “truth” can be made by economists is that the economy itself is a complex system with multi-factorial determination of events, making complete and reliably reproducible accounts of what happens in the economy either impossible or meaningless.  There are so many factors and interactions that it might not be possible to document and trace each and every factor in a given account.  Alternatively, it may be possible to trace or classify all relevant interactions but to interpret all factors at once would be beyond the capability of our ability to derive any meaning from the tangle of interactions.

Contrary to these assumptions, I believe it should not be impossible to create a general map or taxonomy of economic factors that impact a particular type of event, such as a housing bubble or bank regulation, though impossible to predict their dynamics with complete accuracy.  To operate within this taxonomy would at least open the possibility for there to be a common basic language for most economists who addressed a particular issue.  At some point an overarching framework might then stabilize arguments around key programs of research or alternatively key philosophical differences that would be treated as such.  Such a taxonomy would need to be revised as events change, but it shouldn’t be too hard to compile a complete set of the relevant factors.

Still such a taxonomy and the resultant analyses would be terribly complex.  Addressing the problem of interpretability of overly complex datasets and models requires creativity in modeling the data and perhaps strategically but transparently choosing to emphasize one or the other factor.  Again, it would help if there were a discipline-wide consensus and taxonomy of factors and measurement instruments which could be called upon, so the selectivity of individual interpretations could be openly questioned after the fact.

Time, Irreversibility, Uniqueness and Truth-telling

One of the criticisms leveled at neoclassical economics is that it often operates as if hermetically sealed off from the real world, in a world of reversible time and physical improbability.  The implication is that economic processes run in a timeless world and they can be reversed.  In the real world, physical and economic processes are irreversible, a function of the complexity of real complex physical systems, living beings, ecosystems and societies.  Each event is unique.

If one accepts the non-repeatable nature of the world as a total blanket assumption, the only type of economics that would be truthful would be a historical and institutional approach that chronicles what happens in the economy over time in all its multifarious nuance.  Yet this approach has less obvious means of highlighting trends, repeating dynamics and how people actually intervene and change that irreducibly complex reality.  Prior to the installation of neoclassical economics as economic orthodoxy, the previous orthodoxy was a form of institutionalism or historicism.  The success of neoclassical economics is in part that it suggests that there are “buttons to push” in reality which will change that reality, rather than economists providing endless historical minutiae that do not simplify the world for actors in the economy and political leaders.  Still, if these “buttons” are either unreal or the wrong buttons, then economics has not helped further economic understanding and overall social welfare.

This stand-off between historicism and timeless, though potentially erroneous, economic abstractions can be resolved in two ways:  either with new more reality-based abstractions or an iterative process of correcting existing theoretical abstractions with empirical data are needed to move economics to a closer correspondence to what actually happens in economies.

Intersubjective and Objective Dimensions

Another approach that may be unsatisfying to those who look for “monistic” (single-principle frameworks) explanations is that economics has two aspects, an objective and an intersubjective dimension, which is subtly different from the distinction “positive” vs. “normative” discussed in the 50’s.  (Intersubjective is a fancy but precise word for describing what happens in the interaction between conscious, knowing beings, i.e. philosophical “subjects”.) In the objective dimension, economists can be held to standards of objective truth by examining their inclusion of data about and consideration of real unavoidable factors of life, even if these factors may be too complex to represent in their entirety and are not amenable to controlled experimentation.  For one, the geophysical world is finite and in particular the finitude of the atmosphere and fossil energy sources are objective factors that impinge upon economics.  Beyond the obvious non-human physical world, there also might be some human invariants or dynamics which play a role in economic life.  To ignore these invariants or dynamics should be grounds to dismiss the credibility of a particular economic theory.

On the other hand, there is an intersubjective world which is both the object of study of and part of the economic profession: economics describes this social world and also economic theories and analyses shape the sometimes herd-like behavior of human beings. Economists themselves have subjective concerns related to their own personal interests and ideals, as well as the personal interests and ideals of the people whose interests they are either sensitive to or trying to represent.  Economists probably always have some sense of an “ideal” (normative) and “real” human community which they feel as though they belong to or would like to co-create, even if the ideal is simply an ideally “efficient” economy.   In expressing their subjectivity as well as ordering the data that interests them, economists almost unavoidably, without a standardized form of argumentation, use rhetoric or persuasive speech to move the opinions and thoughts of other “subjects”, i.e. people, to pay attention to their arguments and views.

The intersubjective dimension of economic life can probably be described much more precisely but more often that not, not meaningfully by falsifiable statements (like the natural sciences).  Also the action of economists as they attempt to build persuasive arguments in that intersubjective world can be better described by analyzing the rhetorical devises used rather than simply a presentation of “data” or modeling to make a point or a policy recommendation.

Conflicts of Interest and Truth-Telling

A lot is at stake in economics:  the difference between poverty and wealth, health and morbidity, community integrity and community disintegration, social status and social ignominy.  Powerful interest groups have a stake in shaping economics to either continue their power or to add to that power.  Some outside the profession feel that economics is entirely reducible to a play of these interests, that economics is simply a form of politics by other means.  It is not inconceivable that certain powerful interests may see it in their interest for economics NOT to be entirely effective or truthful, that the insufficiencies of economics are in this way benefits to them, if they don’t end up taking the discipline seriously themselves.  Alternatively they may see economics as just another weapon they have to retain their privileged position, the truth value of which is secondary to its usefulness as a political and economic weapon.

Thus the content of economics may necessarily show the signs of the war of forces that surround it.  To then judge the discipline from the perspective of truth-telling may be difficult: perhaps then the best economics is like the “sharpest stick” with which to further the interests of a social group not to describe a world “out there” as it would appear to everyone.  There are people for whom the world is such a competitive and conflictual place and therefore knowledge of any kind is just another cudgel to wield to win out over “the other guy”.  On the other hand, the project of a more refined and more effective human knowledge that is open to all who wish to learn, is also an ongoing transcendent value for many.  My personal preference is the latter approach but the perspective of the former view cannot be banished from all consideration.

Reflexivity and Performativity

Under the rubric intersubjectivity, a number of approaches have been suggested as applied to economics that suggests that economics is a creative force, a technology, rather than the representation of a world “out there”.  George Soros’s concept of reflexivity suggests that reality is changed by actions and assertions of economic actors, so that it is impossible to draw a clear line between subject (observer) and object (observed).  Rather than give up on economic knowledge, Soros has continued to write and fund initiatives (the Institute for New Economic Thinking) that attempt to make economic knowledge more useful and of greater social value.

A more extreme version of the blurring between observer and observed in economics comes from the French sociologist Michel Callon who believes that economics is “performative” meaning it actually creates the reality that it studies.  Callon uses the example of the Black-Scholes model studied by Donald MacKenzie which was an economic creation that also has been the basis for most of the risk models used by financial institutions.  The model had an impeccable academic pedigree in economics but its reading and/or misreading of financial risk enabled both substantial profits on the upside of bubbles but no means of accounting for the “fat tail” risk of the bubble bursting.  Callon suggests that economics is a simply a source of new “agencements” or composites of people, ideas and technologies that compose social and economic reality.  Using a distinction from linguistics and philosophy, Callon suggests that rather than being “constative” (descriptive), economics is performative and it cannot be subjected to evaluation of its truth claims.  While Callon suggests that economics doesn’t arbitrarily create its world, he has left outside of his own program of research what those constraints on its creativity are.

It would be fruitful in the context of a meta-economics or similar, to pursue what are the constraints on the reflexive or performative aspects of economics, even if economics itself provides a stream of technical innovation that constitutes and alters the world that it studies.

