A Veritable Epidemic of Mathiness

Paul Romer’s eruption against mathiness has been quite a spectacle.  Here you have an iconic name in modern economic theory throwing a fit in public, naming names (some of them also iconic) and denouncing his adversaries as enemies of scientific and ethical norms.  It’s a bit over the top, a bit overdue and a bit underconsidered.

I want to focus on the underconsidered part.  I was alerted to this aspect of Romer’s original paper by his sideswipes at Joan Robinson and the UK faction of the Cambridge capital controversy.  Now, it happens that I take a middle position on this dispute: I think they were both in some sense wrong.  The British Cantabrigians, along with their Italian comrades, were arguing from a model whose equilibrium assumption (equal rates of profit in all processes) is meaningless, in a mathiness sense, in an intertemporal context.  (If you think Lucas rational expectations is a stretch, Sraffa rational expectations is even crazier.)   But the MITers were also defending an aggregation of physical capital and its equivalence to a sum of financial capital that was also shown to be mathy—see here and here.  Romer’s attack on Robinson was signaling that a double standard was at work.

In fact, economics is a veritable empire of mathiness.  I agree with Romer that the use of algebraic entities that have no meaningful correspondence to real world objects and deliberate obfuscation through the use of words with multiple meanings are sins against science, but that is just the beginning.  Here are two more, one theoretical, the other empirical:

1. Equilibrium with mechanisms.  A large part of economic theory takes the form of equilibrium conditions and the comparative statics thereof.  Even theories that describe events transpiring through time usually take the form of traversals: routes mapped from an initial equilibrium state to its successor.  What usually goes missing are the mechanisms, the processes, in principle observable in the real world, by which actors revise their behavior and produce new collective outcomes.  Without such mechanisms the concept of equilibrium is meaningless: you can’t get there from here.  One symptom of this malady is the inability to distinguish between equilibrium conditions and identities—equal signs and identity signs.  The difference is that causal processes apply to the first but not the second, so if your theoretical world lacks processes altogether you won’t know what that extra little line, ≡ vs =, is all about.

2. Misuse of null hypothesis significance testing.  Suppose you have a theory that A causes B.  You can’t observe this directly (or you haven’t bothered to try), but you can infer that, if this is true, a relationship between two measurable variables, an x and a y, will occur.  So you do a study on x and y, run a significance test and conclude you can reject the null hypothesis that x and y are unrelated.  And, if you are like most empirical economists, you will then announce that you have “tested” your theory about A and B and have found that the evidence is “consistent with” it.  But wait!  There are other theories that would also generate expectations on x and y and they may be inconsistent with yours.  If the x-y business actually lends more support to one of these other theories than to yours, the evidence is saying the opposite of what you claim it says.  The reality is that rejecting a null hypothesis says nothing at all about which of the many possible explanations for the non-null is correct.  A conscientious empiricist would put all the potential theories on the table and consider in a systematic manner how the new evidence alters the relative credence we should give them.  The reason utterly implausible theories live on, decade after decade, in economics is that low-bar implications—implications suggested by many theories of greater or lesser plausibility—survive significance testing and are then proclaimed “consistent with” the particular theory to which the researcher is attached.  This too is a kind of mathiness: lots of fancy econometric technique wrapped around a dishonest and thoroughly unscientific core.

So I have mixed feelings about the Romer meltdown.  I definitely understand where he’s coming from and how frustrating it is to see ideologues deploying math to obfuscate rather than clarify.  But the problem is much wider and deeper than he seems to realize.

Denial, Then and Now: "Is the End of the World at Hand?" "Is the Economic System Self-Adjusting?"

"I would like to say why I think that the Doomsday Models are bad science and therefore bad guides to public policy," -- Robert M. Solow, 1973

1973 was 42 years ago and 42 just happens to be the answer "to Life, the Universe and Everything," according to Deep Thought in Douglas Adams's Hitchhiker's Guide to the Galaxy. When challenged, the computer replied that he had "checked it very thoroughly and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you’ve never actually known what the question is."

John Peet used that Deep Thought dialogue to frame his contribution to a 1997 forum, "Georgescu-Roegen versus Solow/Stiglitz." In his 1973 article, "Is the End of the World at Hand?" Solow framed his response to what he called the Doomsday Models with two questions, "You can ask: Is growth desirable? Or you can ask: Is growth possible?" "But..." as the title to Peet's commentary asked, "what is the real question?"

How about just plain old "What is growth?"? In his 1975 article, "Energy and Economic Myths," Georgescu-Roegen recalled that:

One confusion against which Joseph Schumpeter insistently admonished economists, is that between growth and development. There is growth when only the production per capita of current types of commodities increases, which naturally implies a growing depletion of equally accessible resources.

