A while ago I mentioned the mysterious science of "welfare analysis". It tries to evaluate outcomes or predictions of economic analysis or modeling; the idea is to figure out whether x is "better" than y.
That's not an easy task; we have to figure out how we're going to measure things if we're going to compare them. Unfortunately, the only way to answer the question is to take a position on the motivations of the people who'd be affected by your policy. It's sometimes said that the noxious euphemism "thinking like an economist" means "taking all consequences into account"; leave aside for a moment the obvious point that that's not "thinking like an economist", it's "thinking properly", but rather let's figure out what "thinking like an economist" actually requires.
It often seems to require answering that question of "better", to require taking a position on how you're going to evaluate policies. It's more fundamental than assuming something about a utility function, or whatever it takes to perform welfare analysis, but rather seems to require an acceptance of those nefarious so-called "principles" of economics, an agreement with what constitutes a "better" outcome for society.
Then we're led into a world in which very few people who self-identify as "economists" profess support for any policy or means or resource allocation that lies outside the capitalism-with-some-government model that is the status quo. Is that because once a person has studied economics, it's obvious to them that this is "best"? Is it because it's impossible to succeed in the study of economics if you don't agree that it's "best", because you're turned off or ridiculed?
Economists run the risk of being seen as arrogant if we pretend to understand what a "better" outcome is. In the small this manifests as our faith in the cipher of "welfare analysis"; in the large it manifests as the homogeneity of belief and thought among economists.
Showing posts with label normative goals. Show all posts
Showing posts with label normative goals. Show all posts
Monday, June 16, 2008
Wednesday, March 19, 2008
Sensible economic policy is not just found in textbooks
Standard caveat: I remain apolitical here. Hat tip to Economist's View, whose discussion of Andrew Leonard's Salon article on some current trade policy touches on a lot of interesting things.
Apparently there's a "Trade Adjustment Assistance" program on the Senate radar. Now, this could be considered sensible economic policy, whether or not you agree with it.
"The Trade Adjustment Assistance program is designed to compensate manufacturing sector workers who are displaced by trade. It includes financial support for education and training, a health care credit, wage insurance and other goodies."
It's a well-worn argument that long-term benefits from trade with other countries might come with short-term costs for those workers who find employment in industries which produce goods most likely to be imported. Social justice might argue for support for such workers; help the worker, not the industry is not an original maxim. It can be applied equally to "dying" industries. If the typewriter industry is becoming obsolete, do you subsidize the typewriter producers or let them die and use your welfare state to support the people who are affected?
Maybe it's too harsh to say that this is not a textbook argument, but one certainly can't gloss over the negatives of any policy, no matter how positive the positives, and, recall, those pesky Principles of Economics said that Trade Can Make Everyone Better Off.
The Salon article refers to this, from The Atlantic, makes the forceful and obvious point (I will paraphrase) that a proper welfare state doesn't ask why, just helps the needy while they need, and that this trade adjustment business is a band-aid, a facsimile of a real solution for the problems of the consequences of harsh and widespread unemployment in whole communities at a time.
Not to wade into the politics where I don't belong, but I like this:
"Preaching the benefits of free trade without being willing to take care of the "losers" created by trade isn't very bright in an election year when workers are feeling squeezed, and the opposition party controls Congress."
Ignoring the electioneering stuff, the direct analog to an economics class or an economic policy debate would be to actually have a proper debate, an acknowledgment that everything isn't always super-awesome. Similarly, the Economist's View take:
"It seems to me that an administration that truly cared about the working class would be eager to find a way to help those who are hurt from trade, that they would make it a high priority and insist it get done, but there's little indication - through actual action - that helping workers hurt from trade, or from economic conditions more generally, is a priority."
This is perhaps one of the biggest economic policy questions: how big should your welfare state be? Design is one thing, but we have a fundamental philosophical question here, which is bigger than technicalities. Let's brawl that one out, historically, globally, politically, morally, economically.
Except for poor old John McCain, who gets kicked again. Hard. I'm on record: I think he is an economist (for a suitable definition of economist). Not Economist's View.
"I think a lot of people are missing the point about John McCain's lack of knowledge about economics... Anyone who really cared about economic policy and its effect on households would have taken the time to become familiar with the basics. How will he know how best to help workers if he has no idea about the underlying economics? If he asked, there are very prominent economists who would be happy to spend an hour once or twice a week - kind of like a principles course - explaining how the economy operates. But he never bothered, never took the time, because he apparently doesn't care enough to give up the time necessary to actually understand the polices he is voting on. I wouldn't mind the ignorance so much if there was any indication at all that he had tried to over come it, any indication he thought it was important enough to learn about, but there isn't."
