The dismal state of economics.

Shawn

Economics can only be called a science with the fundamental underlying feature of game theory, explaining it.

I studied economics for two years at college and dropped out for various reasons. I'll just jump right into it. Game theory is a field concerned with how decisions should be made given constraints. The dominant theory governing the workings of the individual is called, rational-self-interest. In rational self-interest one predicates the need for goods or products on the needs of the individual, which have consistently been proven to be insatiable. Its kind of a joke amongst economists that had people been satisfied with anything they buy, consumption would come to an abrupt slow-down. To actually do this though is quite evil in terms of morality; I mean, to turn wants into dissatisfied states. Jesus thought there were higher values that the profit motive; but, not much has changed human nature in such regards. People continue and will continue to want things and continue the manufacturing of goods.

Now, not to make this thread too shallow I want to point out that because cooperation has been so vital to the survival of the human species. Cooperative strategies in game theory usually arise around or because-of the workings of contracts of the law. However, because the law has been for a while concerned with the rational self-interest of not individuals; but, cooperative strategies and rational actors abiding in every legal agreement with rational self-interest, then what can one say about this? Has the complete subversion of the needs of consumers been accomplished? I'm no Marxist; but, one has to really think about how your needs are being subverted by the calculus of rational self-interest by those who profit the most from making or changing laws the most. Actual individuals don't have the time or resources to make or change laws, special interest groups do, as well as the rich, funding them.

Proceeding, why is cooperation important? From the birth of humanity to this point in day, we have cooperated in groups of individuals to overcome and support ourselves with consensus about how to behave. Even though it may take us many more years to understand game theory in terms of how throughout our evolution we have behaved in relationships which have promoted our survival, then what greater need could there possibly be than the understanding of how cooperation is instilled in relations? Because cooperation is actually based on social contract theory, then one can infer that the law is the highest arbiter of cooperation or its violation in a contract. As an American, from what history can tell us, deterrence and rational self-interest has been hailed as the norm of social contract theory. In Europe, the situation looks a lot different. Europe's existence is actually predicated on the nature of cooperation between countries forming the European Union. Had I studied economics again, or if I return to college to do so, it would definitely not be the dismal aspect of economics in the US; but, of the fundamental economics of the European Union, and with that a detailed analysis if their aspect of cooperative game theory is leading to better results. Just because Gross Domestic Product can look higher in the US, the EU is doing more (and compounding more) with their lower Gross Domestic Product. It is fundamental in any cooperative strategy that the pooling of resources leads to more efficient use of those very resources, with advances in technology being equal. People don't see this aspect of GDP.

I want to say more; but, I will recap on why economics is in a dismal state. The current Overton window in the US and Europe has been hijacked by conservativism proselytizing their enamor with capitalism. I mean, Europe has to actually beat a dead horse when confronted with an American about how they aren't socialists; but, social democrats. Its really sad with what happened with Brexit. The more parties in a relationship, the easier the goal is to gain from less rather than spending more for the same amount. Anyway, I believe that cooperation leads to better results, and with the bloated concern with rational self-interest and egotism and deterrence, we are living in a fearful and less efficient state than possible. How to overcome it is something I hope the reader might mention or analyze with regards to the OP.

Comments and thoughts welcome.

jgill

"the Dismal Science"

Count Timothy von Icarus

I wish I had students this interested when I was still teaching economics.

I hate to recommend Hegel, because even the relevant work here, The Philosophy of Right (his most accessible), is not at all an easy read. So, I'll just throw out a book I like on the application of Hegel to the 20th century, Axel Honneth's Freedom's Right. I recommend it because it addresses just these issues. Hegel was a big early fan/adopter of Adam Smith, but you could also argue that he was a proto-Keynesian who saw how the state might need intervene to counter recessionary forces and long-term unemployment caused by sectoral shift.

PR is mostly about ethics and morality, but it covers the economy in the section on civil society. For Hegel, social institutions (marriage, guilds/unions, markets, the justice system, churches, etc.) objectify morality for their society and ultimately serve to maximize freedom (in the long run, through a process akin to natural-selection). They also shape our identities and, through this, help us both to be free, and, crucially, to not want to use our freedom to take away others' freedom.

