Animal spirits in public policy

In the Summer 2009 issue of the Independent Review, Arnold Kling reviews George A. Akerlof and Robert J. Shiller’s new book Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Reading his review, one wonders how it is still possible for a serious scholar to make a case for more government intervention by simply documenting all the ways in which actual human behavior differs from the (strong) rationality postulates of classical economics. As Arnold Kling points out, and this must be getting quite tiresome, why assume that these same “animal spirits” do not inform and shape public policy as well? It is not hard to imagine a book that uses politics and government policies as illustrations of irrationality, conformity, and unfair decision making. As a matter of fact, current government responses to the financial crisis should provide a wealth of examples for numerous volumes about “politicians in panic.”

What might be more illuminating from a scholarly perspective is to investigate how different incentives and institutional environments produce lesser and greater diversions from the postulates of rational choice. A focused contribution to investigating these topics has been made by the economist Bryan Caplan, culminating in his excellent, and courageous, book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies.

Of course, purists will rightly argue that the case of Akerlof and Shiller is dead on arrival because no prescriptive statements can be derived from their detailed descriptions of irrational behavior without accepting the authors’ own outlook, in their case expressed in the metaphor of society as a family in which the government behaves as the parents. The use of this metaphor sheds an interesting light on how some modern liberals view society as an extended family.

Macroeconomics in politics

Steve Chapman writes:

If the economy improves and unemployment drops, Obama can take credit. If it fails to improve and unemployment rises, though, he can say he averted an even worse showing. Republicans will take the opposite tack — attributing any improvement to the natural resilience of the economy and blaming the administration if things get worse. And neither side will really know who’s right.

A scientifically trained politician (or journalist) often has good reasons to simply say, “I do not know.” But in politics, or especially in politics, such statements are considered a sign of weakness, and therefore, political suicide. To be a successful politician you need to signal strength, not epistemological sophistication. To a lesser extent this applies to (partisan) journalists who write about macroeconomic matters as well. If Paul Krugman would just confine himself to sketching a number of different scenarios without taking sides, many people would find his columns boring and would look for ammunition to engage in political debate elsewhere. The addiction to politics is so strong that we are prepared to throw everything we have been taught about valid reasoning and how science operates out of the window.

Related reading: Looking at the world through politically-colored glasses

On economic forecasting: A positive-sum game against nature

Hans Reichenbach on evolution

Hans Reichenbach’s The Rise of Scientific Philosophy is among the most accessible and illuminating statements of logical empiricism. Although the book can be read as an introduction to philosophy, the central message of the work is that most of what constitutes philosophy is either (outdated) pre-scientific speculation or incoherent reasoning.

One of the most powerful chapters in the book is  about evolution. Reichenbach starts by contrasting the inorganic world, which obeys the laws of physics, with the organic world, which is goal directed. But then he goes on to show that the semblance of design and purpose can be accounted for by an evolutionary explanation, and that all biological phenomena can be reduced to physical phenomena. We do not need two separate sciences to account for non-living and living phenomena and can have a unified science about matter. Anticipating synthetic biology, Reichenbach suggests that future science should be able to create life through purposeful manipulation of inorganic matter.  Then Reichenbach moves from the evolution of the microworld to the evolution of the universe and reviews how contemporary findings in physics and astronomy affect questions about the past and the future of the universe.

Throughout his discussion of the relationship of science and philosophy, Reichenbach presents a number of distinct logical positivist positions:

It has become a favorite argument of antiscientific philosophies that explanation must stop somewhere, that there remain unanswerable questions. But the questions so referred to are constructed by a misuse of words. Words meaningful in one combination may be meaningless in another. Could there be a father who never had a child? Everyone would ridicule a philosopher who regarded this question as a serious problem. The question of the cause of the first event, or of the cause of the universe as a whole, is not of a better type. The word “cause” denotes a relation between two things and is inapplicable if only one thing is concerned. The universe as a whole has no cause, since, by definition, there is no thing outside of it that could be its cause. Questions of this type are empty verbalisms rather than philosophical arguments.

