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post-autistic
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issue 17
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Economics Outside the (Edgeworth) Box © Copyright 2002 Robert
Scott Gassler Away
from Autism
After twelve years as an
American teaching in Belgium, I have developed a great appreciation not only
of Belgian culture in particular and European culture in general, but also of
the things about America that I think are worth emulating in the rest of the
world. Interestingly, they are not at all the things that others might think.
By the same token, I believe that there are certain things worth keeping from
neoclassical economics, but they are not at all what others have listed in
this journal. The most important thing about
neoclassical economics is that it has developed a relatively complete set of
categories which can be used to classify concepts and facilitate
communication with other disciplines. The fact that these particular concepts
are undervalued by neoclassical economists whose communication with other
disciplines is notorious for its one-sidedness is no reason to throw them
out. From Walras
and others at the turn of the last century, under the influence of the
logical positivists, is the threefold categorization of positive economics,
normative economics, and applied economics. It is important to distinguish
the first two precisely because they are so easily conflated and virtually
impossible to disentangle. Positive economics is invariably subjective (which
is not the same as normative: astronomers of any value orientation can see
other parts of the universe only from our location and their time). It is
also infused with values from the time a researcher chooses what variables to
measure to the time he or she draws “policy implications.” In order to make
progress in determining what the universe is like, however, we must do what
we can to avoid seeing only what we want to see due to our values. The distinction between theory
and “empirics” should be maintained for similar reasons, though pedagogically
it may be better to mix them as they do in the natural sciences. We should
perhaps avoid telling our students that an earlier meaning of the term
“empirical” was “fraudulent”. We should however note that the most zealous
guardians of the inner core of neoclassical theory (located in Chicago,
Illinois, not Cambridge, Massachusetts) refer to themselves as “empirical
economists”. The important thing for both
theory and empirics is to be pluralistic. For theory the meaning has been
discussed extensively in this journal.
For empirics it means taking an interest in techniques not taught in
econometrics courses. For example, my old micro professor dismissed survey
research with an apocryphal anecdote: someone once asked CEOs
whether they maximize profits, and they said no, we also look to help the
community. Then they asked whether the CEOs could
be doing more to make money, and they said no, they were doing all they
could. End of story. He neglected to mention that virtually all the statistics
used for number-crunching are based on data gathered by surveys. From the field of industrial
economics, we should adopt the concepts of structure, conduct (or behavior), performance, and practice. The latter is
called “policy” in the literature, but “practice” includes firms and other
nongovernmental actors. Never mind the esoteric debate over whether causality
runs from left to right or whether we can skip any of the steps in between:
the universe is complex and causality is mutual and simultaneous. Get used to
it. From public economics, we
should keep the distinction among the economic activities of government
developed by Musgrave: allocation of resources (public goods, externalities,
imperfect competition, social rates of discount, excessive risk),
distribution of income, and macroeconomic stabilization. Do not yield to the
temptation to use the word “function” instead of “activity” for fear of
inducing unnecessary debate by sociologists and even biologists. To complete
the list, we should add the two used in the underrated theory of economic
systems: the natural and societal environment (taste, technology, resources)
and the economic system itself (ownership, economic information,
transactions). Together these constitute as
close to a mutually exclusive and exhaustive set of categories as anyone
would want in as complex a subject as this. One wants an open-ended science,
like biological taxonomy or library classification. Therefore too much
rigidity is bad, as is the construction of a closed system, even if a
taxonomic one. But so is too much confusion. A Suggested Framework
Conduct or Behavior
(positive, analogous to physiology)
Performance (positive in using
performance measures; normative in choosing which ones to use; analogous to
pathology when used to mean the study of disease) “Applied economics and quantitative
methods; economic and social policies” Criteria that correspond
roughly to the categories given above: efficiency, equity, stability for the
last three, things like “propriety” or “information symmetry” for the others. Practice
(applied, analogous to clinical medicine) “Theories and issues”
Corporate strategy, nonprofit strategy, government policy, etc. This is the
purview of the professional schools: business, international affairs, law,
library and information science, nonprofit
administration, public administration, social work. Arrow-Debreu
and the fundamental theorems of welfare economics are a rather simple special
case of positive and normative economics, a fact not lost on Arrow, Debreu, and others. Assume maximization of exogenous
tastes, exogenous technology, fixed resources, private ownership, full
information, costless transactions, no public goods or externalities,
parametric prices (which some say could mean competitive equilibrium), no
social discount rate, and no excessive risk, and the allocation of resources
is efficient for whatever equitable or lopsided distribution your economic
model started with. The Edgeworth boxes “prove” it.
Stabilization is automatic, since everything runs smoothly. Performance is
perfect. Application is impossible. This is worth a week or two in class
sometime in an economic student’s career in order to show how neoclassical
theory fits together and to show how silly it is for economists to be
flippant about things like free trade. To be sure, the neoclassical
model has been amended and extended to relax some of the assumptions in each
category; whole fields of economics have been started that way. But the fun
part comes in when we look at the heterodox approaches. Most of them attack
on all fronts, but as a first approximation some of their attacks are
stronger in certain categories. For example, the assumptions about tastes
have been attacked by several schools: feminist (attacking the assumptions of
exogeneity and selfishness), behavioral
(attacking maximization), and humanistic and socio-economics (attacking the
assumption that all things enter preferences the same way). The Marxist and
Post-Keynesian schools attack the assumptions underlying neoclassical
theories of stabilization (macroeconomics). Of course Marxist, evolutionary,
and institutional economics go way beyond the list, but that fact should be
stressed in order to keep us from thinking the list is a closed system, not
in order to discard the list. Conclusion
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