What follows is a long response to a comment on someone else’s blog. The quote is, “Thinking like an economist simply means that you scientifically approach human social behavior. . . .”
I’ll give the context in a bit, but first let me say that I thought this topic might be worth one more discussion because I suspect that the sort of economics exceptionalism that I will discuss is widely disseminated in college econ courses as well as in books such as the Freakonomics series.
It’s great to have pride in human achievements but at some point too much group self-regard can be distorting.
My best analogy to economics exceptionalism is Freudianism in the 1950s: Back then, Freudian psychiatrists were on the top of the world. Not only were they well paid, well respected, and secure in their theoretical foundations, they were also at the center of many important conversations. Even those people who disagreed with them felt the need to explain why the Freudians were wrong. Freudian ideas were essential, leaders in that field were national authorities, and students of Freudian theory and methods could feel that they were initiates in a grand tradition, a priesthood if you will. Freudians felt that, unlike just about everybody else, they treated human beings scientifically and dispassionately. What’s more, Freudians prided themselves on their boldness, their willingness to go beyond taboos to get to the essential truths of human nature. Sound familiar?
Last year I wrote about a disconnect in economics thinking, or at least in pop-economics writing:
Pop economists (or, at least, pop micro-economists) are often making one of two arguments:
1. People are rational and respond to incentives. Behavior that looks irrational is actually completely rational once you think like an economist.
2. People are irrational and they need economists, with their open minds, to show them how to be rational and efficient.
Argument 1 is associated with “why do they do that?” sorts of puzzles. Why do they charge so much for candy at the movie theater, why are airline ticket prices such a mess, why are people drug addicts, etc. The usual answer is that there’s some rational reason for what seems like silly or self-destructive behavior.
Argument 2 is associated with “we can do better” claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.
This had been bugging me for awhile, and I resolved the contradiction as follows:
A simple division of the world into good and bad things:
- Good: economists, rationality, efficiency, thinking the unthinkable, believing in “circumstances”
- Bad: anthropologists, sociologists, public-health officials, irrationality, being deterred by repugnant ideas, believing in “culture”
Good is entrepreneurs, bad is bureaucrats. At some point this breaks down. For example, if Levitt is hired by a city government to help reform its school system, is he a rational, taboo-busting entrepreneur (a good thing) or a culture-loving bureaucrat who thinks he knows better than everybody else (a bad thing)? As a logical structure, the division into Good and Bad has holes. But as emotionally-laden categories (“fuzzy sets,” if you will), I think it works pretty well.
I illustrated this thinking via a quote from Levitt protoge Emily Oster:
anthropologists, sociologists, and public-health officials . . . believe that cultural differences—differences in how entire groups of people think and act—account for broader social and regional trends. AIDS became a disaster in Africa, the thinking goes, because Africans didn’t know how to deal with it.
Economists like me [Oster] don’t trust that argument. We assume everyone is fundamentally alike; we believe circumstances, not culture, drive people’s decisions, including decisions about sex and disease.
I love this quote for its twisted logic. It’s Russell’s paradox all over again. Economists are different from everybody else, because . . . economists “assume everyone is fundamentally alike”! But if everyone is fundamentally alike, how is it that economists are different “from almost anyone else in society”? All we can say for sure is that it’s “circumstances, not culture.” It’s certainly not “differences in how entire groups of people think and act”—er, unless these groups are economists, anthropologists, etc.
The recent debate
I thought about all this recently after following a blog discussion linked from Mark Palko.
Here’s the quick summary:
1. Talk-radio provocateur Rush Limbaugh did some provoking. This time he went a bit too far and reminded a bunch of non-Limbaugh fans that he’s rude.
3. Economist and provocateur Steven Landsburg riffed off Limbaugh to do some provoking of his own. This time he went a bit too far and reminded a bunch of economists that he’s rude. Econblogger Noah Smith points out some flaws in Landsburg’s arguments and writes:
Just because good economics may require flouting of norms does not mean that flouting norms automatically makes your economic ideas better! You cannot add rationality to your analysis simply by injecting it with a dollop of offensiveness.
I’d just like to point out that Landsburg is flouting the norms of most Americans (including Noah Smith, Mark Palko, and I expect most of the readers of this blog) but he’s completely consistent with the norms of a substantial minority (including Rick Santorum, Michael Kinsley, and millions of Limbaugh fans). Landsburg’s “job” (in some sense) is to flout the norms of people like Noah Smith more than to flout the norms of the Rick Santorums and Michael Kinsleys of the world.
4. To continue our story, the next step is that econblogger Daniel Kuehn, in the context of criticizing Landsburg, wrote:
A lot of people don’t get “thinking like an economist” when they see it, and what I [Kuehn] think Landsburg is doing here is “thinking like an economist”, not being a jerk . . . Thinking like an economist simply means that you scientifically approach human social behavior – which means that you approach them like any other species of animal. Nobody judges animals when they behave in ways that we would consider horrendous in other humans. They’re just . . . animals. And that’s what you really need for good social science. You need to look at your fellow humans as “just animals”. Astonishing, wondrous animals to be sure – but just animals . . .
To me, that sounds like a description of biology or psychology, not economics! Humans have things like wampum, M1, and M2; animals got . . . hmmm, dogs collect bones and squirrels connect nuts, I suppose.
The contradictions of economics exceptionalism
What grabbed me about Kuehn’s quote, though, was its sense of “economics exceptionalism,” the idea that economists are special, as Oster put it in the above quote, for the paradoxical reason that they “assume everyone is fundamentally alike.”
In his blog, Palko linked to my post on the two contradictory ideas of pop-economists. Kuehn followed up with this comment:
On the Gelman post that you link – I remember when he wrote that. My reaction is that anyone who makes argument 1 probably has a pretty good sense of what they’re talking about. Anyone who makes argument 2 probably doesn’t. Judging from my personal experience, I don’t know many economists who insist on number 2. I’m not sure where Gelman is getting that.
To answer the question, just scroll up. The examples I gave were “claims such as why we should fire 80% of public-schools teachers or Moneyball-style stories about how some clever entrepreneur has made a zillion dollars by exploiting some inefficiency in the market.” Another example would be the claim made by many economists that the ordinary investor would be better off investing in index funds rather than day trading. Or even the most basic financial advice that your best investment by far is to pay off your credit card debt.
And, indeed, rational thinking can work wonders, and it can be useful to have an outside perspective. Even those who think the “Moneyball” story was oversold tend to agree that there were overvalued and undervalued baseball players out there who could be identified by Bill James-style analysis. Bill James is not an economist, but he could be. Or, to put it another way, economists can do (some version of) what Bill James does. All that stuff about identification, that’s what it’s really all about.
“Thinking like an economist” can be extremely useful. I often think like an economist myself. But I don’t think it helps to oversimplify what this means, and I think it’s silly and lacking in historical insight to not recognize the complementary relevance of other social sciences.
It’s fine to sometimes study situations where people act rationally and other times study ways of helping people improve their behavior. Both these modes of thinking can even be applied in the same problem! It can just be helpful to recognize that these are two different arguments.
P.S. Kuehn (and others) reply in the comments below. And I reply to the replies, etc.