We're going to give McCain the Principles of Economics course? I just got chills. Surely not the one we give the poor undergraduates? From me:
"A list of "principles" pregnant with loaded statements is not the right way to present our discipline."
Let's not indoctrinate John McCain too!
Apparently there's a "Trade Adjustment Assistance" program on the Senate radar. Now, this could be considered sensible economic policy, whether or not you agree with it.
"The Trade Adjustment Assistance program is designed to compensate manufacturing sector workers who are displaced by trade. It includes financial support for education and training, a health care credit, wage insurance and other goodies."
It's a well-worn argument that long-term benefits from trade with other countries might come with short-term costs for those workers who find employment in industries which produce goods most likely to be imported. Social justice might argue for support for such workers; help the worker, not the industry is not an original maxim. It can be applied equally to "dying" industries. If the typewriter industry is becoming obsolete, do you subsidize the typewriter producers or let them die and use your welfare state to support the people who are affected?
Maybe it's too harsh to say that this is not a textbook argument, but one certainly can't gloss over the negatives of any policy, no matter how positive the positives, and, recall, those pesky Principles of Economics said that Trade Can Make Everyone Better Off.
The Salon article refers to this, from The Atlantic, makes the forceful and obvious point (I will paraphrase) that a proper welfare state doesn't ask why, just helps the needy while they need, and that this trade adjustment business is a band-aid, a facsimile of a real solution for the problems of the consequences of harsh and widespread unemployment in whole communities at a time.
Not to wade into the politics where I don't belong, but I like this:
"Preaching the benefits of free trade without being willing to take care of the "losers" created by trade isn't very bright in an election year when workers are feeling squeezed, and the opposition party controls Congress."
Ignoring the electioneering stuff, the direct analog to an economics class or an economic policy debate would be to actually have a proper debate, an acknowledgment that everything isn't always super-awesome. Similarly, the Economist's View take:
"It seems to me that an administration that truly cared about the working class would be eager to find a way to help those who are hurt from trade, that they would make it a high priority and insist it get done, but there's little indication - through actual action - that helping workers hurt from trade, or from economic conditions more generally, is a priority."
This is perhaps one of the biggest economic policy questions: how big should your welfare state be? Design is one thing, but we have a fundamental philosophical question here, which is bigger than technicalities. Let's brawl that one out, historically, globally, politically, morally, economically.
Except for poor old John McCain, who gets kicked again. Hard. I'm on record: I think he is an economist (for a suitable definition of economist). Not Economist's View.
"I think a lot of people are missing the point about John McCain's lack of knowledge about economics... Anyone who really cared about economic policy and its effect on households would have taken the time to become familiar with the basics. How will he know how best to help workers if he has no idea about the underlying economics? If he asked, there are very prominent economists who would be happy to spend an hour once or twice a week - kind of like a principles course - explaining how the economy operates. But he never bothered, never took the time, because he apparently doesn't care enough to give up the time necessary to actually understand the polices he is voting on. I wouldn't mind the ignorance so much if there was any indication at all that he had tried to over come it, any indication he thought it was important enough to learn about, but there isn't."
We're going to give McCain the Principles of Economics course? I just got chills. Surely not the one we give the poor undergraduates? From me:
"A list of "principles" pregnant with loaded statements is not the right way to present our discipline."
Let's not indoctrinate John McCain too!
Tuesday, February 5, 2008
What do you want to happen?
Step one in normative economics is, I think, finding out what you want. Without a goal, positive economics is as useless as a coffee break (unless, of course, your goal was a cup of coffee). Is it odd, then, that economists don't seem to spend any time figuring out what people want?
Although I'm certainly no authority, it seems to me that psychologists and sociologists spend a lot more time on this question. For example, I recently came across a psychology article with the wonderful title "Not Having What You Want versus Having What You Do Not Want"(here's a link, but the full text is subscriber-only). I cannot resist quoting the first paragraph:
"No childhood passes without disappointment about a birthday present, no adolescence seems to be complete without a disappointing love affair, and hardly anyone is a stranger to the unpleasant feeling that stems from buying an expensive consumer product that turns out to be less than expected. All in all, a life without disappointment seems rare."
And they call economics the dismal science... I wish we could be so melancholy. The point, however, is that while behavioral economics might be trying to push the boundary of what the people in economic models care about by incorporating, for example, disappointment, I don't know of any economics literature that's trying to figure out what people actually care about.
