Sunday, January 27, 2008

Economic Imperialism

Is it true that economics is invading the space of other social sciences? The idea of economic imperialism is only admissible if we believe that economics equals money. If we don't believe that, economic reasoning is one of many ways of answering questions: a map, not a country.

The old textbook definition of economics as the social science of the allocation of scarce resources doesn't really limit us at all. Gary Becker is perhaps the economist most associated with the idea of economic imperialism; his position is that "the horizons of economics need to be expanded", but, without being too dramatic, those horizons aren't as close as they look.

When we see economists pop up in the press, they're usually talking about unemployment, inflation, growth, all the old ones. Sometimes, when we see an economist talking from over the "horizon", he looks fully as foolish as possible.

The famous one about Joel Waldfogel's "deadweight loss of Christmas" is a good example. Let me try to paraphrase: "if people only care about money, Christmas gifts are a big waste of resources because their cash value to the recipient is less than their cost to the giver. Give money instead!". Logical people subsequently point out that gift giving and gift receiving are two of life's great pleasures, and economists should go back to the cesspool they crawled from.

A microcosm, if you will, of the "economics as money" problem. The story's no fun if we actually talk about the "if people only care about money" part; with it, it's just a fun, throwaway logic game, but without it, it's a nice excuse to print some combination of "humbug" and "economist". Who'll print my story that says "if people care about money, being nice to their relatives, not looking like someone who can't think of a good gift, and a bunch of other stuff, Christmas gifts are an excellent use of scarce resources to spread satisfaction in our cold, crazy world. Happy Christmas!".

No-one will print it, of course. At least, not if they want to show me as a stereotypical economist. The trick is that both my story and the one about the deadweight loss of Christmas are equally acceptable applications of positive economic reasoning on the topic "what happens to people's satisfaction when they give or receive gifts?". I think my assumptions on the desires of the giver are more realistic, and I think Waldfogel's story lends itself better to measurement. It's the same rock and the same hard place: how can we be realistic and accurate at the same time? Not, perhaps, a life or death matter in the Christmas story, but pretty important when we're making policy-relevant models.

My interpretation of Becker's ambition is to apply the rational choice paradigm of economics to decisions that are decidedly not financial. I also believe that this doesn't require us to expand the horizons of the discipline: the horizons of economics are not financial, because applying economic reasoning doesn't require us to think only about money.

2 comments:

GoodLiberal said...

Equally didn't the 'old' definition of economics as 'the allocation of scarce resources' only really start in the time of the worldwide depression of the 1930s [I think by a chap called Robertson at the LSE]? Isn't part of the problem of how people look at economics that this deterministic definition taken as an everlasting truth rather than something which is contingent?

Jim said...

I'm OK with it being an everlasting definition because it's so broad - I don't think it's outdated, even if it's old.