In the Interim:  Ethical Commitments to Truth and/or Best Practices

If a more durable framework for social science and economic knowledge cannot be discovered/created/implemented in time, a call for individual ethical commitment to truth telling, truth-seeking, and ethical practice has some chance of improving the quality of economic and other social science discourse.  The anti-positivist and post-modern turns in philosophy and the social sciences of the last 40 years have created some interesting ideas but have also encouraged a certain cynicism about the potential for truth or at least widespread collaboration on a large, common body of knowledge.

Self-conscious engagement with the knowledge frameworks that one works in and attempting to challenge the basis for one’s favored assumptions is beyond some but not beyond all social scientists. In order for economists to be able to argue across the multiple fragmented paradigms within economics, they must be able individually to recognize areas of common ground as well as differences in order to develop a body of knowledge that better approximates reality.  As with the summary above of views of the housing bubble, many frameworks offer a glimpse of something that is perhaps held in common but nevertheless individual economists often argue past each other.

A meta-economic framework might help in the pursuit of a more durable epistemological framework, the long-term project, as well as how one can work with existing tools to further knowledge, increase social benefits and mitigate harms related to the practice of economics.

The Case for a Meta-economics 6: Is Economics Necessarily Perspectival (and therefore Political)?

If economics were a science like the natural sciences, it would for the most part uncontroversially describe a world “out there” the general characteristics of which almost all economic scientists would agree upon, i.e. an objective world.  All economists, for instance, would be largely in agreement about what were the salient types of data and even the datasets themselves that need to be accounted for in the decision to either engage in fiscal austerity at this time, or continue to stimulate the economy and run up fiscal deficits; they would then be entertaining a number of alternative hypotheses based on this data and have a means to decide which hypotheses or arguments were most successful in accounting for the data and which were falsified by the data.   This turns out not to be the case, as economists can attach their own personal or group political evaluations to the data without a compulsory “check” on those evaluations as well as tailor the data they present to support preferred hypotheses.

The theory and research program of physics is so successful that billions of dollars are spent on research instruments like the Large Hadron Collider at CERN for which there is no expectation that a useful product will emerge except an incremental increase in human knowledge of the inner workings of matter. Such an endeavor is in part a function of the ability of hundreds of physicists to collaboratively work within the same scientific paradigm (theoretical framework) which accounts for almost all particle physics data as well as the useful and the highly destructive technologies that have been the result of previous physics research. (Photo: CERN)

Though many practitioners of the social sciences strive to claim the status of such “normal” science, no social science has achieved this status completely (with perhaps the exception of physical anthropology, which is in essence a branch of biology).  While “physics envy” abounds in the social sciences, it is understandable that social sciences would want to be like the physical sciences beyond the ego-stoking appeal of their prestige and maybe the sophistication of the associated mathematics:  physics and chemistry are able to progressively build upon foundations laid down by successively more accurate theories and past experimentation.  By contrast the social sciences continue to shift from one fashion or paradigm to the next without necessarily a progressive augmentation in overall human knowledge.  While objectivity has come under fire over the last half century by critics from a wide variety of perspectives, it does enable people to work together across space and time on a common objective (for instance the massive particle physics collaborations) and create the basis for technological achievements that are also themselves massive collaborative ventures.

The social sciences, the domains of study of which are not nearly as amenable to such a disinterested view of their subject matter, have attempted to claim for themselves by approximation or appropriation aspects of physics and the physical sciences.  Neoclassical economics adopted some of the mathematical modeling of electromagnetic field theory from physics to help declare its scientific status.  Academic psychology shuns qualitative description in favor of fairly arid concepts that can be assigned numerical values, studied in a ready population of undergraduate college students, and analyzed with complex statistics.  Methods of argument in these academic discourses tend to either artfully finesse the non-objective aspects of their presentations or, in minority currents that react against orthodoxy, tend to avoid pretensions to describing an objective world “out there”.   For reasons that are not clear, subjectivity and objectivity are treated as an “either/or” rather than, potentially a world that may be some admixture of objective and subjective.

One View of Perspectivism (or Perspectivalism)

One theory of human knowledge and understanding (partially developed in the work of Immanuel Kant) now considered by some to be fairly commonsensical is that of perspectivism, the idea that there is a real, objective reality “out there” upon which different people have different perspectives.  A popularly recognized version of perspectivism is relativism which famously says that no one has worked out a single better or clearer perspective on reality, i.e. “it’s all relative”; despite its fame, relativism is not the only form of perspectivism and also does not account for the value of natural scientific perspectives.  The term perspectivism is also associated with Nietzche whose subjectivist philosophy is not the focus of this presentation.  Most forms of perspectivism can be contrasted with on the one hand naïve realism (we have transparent, undistorted access to reality), and various forms of solipsism (all we know is our own minds).

A far more interesting form of perspectivism than relativism, is that part of social reality is constituted by (made up of) people taking perspectives on the social and natural world that to varying degrees are representative of that world, and these perspectives can at times complement each other (add up to a unified understanding of reality) or compete on grounds of their relative verisimilitude as well as the social or emotional power with which they are communicated.  This type of perspectivism can accommodate both the natural sciences and the social sciences, as well as people’s lived subjective experience of the social world.  Perspectives also can be literally impenetrable or incomprehensible to a subset of other people in the world for a variety of reasons (insufficient information, lack of interest, lack of contextual knowledge, language barriers, different levels of mental acuity and maturity and differing types of mental ability).   Rather than the presumed equality of all perspectives in relativism, some perspectives are better articulated than others and approach a representation of a reality “out there” more closely than others.  If, for instance, we view natural science as a set of perspectives on the world, some of these perspectives complement each other and add up to a greater whole.  Other natural scientific perspectives compete with each other but are either confirmed or eventually dismissed by falsification.  Taken as a group, the modern natural sciences’ success in describing and manipulating the world “out there” needs to be taken account of, in contrast, for instance, to the perspectives of alchemists or phrenologists.

Furthermore we as individual human beings are capable of taking more than one perspective on reality, including a disinterested, what I would call a “third-person” perspective on the world.  Changing one’s mind in a fundamental way with essentially the same set of information could be described as a change in internal perspective. Without the ability of single individuals to change their internal perspective or alternate between perspectives, much of social communication and interaction would be impossible or without purpose.   Also, people share via language, mathematics and images among themselves basic perspectives on the world though it can be assumed that everyone has a personal variant on common themes; in this way perspectivism is not necessarily solipsistic or atomistic and perspectives can be descibed meaningfully as “important,” “persuasive”, or “widely-held”.  The venerable separation between fact and opinion, reproduced in traditional news organizations by separating reporting from editorial, is a nod to a version of perspectivism.

For the purposes of this discussion, I am going to adopt the (to me commonsensical) approach that allows perspectives on the reality of a single unified universe (though there may be other universes) to complement each other or compete with one another in terms of their verisimilitude but also recognizes that all perspectives contribute to and are a part of social reality.  Furthermore distortions in some perspectives may impact social reality as much as those perspectives that are more realistic in their representation of the world.   Soros’s concept of reflexivity, in which ideas about reality contribute to and change social reality, is an example of this type of perspectivism.  Despite the importance of perspectives and their social “weight” there is also a natural and socially-constructed physical world that may escape our notice and certainly contains and underlies our societies, i.e. the world is not all perspectives and subjectivity.  So neither relativism nor solipsism are worth much consideration if you believe in a world out there that may not be immediately or transparently accessible to our senses but nevertheless we are part of it and it effects us critically.