That is to say, if we are talking about growth, strictly speaking, then the depletion of resources is inherent in the process by definition. Solow's exposition of why he thought  The Limits to Growth was bad science relied on blurring the distinction between qualitative development and quantitative growth and counting the former as an instance of the latter. This sort of legerdemain is, of course, standard in so-called growth economics.

Momentarily I will exhume and dissect the entrails of Solow's 1973 rebuttal to Limits but first a word from Geoff Tily, senior economist with the Trade Union Congress in the U.K. In a review of Diane Coyle's GDP: A Brief but Affectionate History, Tily argued that

...the development of national income accounting was as a means to an end, not as an end in its own right. The accounts were developed to support policy: to resolve the unemployment crisis of the Great Depression and to aid the deployment of national resources to their fullest possible extent for the conduct of the Second World War. The value of GDP, or rather at that stage ‘national income’, was of only slight interest.

Moreover, it is, I think, fundamental to recognise that these theoretical and practical initiatives were aimed at the level of activity – at the increased and then full employment of resources and the full extent of national production – rather than the growth of activity. At this stage there was no notion on the part of policymakers that the level of activity might be encouraged to grow in any systematic or uniform way from year to year; the intention was achieving one-off level shifts.

In summary, full employment and the effective deployment of national resources were the ends sought and national income accounting was seen as a means to those ends. "Growth" of national income had nothing to do with it. Eventually, growth became the goal -- even to the extent that full employment has come to be viewed as a dispensable side effect of growth that needs to be constrained to avoid accelerating inflation.

This targeting and exaltation of GDP growth was not something that Keynes had proposed. Pointing out that growth wasn't a "regular economic concept" before the war, Roy Harrod, one of the pioneers of growth theory, didn't "see how Keynes can have been expected to have systematic idea on growth; his systematic ideas related to full employment." (quoted by Tily)

So what is growth? Is it a means to the end of full employment? Is it a bait-and-switch surrogate policy objective in its own right? Is it a quantitative measurement of unmeasurable qualitative change? Those are not the questions Solow addressed in "Is the End of the World at Hand?"

The question Solow asked instead was whether the "basic assumption" made by Limits to Growth was any good. What was that basic assumption? According to Solow, the basic assumption of Limits to Growth was "that there are no built-in mechanisms by which approaching exhaustion tends to turn off consumption gradually and in advance." No built-in mechanisms.

Rephrased positively, Solow was arguing that there are built-in mechanisms that will turn off consumption gradually and in advance. There are built-in mechanisms. There are built-in mechanisms. That is the answer: 42.

Lord Keynes took a different view in the BBC radio address in which he asked (and answered) the question, "Is the Economic System Self-Adjusting?" Keynes's answer, in a word, was "No." Of course Keynes was talking about employment, not the consumption of natural resources.

But wait... so was Solow! The core of Solow's argument was an analogy between labor productivity and natural resource productivity:

It is a commonplace that if you calculate the annual output of any production process. large or small, and divide it by the annual employment of labor, you get a ratio that is called the productivity of labor. ...

Symmetrically, though the usage is less common, one could just as well calculate the GNP per unit of some particular natural resource and call that the productivity of coal, or GNP per pound of vanadium. ...

Why shouldn't the productivity of most natural resources rise more or less steadily through time, like the productivity of labor?

After a brief discussion of productivity gains for various minerals -- or non-gains, "GNP per barrel of oil was about the same in 1970 as in 1951" -- Solow concluded:

So there is no really no reason why we should not think of the productivity of natural resources as increasing more or less exponentially over time.

But then the overshoot and collapse are no longer the inevitable trajectory of the world system, and the typical assumption-conclusion of the Doomsday Model falls by the wayside.

But Solow was not the first to compare the productivity of labor to the productivity of coal. Stanley Jevons did it a century earlier: "It is wholly a confusion of ideas," wrote Jevons in The Coal Question, "to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth." He went on to explain:

As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.

So there you have it -- nothing to worry about, really. There is a built-in mechanism. The built-in mechanism will see to it that the economical use of natural resources will turn off consumption gradually and in advance lead to an increase in consumption. Well, er, pretend you didn't see that built-in mechanism...

Unpacking the tension between Solow, Keynes and Jevons, it would be safe to say that those "built-in mechanisms" don't always give exactly the results that would please us the most. There are feedback loops and then there are loops feeding back the feedback. The productivity of coal is connected to the productivity of labor in a way complementary to the way that full employment of labor is connected to the consumption of coal (or other natural resources). Either the built-in mechanism won't save us or, alternatively, there is no built-in mechanism. Select one from that menu.

