WatchI never understood why many economists didn't want to talk about moral forces or ethics and their importance in economic modeling. Now I get it, having read this David Brooks piece in the NY Times.
http://www.nytimes.com/2011/05/17/opinion/17brooks.html?source=patrick.net
They wanted to preserve their ideal model that people only act in their self-interest and morals are all about cooperating and getting the group to perform better. I doubt most of ethics and morals and cooperation is genetically based like Brooks suggests here. I think most of it is learned, through example and from peers and role models and cultural norms. But until economics addresses ethics it will truly be the dismal science. And what drives someone to be moral is a lot more complex than it excites the pleasure centers of their brain.
How do you feel after you sell a used car you know has transmission problems to an unsuspecting buyer for a big price? Enormous pleasure or enormous guilt and remorse? These are not solely genetic influences at work, they reflect your life view. Either life is a jungle and you just took someone before they or someone else could take you, or, you believe we are all human, we all face problems in our life and whatever we can do to ease another's suffering and pain is good, not good for you, just good.
Wall Street traders have always fit in the first category, trying to dress up their bad investments to unload them on unsuspecting customers. What I call a zero sum business short of the liquidity they provide which is way overrated relative to their pay. When I worked on Wall Street, there were some investment bankers on the other side of the business who tried to structure deals as middlemen where both principal parties came out happier. That was John Weinberg's definition of a successful deal.
In addition to investment banks getting bigger, more leveraged, more publicly owned, one of the big differences over the years is that the traders took over. You might ask how such a zero sum game as trading creates profits for all the firms involved, you only need to realize that all their investing customers and clients; mutual funds, pension funds, insurance companies, even probably hedge funds in total, all under perform a broad market index on average.
This is my definition of good economic transactions versus bad transactions, whether they provide additional productivity to society. Too many things we are engaged in today, from flipping houses, to shopping at the mall, to day trading, to trying to impress our neighbors, to over-indulgence, to hoarding, to ripping off customers, to watching TV to chatting on the cell phone, to surfing the net are not productive in my sense of the word. Any temporary feelings of pleasure for oneself will eventually evaporate into the hollowness and emptiness the activity provides for one's fellow man (and woman).
I realize that such an ascetic view is a direct threat to our current level of consumption and GDP, but it need not be a threat to our overall happiness or to our sense of having led fulfilling lives.
John R. Talbott is a best selling author who predicted the dot.com collapse, the housing crash and the Great Recession. His new book is entitled, "How I Predicted the Global Economic Crisis*: The Most Amazing Book You'll Never Read". You can read more about the new book and order it at www.stopthelying.com or at Amazon.com.
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John Talbott says
This is a fascinating area of research. It is difficult, if not impossible, to completely disentangle genetic, environmental, and gene-by-environment interactions for most complex human traits.
John Talbott says
Ah...but that is very tough to do. What, really, is right and wrong... from a cultural perspective or evolutionary one?
John Talbott says
Bear in mind that evolutionary pressures and biological responses can be much more complex (resultant from many levels of inter- and intraorganismal organization) than popular, simplified models suggest. Consider this study from 2008:
Political Views May Be Genetically Influenced, Twin Study Shows
http://www.sciencedaily.com/releases/2008/02/080206091437.htm
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thunderlips11 says
Sure, but just because a model is not exact does not mean it is not useful for understanding the 'real world'. Models are simplifications of complex systems, and cannot be expected to capture every detail. It just means that one should not equate models with reality, or expect to get meaningful results when incorrect models are applied to real situations and processes.
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thunderlips11 says
I think we're essentially saying the same thing here, but I'd argue that 'humans are rational all of the time' is an more of an oversimplifying assumption. Although this oversimplifying assumption seems to be reductionist to the point of foolishness, there might be some applications where modeling human behavior as purely rational might be useful. Say, for instance, as a control or extreme for an actual, irrational system one would be interested in studying.
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thunderlips11 says
Interesting examples. I think this highlights how folks, particularly economists, can and will misapply models to make their case, leading to spurious results/conclusions that support their arguments rather than producing meaningful results.
