THINKING ABOUT THE BEST WAY TO DO ECONOMICS.

Arnold Kling gets off an intriguing bon mot.  "Economics ought to be a branch of what sociology ought to be."  Sociology, he argues, got into an epistemically closed morass.

Actually-existing sociology fell into a tar pit of Marxism some time ago, and it cannot get out. Marxist sociology looks at society in terms of power relations. There is a powerful class and there are exploited classes. The whole point of Marxist sociology is to expose and try to overcome these power relations.

What sociology ought to be is a more nuanced study of societies. Human beings do not just play a zero-sum power game. They play many different types of games, some of which are positive sum, in that many people end up better off.

Humans have many cultural tools, and these are evolving. There is much to study in how we relate to one another, and this series of essays presents some of the interesting issues. Issues like how we often cooperate but sometimes defect, how we organize to keep peace and to engage in war, how our competitive instincts sometimes are in a positive-sum context, sometimes in a zero-sum context, and sometimes in a negative-sum context.

There well might be working sociologists who reject that characterization, and who have research projects structured in other ways, and I would be delighted to hear of such.  It's his discussion of the direction economics has taken that motivates what follows.

Actually-existing economics is still mostly following in the footsteps of Paul Samuelson. He was part of the non-Communist left that rose to prominence in American intellectual circles in between the end of World War II and the divisions that arose during the Vietnam War.

Samuelson thought that economics was an exercise in applied mathematical optimization subject to constraints. Households solve optimization problems in order to maximize utility. Firms solve optimization problems in order to maximize profits. And government comes in as a sort of deus ex machina to optimize overall economic well-being by correcting market failures, taming the business cycle with Keynesian fiscal policy, and improving the distribution of income.

That is, a lot of economics works in what I refer to as the vulgar Welfare Economics Paradigm, in which the precise nature of the inefficiency as the modeller writes it down is perceived by that Omniscient Planner, who can issue precisely the regulation or levy precisely the tax that corrects the inefficiency.  Somehow, it's impossible for other actors in the economy to see the opportunity.  There are any number of ways in which the economist can model that opportunity; or to suggest that the Omniscient Planner might well be a rational individualist who gets things wrong in a predictable way.

Public Choice theory tried to get away from this model of government as an omniscient social welfare optimizer. Instead, it looked at government policies as the result of optimizing behavior on the part of constituent groups and government officials. The constituent groups want “rents,” meaning wealth that can be obtained from favorable government policies. Officials want to remain in power and accrue wealth and status therefrom.

My short version of Public Choice theory is that government intervention in markets usually takes the form of “subsidize demand, restrict supply.” In health care, education, and housing, heavy intervention serves to raise prices and spending. This is certainly good for people who make a living in those sectors.

The sparring in the journals over whether the Welfare Economics Paradigm or the Public Choice paradigm or some institutional approach or extensions of price theory better makes sense of the anomalies is also good for people who make a living by writing in academic economics, or about academic economics.  But does that teach anything to people who don't pursue an academic career?  Mr Kling suggests not:  "A useful way to think about what economics ought to be is to contemplate what you would want a first-year student to unlearn."  His list skews to liberal bromides and quasi-Marxist beliefs, and yet, the questions he asks are good ones, and practitioners who help develop young skulls full of mush along the lines of inquiry he proposes, or, better, to contemplate the strengths and weaknesses of those lines, might have more success than practitioners who focus on the formulas, figures, and terminology.