To reprise Deep Thought's deep thought: "I think the problem, to be quite honest with you, is that you’ve never actually known what the question is."

The Party of Order in Greece

As Greece lurches dramatically to its final economic showdown, there is an uncomfortable question that needs to be asked: is there an authoritarian grouping in the country whose seizure of power would be recognized and supported by its European “partners”?

It is absolutely clear at this point that a major objective of the current European leadership is to depose Syriza.  But there is no democratic mechanism by which this can be accomplished.  Assume an economic breakdown in which Greek savings accounts are wiped out.  There will be mass discontent, but it will not be unanimous; many Greeks will see this cataclysm as a deliberate assault to humiliate and suppress them.  Without new elections, which are still far off, there will be political upheaval but not regime change.  This is where the Party of Order comes in, literally.  If there is an alliance between segments of the military and a portion of the business class, it can suspend the constitution and install a new government.  I expect that there are discussions in some circles right now about this possibility.

The first question is, who would step into this role?  The second is, is any contact between them and key decision-makers in Europe currently taking place?

My personal view is that the old-school authoritarianism of the colonels (echoed in Golden Dawn) is not the primary threat, although I know nothing of the situation on the ground.  I suspect Europe is more likely to support a liberal authoritarianism, one that gives lip service to personal freedom and enlightenment ideals.  I can imagine some figures from the previous political establishment, backed by tanks, who call for peace, normalization and new elections.

If conversations along these lines are not ongoing, European policy is incoherent.

Mathiness is Next to Growthiness

What should worry economists is the pattern, not any one of these papers. And our response. Why do we seem resigned to tolerating papers like this? What cumulative harm are they doing? -- Paul Romer

It is bracing to see the intense (dare I call it petulant?) indignation expressed by Paul Romer toward papers by McGrattan and Prescott, Lucas and Moll, and Boldrin and Levine. He goes so far as to confess "embarrassment" that his suggestions as discussant were acknowledged by McGrattan and Prescott in an earlier version of their paper. He complains of "a lemons equilibrium in the market for mathematical theory" and laments "years of being bullied by bad theory."

Economists detained after theory rumble between "Freshwater" and "Saltwater" gangs

Superficially, Romer's diatribe against mathiness may recall Nicolas Georgescu-Roegen's principled objection to unhinged "arithmomorphism." But any perceived resemblance is purely coincidental.

Georgescu-Roegen was described in a critical note as "the methodological conscience of the profession for over a decade" whose mathematical renown rendered "his closely argued objections to the domination by mathematical methods... all the more welcome." In "Methods in Economic Science" (1979), Georgescu-Roegen wrote:

"According to the temper that has prevailed for some time now in the social sciences, but especially in economics, the contributions that deserve the highest praise are those using a heavy mathematical armamentarium; the heavier and the more esoteric, the more worthy of praise. Protests against this situation have not failed to be made sufficiently often to have deserved attention. What is more, protests of this kind were made not only by "verbal" economists, such as Thorstein Veblen and Frank H. Knight, but also by some who were well familiar with the mathematical tool, for example, Alfred Marshall, Knut Wicksell, and Lord Keynes. Knight lamented that there are many members of the economic profession who are "mathematicians first and economists afterwards." The situation since Knight’s time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists. How dangerous is the infatuation with pure mathematical symbolism is proved by the fact that voices from the circle of natural scientists have also often denounced it. ...

The fundamental reason why we cannot do without dialectical concepts is that actuality, at least as seen by the human mind, continuously changes qualitatively. … 

The most we can expect from an arithmomorphic model is to depict pure growth, or rather pure quantitative variations of qualitatively different but self-identical elements. 

In a 1981 commentary on Georgescu-Roegen's paper, Salim Rashid defended economists' persistence in undialectical methods as lying "not in their failure to appreciate the importance of dialectical logic, but in the institutional structure within which they live and work." To illustrate the utility of mathiness to career survival "at any reasonably good university," Rashid offered what he described as a "somewhat exaggerated" account of the "inimitable merits of mathematics" for facilitating "the process of grinding out articles." Furthermore, he maintained,

"...it is not the good mathematical economists or econometricians who insist upon the value of mathematical methods... The best users of mathematics can always move to a related field and do their research; it is the hordes of practitioners with lesser abilities who feel it essential to insist upon the value of mathematical methods."

