In a prior post, I offered an alternative explanation for socialism’s failure. In doing so, I critiqued economists that defend the free market on the grounds of monetary incentive structure of being too narrow in their thinking. While monetary incentives play a role in human behavior, they are not the only motivator, and are often not the primary motivator.
Unfortunately, many economists ignore this simple truth in their analysis of various market-related issues. I suspect the main reason for this has to do with the very simple fact that many economists have a sort of penis envy towards physicists, by which I mean that economists seem to love complex mathematical models. Price points are extremely useful to these models, as they lend the models an air of objectivity and, in some cases, finality. While some of the more sophisticated economists know that they can assign value functions to non-monetary indices, the assignments of value often feel arbitrary, thus undermining the air of objectivity that economists are so desirous of, perhaps in their quest to gain some sort of influential power over policy-makers, which is thus ultimately a form of status-seeking.
This mechanistic approach to economic analysis is quite autistic in that it generally fails to account for value that humans place on things that cannot be quantified monetarily, like emotions. Indeed, the economics profession is filled with sundry examples of autistic jackassery that is fundamentally predicated on economists being, for whatever reason, completely unable to understand what motivates human behavior. To their surprise, humans are motivated by things other than money. The economists call these motivations irrational.
The most egregiously autistic economists are those that defend free trade and free labor, which usually requires the denial of the social constructs broadly known as culture and society. This in turn undermines the concept of the sovereignty of nations and states. Whether this is a good thing is debate best reserved for another post. For now, the relevant consideration is that not everyone thinks that free trade and free labor are good ideas because some people drive some value from what they perceive to be patriotism. To put it another way, there are a decent number of people who find the feelings they get from identifying with a collective entity (say, the US) or supporting a concept (say, Americanism) to be worth the cost of excluding foreigners. Because this imposes some quantifiable monetary costs without providing quantifiable benefits, those who oppose free trade and free labor are derided as ignorant, xenophobic, and/or simply stupid.
But even this view, where human idiosyncrasies are tolerated and occasionally celebrated, is essentially predicated on the notion that value is only measured monetarily. For example, leading behavioral economist Dan Ariely tried to prove irrationality in his book Predictably Irrational. The irrefutable experiment undertaken by Ariely consisted of offering people chocolate for purchase. There were two options: one with a simple, sticky price (two pieces for five cents, if memory serves me correctly) and one with a more complex price (a differently-weighted piece for three or four cents, assuming my memory serves me correctly). The utility maximizing option was the latter one, yet the vast majority of people chose the former. From this Ariely concludes that people are irrational. He does not ever think to consider whether such a trivial decision merits any significant consideration as regards to utility maximization. Stated another way, when the stakes are so low, there is little point in weighing your options.
Like the mainstream economists, Ariely and other behavioral economists fail to account for non-monetary value, which in the aforementioned case would be the value of time. Is it really rational to use much mental energy for such a negligible decision? If not, how can it be considered irrational to not use one’s time to maximize a miniscule amount of utility?
Beyond this, economists seem to be unable to recognize the motivating forces behind common interactions, like gift-giving. Economists soullessly deride people for giving non-cash gifts, declaring such interactions to be “inefficient.” The theory is that if people valued the gifts they received at par with or in excess of market price, they would have bought the gifts themselves. That the recipients of a certain gift did not buy the gift for themselves is proof positive that they did not value the gifts at price, and therefore the giver is wasting money because the value the recipient places on the gift is not equal to or greater than the price of the gift.
This autism is occasionally, and quite perversely, worn as a badge of honor. Some economists often seem to view themselves as somewhat superior for having overcome some of their petty irrationalities. But doing this can be dehumanizing, since it is our so-called irrationality that makes each of us unique, and provides some meaning in our lives. Who cares if we’re more likely to buy chips when their cost is 2 for $5 than when they’re $2.50 a bag? This heuristic may not be totally rational from a pricing standpoint, but it is an efficient way of dealing with a trivial decision, which means less time is wasted thinking about trivial things and is instead spent enjoying life. Should people be begrudged for that?
Now, none of this is to suggest that the study of economics is worthless and unworthy of support. On the contrary, economics is an important subject, and most analysis is useful and worthy of study. However, economics does have some blind spots, mostly due to its current autism. Understanding economics’ autism is helpful, then, because it enables one to see the limits of economic analysis and adjust one’s interpretation accordingly. Thus, economics need not be scrapped; rather, people should be aware of its limits imposed by the autistic tendencies of its practitioners.