Politics, Political Economy and Perspectivism

Politics, particularly in representative democracies, is almost by definition a perspectivist enterprise:  politicians are elected to represent a perspective or group of perspectives, either those of constituents or, particularly in the US where party platforms are weak, some version of their own supposedly authentic and heartfelt beliefs that have been carefully vetted by the voting public.  In the halls of government, the politicians are supposed to struggle with representatives with other perspectives to come upon some synthesis that represents the general interest.  Even in autocracies and monarchies, the head or heads of government are supposed to represent the perspective of the nation as a whole as against other nations, though, of course as in democracies as well, corruption can also derail these goals.  Even if politicians were somehow able to represent the interests of all humanity, this could still be considered representing a perspective on reality, albeit one that all humanity for some reason would share.  Political economy, the original label for the economics profession, by definition, suggests that this discipline is the arena within which political influence on economics is discussed and or the perspective of a specific constituency is represented.

Perspectivism, Economic Interests, and Adam Smith’s Work

The name-change from political economy to economics in the late 19th century has nominally distanced economics from the perspectival nature of politics.  Nevertheless almost all economists claim a lineage back to political economist Adam Smith, who published his major works in the mid-18th Cenury.  Economists since Adam Smith and before have noted that people’s economic interests influence the way they see the world; an assumption that people make every day, and not without reason, is that people’s personal and economic interests color their perspective on the world.   Social scientists often continue to make this assumption though it remains sometimes unstated.

Smith argued that merchants and manufacturers in the mercantile system, his ideological and economic opponents, were solely interested in their own enrichment and they lobbied for policies that advantaged them over what Smith felt was the common good.  Smith, as well as many other economic commentators after, set himself up as representing the greater, common good, in that with free trade policies, he felt that the wealth of all people was better served than under various mercantile restrictions of trade.  Smith’s economic magnum opus, Wealth of Nations, can be viewed as a political polemic within political economy, though it suggests a complete economic system that has taken on a life beyond its polemical uses.

Against the mercantilist defense of particular national and class interests, Smith’s was an attempt to assert a relative independence from particularistic group interests for political economy, a research program that almost all economists claim for themselves today, i.e. that their approach to economics will yield a maximization of total social welfare rather than enrich or represent the perspective of one particular group or nation.  On the other hand, Smith’s doctrine of the invisible hand suggests that the pursuit of the self-interest of each actor WITHIN his system will yield the optimal results for overall “opulence” of the society.  Smith then attempted to unite a universal good and universal perspective with the narrow self-interests of each economic actor as a trader in goods and services, which is a unique and interesting philosophical proposition.  Critics of the popular interpretation of Smith’s work within economics and politics in the 20th and 21st Centuries have decried how Smith’s emphasis on the need for sympathy between human beings as a foundation for society, discussed in his earlier work Theory of Moral Sentiments, has been left out of discussions that base their economic and political programs on a few passages from the Wealth of Nations.

In Wealth of Nations, the universal good that Smith tended to represent were the interests of and perspective of all consumers and tended to disparage the interests of producers, against which, as mercantilists, he was arguing.  At least in logic this makes sense in that all people need to consume, while only some people produce and even smaller subset of people produce a particular good or service.  Furthermore Smith equated the interests of consumers with, above all, the cheapness of goods.  In his argument for free trade, for instance, he recommends importing certain goods because of their cheapness relative to English/Scottish goods.  Smith’s identification of the greater good with that of consumers and that good being best served by the cheapness of goods is now embedded as a largely unquestioned assumption in contemporary economics.

Perspectivism and Marxian Economics

A perspectivism based on group economic interests openly returned to political economy with Karl Marx’s mid-19th Century critique of Adam Smith that again, like the earlier Physiocrats, reinforced the importance of production in economics.  Marx’s political economy and theory of history was based almost entirely upon the pre-existing labor theory of value and the conflict of economically defined classes which each had distinct economic interests and perspectives on the world that stemmed from their relationship to ownership of capital goods and land, the means of production.  The dynamic of history for Marx was caused primarily by the conflict between the laboring classes against the various ruling classes who owned the means of production, though Marx also chronicled class conflicts that occur historically between other class groups.

Borrowing from Hegel’s dialectic (sometimes summarized as thesis + antithesis => synthesis [or transcendence – Aufhebung]), Marx saw the endpoint of class struggle as the triumph of the working classes that would become the universal class via an economic and political revolution which from what he called socialism to communism.  For Marx, relative to feudalism, capitalism was “progressive” though he clearly underestimated the resilience and creativity of the capitalist system. While Smith identified the universal interest implicitly with the perspective of consumers, Marx identified producers as the universal class, based on a labor theory of value which he shared with other classical economists like Smith, Ricardo, and Locke.

Marx claimed his work was a science (the German Wissenschaft carries somewhat less “scientistic” connotations than does the English “science”) and later commentators called Marxist “science”, historical or dialectical materialism.  “Idealism” was excoriated by Marx and “materialism” was valorized, a philosophy that asserts that all that exists is a material, physical world.   Marx believed that ideas were an outgrowth of material conditions though at the same time a type of false perspective can develop, what he called ideology, that supported the reign of the ruling group. Marxism as it evolved tended to divide knowledge into “bourgeois” and “proletarian” or “Marxist” perspectives, with the former being dismissed and the latter being valorized or praised.  Marx then had contradictory impulses to create a universal science but at the same time, created a categorized view of current knowledge and science that divided it up according to whose interests it ultimately served. A man who spent his life trying to change the world via ideas, Marx was also not self-consistent in allowing for the action of knowledge and the ability to change perspectives on the world as a force in the world itself.

With Marx’s written works and the First, Second and Third Internationals attempting to foment revolution in the name of the working and later the peasant classes rationalized via an economic theory, a very provocative and loudly broadcast “thesis” was advanced that was difficult to overlook within economics and within late 19th and early 20th Century industrial societies.  Marx and his followers have also been avid chroniclers of the weaknesses of capitalist societies, including his observations of capitalism’s tendencies toward economic and political crisis.

While, unlike some, I accept that Marx had humanistic ambitions in his opposition to capitalism (most noticeable in his earlier writing) and that some of his critique has merit, his theory has been insufficient in pointing a way to an alternative that is better than capitalism.  Inspired by his work, social democratic movements and parties have been able to humanize capitalism and, some would say, help save it from itself.  Others however have used his work or the gaps in it, such as a workable political theory, as a means to create various types of revolutionary dictatorship with often disastrous results.  However, all would admit that there is no new and compelling “mode of production” that has emerged from Marx’s work that replaces our current economic system.

Neoclassical Economics and Perspectivism

As a sharp contrast, neoclassical economics or marginalism, the current dominant paradigm, has created a relatively harmonious picture of the (capitalist market) economy, within which perspectives of buyers and sellers (supply and demand) were simply in (rather orderly) conflict about quantities (mostly price) rather than about the destiny of mankind.  Labor figures in neoclassical economics as another seller of a commodity (labor) rather than a transcendental shaper of history or the sole source of value.  Thought by some to be formulated as a response to the rise of Marxist economic theory in the mid-19th Century, neo-classical economics has been for most of the last century economic orthodoxy and much of what is considered “economics” is neoclassical economics.  Adapting Adam Smith’s thesis that competitive markets were the central and most efficient/effective economic institution, neoclassical economics has attempted to portray these markets as tending towards equilibrium, which is diametrically opposed to the conflictual and crisis-prone vision of markets and capitalism that, for instance, Marx as well as heterodox economists like Schumpeter (business cycle theory) have put forward.  While neoclassical economics was formulated during a particularly stormy period of economic development (the late 19th and early 20th centuries) it presents a rather placid picture of the economy.

