Thursday, August 4, 2011

Peter the Great on Paternalism

"our people are like children who never want to begin the alphabet unless they are compelled to by the teacher. It seems very hard to them at first, but when they have learned it, they are thankful. So in manufacturing affairs, we must not be satisfied with the proposing of the idea only, but we must act and even compel."

From Peter the Great by Robert K. Massie

People Who Misunderstand Economists

Below are two letters that were sent to the editor of Science News (July 30, 2011), scolding economists for their senseless love of rational models.

Irrational with money
Bruce Bower’s excellent article on “Simple heresy” (SN: 6/4/11, p. 26) showcases the blindness of mainstream economics. Namely, economics is often more like the weather than a game of dice: chaotic — with catastrophes, cycles and all manner of weird behavior. Yet economists continue to use statistical models that work “until they don’t.” So it is not surprising that investment strategies that use simple heuristics may do better than the pseudo­science of economists. Meanwhile, real science is not stymied by chaos, as climate science is now demonstrating.
Dick Burkhart, Seattle, Wash.

I have thought for years that economists and their ilk must live in some parallel universe where all decisions made by consumers are rational and well-thought-out, with reams of diligent research to back every choice. In my experience most people make decisions based on three simple rules. First, my coworker/neighbor/best friend has it and they love it. Second, it’s what I’ve always used and I see no reason to change. Third, it was on sale.
Michael Ellison, Clayton, N.C.


May I suggest the authors are a bit hasty to conclude they understand economists? I explain.
  • Economists think in stories, testing narratives about how the world might work inside what they know to be the setting of a terribly complex world. We speak to each other, however, in the form of mathematics, because this type of communication is precise and succinct. We want to be understood. However, just because I use a formula as a metaphor for one particle of the world does not mean I believe that formula holds with a god's insistence.
  • Just as it would be senseless to conclude all decisions contribute towards a person's long-run well-being, it would be senseless to say people do not seek their long-run felicityperiodically achieving it. Is it senseless to presume that higher gasoline prices eventually deter purchases, or that people save some of their tax cuts?
  • Every criticism I hear of rational economic models seems to stem a failure to understand that when an economist specifies a model, he is not at the same time claiming the model is perfect, or will even yield accurate predictions 70% of the time.