By this account, then, the value of excessive mathiness was that it enabled mediocre junior faculty to survive and gain promotion in "any reasonably good university." In his reply to Rashid's commentary, Georgescu-Roegen asked, "Since publish or perish applies to all academe, why is it that economists alone can subsist by automatically grinding out empty exercises from the mathematical mechanism?" His answer was that "the American economics profession is dominated by a powerful and well-entrenched establishment determined to defend at all cost the type of economics by which virtually all its members climbed to the summit."

Romer lionizes Robert Solow and Gary Becker in contrast to Prescott, et al. In my opinion, Romer vastly overstates the cogency of Becker's contribution. As for Solow's growth theory, Georgescu-Roegen had a few things to say about that, too. In "Dynamic Models and Economic Growth" (1975), Georgescu-Roegen characterized Solow's model as one of "the most pertinent examples of the shortcomings of the mechanico-descriptive approach":

The economic literature of the last hundred years abounds in examples of this [mechanico-descriptive] category. The situation is the inevitable consequence of the mechanistic epistemology of our Neoclassical forefathers, who succeeded in convincing almost every subsequent economist that, if economics is to be a science at all, it must be set up as 'the mechanics of utility and self-interest'. We may mention, first of all, the picture of the economic process as  a self-sustained circular movement between production and consumption (indifferently, between consumption and production) which adorns the most respected manuals. Perfect reversibility is present everywhere. It constitutes the main pillar of the theory of market equilibrium. According to the ultra-familiar picture, if demand shifts from D to D ', the market moves from E to E'; and should, later, the factor responsible for the shift disappear, the market would return to E, in a manner perfectly similar to that of a mechanical pendulum which can swing back and forth with equal ease. True, no economist has even suggested that a process of production may be reversed so as to convert pieces of furniture back into trees. However, the classical theory of business cycles -- as this traditional name indicates -- rests on the idea that the entire economic process may come back to any previous position by following the same path in reverse. We should also note that the entire theory of production is still based on the simple formula known as the production function, which is not a satisfactory description even of the reproducible process of production, i.e., of the simplest possible arrangement. But the most pertinent examples of the shortcomings of the mechanico-descriptive approach are the standard dynamic models beginning with that of Harrod and Domar and ending with those of Solow and Leontief. ...

…no analysis which, instead of assuming away the qualitative change associated with an actual process, focuses on that very change can attain its aim through an arithmomorphic model alone. The reason is that there is an irreducible incompatibility between qualitative change, i.e., between essential novelty, and arithmomorphic structures. It is this last point that shatters the generally accepted validity of the standard dynamic models as adequate representations of actual processes.  

…mere growth -- i.e., change confined to quantity -- cannot exist in actuality continuously. The same is true even for the so-called stationary state.  Briefly, continuous existence in a finite environment necessarily requires qualitative change. And it is this qualitative change that accounts for the irreversibility of the economic process, of any actual process for that matter.   

Irreversibility and reversibility are the very properties that distinguish actual processes (which all are evolutionary in some sense or another) from those governed only by the laws of mechanics. We may therefore define a purely dynamic system as a system capable of returning to any of its previous positions. Certainly, all dynamic economic systems fulfil this condition: the fundamental notion behind dynamic economics is that investing and disinvesting, growth and contraction, are absolutely symmetrical operations.

Note that Georgescu-Roegen didn't exclude the "stationary state" from his critique. In a footnote, he singled out the fallacy of the Limits to Growth prescription: "Incidentally, this conclusion exposes the fallacy of those topical programmes which see the ecological salvation of mankind in a stationary state -- as the Club of Rome, for instance, does. See Donella Meadows et al." In "Energy and Economic Myths" (1975), however, Georgescu-Roegen noted the irony that Limits to Growth caused such consternation among economists -- "criticism of the report has come mainly from economists" (including Solow) -- apparently because it "employed analytical models of the kind used in econometrics and simulation works." What irked economists, in Georgescu-Roegen's view, was the intrusion on what they regarded as their turf:

Let us begin by recalling, first, that economists, especially during the last thirty years, have preached right and left that only mathematical models can serve the highest aims of their science. With the advent of the computer, the use of econometric models and simulation became a widespread routine. The fallacy of relying on arithmomorphic models to predict the march of history has been denounced occasionally with technical arguments. But all was in vain. Now, however, economists fault The Limits to Growth for that very sin and for seeking "an aura of scientific authority" through the use of the computer; some have gone so far as to impugn the use of mathematics. Let us observe, secondly, that aggregation has always been regarded as a mutilating yet inevitable procedure in macroeconomics, which thus greatly ignores structure. Nevertheless, economists now denounce the report for using an aggregative model. Thirdly, one common article of economic faith, known as the acceleration principle, is that output is proportional to capital stock. Yet some economists again have indicted the authors of The Limits for assuming (implicitly) that the same proportionality prevails for pollution — which is an output, too! Fourthly, the price complex has not prevented economists from developing and using models whose blueprints contain no prices explicitly — the static and dynamic Leontief models, the Harrod-Domar model, the Solow model, to cite some of the most famous ones. In spite of this, some critics (including Solow himself) have decried the value of The Limits on the sole ground that its model does not involve prices.  