Perspectivism assumes that we the “knowers” have subjectivity and neoclassical economics offers a generic, uniform subjectivity for all economic actors:  they have rational expectations, perfect information, and are attempting to maximize their utility.  Neoclassical economics assumes that these very simple “subjects” interact with each other and yield models of equilibrium prices and quantities.  The economic actors then view choices as offering then greater or lesser “utility” and that decisions are made “on the margin” about which choices offer greater marginal improvement in utility.  Conflict between perspectives only occurs in aggregate, when sellers, for instance, want to receive higher prices for their output but this contradicts the aggregate wishes of buyers as well as the neutral overall perspective of the economist who is attempting to maximize overall social welfare (utility) by achieving Pareto optimality (that point which gains in welfare will only come at the expense of others).   Each economic actor, in this utilitarian calculus is then simply attending to his or her “utility” and attempting to maximize it via buying and selling choices.

Neoclassical economics and the economics profession has been the object of a rising tide of criticism especially after broad recognition of the inability of the profession to prevent or predict the latest economic crisis. Despite its flaws and omissions that are now becoming more obvious, neoclassical economics does represent an attempt to study economic phenomena, detached from the interests of one social group or another, though maybe this detachment does not serve the general interests of humanity, either.  Neoclassical economics operates at least in theory with a conception of an overall social welfare that serves all, not just one social group or another, premised on the notion that competitive markets might at some point function optimally.  The effort to study economic invariants, objective facts about human economic behavior, is at least the impulse to create a science of economics, however questionable the execution of the project itself.   In this appearance it is like the much the more successful natural sciences but it may be a matter of simply emulating (parts of) these sciences while ignoring its own subject domain or the usefulness of its conclusions.

There are many, many interesting critiques of neoclassical economics to consider but for purposes of this particular discussion what remains is whether economics must be an economics for a particular interest group or can it rather or also be a neutral description of the economy that contains within it some objective observations about economics more generally.  Also is rather than harmony and equilibrium, dynamic conflict and instability caused by differing economic interests and perspectives key parts of the object of study of economics?  Furthermore, does neoclassical economics do a disservice to the domain of its study by imposing upon it a framework that may unthinkingly prescribe an ideal of objectivity rather than capture the most relevant date from economic reality?

The Political Fight Over Economics and the Dream of Economic Science

Despite the best efforts of neoclassical economists of yesterday and of today, economics remains enmeshed in political struggles.   As is readily apparent from most in-depth news accounts or here on this blog and elsewhere, there is considerable dispute about many of the most important economic issues, especially where decision making about economic policy is concerned.  The simple assertion of economics as a science or rhetorical flourishes that assume that economists’ views are objective are overwhelmed by the large scale struggles that rage between political parties and between economists with varying views of the same phenomenon.  If a plausible economic perspective can be formulated to support almost any economic policy position, then either economics (and other social sciences) are either not at all sciences or they are type of science that is completely unlike the natural sciences.

If economics “looks different” depending on one’s economic interests and these different perspectives have points of conflict, it may not be possible to build an economics that is entirely neutral and objective.  Alternatively, it may be possible to sort through economics and find areas where all “reasonable people” would agree and other areas where it is a matter of dispute.  Perhaps disaggregating economics into constituent parts is what is required to enable clarity of understanding by consumers of economic wisdom so that “fact” and “opinion” can be understood as such.

If economics is indelibly perspectival and not taking the perspective of some economic interest group would eviscerate economic understanding, then it would be incumbent upon economists to state which group or groups they are championing as a premise of their analysis or discourse.  They would also need to explain why it is best that they and we adopt the perspective of that economic interest group.  This would open a larger discussion about whose economic interest and economic perspective is best suited to lead the economy or have undue influence in the economy.  To those who claim that it is just this kind of scrutiny that some powerful groups wish to avoid, I would suggest that without that kind of clarity, we shouldn’t then have to lend credence to any political or scientific discourse that premises itself on economic understanding.  Avoiding this scrutiny puts economic discourse on par with innuendo and gossip.  As innuendo and gossip are efforts to mobilize the more primitive aspects of our minds and to shut down our higher capacities, I think this trend should be resisted.

On this blog, I will take a look at how economic speech and speaking about economic policy might be able to evolve beyond both sterile formalisms as well as innuendo and gossip to enable us to engage our individual and combined intelligences to solve some of the world’s grave economic and social problems.

The Case for Meta-Economics Part 4: Accounting for Ethical Dynamics and Disputes in Economics

While some disputes in economics are technical, some of the most obvious major fault lines in economic thinking are based on conflicts rooted in differing ethical ideals about how economies or economic actors should function.  In current disputes, left-of-center economic perspectives (mostly Keynesianism and leftward) give economics the task of increasing human welfare through direct government action or indirect government regulation that may direct investment and reduce economic inequality.  Their opponents on the Right both in professional economics and popular economics, believe that social or economic welfare is better served with each individual working to increase his or her own personal welfare without the aid or direction of government.  While there are positions that advocate a pure form of one or the other of these ideals, most often the argument is about whether the economy should have more either government-led activity or more individual economic initiative. Fault lines in, for instance, current disputes about deficit spending and public budgets are to a large degree a re-creation of this divide, with budget deficit hawks mostly on the Right and critics of the anti-deficit campaign more likely coming from the Left.

Even though economics (or political economy) itself evolved as a discipline that emerged out of the moral philosophy (ethics) of the 18th Century, a thoughtful consideration of the interaction of ethics with economics will require work to re-integrate insights in an ongoing manner from philosophical ethics, ethics as expressed in political philosophy, and psychology.   Adam Smith, considered by many to be the founder of modern economics was himself a moral philosopher yet most modern economists do not recognize this aspect of his work, perhaps in an attempt to safeguard the appearance of economics as a science.  Interestingly the division of Adam Smith into economist and moral philosopher roughly corresponds to how much attention a particular analyst gives to one or the other of his two main works: the Wealth of Nations or The Theory of Moral Sentiments.  The Wealth of Nations is by far the more popular of his works, due to in part to its function as the founding document of the economics as a discipline.  Subsequent heterodox economists and critics of orthodox economics have stressed the continuity or complementarity between Theory of the Moral Sentiments and his later work.

Engaging in an exegesis of Smith’s authorial intentions is important but in the end does not account for all issues within the interface of economics and ethics, especially given the evolution of society and economies since Smith’s time.  Only in a multi-disciplinary “space” that can fully examine both the economic and the ethical dimensions of human decision-making and action can provide enough detail on all of these dimensions.  I am calling this space “Meta-economics” for obvious reasons, as “meta” usually refers to an overarching framework surrounding a discipline or type of information.

Ethics through the Filter of Politics

While in the late 19th Century, the economics discipline attempted declare its independence from politics by changing its name from “political economy” to “economics”, the continuing mutual influence of politics and economics is well known, as economists often, though not always, are differentiated according to their political leanings.  While political actors often differ in ideology and therefore the ethical framework they profess and/or use to guide action and policy, they also differ in their own (social and economic) interests and the interests of those they represent:  interests and ideology are not always exactly aligned.  People have been more apt to express their ethical leanings through political than through economic affiliations (a great uncle of mine apparently used to say that his heart was on the left but his pocketbook was on the right).

The formation and activities of political groups are not themselves a pure expression of sole concern about large-scale ethical issues.  Political groups most often express a mixture of specific geographical, cultural and economic interests combined with some overarching (ethical) ideas about how society should be: some affiliate with the group because of their specific interests while others because they subscribe to the general ideas that are influence by ethics.  However in politics, we are able to express, as did my great uncle, some ideas and strivings that are not tied purely to a narrowly defined set of personal economic interests.

Ethical considerations in economics then are most often mediated by politics or political affiliations.  Professional and folk economists are not necessarily consciously expressing an ideal view of what society should look like as would an ethicist but are often enmeshed in fights with other interest groups that nevertheless express ethical tendencies. Political groups hire professional economists to help them express their views and struggle over economic policy projections with their political opponents.  Wealth of Nations, the founding document of economics, is itself a polemic about economic policy.

