 Whatta Hero! |
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THE POLITICS OF
ECONOMICS Milton Friedman is probably the best known and most widely respected free-market economist in the world. In 1976, Friedman won the Nobel Prize for economics. In 1989, Friedman's FREE TO CHOOSE was the best selling nonfiction book in the United States and it was translated into most major languages. Here Friedman identifies the origin of his free-market political crusade: "Adam Smith's key insight was that both parties to an exchange can benefit and that, so long as cooperation is strictly voluntary, no exchange will take place unless both parties do benefit." [1] Since economists do not explicitly define "benefit" -- let alone measure it -- one might ask how Friedman could possibly know? In fact, he doesn't -- Friedman is imposing his personal values on others. It's the "politics of economics". NORMATIVE AGENDA VALUE-LADEN TERMS "The vocabulary of physics is amoral -- not antimoral, but amoral. Mass, force, and velocity have no moral implications because the laws describing them have no alternatives. The vocabulary of economics, in contrast, abounds in ethical terms. It is impossible to define 'good,' 'service,' or even 'utility' without making ethical judgments. Every object has mass, but not every object has utility. Moreover, some people may consider a certain object a good while others do not, but there can be no disagreement about the equivalence and direction of action and reaction. There is no other or better way for a body to fall in a vacuum than s=½gt2; this is not because physicists don't happen to be interested in making this a better world. There is no unchanging price for a bushel of wheat; and this is not because economists don't happen to be interested in a stable universe. The price of wheat depends upon what people do, but bodies fall as they do regardless of what people do or think. "Economics is not value free, and no amount of abstraction can make it value free. The econometricians' search for equations that will explain the economy is forever doomed to frustration. It is often said that their models don't work, because, on the one hand, the variables are too many and, on the other, the statistical data are too sparse. But the physical universe is as various as the economic universe (they are, to repeat, both infinite), and Newton had fewer data and less powerful means of calculation than are at the disposal of Jan Tinbergen and his econometrician followers. The difference is fundamental, and the failure to understand it reduces much of modern economics to a game that unfortunately has serious consequences." [3] THE METHOD 1. Observe some aspect of the universe. But economists do not use the scientific method. Economists use the "post hoc, ergo propter hoc (after-the-fact) reasoning" method. Here's how that method works: Suppose one were in a primitive jungle village somewhere. Further suppose, that a child became sick and the local witch doctor was charged with explaining the sickness. Perhaps he would say the child "must be" sick because someone offended the gods. That's the kind of method that economists use -- the witch doctor method: "Those who believe society can best be understood as a series of markets begin by positing a rational, calculating individual whose goal is to maximize 'utility.' This premise says everything and nothing, since it is true by definition in all cases. But it is a key aspect of the market model, since it is the behavioral part of the logical argument that whatever the market decides must be optimal." [4] "Economists enamored of pure markets begin with the theory, and hang models on assumptions that cannot themselves be challenged. The characteristic grammatical usage is an unusual subjunctive -- the verb form 'must be.' For example, if wages for manual workers are declining, it must be that their economic value is declining. If a corporate raider walks away from a deal with half a billion dollars, it must be that he added that much value to the economy. If Japan can produce better autos than Detroit, there must be some inherent locational logic, else the market would not dictate that result. If commercial advertising leads consumers to buy shoddy or harmful products, they must be 'maximizing their utility' -- because we know by assumption that consumers always maximize their utility. How do we know that? Because to do anything else would be irrational. And how do we know that individuals always behave rationally? Because that is the premise from which we begin. The truly interesting institutional questions -- the disjunctures between what free-market assumptions would predict and the actual outcomes -- are dismissed by the tautological and deductive form of reasoning. The fact that the real world is already far from a perfect market is ignored for the sake of theoretic convenience. The dissenter cannot challenge the theory; he can only describe the real world." [5] "There is at the core of the celebration of markets a relentless tautology. If we begin, by assumption, with the premise that nearly everything can be understood as a market and that markets optimize outcomes, then everything else leads back to the same conclusion -- marketize! If, in the event, a particular market doesn't optimize, there is only one possible inference: it must be insufficiently marketlike. This epistemological sleight of hand is an astonishing blend that blurs the descriptive with the normative. It is a no-fail system for guaranteeing that theory trumps evidence. Should some human activity not, in fact, behave like an efficient market, it must be the result of some interference that should be removed or a stubborn human refusal to appreciate markets. It cannot possibly be that the theory fails to specify accurately how human behavior works." [6] THE POLITICS OF ECONOMICS What do get if you combine a normative
agenda, value-laden terms, and the witch doctor method? The politics of
economics: [1] pp. 1-2, FREE TO CHOOSE, Milton
and Rose Friedman; Harvest, 1980; [2] p. 25, ADAM SMITH'S MISTAKE,
Kenneth Lux; Shambhala, 1990; [3] pp. 38-39, THE END OF ECONOMIC
MAN, George Brockway; Norton, 1995; [4] p. 41, EVERYTHING FOR SALE,
Robert Kuttner; Knopf, 1997; [7] p 21, DANGEROUS CURRENTS,
Lester Thurow; Random, 1984; |
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Jay Hanson
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