Of course, it's difficult. How could we go about it? Economists are very distrustful of surveys as unscientific. One of my favorite normative economics results is hidden in a paper called "Economics of the Endangered Species Act" (link): US household surveys asked people what they'd be willing to pay to save each of a set of endangered species. Scaled up, the answers implied that the US population would be willing to pay one percent of its total income to save two percent of endangered species. It's a bit of a facetious point, but it's a neat way of showing that talk is cheap in answering surveys. Simply observing what people do can't really answer the question either, especially when we're talking about a bigger scale than the individual level.
Do we assume that democracy will elect leaders who represent the goals and ambitions of the people? I think the whole thing poses a serious problem for any economist bold enough to make a policy recommendation: how has the normative branch of economics tried to figure out what people want?
If someone asked you what you wanted, specifically or generally, for you or for the country, or the world, what might make the list? Money, a job, friends, lovers, health, the environment? How closely will the list match the things inside your head? What if you had to give up one thing on your list to get another? Again, a common recourse in economics is to turn our back on this whole sorry mess and just take the things in which we have relatively high confidence: most people like money to some degree.
No economics paper seems to be complete without the mysterious "welfare analysis", which is essentially a bolted-on normative exercise attached to a positive, descriptive theory. How valuable is such an exercise if we have simplified the motivation of people in the theory? Obviously the normative "welfare analysis" is equally dependent on the assumptions of our theory as the theory itself. It's a false dawn that is equally as unsuited to answering the question of "what should be" as positive economics itself: again, if we could come up with the metric that captured the quality of any conceivable thing, the magical normative criteria, we should pack up and start a technocracy.
Yet there is no reason to force the positive and normative analyses into the same box. Expanding the foundations of normative analysis, in particular, to include the hypothetical answer to the question of what people want to happen, can happily be done without affecting the quality of positive theory, whether or not it rests on the same foundations. The economist who claims to evaluate the quality of an outcome fails to see that what he calls normative economics is only as realistic as positive economics: not at all. Real normative economics would spend more time trying to figure out what people really want.
Although I'm certainly no authority, it seems to me that psychologists and sociologists spend a lot more time on this question. For example, I recently came across a psychology article with the wonderful title "Not Having What You Want versus Having What You Do Not Want"(here's a link, but the full text is subscriber-only). I cannot resist quoting the first paragraph:
"No childhood passes without disappointment about a birthday present, no adolescence seems to be complete without a disappointing love affair, and hardly anyone is a stranger to the unpleasant feeling that stems from buying an expensive consumer product that turns out to be less than expected. All in all, a life without disappointment seems rare."
And they call economics the dismal science... I wish we could be so melancholy. The point, however, is that while behavioral economics might be trying to push the boundary of what the people in economic models care about by incorporating, for example, disappointment, I don't know of any economics literature that's trying to figure out what people actually care about.
Of course, it's difficult. How could we go about it? Economists are very distrustful of surveys as unscientific. One of my favorite normative economics results is hidden in a paper called "Economics of the Endangered Species Act" (link): US household surveys asked people what they'd be willing to pay to save each of a set of endangered species. Scaled up, the answers implied that the US population would be willing to pay one percent of its total income to save two percent of endangered species. It's a bit of a facetious point, but it's a neat way of showing that talk is cheap in answering surveys. Simply observing what people do can't really answer the question either, especially when we're talking about a bigger scale than the individual level.
Do we assume that democracy will elect leaders who represent the goals and ambitions of the people? I think the whole thing poses a serious problem for any economist bold enough to make a policy recommendation: how has the normative branch of economics tried to figure out what people want?
If someone asked you what you wanted, specifically or generally, for you or for the country, or the world, what might make the list? Money, a job, friends, lovers, health, the environment? How closely will the list match the things inside your head? What if you had to give up one thing on your list to get another? Again, a common recourse in economics is to turn our back on this whole sorry mess and just take the things in which we have relatively high confidence: most people like money to some degree.
No economics paper seems to be complete without the mysterious "welfare analysis", which is essentially a bolted-on normative exercise attached to a positive, descriptive theory. How valuable is such an exercise if we have simplified the motivation of people in the theory? Obviously the normative "welfare analysis" is equally dependent on the assumptions of our theory as the theory itself. It's a false dawn that is equally as unsuited to answering the question of "what should be" as positive economics itself: again, if we could come up with the metric that captured the quality of any conceivable thing, the magical normative criteria, we should pack up and start a technocracy.
Yet there is no reason to force the positive and normative analyses into the same box. Expanding the foundations of normative analysis, in particular, to include the hypothetical answer to the question of what people want to happen, can happily be done without affecting the quality of positive theory, whether or not it rests on the same foundations. The economist who claims to evaluate the quality of an outcome fails to see that what he calls normative economics is only as realistic as positive economics: not at all. Real normative economics would spend more time trying to figure out what people really want.
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