From Perfect Rationality to Utopia
Dr Eamonn Butler writes on the admirable Blog of the Adam Smith Institute (London) another piece of excellent analysis from the pro-market ASI (HERE) :
“Stiglitz: A new economic model”
“I believe Professor Stiglitz is tilting at a straw man. Advocates of free markets have never believed them perfect. Markets are not static, like the textbook picture of supply and demand curves magically balancing at a particular price. As Mises and Hayek observed, markets are in constant motion: perhaps they are always tending towards balance, but with millions of buyers and sellers in millions of markets all competing for the same resources and getting in each other's way, they never quite achieve the textbook bliss. Nor are economic agents rational in the way the textbooks would have it, always demanding more of whatever is cheap. They are not computers, but human beings. There is a limit to the amount of anything they want. They value non-economic goods (such as honour) as much as economic ones, and will often give up the latter for the former. Economics is driven by those highly personal, emotional, wants and values: it is never going to be a matter of rational calculation....
It is perfectly possible to believe that markets do not clear perfectly and automatically, and that economic agents do not behave rationally, and yet conclude that markets work better if the government stays out of them. Sure there is market failure, but there is also government failure too. At least markets work through the wisdom and information of the whole population; government reflects the decisions of a small, distant, and inevitably self-interested class of politicians and civil servants. Sure we act as irrational human beings, and make mistakes in our planning that lead to losses and imbalances. But would we really trust that same small, distant (and, to be honest, rather slow) coterie to be able to plan our future better than we, ducking and weaving through a world that constantly changes, could do for ourselves?”
Comment
I think part of the problem was (and remains) the passionate search for making ‘political economy’ (as Adam Smith envisaged it) a ‘hard science’ from the 1870s and the subsequent formal achievement if that objective by the 1960s (though physicists in the Sante Fe Institute found that what passed for advanced maths among economists were somewhat primitive by the standards of 'hard science').
Starting with calculus, the rate of change of two variables and compressing the complexities of human behaviour into the single dimension of rationality and tracing the influence of variations in price, predictable outcomes were found, assuming that the world conformed to the stripped-down models that became prevalent in Economics textbooks from the 1950s.
With invented associations between rational self-interest and assumed ‘good outcomes’ for society, a narrative was created that bore little relevance to the real world. Predictions from such models were not realized – and occasionally proved to be disastrously out of kilter with real events – which caused and causes resurgences in ‘anti-market’ rhetoric from the Marxists, who never really went very far away, social-democrats and people like Stiglitz, who looks for a ‘top down’ new economics, as if anything as complex as an economy can be ‘designed’ (by who) for what agreed purpose?
History shows no such design capability exists.
“Stiglitz: A new economic model”
“I believe Professor Stiglitz is tilting at a straw man. Advocates of free markets have never believed them perfect. Markets are not static, like the textbook picture of supply and demand curves magically balancing at a particular price. As Mises and Hayek observed, markets are in constant motion: perhaps they are always tending towards balance, but with millions of buyers and sellers in millions of markets all competing for the same resources and getting in each other's way, they never quite achieve the textbook bliss. Nor are economic agents rational in the way the textbooks would have it, always demanding more of whatever is cheap. They are not computers, but human beings. There is a limit to the amount of anything they want. They value non-economic goods (such as honour) as much as economic ones, and will often give up the latter for the former. Economics is driven by those highly personal, emotional, wants and values: it is never going to be a matter of rational calculation....
It is perfectly possible to believe that markets do not clear perfectly and automatically, and that economic agents do not behave rationally, and yet conclude that markets work better if the government stays out of them. Sure there is market failure, but there is also government failure too. At least markets work through the wisdom and information of the whole population; government reflects the decisions of a small, distant, and inevitably self-interested class of politicians and civil servants. Sure we act as irrational human beings, and make mistakes in our planning that lead to losses and imbalances. But would we really trust that same small, distant (and, to be honest, rather slow) coterie to be able to plan our future better than we, ducking and weaving through a world that constantly changes, could do for ourselves?”
Comment
I think part of the problem was (and remains) the passionate search for making ‘political economy’ (as Adam Smith envisaged it) a ‘hard science’ from the 1870s and the subsequent formal achievement if that objective by the 1960s (though physicists in the Sante Fe Institute found that what passed for advanced maths among economists were somewhat primitive by the standards of 'hard science').
Starting with calculus, the rate of change of two variables and compressing the complexities of human behaviour into the single dimension of rationality and tracing the influence of variations in price, predictable outcomes were found, assuming that the world conformed to the stripped-down models that became prevalent in Economics textbooks from the 1950s.
