It is often, correctly I think, noted that economists are relatively bad at communicating results from economic research to the general public. A related failure is economists tend to be relatively bad at squashing ridiculous criticism of economics. Economics, biology, and climatology are all disciplines which tend to attract lots of craptastic criticism, and for similar reasons. One might think that biologists in particular might tread carefully when attacking other disciplines, given how much nonsense is written by creationists and their fellow travellers. Alas, some of the most egregiously poorly-aimed attacks on economics come from biologists, and not just David Suzuki.
Late last year David Sloan Wilson offered a 13-part series on ScienceBlogs attacking economics and economists. This series is an excellent example of vitriolic and spectacularly wrong criticism of economics that economists, as far as I can tell, didn’t bother to seriously counter. Although these posts are a year old, a vast chasm of time in the blogsphere, this is a response to Wilson (hey, I didn’t have a blog when this post would have been timely).
Wilson starts off by explaining that economics can’t merely be modified to incorporate more evolutionary reasoning, there is a “yawning gap” between evolution and economics, any attempts to bridge that gap will be “resisted” by economists, and we must therefore ditch the last 200 years of economics completely. This is a strange argument, given economic theory is not fundamentally in conflict with evolution, biological or otherwise. There is no “blank slate” assumption in economics, there is lots of mainstream economic theory which is explicitly evolutionary, and the remainder is not in conflict with evolution. What is this “yawning gap”?
In part II Wilson illustrates the yawning gap with this example of the failure of economics:
Consider the following proposition: I’ll give you 1 million dollars for sure or a 50:50 chance at 2.1 million dollars. What’s your choice? If you’re like me, you’ll choose the certain 1 million. Yet, that is a violation of core economic theory that became known as the “Allais Paradox” based on the pioneering work of Maurice Allais in the 1950’s, who received the Nobel Prize in Economics in 1988.
Suppose an economist wrote a lengthy diatribe arguing biology is a paradigm that needs to be ditched in its entirety, then proceeded to demonstrate he fundamentally misunderstands basic issues in biology any second-year undergraduate could explain in detail, and in so doing demonstrates he’s never read any actual biology at all. How would biologists respond?
The Allais Paradox shows that people sometimes exhibit behaviors which cannot be reconciled with expected utility theory, but expected utility theory can certainly explain why someone would take a million dollars over a 50/50 chance of two million or nothing. This is very basic stuff, and one cannot understand even highly simplified stories told to beginning undergraduates without understanding expecting utility, much less the advanced literature. It would not be reaching to assert that anyone who doesn’t understand there’s a difference between maximizing expected value and maximizing expected utility cannot have even a superficial understanding of modern economic theory. Wilson also believes rational choice implies self-interested behavior, when in fact it is common to capture various types of altruism and other other-regarding behaviors with rational choice models.
Wilson goes on to explain that economists dogmatically insist on expected value maximization because acknowledging that variance in returns (as he puts it) might matter is “a move toward realism that would definitely have consequences for economic predictions,” so economists refuse to do so. The 13 posts are shot through with this tone: economists deliberately suppress results, ignore evidence, and tailor theories to support what Wilson imagines our political ideologies demand. Wilson follows the ignoble tradition of many other anti-economists in writing as if he believes that contemporary economic journals are full of nothing but reprints of Arrow and Debreau (1954), or maybe Marshall (1890). What has actually happened is economic theory has heavily incorporated dynamic, stochastic, informational, other-regarding, and game theoretic aspects, all of which add to “realism” in important senses. Asserting economists reject anything that makes a model more realistic is demonstrably false, and asserting economists reject anything which doesn’t support laissez faire is a monumental error that can be quickly cured by actually opening any Economics 101 textbook.
Wilson then proceeds to run this train, already off the rails, off a cliff, because this is where political ideology starts to get involved in his posts, and it quickly becomes clear that Wilson thinks mainstream economics = laissez faire politics. This is a common belief among anti-economists. The entire sequence of posts is suddenly understandable: Wilson isn’t talking science, he’s talking politics. Many anti-economists even think “neoclassical” is just another term for “free market policies,” and, indeed, Wilson uses “laissez faire economics” and “mainstream economics” interchangeably.
The goal of public policy, at least idealistically, is to benefit the common good. Way back in the 1700’s, Adam Smith made the observation that economies have a way of running themselves without their members having the common good in mind. Their narrow concerns are guided, as if by an invisible hand, to regulate the economy at a larger scale. Ever since, the metaphor of the invisible hand has represented the idea that unrestrained self-interest automatically enhances the common good, which is the foundation of laissez-faire economic philosophy.
Let’s first dispense with the idea that laissez faire policy is a common political ideology among economists: according to Stern and Klein (2006), only 3% of American (!) economists are strong free market supporters. That’s comparable to the proportion of climatologists who don’t believe in anthropogenic global warming, and comparable to the proportion of biologists who reject evolutionary origins. Having said that, it is also important to emphasize that the political beliefs of economists are irrelevant to actual economic research, particularly outside of macroeconomics. I don’t even know the political ideologies of most of my coauthors—it just doesn’t come up. Finally, even the 3% of economists who do argue for laissez faire policies do not do so because they believe the market outcome is perfect, which is obviously wrong, and no one, certainly including Adam Smith, has ever argued otherwise. Rather, the supporters of laissez faire would argue that government intervention would make the outcome even worse.
Getting back to the science: there is no economic theory which says that “unrestrained self-interest automatically enhances the common good.” I recall the very first economic model I ever encountered, in a “survey of economics for non-majors” type 100-level course, was the Prisoners’ Dilemna, a trivially simple game which demonstrates that individually optimal actions are not necessarily socially optimal. Economic models often predict circumstances under which we could expect a market outcome to be good or bad; precisely none of them predict that the market outcome is necessarily optimal.
Following some posts on Elinor Ostrom, Wilson then offers: Part XI: Market Fundamentalism, which doesn’t even mention economics or a single economist. The post is a diatribe against Ayn Rand. Apparently Wilson would be shocked to learn that Ayn Rand was not an economist. I seem to recall that she hated mainstream economics, much like David Sloan Wilson. Absolutely nothing in economic theory is based on Ayn Rand’s writing. Part XI: Market Fundamentalism has absolutely nothing whatsoever to do with economics. It doesn’t even pretend to have anything to do with economics, except the implication that economists must be “market fundamentalists.” This post is the equivalent of an Intelligent Design advocate forgetting himself and going off on a diatribe about how biologists are all atheists rather than pretending to talk about science.
Wilson closes by promising that he and his coauthors are going to save the day from nasty economists. I genuinely hope that something interesting comes out of their research, as I actually agree with Wilson that economics (like many other disciplines) would benefit from drawing more heavily on evolutionary reasoning.