Tuesday, December 20, 2011

Mirowski and the Servant Problem and What to Read Next

A pair of readings, not obviously linked, and a suggestion for a new direction.  First reading: Philip Mirowski (I think) on behaviorial economics.  Second, a piece in The Economist Christmas issue about (ambivalent quasi-irony alert) "The Servant Problem."

First Mirowski.  Mirowski probably qualifies as the most sophisticated (if not always the most deft or readable) critic of  "the standard model" in economic thought--I mean the schizoid mathematicizing, the stylized assumptions, and the artful suppression of all interesting anomalies that have come to dominate the profession since the coming of Paul Samuelson.   Here (via an intermediary) he weighs in on the new behaviorism but wait, it's not what think.  Very far from seeing the behavioral turn as a refinement in or advance on the traditional model, he treats it as almost unreservedly retrograde--a running dog of the neo-liberal consensus, serving only to distract attention from its tattered and threadbare apparel.  So presumptive good guys like George Akerlof, Robert Schiller and Robert Frank wind up as, at best, useful idiots in prorecting a maleficent status quo.

It's an interesting read at least, but its core principle seems to be that the new critique is far too tentative and feeble to put anything more ambitious than llipstick on this particular pig; In this respect it strikes me as ironically similar to the standard response of the old guard: that the new critics may be tinkering with the flanges on the exhaust pipe, but they haven't yet got anyplace close to the carburator.  Either way, the standard model stays in place; the only question is whether you like it that way.

Now turn for a moment to The Economist's take on servants.  The immediate question is: servants, why have them?  To do the dirty work obviously, but the E, channeling Veblen, makes the point that it's far more complicated than that.  Having a servant may or may not be a "convenience"--part of the point of the essay is that servants can be a damn nuisance.  But they are also marvelous as a prestige good.  They show that you've got money enough to set fire to.  They show that you can buy occasions public humiliation (the other guys'; not your own) and for pointless display ("pointlessness" being precisely the point).  

I suppose an imaginative defender of the economic status quo could squeeze all this into a utility function, but there's really no suggestion that any of them ever does it.  And without quite yielding to the point about running dogs, I'd have to say that Mirowski (and the mainstream defenders) here are onto something here: "behavioral economics" may offer some fragments of entertainment, but for good or ill there is nothing much here that lays a glove on the mainstream behemoth.  So the sanding-over of difficulties continues and we wind up with an "economics" which is, apart of from the equations, bloodless and content-free.  I'm speaking now on analogy to Goethe's critique of Newton's theory of color--a theory which, as Goethe put it, contains everything except color itself.

I suppose Mirowski would say "that's the point, their job is not to disturb anything."  And the defenders would say--oh, it's early yet, it's only a matter of time.

So I'm on board with the idea that behavioral economics hasn't offered much yet.  I'm agnostic on the question of how much more than I can do.  And I'm a bit shaky on where to go next.  I admit I am uncomfortable with the apocalyptic tone of the Mirowski critique, at least insofar as it begins to sound like standard leftism.  I'll confess it here:  in the current mode I think I hate bankers as much as the best of them but at the end of the day, I'm an unreconstructed neoliberal.  I can't imagine any world at once attractive and plausible other than a world with public structures and private purposes, in which we see "creatures going about their business among the equally/Earnest elements of nature."  I could be a crank (perhaps am already) but could never be a very good rebel.

Which brings me back to Veblen again.  Does anybody read him any more, except perhaps the odd young striver at the E?  He was still in fashion when I first started college nearly 60 years ago.  Moreover, he even counted as economics--at least as part of economics, a part you were permitted not to minimize or ignore.  And so I'm wondering if it isn't time for a Veblen revival: for  fresh reading of a guy who understood that economics was not (just) about LaGrange multipliers and Edgeworth boxes: it was about power and status and victimhood and the contest for domination in an unruly world.  


Ebenezer Scrooge said...

I don't read The Economist; I get my weekly smarm from other sources. Did it point out that servants are what happens when income inequality becomes too great? Along with prostitution and polygamy, of course.

jed said...

I've been very skeptical about behavior economics as any kind of deep critique; maybe I agree with Mirowski, I'll have to read the review.

But as a non-economist I keep running into an issue that rarely gets explicit but that does seems to threaten a deep critique: the exclusion of other-regarding preferences from models. Both empathy and status play a huge role in the actual economic and policy choices I observe, but both seems to be excluded from the models.

I have never been able to figure out if this is a formal requirement -- the models wouldn't work if utility functions could be other-regarding -- or if it is just a consensus on what is "appropriate". Certainly there's no basis for saying that other regarding utility functions are "irrational", the typical economists' condemnation.

I'd be interested in your thoughts about this, and pointers to where I could find more analysis if you have any.

marcel said...

In re jed's comment about "other regarding preferences"...

IIRC, in Barro's original argument that "Government bonds are not wealth" (& therefore that deficits cannot possibly stimulate the economy) his economy consisted of immortal individuals. Later, in response to criticisms about this assumption, he argued that it carried through so long as people were sufficiently concerned about their heirs/offspring.

Ken Houghton said...

"I suppose an imaginative defender of the economic status quo could squeeze all this into a utility function, but there's really no suggestion that any of them ever does it."

It doesn't require much of an imagination (as in, I can do it in my sleep). Plutarch m\a\k\e\s\ earns X quid per hour (or X' = 2-3X quid, on a "working hour" basis). Cost of a servant is some fraction of X'. Servant performed deeds (preparing food, cleaning clothes, packing suitcases, transporting children, tending to pets, etc.) that would take Plutarch Y hours.

So long as servant pay LQ X*Y (and especially LQ X'*Y), it's a gain without even considering Utility. Since you hire servants to do jobs you don't want to do, the Utility is, by definition, higher than the direct cost.

The rest is math, but the function is fairly simple, especially assuming a rather low marginal value to the Plutarch of the extra dollars that may be spent.

Ken Houghton said...

Note that the above sketch-of-a-model can also be used to justify greater taxation of Plutarch to fund other opportunities for the Servant Class.

Behavioral Economics isn't so much new as it is a return to recognizing that Utility functions are not the same thing as money. In that, it falls into Brad DeLong's "we used to know this, but somehow forgot it" memory hole, which probably dates more from Marshall than Keynes in this context.