Tuesday, November 29, 2011

The Problem with Pop Economics, Paul Seabright Edition

Maybe you’re in a hurry, so here is the problem in its general form: most of the reading public, even most of the fairly well-educated reading public, have little exposure to mainstream economic reasoning.  If they ever took an econ course, they did not come away with a durable understanding of opportunity costs, markets as cost-benefit algorithms and coordinating devices, market failure, etc.  This means there’s always an audience for a book that packages these rather standard ideas in a clever, unexpected or cool way.  Unfortunately, underneath the ribbons and shiny paper, it’s the same old same old.

That’s my reaction to Paul Seabright’s The Company of Strangers.  The book came highly recommended to me, and since I’m working on a paper that touches on the theory of cooperation, I was looking forward to it.  Cooperation from an evolutionary and behavioral perspective is Seabright’s thing, and there is some catchy writing about it.  The bulk of the book, however, is essentially a rehash of mainstream econ which hardly adds anything to the standard textbook story.

What sealed the deal for me was the chapter on water.  Here’s an opportunity to explore the fuzzy boundaries of economic reasoning: problems of complexity and the resilience of natural systems, the contributions and limits of markets, deontological versus utilitarian approaches to social justice, and so on.  To do it, you would need two things, a strong background in the science and history of water systems management and a flexible, open-minded approach to economic assumptions and methods.  Both, alas, are lacking.

Seabright’s only historical reference is Wittfogel, which suggests he is unaware of the flourishing modern literature on the political ecology of water.  Where to start?  If you’re in the US, read Cadillac Desert; if you’re in Europe, check out The Conquest of Nature.  (You will learn that Frederick the Great was a true “oriental despot”; aside from warfare, the Prussian state’s main obsession was transforming the hydrology of the north German and Slavic swamplands.)  This matters, because water and political power have been intimately related through history, and power is not an afterthought.

Even more crucially, though, Seabright shows no sign of having studied hydrology itself.  He does not discuss aquifers and the messy patterns of groundwater withdrawal and recharge.  He doesn’t consider the problems posed by the variability of water supplies or the issues connected to river channeling and floodplains.  There is no mention of the ecological functions of surface water aside from their use in human enterprises like agriculture.  The man has written a whole chapter on water without doing any real research into it.

The result is that disjunctures between economic theory and aqueous reality are never recognized, much less pursued.  Water management, for instance is about both supply and demand, often in the same activities.  You might be able to analyze important management questions using the tools of cost-benefit analysis, but standard supply and demand analysis is useless.  (Go back again to the key management decisions described by Reisner.)  This doesn’t mean that prices can’t help distribute resources rationally, just that they are more pertinent to what might be called retail rather than wholesale matters.  And property rights can’t possibly be fashioned to encapsulate the interactions embodied in groundwater management.  And ecosystem services?  The point is not that economics is “wrong” in any absolute sense, just that economists must be humble: their tools can make only a modest contribution to better water policy, and, if they don’t understand them, they will end up doing more harm than good.

As for the issue of water and human rights, let me quote the passage that sums up Seabright’s opposition to guaranteeing a basic water supply to all people, rich and poor:
The great merit of charging a price for water is that we no longer need to argue who deserves it more: if people are poor they may deserve our help, but if water can be priced to reflect its scarcity relative to other goods, we no longer need to argue the case for helping them separately when we consider food, housing, water, clothes, and all the other aspects of their lives.  Proper pricing strengthens rather than weakens the case for helping the poor.  (Emphasis in the original.)
What strikes me most about this statement is its moral obtuseness, verging on narcissism.  The problem for the poor turns out to be the ease with which Seabright can make an argument for helping them.  Specifying rights in kind takes more time and effort and is therefore inferior to just giving people money and letting them spend it themselves.  No doubt this is true in some cases, but there is a reason decent societies specify entitlements to specific, essential goods like health care, education, legal representation and basic infrastructural services—like water.  The idea that there are primary goods to which all people should have a right, distinct from goods in general, is widespread and has received plenty of support from philosophers and political theorists.  What is lamentable in this passage is not that Seabright disagrees, but that he is so immersed in shallow Econ 101 doctrine that he is unaware that there is an alternative point of view.

Just as disturbing is his displacement of the needs and interests of the poor by the interest of the non-poor in having convenient arguments for providing support.  What matters, of course, is not how strongly the case for generosity can be made, but what sort of lives poor people are able to live.  In fact, there is a double meaning to his final sentence.  If water is priced out of reach of the poor, there is all the more reason to give more money to them.  That does not mean that they will get this money; more likely than not they won’t, and therefore pricing water is bad for them.

In arguing against Seabright, my point is not that people should never be charged a price for using water.  Quite the contrary: like most environmentalists, I see a lot of benefit in doing this, especially in contexts where water is not a primary good.  But I also know there are other factors to consider, and that, in any case, prices are simply tools to align individual and social incentives.  How could it not be society’s interest that poor people have access to enough water for drinking and sanitation?

In the end, the problem with most pop economics is not that it is pop, but that it peddles a simplistic view of the place of economics in the larger intellectual and moral enterprise.  General readers, even if they aren’t yet in a position to recognize the difference, deserve an economics that is thoughtful and probing.

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