At the end of the chapter, Reichenbach criticizes the widespread view that there are other means of establishing knowledge which can answer questions that science cannot:

The elimination of meaningless questions from philosophy is difficult because there exists a certain type of mentality that aspires to find unanswerable questions. The desire to prove that science is of a limited power, that its ultimate foundations depend on faith rather than on knowledge, is explainable in terms of psychology and education, but finds no support in logic. There are scientists who are proud of when their lectures on evolution conclude with a so-called proof that there remain questions unanswerable for the scientist. The testimony of such men is often invoked as evidence for the insufficiency of a scientific philosophy. Yet it proves merely that scientific training does not always equip the scientist with a backbone to withstand the appeal of a philosophy that calls for submission to faith. He who searches for truth must not appease his urge by giving himself up to the narcotic of belief. Science is its own master and recognizes no authority beyond its confines.

This passage raises the important question of whether the position of logical empiricism is self-applicable. The same issue has been encountered by critical rationalists. One “solution” to this challenge is to make critical rationalism coherent by holding all positions open to criticism, including critical rationalism itself. This approach, called “pancritical rationalism” or “comprehensive critical rationalism,” has been proposed by the philosopher William Warren Bartley in his book  The Retreat to Commitment. Bartley’s solution has been criticized for producing logical paradoxes and its vacuous nature. Hans Reichenbach response was to develop a distinct probabilistic account of knowledge to avoid some of the remaining “rationalist” tendencies in contemporary empiricism.

Logical positivism found itself in the peculiar situation of struggling with its own internal consistency while at the same time seeing many of its basic tenets reflected in contemporary scientific practice.  One of Hans Reichenbach’s projects was to develop a scientific account of philosophy to resolve this situation.

Political classification and economic reductionism

At Taki’s Magazine E. Christian Kopf writes:

As conservatives and right-wingers like Oswald Spengler, Julius Evola, Whittaker Chambers and many others have pointed out for over a century, free marketeers (19th century liberals or modern libertarians) differ from Marxists and democratic socialists (20th century liberals) only superficially, while sharing fundamental traits that range from a commitment to economic reductionism (what Albert Jay Nock and Wilhelm Röpke called “economism”) to a pervasive obsession with globalism. Gutzman is right about himself and his fellow libertarians.  They are left-wingers and do not differ in fundamentals from other left-wingers.

There are number of problems with this statement.  First of all, what constitutes a “superficial” or “fundamental” trait is arbitrary. For any two schools of political thought one can find similarities that can be designated as fundamental and differences that can be designated as superficial. For example, one could just as well argue that the policy differences between liberals and traditionalists are superficial and their shared tendency to believe in the existence of non-material justifications for political authority (“human rights”, “religion”) are fundamental.  From this perspective, the real dichotomy is between positivist and superstitious political thought.

Secondly, “economic reductionism” is not a normative political view but an approach to study human interaction. Economic reductionism, and its practical application “rational choice,” may yield new knowledge or not, but it cannot be dismissed for political reasons. Despite its limitations, the economic rationality postulate has a number of advantages over its competitors. As the self-designated “conservative anarchist” Anthony de Jasay writes in his piece ‘Rational Choice in Conflict’:

…the “economic approach” really reduces to the consistent application of a workmanlike rationality postulate. It is an approach that recommends itself, not because it can conquer all, but because without the postulate, deductive reasoning about human behavior is not possible; instead “anything goes,” any retrospective explanation is as good as any other, and no discipline can be imposed to curb prattle and mumbo-jumbo. In fact…reference to rationality is required even for the concept of irrational action to have meaning. The achievement of the postulate is not so much in the new knowledge it is producing in fields to which it is a relative newcomer–notably sociology, political theory, law, and perhaps history too, though the last is a moot point–but in blowing away the vari-colored fogbanks of historicism, institutionalism, behaviorism, structuralism, functionalism, dialectical materialism, and the rest.

It may be true that the differences between classical and modern liberalism are trivial but, as argued here, this perspective does not take into account that the case for libertarianism can be argued on completely different Hobbesian, “mechanistic” grounds.  Would this kind of liberalism still be “fundamentally” the same as Lockean rights-based liberalism, or would this present a major departure from the liberal tradition?  Similarly, if traditionalist/ reactionary conclusions are reached using a strictly “materialist” outlook, would this be considered a “right wing” view?

As should be evident from these thought experiments, there is some merit to the view that there are serious limitations to the left-right dichotomy. At the end of the day, the only thing that matters is whether political views are consistent with empirical observation and/or reflect coherent reasoning. No amount of (re)classification of political views  or “essentialist” searching for the “true” meaning of a word can substitute for this.