27.6.19

ECONOMICS IS COUNTERINTUITIVE.

One approach to the teaching of economics is to encourage students to look beyond the immediate consequences of actions to their follow-on effects, which, to a less careful viewer, might be unanticipated, or, in the worst case, unintended.  Peter Boettke elaborates.
The central theoretical puzzle of economics is undesigned order, and thus our theoretical quest begins with us trying to explain outcomes that are not implied in the intentions of the participants. If the outcomes were simply a matter of the intentions of the actors, then our theoretical task would be trivial and there would be no central mystery to unravel. Good people do good things, bad people do bad things — you want to improve society, reward good people, penalize bad people. It would be that simple, and since we can in this world infer intentions from outcomes a simple observation of the world would do enough to sort out the good people from the bad people. But that is precisely what economics and social science cannot do.
Standing alone, "undesigned order" might mean the decentralization results of competitive market, but that could leave the student, or the social reformer, finding reason to become the wise expert where the markets are not competitive, or there is coordination failure. That's not as easy as it looks.
Theoretical social science is required precisely because intentions do not equal results, and thus we can have both “Private vices translate into public virtues” and “The path to hell is paved with good intentions.” Sorting out the reasons why some situations tend one or the other way is complicated and requires detailed analysis of both the pure logic of choice and the institutional analysis of situational logic, and provides the subject matter at the core theory of our discipline.

Second, this detailed analysis requires long chains of reasoning and this means that many are either unwilling or incapable of following the argument to its end. It is easier to cut the story off too short. This, in essence, is what Bastiat and Hazlitt tried to get their readers to understand with their “what is seen, and what is unseen” or “direct and indirect effects” mantra. Don’t ever cut the story off before it’s complete, they told their readers, and then you can render judgement of the situation positive as well as negative. The theory of unintended consequences, they stressed, can be used to explain both the socially desirable outcomes of transforming those private vices into public virtues, and socially undesirable outcomes where the most sincere and well-intentioned efforts lead us down a path to hell. But, it must be admitted that to achieve this a thinker must be willing to be disciplined by the rules of critical reasoning, and attentive to the institutional context within which individuals are interacting.
That's part of the story, although theoretical social science (mathematical politics, to the critic?) can also provide long chains of reasoning that might give comfort to the man of system.
Third, precisely because economics is counterintuitive as first blush, and because it requires discipline to reason through, various vested interests can cloud the public discourse to agitate for special privileges. Of course, economists understand this problem and have since at least the time of Adam Smith. Political processes tend to concentrate benefits on the well-organized and well-informed, and disperse the costs on the unorganized and ill-informed. This is why despite centuries of economic thinking that has agitated against special privileges of any type, vested interests have been able to garner protections from government against the rigors of competitive pressures both foreign and domestic. But, consumers benefit greatly from access to open markets both foreign and domestic. Economic theory really does speak unequivocally on this down through the ages, but vested interests confuse the discourse.
It takes more than internally consistent reasoning, though, as ultimately the condition of a social order that relies on market trading, compared with competing sorts of social orders, matters.
Let’s review the basics: we live in a world of scarcity; as a result individuals face trade-offs, they want to negotiate those trade-offs as efficaciously as they can, and in order to do that they require some aids to the human mind, which within a market economy are provided by property rights (incentives), prices (knowledge), and profit and loss (feedback for learning). If we are in domains outside of a market economy, individuals will still face scarcity, and thus still have the task of negotiating trade-offs, but they will have to do so without recourse to property rights, prices, and profit and loss.
To a first approximation, there are no theoretical models of human interaction that dispense with property rights and money incentives, and the examples of such interaction that appear do work without those rights and incentives don't scale.

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