Meta-Ethics and Economics

Ethicists divide ethics into three basic types:  deontology, consequentialism and virtue ethics.  These meta-ethical systems do not dictate specific ethical principles, outcomes or decisions but are simply the overall classifications for types of ethical decision making.  They are not in many cases mutually exclusive, though they are distinct forms of argument.  Deontology is traditional rule-based ethics where it is incumbent upon an individual to follow rules usually originating in tradition or in a social consensus to promote the good or prevent the bad; “deon” means duty in Greek and another way to express deontological systems is that they are duty-based ethical systems.  In deontology, rules are a-priori, or come before, good acts, which are good because they comply with the rules.  Consequentialism or teleological ethics, tries to determine the good on the basis of outcomes; if something turns out well, then it is good.   Generalized to society as a whole, consequentialism attempts to maximize good outcomes and minimize bad outcomes for the greatest number.  Utilitarianism is the most famous consequentialist ethical school and famously economics, in particular neoclassical economics, is an outgrowth of utilitarianism.   Pragmatism is another form of utilitarianism.  Finally, virtue ethics seeks to promote conditions which encourage the development of virtues, i.e. good traits, in people.

Very few real-world ethical systems are purely either deontological, teleological or virtue ethics.  While neoclassical economics and the neoliberal/market fundamentalist political tendency are mostly teleological, the insistence that markets will always produce the optimal outcome is an a-priori rule and therefore is a form of deontology.  Loosely regulated or unregulated markets generally are teleological in their operation, with profit seeking defined as “the good”.  By contrast, a completely teleological, pragmatic economic system would “not care” whether a good outcome came from the use of markets or the use of government intervention, though “prima facie” would prefer markets.

Despite the single a priori rule with which neoclassical economics operates that favors market solutions over other economic institutions, most critics of conventional economics tend to criticize it from the point of view of a deontological ethics, in one form or another calling neoclassical economics “amoral”.   For instance, left critics of neoclassical economics criticize its indifference to economic inequalities from the standpoint of an a-priori commitment to human equality.  Or environmentalists criticize neoclassical economics from the standpoint of a deontological commitment to the integrity of natural systems as a greater good than maximizing short-term utility for human beings.  Alternatively, from the standpoint of a virtue ethics, neoclassical economics is criticized for fostering the vices of avarice, consumerism, and indifference to the suffering of others.  Defenders of neoclassical economics would maintain that it contains a minimal set of deontological commitments (obeying laws against fraud, criminality, private property rights) but otherwise encourages people to increase their well-being by trying to increase utility through privately selected actions within these limits.

An Example of an Ethical/Political Dispute within Economics:  Deficit Cutting vs. Deficit Spending

A very hot contemporary issue in our economic-political-ethical system is the campaign by so-called “deficit hawks” to cut government spending and/or raise taxes rather than continued stimulus spending, thereby increasing government budget deficits.   Against this campaign a number of, mostly left of center, economists, action groups, and bloggers have decried either the foolishness or inhumanity of these efforts to cut deficits at a time when the economy is weak and people are experience economic hardship.  While some of this dispute can be attributed to differing views on how public finance and capital markets work, which might be called a scientific dispute, a portion is related to ethical valuations in economics.

Those who are focused on cutting deficits hold up the ideal of a normal transactional morality, either explicitly or implicitly, that once you borrow money that it is an overriding priority to pay the debt back, making minimal differentiation between government and personal borrowing.   In this view intolerably bad things happen to nations who delay paying back their debts.  By contrast those who object to placing a high priority on cutting budget deficits at this time in order to continue deficit spending on stimulus, are often arguing that serving human needs, meeting a deep economic crisis with all tools available and reducing the effects of economic inequality all are more important than the appearance of complying with normal transactional ethics at this very moment.  They also distinguish public from private debt.  These ethical arguments can be viewed either as being the underlying motivations to or co-existing with a number of other motivations including protecting private gain for specific interest groups as well as preferences for technical economic arguments about aggregate demand and creditworthiness of governments.

Beyond the ethical and the economic arguments or implied arguments, this debate is also carried on in political terms, where the specific interests and characteristics of one group or another are glorified or denigrated by political advocates and adversaries.  Deficit hawks tend to suggest that those who want to spend on deficit represent the interest of shiftless unemployed people, greedy bureaucrats and public sector unions, while casting themselves as advocates of fiscal virtue.  Their critics consider themselves defenders of ordinary working people and those who have been unlucky in the downturn and accuse their opponents of representing a political group that wants to cut tax-funded public services in particular public pensions to hand over these functions to the private sector, from whom these advocates may receive implicit or explicit benefits.

In the case of this or any other major divide in economic opinion, to understand the multifactor interaction of ethical, political and economic arguments, a meta-economic framework can allow each dimension to be examined without reducing or flattening that particular concern.  A reduction of, for instance, the budget deficit argument to purely economic arguments shortchanges the political and ethical dimensions and vice versa.

The precise use of a meta-economic framework is to try to disentangle the multiple strands of arguments for or against, for instance, deficit spending, rather than intermingling those strands for simple, but short-lived, rhetorical effect.  As we shall see, professional economists and popular economists (meaning everybody) are wont to do just this to gain advantage but also potentially mislead.

Gary Lynne’s Metaeconomics

Though I came up with the label “Meta-economics” before I encountered his work, Prof. Gary Lynne of University of Nebraska has been working for a number of years on a type of economics that he calls “metaeconomics,” to which I am sympathetic though it is a different concept.  To minimize confusion, I will try to use a hyphen between “meta” and “economics” to distinguish between his approach and mine though there is some overlap, especially when it comes to consideration of ethical issues.

Lynne is an agricultural and environmental economist who is very critical of the focus of conventional neoclassical economics on ego-istic drives and rational maximization of individual or firm-level utility.   Like many others, he feels that in the area of microeconomics (the behavior of individuals and single firms) that ego-ism remains largely unchallenged.  He proposes metaeconomics as a branch of microeconomics that incorporates orientations other than ego-ism, enabling economists to account for behavior that is driven by empathy, by ego-ism, or perhaps by other motives.

While there are clear overlaps in the area of considering ethics as part of economics between Lynne’s metaeconomics and what I am calling meta-economics there are also key differences.  I am not proposing meta-economics as a prescriptive (what Friedman called “normative”) type of economics that attempts to displace other economic views (much as I might like some of them to be displaced) but rather as an overarching framework that includes all types of economics and a host of other related disciplines (as they impact economic thinking and action).  Lynne is proposing metaeconomics as a contender to replace microeconomics and his theory may very well be on the road to doing this.  Lynne proposes his metaeconomics as being more inclusive than microeconomics and is therefore “meta”.  Lynne is however generating economic hypotheses based on metaeconomics and is attempting to test them (to account for and validate non-egoistic behavior).  Meta-economics as I conceive it, is a framework to understand any and all economic theories, Lynne is attempting to understand any and all types of economic behavior by individuals or firms via his metaeconomics.   If you are into the “type-token” distinction, meta-economics, what I am proposing, is a “type of types”.

The Case for Meta-economics Pt. 3: Relationship between Popular Economics and Professional Economics

While there is a good deal of debate about whether economics or for that matter any of the social sciences, are truly sciences, professional economics both within the academy and outside the academy is different from what might be called “folk theories” of economics.  In philosophy of mind, “folk theories of mind” are how ordinary people experience their own minds and their theories about the minds of other people.  A “folk theory” is distinguished from a scientific theory of the brain or consciousness.  While the notion of a “folk theory” is slightly patronizing, the distinction between folk and scientific theories is critical for the study of the human mind/brain because the experience of having a mind or cultural or personal self-reflection on the experience of having a mind is different than studying the mind/brain as a scientist;  “folk theories” are just as important, if not more important than scientific theories when dealing with human experience.