With invented associations between rational self-interest and assumed ‘good outcomes’ for society, a narrative was created that bore little relevance to the real world. Predictions from such models were not realized – and occasionally proved to be disastrously out of kilter with real events – which caused and causes resurgences in ‘anti-market’ rhetoric from the Marxists, who never really went very far away, social-democrats and people like Stiglitz, who looks for a ‘top down’ new economics, as if anything as complex as an economy can be ‘designed’ (by who) for what agreed purpose?
History shows no such design capability exists.
Labels: Joe Stiglitz, New Economics
2 Comments:
You will have to excuse me, but I'm finding hard not to comment almost every post of yours since always give a new point of discussion, quote or interesting information. As many times said, always from a modest opinion who has to read very, very much more before even I should be commenting those posts. But I can't hold it!
Without joining the matters of economy or technic information.
I guess that: "(by who) for what agreed purpose?" is reduced to the question that if we born good or bads. Since, as idealist,but realist, as I'm in thoughs of idealism as a matter of capability and long term, I analize the idealist situation at his perfection, and it's so in the "infinite" as, it would may be said I guess (not pretty sure right now without checking it out again) would be the interior impersonal judge that we all carry in ourselfs trying to make us action with the maxium correction and so prudence.
So explaining that point of start, I think is much more understable why I mean about "borning goods or bads" since if we assume that we can born goods we should be able, again idealistic, to have that capability, that you denie base on history (which really doesn't help to hold my statement, that we may be born goods) as you say "History shows no such design capability exists.". Re-reading you talk more about the capability than the possibility of the intention as it self, as it could be the famous quote "Intention is what's worth" (or kinda hope you understood it, again language misstraductions).
Anyway if we assume we are good, obviously in my opinion, we would be able to design that kind of society where we care of each other the same way we are supposed to care about our progenitor (I think that's the expression if not the most near would be family), as I think again (or may be wrong again), but sounds to me familiar the expression about the through out of TMS, using that expresion in the definition of correction, using it as the major virtude or word to refer the manners supposed to be exalted and searched in that kind of philosofy.
Well, again, thanks for your time and excuse me for any troubles it and my english can generate. I understand there's not much point on answering me according context, I thanks anyway.
Well I guess just for the record, there's no hope if we are born bads, just no need of speculations, it would just led to unpleasant worries.
You don't need to publish this other comment, I just forgot half conscious to note some other things but I really didn't want to make you waste too much time nor extend to much on my comment but there are few things I would like to point out too.
One would be that starting from the animals I think there are possibilities for us to be able to be good in born since is from all-knowledge that there are many horrible things that we can not even thing about to do in the animal kingdom but as Adam Smith's historical context isn't the same as ours nowadays, isn't it the animals one, it's like they live in dinosaurs eras for us, where we are the dinosaurs for them, so how would we even able to critise the animal society or even worst compare it to ours, in the meaning of the basic rule of ·we are animals, look at what they do, their instincs are still in us", or even worst compare us to them as I quoted right back since we have that interior judge (as I explained last comment) that helps us to be able to act with correction, which could lead us to that idealistic and dreamed situation, where the animals haven't been able to design either develop their surroundings into that ideal, when we can.
Just to finally point this whole idea came from a facebook photo I saw about how wolves take care between them, as baby-sitters, "hanging-out" zones, and all the "strategy" or was it "competitive strategy" they call? (ironically about those liberalists free-markets amorals) is in "perfect competition" so they all can grow up and join the community with the same assets (again of course without the power of mind and the unfortune of mother nature body-design sometimes, that we are able to, or almost try to, mender,what I would extract for my self from the next quote without meaning that's the same arrangement as Oscar Lange was proposing if so just the idea of co-ordination and mending the issues from the real IH on the market or life, understood as natural unbalances, as so we can all move forward. Quoting Lange from your article of the re-invented myth of IH:
"The market has, therefore, been compared to that of an invisible hand which produces co-ordination out of the autonomous decisions of many separate units. Not all markets, however, are able to produce such coordination, nor is the coordination obtained always consistent with accepted social objectives. In such cases, planning is used to either reach the co-ordination, otherwise unobtainable or to correct the co-ordination produced by the invisible hand of the market (Lange 1945, 26)."
Well finally seems again a long post, again I'm sorry, but would really state my other comment with this above explaining the other side, anyway we always forget something since we are talking from everything here.
Best whises, Bernat.
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