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John Talbott says
America seems to want to have it both ways. We scoff at "morals," and then scream to high heaven when someone takes advantage of us in a business transaction. There was a time in this country when, in describing a person, the adage "he's a God fearing man" was a supreme compliment on a person's character. Why? Because it was understood that if a person "fears God," he or she won't have a "moral" struggle as to whether or not they should "cheat" someone. They will know that even when no one else sees, God does.
Take particular note that I purposely did not mention anything about "religion." Religious people can often fool others, along with themselves. They can't fool the One that sees and hears everything. America is in a deep financial crisis. It is highly questionable as to whether or not we can survive much longer if we continue along our current path. The French historian Tocqueville was correct when he observed: "The secret to America's greatness is its goodness. When America ceases to be good, it will cease to be great." We cannot assume to demand morality in others when we ourselves are not living according to that high standard.
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terriDeaner says
Someone can always justify their actions as "correct" and right and wrong can be defined however u want from both cultural and evolution perspective. That is right now the most clearly defined moral standards come from religious authorities. (not to say non-religious people aren't moral, just that they don't have a clearly defined standard)
For economics to be done like a real science it either needs to teach morals like religion, and find a way to force them OR it needs to acknowledge that there is no moral standard only a legal one, something that is missing right now.
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ethics is a grey area.
economics can for now be based on the fact that humans are motivated by self preservation and greed.
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RayAmerica says
The way my mother used to say it was, "he's a good person". It's the same thing without the need to 'fear'. Being a good person means being moral and ethical, no matter whether someone is watching, or not.
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shrekgrinch says
I can't speak to what most economists or anthropologists believe, but I definitely agree with you on this position. Greed is a strong driver (and good predictor) for behavior at many levels of organization. But EXACTLY how self-interest manifests itself through complex systems, and the responses it causes, is difficult to accurately assess in my experience.
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pkowen says
Very true. And I believe that many of the founding fathers, if they could see us now, would think it good, if we could have less influence on government from Christian fundamentalist extremists, and more secularism rather than less.
I'm not sure that I fully understand how morality get's integrated into the economics, but I can see it's role in economic decisions. That is weighing potential short term negative economic consequences against long term economic and moral consequences.
Also, I have heard that integrating ideas about psychology and emotion in to economics is a rapidly growing area of study.
http://en.wikipedia.org/wiki/Behavioral_economics
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To a shrink like me the component that has always seemed to be missing from Economics is any consideration of human psychology. Karl Marx considered the psyche only as far as alienation, but beyond that he failed to appreciate that humans certainly seem to need a sense of ownership in order to feel good about their productivity. Our own supply-siders really seem to believe that people make rational choices, even though oodles of highly interesting brain research has shown this to be false: for the most part, the left brain just makes up verbal BS to explain what the right brain just decided in its own mysterious intuitive manner.
So perhaps another way to improve economics is to consider not just what is right and wrong, but what is healthy and unhealthy in terms of psychological needs. As I watched the real estate bubble inflating several years ago, and watched the price of nice middle class things like education and health care keep rising for the sake of corporate profits, I kept thinking of this image of a tall jungle tree being eaten by ravenous termites, until the day when the tree just collapsed and the termite colony just went to hell.
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drjohndi says
Quite an apt metaphor.
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pkowen says
Quite real too.
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If a physicist has a model which predicts a certain type of behavior in the real world, and that behavior does not occur, the physicist will conclude "the model is wrong".
If an economist has a model which predicts a certain type of behavior in the real world, and that behavior does not occur, the economist will conclude "the world is wrong".
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I'm more comfortable with the idea that modern economics is just a con job, a basic effort in thought control.
We've got Mankiw both writing the textbooks and serving as ideological cover to the Bushites 2003-2005.
I've posted this link dozens of times here but I think it's a necessary read.
http://homepage.ntlworld.com/janusg/coe/cofe00.htm
I respect the Austrians a bit since they have a more ideological commitment and are willing to remain hermetically sealed in their own arguments and definitions.