What I am calling “popular economics” is the broad range of ideas about economics, “folk theories”, that are not part of the sanctioned core of professional economics, as diverse and conflictual as that body of knowledge might be.  As in “folk theories” of the mind, popular economics is for the most part the practical, “business end” of economics, as much as that may dismay professional and academic economists.

In practice, people in the economy are using what they believe to be their own or someone else’s economic wisdom to make decisions and act millions of times a day, around the world.  While the practical disciplines of accounting and the some of the basic tools of corporate and public finance are fairly well systematized/controlled and not necessarily professional economics, there exists a broad range of thinking and acting about the economy inside and outside of businesses and government that is informed by personal theories about how the economy works, without the legally binding controls associated with accountancy and the “boring” part of corporate and public finance.  These personal theories are sometimes in dialogue with but not identical with the body of work recognized as professional or academic economics but there are also some truly “folk” economic theories that arise from people’s experience and which bear only tangential relationship to the professional variety.  For instance, a businessman might act according to the principle “give people a good deal and great service, and they will come back for more”.  This might not accord with what his accountant is telling him or what a professional economist might tell him but this is one of millions of potential popular or folk economic theories.

As with popular vs. scientific theories of mind, popular economics can never be replaced by professional economics for a number of reasons:

  1. Much of what is produced in professional economics is hard to understand without at least an undergraduate if not a graduate education in economics; perhaps this is a sign of weakness in professional economics but it may also be that there are some concepts that require abstract reasoning and mathematical understanding which is not a strength for many people.
  2. People are always going to have slightly different perspectives on certain economic phenomena that are not easily reducible to the rules of, for instance, accounting, which has a system of controls in it to make sure that the rules are followed (when these controls do not fail).  The dynamism of society has a lot to do with the ability of the human mind to take different perspectives on physical and social reality, which itself is also dynamic and changing beyond our ability to completely grasp what is going on.  So popular economics has a dynamism that perhaps is not completely compatible with a rigidly organized body of knowledge.
  3. Thirdly, and this is more of a flaw than a feature of professional economics, economic theories have had both acknowledged and unacknowledged flaws that make them less useful than they might be otherwise.  So popular economics, in addition to accounting and uncontroversial parts of corporate and public finance, have had to step into the breach to make practical rules where the major economic frameworks have nothing to say.

Economists and social scientists have also been interested to understand how the formal study of economics effects both views of the economy and views of society and human nature, i.e. how popular economics and the study of professional economics interact.  There have been studies that correlate the undergraduate study of economics with more stereotypically self-interested behavior in the game called the prisoner’s dilemma.  A recent study by the New York Federal Reserve of graduate and undergraduate economics students, (referenced by James Kwak on Baseline Scenario also with interesting comments by readers there) shows that undergraduate study of economics in the US  correlates with subscribing to a schematic endorsement of stereotypically neoclassical economic views on economics that are now associated with the political Right.  The same study found that graduate study is correlated with more nuanced and less Right-leaning views of some but not all of these issues.     Formally, the views of the latter must be considered part of professional economics.

Politics, Policymakers, and Popular Economics

One massively important subsection of popular economics is the relationship of politics and economics.  Like it or not, how governments act effects the economy enormously but these actors are not transmitting and instituting the exact dictates of a scientific consensus in the admittedly fractious discipline of economics.  The original name for economics in the 18th and 19th Centuries was political economy and some professional economists and academic institutions continue to use this name as a reminder of the importance of the relationship between politics in governments and economics.  There are three main types of popular economics as it relates to politics:  the personal theories and preferences of political leaders as regards economics, the theory of the economy embedded in standing laws and in policy proposals, and voters’/citizens’ views of economics as it relates to politics.   Professional economists can be employed by governments, political pressure groups, and political parties but these will often be selected to mesh with the general concerns of that group.   In this way, the popular economic “tail” can wag the professional economic “dog”.

In the United States as well as a number of other developed nations, popular economics as it relates to politics can be divided into two basic tendencies:  those who believe that the government should intervene in the economy in favor of interests of the less powerful and the non-human environment and those who believe the government should not intervene much at all in a redistributive or protective way in the functioning of the domestic economy.  Generally the probability of one individual or another holding one or the other of these popular economic theories are based on that individuals’ perceptions of their life experiences and/or their perceptions of how they, their families and their friends might best gain from different economic policy regimes.

While these two main political tendencies are related to how policymakers might make actual policy, their views are still a more complex blend of professed loyalty and their own actual personal/popular economics in practice.  A policymaker can profess to subscribe to one or the other of general popular economic theories in order to win votes and get elected while, in office, proposing and voting on legislation that in some ways contradicts those professed views.  For instance a policymaker can claim to believe that government is for protecting the less fortunate and the environment but in actual fact tend to support bills and executive orders that for the most part serve the interests of the already rich and powerful.  Currently disappointed left of center critics of the Obama Administration believe that this last characterizes many of his initiatives to date.   Or another policymaker can profess to believe that government should not intervene in the private sector and should become smaller as an institution but end up in practice intervening in the private economy (perhaps in favor of established business interests) and expand government in other ways.  Professed libertarians and those on the conservative Right who would like to disown the policies and politics of the 2001-2009 Bush Administration hold the latter view of that Administration.

Crises and unforeseen events can further complicate how economic policy is made.  A government executive or ruling party has a particular set of economic preferences which will interact with the news from a crisis in distinct ways.  Selected professional economists will help interpret that crisis which may help justify the already mentioned “disappointments” of expectation of that might occur within the term of an office holder.  The policymaker may point to the professional economists as “bad cops” which are forcing his or her hand to disappoint the political base of the party.  The selection of these professional economists or pundits will itself help pre-condition this turn of events.

Popular Economics and Policy:  The Case of Former Senator and Deficit Commission Chair Alan Simpson

In the last few days, the video below of former Senator Alan Simpson (Republican) of Wyoming has been posted with commentary on a number of sites.  President Obama appointed Simpson as one of two chairs of the National Commission on Fiscal Responsibility and Reform (a.k.a. “Deficit Commission”).  While Simpson is not formally a policymaker anymore, he has arrived at a position of probably even greater power and less accountability in being named to the Deficit Commission by Obama than he had as a sitting Senator.

In viewing this video, you will note that there is real difference of economic opinion between Simpson and the interviewer, Alex Lawson of the Social Security advocacy organization Social Security Works.   Neither Lawson nor Simpson are professional economists and they both show signs of having very different popular economic views of at least the state of Social Security if not some other issues related to the expenditure of government money.  Simpson, in a position of a great deal of influence, seems to have some interesting ideas about how revenue collection for the Social Security system works and, beyond his generally irascible self-presentation, makes statements that are under dispute by a number of commentators:

  1. He claims that Social Security planners had not already anticipated the baby boom retirees (they had but the funds collected had been misappropriated)
  2. He claims that they had not already anticipated our current life expectancies (they had)
  3. He wishes to look away from the three main reasons why the Social Security fund will reach a point in 2037 in which might require cuts without new revenue (tax cuts mostly benefiting the wealthy, unit costs of health care in the US vs. other industrialized nations, and war spending)
  4. He claims that he wants to maintain solvency of Social Security and the government without referring to new or restored revenue sources
  5. The solution he seems to favor involves cutting Social Security and Medicare benefits (he doesn’t mention any others)

Some of these claims are poorly substantiated, partial to solution favoring the wealthy over the “lesser people” (Simpson quote), and assume an unbelievable incompetence among government demographers and economists for at least four decades.  But whatever their basis in facts or the type of opinions he favors, Simpson is definitely not held to any scientific or academic standards of source verification (which are not guarantees either) or consistency: his assertions are definitely a form of popular economics.   He might be able to find some professional economists to support his view but that doesn’t, for the purposes of establishing the importance of popular economic views in politics, negate the fact that his is a popular economics.