For example, people are more willing to embrace social welfare programs and wealth redistribution if they feel like they share a common identity with the primary beneficiaries of such policies. This is why high levels of migration have proven challenging in the West and have undermined support for the welfare state. People often see migrants from the developing world as "others;" they do not feel like they share an identity. Research bears out Hegel's intuition here. (This is not a judgement on the appropriateness of such identification, just what appears to be true.)

Hegel would say that the state, working with and through other institutions, ideally works to resolve this sort of issue by building a common identity so that people want to cooperate and maximize each other's well-being, freedom, and flourishing. Basically, changes in identity serve to change people's social welfare function such that members of a society prefer what is better for others (and we could even argue that, at the limit, this might match what people would advocate for if behind Rawls' veil of ignorance).

But Hegel also has a notion of freedom that hews much closer to the ancient and medieval view of freedom, so how this looks is a little different then one might expect (IMHO this is actually a good thing).

Shawn

↪Count Timothy von Icarus

Yes, well the very premise, which when I read about dialectics caused me to instantly want to read-about Hegel made me think about the issue of 'truth-formation' in terms of science.

My natural inference from discovering significant truth in Hegel was regarding the nature of causality. I posted hereabouts some thoughts about the nature of causality and its significance to the field of law, science, and philosophy. I am not that interested in the socio-economic aspect of Hegel. I view it as an appeal to civil democracy, where or which has been attempted in the US, (as usual), first in the 1950's.

Thanks for commenting. I am also interested in your take on the notion of conservativism, as seen in the US. I am quite tired of seeing US conservatives dominating headlines in terms of their proselytizing of being first to this or that in terms of economics. If you really think about it, once you divorce the notion of being more rational for believing in theories or doctrines, which naturally arise out of human rationality, then you kind-of deflate the whole hot air balloon.

Anyway, thanks and hoping for your response.

Gnomon

Economics can only be called a science with the fundamental underlying feature of game theory, explaining it. . . . . why economics is in a dismal state — Shawn

My economics text in college was The New World of Economics by Mckenzie & Tullock. They didn't define Economics explicitly in terms of Game Theory, but it was based on the "new work" in the 1960-70s, including Public Choice Theory.

My marginal note in the book was : "When the numbers (values) are removed from the mathematically derived diagrams, what is left is a pure logic diagram {e.g. Normal or Bell curve} showing abstract relationships. From this we can derive general principles which can be applied to specific cases and the numbers plugged back in."

Ironically --- considering the state of 2024 American politics --- the authors concluded, in the chapter on presidential elections, that "In a two-party system, the intelligent politician attempts to find the middle of the distribution". But, in the years since the book was written, politics and economics seems to have strayed from that rationale of moderation, toward more extreme positions.

Today, Liberals & Conservatives don't pander to middling moderates, but to true believers in those polar opposite worldviews. This has pushed both politics, and economics in general, toward "take no prisoners" & "winner take all" policies. One side will invest in "dirty" but doable Fracking, to the exclusion of "clean" power, while the other will push technologies that are not ready for prime time. Fortunately, the US has enough inertia & momentum to do both, despite the divided politics.

Economics was originally called the "dismal science" because of the no-win conclusions of Malthusian bottom-line production predictions. But today, the gloomy outlook may be more due to the top-down political pressures, which may overwork the goose-that-lays-the-golden-eggs, or strangle her with regulations. :sad:

The Dismal Science :
In a series of papers, Martin Weitzman has proposed a Dismal Theorem. The general idea is that, under limited conditions concerning the structure of uncertainty and preferences, society has an indeﬁnitely large expected loss from high-consequence, low-probability events.
https://cowles.yale.edu/node/144793

DISMAL BELL CURVE
depositphotos_60749819-stock-illustration-sad-mouth-expression.jpg

depositphotos_60749819-stock-illustration-sad-mouth-expression.jpg

Vera Mont

The dominant theory governing the workings of the individual is called, rational-self-interest. — Shawn

Can rational self-interest account for religious zealotry, patriotism or racism?
If you separate the economic arrangements of a society from its world-view, social structure and moral foundations, you end up with the fragment of a picture and no understanding.

ssu

↪Shawn

In the 19th Century economics had a far better name for itself: Political Economy. This name actually showed clearly one fundamental aspect of the social science: it cannot hide from being part of politics however scientifically objective it wants to be.