His interviewer in the video, as well as the critics of Simpson’s views have different conceptions of what is right for the economy and do not see cutting Social Security as an inevitability as Simpson seems to feel.  One could say that Lawson’s implied solutions in his questioning are another set of popular economic views with perhaps more or less grounding in data but also with no doubt a different perspective on the distribution of economic benefits and costs in society.  Some of these critics are professional economists like Paul Krugman and Dean Baker, who would no doubt be joined by others.

While selecting Simpson’s views so openly displayed in such an unvarnished form may undermine the point I am making, politicians and political pundits will more often than not be operating with their own personal/popular economic theories for which they may or may not mobilize professional economists to either rubber-stamp their views or work with independent economic advisors with differing views from their own to whom they may or may not listen.   Already the Peterson Institute that is heavily in favor of cutting social spending as a means of deficit reduction, has attempted to distance itself from Simpson, in an effort the preserve the appearance that its focus on cutting social spending is justified by professional, “scientific” economics.

Popular Economics and the Science Question

What I have been calling here “professional economics” has the ambition to be a science based on objective findings about the state of the economy and likely future trajectories of that economy.  These claims to science are not loudly trumpeted given the diversity of opinion within professional economics.  While professional economics operates under greater constraint than popular economics and represents a narrower band of opinion, those who hold popular economic views of various sorts can find professional economists who back up their views to a greater or lesser extent.

While there are a number of established definitions of the scientific method, many assume that in science there can be universal agreement between reasonable observers about at least the facts if not the interpretation of those facts (though heterodox and post-modern theorists of science have questioned this).  In the case of Simpson and Lawson, though neither are professional economists, they do agree that revenues from Social Security have been used for other purposes though they don’t agree on what those purposes were and on what would be the responses to that borrowing.  Perhaps some facts can be agreed upon by all observers in this case but others will be disputed.

I will be returning on this blog numerous times to the question of and desirability of having an economic science.  Certainly there are areas of economics where there can be agreement about the facts but how large is this area?   Does it make sense to call the areas in which there is not agreement about facts, also parts of a science?  Should those contested areas be sectioned off?   Isn’t the process of examining those disagreements as important as looking at areas of agreement?

If economics is not just a science but an arena within which shared and conflicting self-interests are fought over and re-negotiated, then validating a role of more or less importance for something like popular economics is also crucial.  Also economics might also be an arena in which new designs for as yet non-existent economic processes are presented and argued over.  Without the ability to “speak” on issues that effect one’s self-interest or potential future designs for the economy or economic policy cannot be discussed, this leaves people and potential improvement out of the discussion.  On the other hand, if these personal economic views, especially those of policymakers, are largely divorced from something like an objective or at least highly likely reality, this can create a great deal of economic pain and suffering.

I am suggesting that meta-economics or a similar concept can function as an inclusive framework to include both scientific and popular economics as well as examine where agreement is possible and where and how disagreement about economic processes emerges.  As we have seen that economics and popular economic theories by those in government can have extraordinary consequential effects in the real world, such a framework is not simply of speculative interest.

The Case for Meta-Economics Pt.1: Fiscal Austerity as Prudence…or Madness

The most immediate and obvious case to be made for (something like) a meta-economics, or the equivalent, is the lack of a consensus among respected economists about what to do about the sovereign debt crises in Europe and the push for fiscal austerity that has emerged this year in the US and in many other countries.  We have many politicians as well as economists on the one hand claiming that now is the time to cut budget deficits by cutting spending (mostly on social programs) and on the other hand we have economists and some politicians who are calling this the equivalent of madness, urging steady or higher levels of government spending to stimulate weak economies.

Two Opposed Schools of Thought

The debate can be viewed either from the point of view of individual economists, who show some variability in their opinions, or as a clash of two schools of economic thought with regard to the value and use of fiat (paper) currencies and government spending.  Keynesian economists believe that government (fiscal) deficit spending is necessary in economic downturns to make up for reductions in demand from a troubled private sector.  In the case of our current economic crisis, households and businesses are either loaded down with existing debt and/or cannot get access to credit to buy goods and services.   With a fiat currency (where the government can print money), governments can choose to go into more debt and/or risk inflation of the currency by spending more than they collect in taxes to spur the economy.  The priority for Keynesian economists is to boost employment and spur demand for goods and services by the means available to make up for the slump in private spending.  Keynesian economists point to the relative economic stability of the period 1940 to 1980, as well as the lack of a clear association between government debt and economic prosperity at least in countries that control their own currency, to make the case for deficit spending.

Opponents of deficit spending, deficit “hawks”, many of whom share the assumptions of neoliberal/neoclassical economics, are concerned about how lenders in financial markets will view governments’ apparent disregard for the debts they are running up to stimulate their economies and will impose more stringent credit conditions on lending to these governments.   In general, these proponents of fiscal austerity as a cure to what currently ails us, represent a “hard money” position, in that they fear inflation more than Keynesians, who might even recommend “inflating away” national debts.  Fiscal austerity that cuts government spending and activity has the critical “side benefit” for neoliberals in that it cuts government regulation of industry as well as reduces the role of government as a competitor in the provision of goods and services to the private sector (Social Security competes with investment managers for instance).

A related but subsidiary issue is the type of government deficit spending in a recession based on what Keynes called the multiplier effect.  Some types of spending will circulate more quickly in the economy based on people’s propensity to save or spend.  Spending on wages and social welfare programs will circulate more quickly in the economy producing larger effects, multiplying the economic effects of the initial spending.  The neoclassical school objects to or questions the multiplier effect on the assumption that people will not spend the money assuming that higher taxes are coming to pay off the government debt generated by deficit spending.

For the purposes of this short post, I am going to assume that the dispute is fiscal austerity or no, but a reasonable case can be made that the fundamental dispute between these two groups is about the type of government spending rather than the amount of that spending.  As we shall see below those in the fiscal austerity camp differentially favor cutting social spending rather than defense spending or other programs favored by the political right-wing.

Individual Economists

Paul Krugman,  Brad DeLong, Dean Baker and others who occupy more of a Keynesian position on fiscal spending, are most scathing in their indictments of the calls for fiscal austerity that can be heard now around the world.  Krugman points out, as does Dean Baker and others that measures of what lenders think of the creditworthiness of the US government indicate that there is no current concern about the US’s fiscal health (low CDS spreads).  Krugman and other in the Keynesian camp, like Brad DeLong, point out how deficit hawks tend to blur the distinction between countries that control their own currency (the US, Great Britain, etc.) and the countries of the Euro-zone who are constrained by Euro-wide currency policy.   There are differences in the degree to which Keynesians pay attention to the question of budget deficits:  some think that raising deficits is a temporary fix while others are relatively indifferent to the amount of the deficit.

On the other side of the fiscal austerity debate are also many respected economists, some of whom did predict the financial crisis of 2008.  Ragu Rajan reads a number of macroeconomic signals, including increased employment in Brazil, as indicating that the Fed might think about raising interest rates, which is an anti-inflationary measure and a sign of pulling back on monetary stimulus of the economy.   Krugman lambastes Rajan and others as submitting to a climate in which pain infliction on the economy and especially the poor is considered to be a way to “reassure markets”.  Jeffrey Sachs, also a highly respected economist is caught by Brad DeLong assuming that Obama’s stimulus spending raised interest rates that private lenders charged the government when it didn’t.   Both Krugman and DeLong feel their opponents are ignoring data on the ground and imposing upon and reading into reality their prescriptive model for how the economy should have, is and will behave.

Economic Advocacy Organizations

Driving the debate within and outside the academy are the work of advocacy organizations that, apparently, believe that social spending should be cut instead of targeting military or other budgetary items.  The billionaire and former Secretary of Commerce under Richard Nixon, Pete Peterson has had a major influence in inspiring the Obama Administration’s deficit commission through his funding of numerous foundations, economists and advocacy organizations.  Peterson, through his great wealth and political influence has been able to create a climate of economic opinion within which he has insistently attempts to create concern about government budget deficits while favoring only one of many possible solutions.  As can be seen in this 2003 interview with Bill Moyers, Peterson decries tax cuts and other signs of profligacy by both parties yet almost uniformly prescribes cutting social spending over either cuts in other discretionary programs or tax hikes on people like himself.  Peterson’s perspective is also premised on a theory of political behavior by policymakers who he assumes will never raise tax rates to deal with what he bemoans as a great evil, the imposition of debt upon future generations.  The assumption of this type of political behavior by Peterson does agree with the anti-tax prejudice of Peterson’s political milieu.

Making Sense of the Conflict

In broad terms the conflict in systemic terms is between two economic theories with opposing interpretations of that subsection of the data that they both address and also in this case some variance with regard to how much or which parts of the data are accounted for by the “story” that each side tells.  Furthermore, even if there is or would be some partial agreement on interpretations, the solutions offered are at odds (which part of the deficit to reduce or cut and when).   On the one side we have people who see government spending as a tool that now because of slumping economic conditions must be deployed, despite the negative impact on budget deficits.  On the other side we have people who place a higher negative value on budget deficits and the risk of inflation relative to the potential positive impact of spending on employment and current demand for goods and services.  For the latter group, the tradeoff is so, seemingly, frightening (or they wish to inspire fear in others) that they appear to imagine or invoke the prospect of events for which there is currently little or no data.  Alternatively they may be seeking to inspire “retribution” by private markets on the debts of governments, prospectively, by painting a negative picture of how these governments manage their budgets.

To me, as may be apparent from the way I am presenting the data, the case is better argued from the Keynesian side.  In this case, DeLong and Krugman seem to be presenting more apposite and solid data but the counterfactual “worries” of Sachs and Rajan are not to be entirely dismissed given their positions of authority and the reflexivity of financial markets, where opinion can become reality through the action of powerful and/or motivated stakeholders.  It is not unknown that powerful financial market actors can create chaos because of antipathy towards a government or because they simply want to achieve a higher return.  Claims of fiscal imprudence by authoritative voices can be invitations to markets for attacks on the currency.

While the point of recounting this debate may elude people who are not economic policy “wonks”, the stakes in what passes for an intellectual debate here could not be more immense:  if the austerity group prevails we may see, as in 1937, a very deep second dip to this recession, though these advocates would deny that this would be the outcome.  If the apparent wishes of economic advocates like Pete Peterson are achieved, we will see an undoing of the social and economic stabilizers created by the New Deal and Great Society in the period from the 1930’s to the 1960’s.  Furthermore, and more assuredly, choosing fiscal austerity, especially those who wish to cut social and other domestic spending rather than military spending and not raise any taxes, will bring much of the movement towards a green and oil-independent economy to a halt.  While some politicians and voters may be able to salvage some portion of existing social programs, the “new arrivals” in the areas of climate and energy that may require some deficit spending to be jumpstarted will almost certainly fall by the wayside.

Class Interests and Government Spending

While I am treating this here as a problem of systemic theories of the economy, many imply or state that this is a class conflict between economic groups.  The accusation leveled at Pete Peterson by his opponents can be parsimoniously stated as that he is waging “class war from above” by differentially targeting those social programs that stand in the way of financial capital in maximizing its profits.   Even more insidiously, the effort to stir hysteria about fiscal spending can be seen as effort to create a “balance of terror” by actors from the financial sector to guard its huge profits and downplay its culpability in the 2008 financial crash (“we weren’t the imprudent ones, you were”).  On the other side, deficit spending and social spending combined with progressive taxation redistributes income downward, leading the “haves” to feel that they are supporting the “have-lesses” and the “have nots”.   The implication by the “haves” is that they represent economic virtue while the “have-lesses” and “have nots” have not been prudent and are asking for a hand-out.

Alternatively, if we accept that there are economic classes with different and conflicting interests, the conflict is over a renegotiation of the social contract between those classes.  The post-New Deal, post-WWII consensus was that the “haves” owed a portion of their income to the society at large and to the less fortunate.  The idea was that everybody has an obligation to society and that individual success contains an element of luck.  The Reagan-Thatcher neoliberal criticism of the post-War consensus was that each person earned according to what he or she is due and that the society-at-large did not represent an economically important entity.  Redistribution of income via governmental spending and progressive taxation was and is opposed by neoliberals because it violates this principle and does not reward economic success.  This schematic view overlooks complexities of either position.

If this is a matter of economic class conflict two basic solutions are possible:  either one allies oneself with one or the other class or one attempts to stand apart and negotiate some compromise between those class interests.

Resolving the Conflict:  Three Strategies

I can see at the moment three basic strategies for economists and policymakers in dealing with this critical challenge and the yawning gap between the two positions as regards immediate action.

Strategy 1:  Make Better Arguments for Each Position

Advocates for one position or the other have good reasons, if they believe that what they represent is true, right and good, to make better arguments for each position.  I have a strong bias in favor of the Keynesian position at this point in time because of my concerns both about our overall economic health in the short and medium term as well as long-term environmental sustainability:  I see, at the least in the US, no significant moves to reduce oil dependency and address climate change without some deficit spending.  I am also persuaded by the relevance of the data presented by Keynesians to the questions being asked by both sides, in particular the phantom nature of market “concerns” about the security of lending to the US government at this point in time.  By both sides making clearer arguments, we may see clarification of the issue.  One danger without a strong meta-economic framework is that one side or the other would make arguments that are emotionally persuasive in nature but not well-reasoned and/or would use its considerable financial means to broadcast the less well-grounded argument in emotionally compelling but fallacious terms over the airwaves.

Strategy 2:  Political Compromise Between the Two Positions

While a bipartisan deficit commission and similar bodies may need to engage in compromise to reach consensus, this strategy may only serve to confuse the scientific and intellectual issues involved.  Some items from one “side” will be adopted and some proposals from the other “side” will be adopted in a melange of proposals.  While one sides’ arguments may be popular with politicians but wrong they will appear to be given equal or greater weight to  positions that are well grounded in reality.   If on the other hand there is an implicit recognition that there is no systemic economic theory that works but simply a class compromise between two interest groups, then adopting a political compromise which reflects the balance of power or the outcome of the discussion is the only possible outcome.  Either the compromise between systemic views or the compromise between classes would postpone clarity on the issue, though might prevent a disastrous outcome.

Strategy 3:  Develop a meta-economic framework for evaluating claims of both positions

The final strategy requires more time and preparation but I believe it will ultimately lead to better results: create a meta-economic framework for evaluating as much of the relevant data and positions involved as possible.  Such a framework would be able to weigh the benefits of economic stimulus, perceptions of government debt by private financial markets, other risks associated with debt, inflation costs and benefits, group/class interests and overall social welfare projections that are associated with an number of different scenarios.  I am calling this a “meta-economic” because it would straddle both the Keynesian and the neo-liberal or “hard money” position but create a new and better scientific framework rather than a melange of both positions as would “Strategy 2”.  New factors may be introduced from within economics or from a related discipline like political science, psychology, the natural sciences, etc to create new perspectives on hardened positions rather than to mix perspectives up as part of a political compromise.

None of these three strategies is mutually exclusive.  In upcoming posts here, I will look into this issue as well as other questions that would lead one to build a meta-economics.