Yet it isn't game theory that economics has fallen into, it's mathematization. The extensive use of mathematical models to basically carve out a niche from economic discourse that in the end is quite political. Mathematical models simply get the annoying commentators off your back, who would know something about the actual economy. Game theory is only part of microeconomics and only loosely connected to macroeconomics. This creates a narrow field in what economics studies: it's easy to create models about free market or a monopoly, far more harder to do a mathematical model about oligopolies. Yet in truth the global economy evolves around an oligopolical system with 20 or so large companies basically dominating any field and then having small local competitors.

Perhaps a personal anecdote explains where this mathematization has left economics:

I was majoring in economics in the 1990's and decided to make my thesis about something totally unknown yet interesting: speculative bubbles. I thought they were important. My professor (who later went to be work on the board of the central bank here) tried to advise me to take a less difficult thing. Yet I remember the first review on my thesis done by an assistant of the department, a brilliant math guy. He just didn't find any reason in my study. Speculative bubbles according to him didn't exist. Perhaps during the Tulip bubble in the 17th Century oddities like that happened, but surely in the present global financial markets anything like speculative bubbles couldn't exist. The assistant was adamant in his views, even if my professor had to say that "these are things we still don't know about". This was in the 1990's before the IT-bubble and the great recession. But the assistant was good in math!

My "error" later was then that I took a course done by two economic historians, who explained the banking crisis the country had gone through in a totally different way. There were actual real people making actual (disastrous) decisions. It cleared my view that I made the strangest most damning career ending choice of going from economics major to an economic history major. Later a girl I didn't know stopped and asked "are you the guy that changed your major from economics to economic history?" When I said yes, she just shook her head.

In short, there's a lot to criticize economics about. My point is the use of mathematics, however I think that economics gets a bad wrap many times for the wrong reasons. First of all, one should notice that usually any school of economics gets something right while other schools of thought can get other things right. It's very naive to think that one school is right and the other wrong. And many times some economists are taken out of their context. We easily forget that the society Adam Smith lived in had still quite a lot of mercantilism and actual feudalism going around. And then economists can also change their minds. Notice how for example MMT (modern monetary theory) have changed their talking points after our serious encounter with inflation in the past few years.

Gnomon

Anyway, I believe that cooperation leads to better results, and with the bloated concern with rational self-interest and egotism and deterrence, we are living in a fearful and less efficient state than possible. — Shawn

Is that statement of belief a reaction to the sad state of American politics, in which top-down competitive Capitalism is winning the "game" against bottom-up Cooperative Socialism? The 18th century revolution against Monarchy allowed a few decades of Republican rule by the common people. But now it seems that the republic itself is being ruled by egotistical Oligarchs --- with their trickle-down economics --- and may be trending back towards a Monarchy, with one Oligarch to rule them all. The few decades of cooperative democracy seems to be a mere blip on the age-old historical chart of world economy, no? :smile:

First Law of Economics :
“The rich get richer and the poor get poorer” is a well-known aphorism that describes the tendency of the wealthy to accumulate more wealth and economic success over time, while the poor fall behind. It can also be used to describe the widening gap in income between the rich and the poor.
___Google AI overview

Shawn

Is that statement of belief a reaction to the sad state of American politics, in which top-down competitive Capitalism is winning the "game" against bottom-up Cooperative Socialism? — Gnomon

No, I think this is mistaken. I believe we are living in an age of syndicalism. You can see it with the banking sector, pharmaceutical industry, and insurance companies, alongside with their push for laws protecting their interests with special-interest groups and lobbying in congress. I actually believe this is a natural tendency of competitive markets being forced on oligopolistic rational actors. As rationality increases through iterated game-theoretic strategies, then a desire to dominate the market landscape forces companies to cooperate and form syndicalist tendencies.

Would you agree with this?

* The lynchpin of this is that a capitalist market can only maintain growth through competition. Yet, to increase profits instead of constant decreases in prices through competition, these rational actors form a desire to syndicalize their operations or even cooperate to form oligopolies, which then later could be seen as a syndicalist environment for such companies.

The dismal state of economics.

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