The final and most important point concerns the indisputable fact that, except for some isolated voices in the last few years, economists have always suffered from growthmania. Economic systems as well as economic plans have always been evaluated only in relation to their ability to sustain a great rate of economic growth. Economic plans, without a single exception, have been aimed at the highest possible rate of economic growth. The very theory of economic development is anchored solidly in exponential growth models. But when the authors of The Limits also used the assumption of exponential growth, the chorus of economists cried "foul!" This is all the more curious since some of the same critics concomitantly maintained that technology grows exponentially. Some, while admitting at long last that economic growth cannot continue forever at the present rate, suggested, however, that it could go on at some lower rates.

As these observations from Georgescu-Roegen testify, mathiness has always been deeply implicated in growth theory from the earliest days. This analysis continues in the follow-up post, Denial, Then and Now: "Is the End of the World at Hand?" "Is the Economic System Self-Adjusting?"

Horse Race Coverage, Eurozone Finance Edition

The US press is infamous for covering domestic politics largely in terms of “who’s ahead?” rather than “whose policies are in loose conformity with reality?”  The same seems to go for its international economic coverage.

Today’s New York Times has a hit piece on Yanis Varoufakis, who it says has a “flair for inflaming the debate about his country’s economic future.”  Inflaming or informing?  Does it matter?  Does anyone at the Times bother to ask?

Anyone who is paying attention to the eurozone situation knows that the driving force pushing Greece to the wall, in the immediate term, is the European Central Bank, which has been dripfeeding the Greek financial system, intensifying capital flight and all but guaranteeing a financial collapse—the Fahrenheit 451 of central bank firefighting outfits.  Greece, of course, would have massive problems in any case, but the gun directly to its head belongs to the ECB.

Mario Draghi, the guy who would “do whatever it takes” to shore up the market for peripheral sovereign debt in the eurozone, has made an exception for Greece.  His official justifications are transparently erroneous.  Fear of suffering losses?  It’s no different for Greece than Spain, Portugal or anyone else: if the ECB firmly backstops the market with its unlimited ability to buy bonds, no default is possible.  It’s the same with any central bank that controls a currency in which the debt is denominated.

If the official reasons are wrong, what’s the real reason?  This is where Varoufakis comes in.  He says it’s because the German representatives to the ECB are holding Draghi hostage.  I don’t know whether or not this is true; I’ve seen speculation to this effect, but whether it’s the story behind the story, or even a part of it, is unclear.  Since Varoufakis has not tried to talk back his remarks, I assume he wants to spur public debate on the Bundesbank and its pressure on the ECB.  Perhaps he thinks that there is a difference between that arm of the policy apparatus and the views of Merkel and Schäuble.

In its diatribe against Varoufakis, the Times article never stops to ask, is he right about the Bundesbank and ECB?  Nor, of course, do they devote even a single word to the question of whether the ECB position on Greece is anything less than insane.

And as for the “convoluted scheme” suggested by Varoufakis, that Greece borrow from the European Stability Mechanism rather than the ECB, it’s no more convoluted than the current arrangement, and the apparent justification is political rather than economic—to reduce the direct pressure of the ECB on the day to day survival of the Greek financial system.

I’m reminded of an old saying: you point to a problem in the world and the press writes an article about your finger.

Exit, Voice and Misbehavior

Publication of Richard Thaler's Misbehaving has brought renewed attention to behavioral economics and to the "Libertarian Paternalism" advocated by Thaler and his co-author in their 2008 best-seller, NUDGE. In an earlier post, Libertarian Paternalism and the Pantomime of the Rational Actor, Sandwichman expressed deep reservations about the conceptual coherence of the LibPat argument. He compared the incongruous pastiche of rational choice and nudging to a parallel mash-up that occurred in Marxism, as criticized in the late 1940s by Harold Rosenberg.

My co-blogger, Barkley Rosser, claimed that my argument was "substantially the same" as the anti-paternalist libertarian case advanced by Mario Rizzo and Douglas Whitman. Having now read their "Little Brother Is Watching You: New Paternalism on the Slippery Slopes," I can affirm that I am "in league with" those authors' views when they write, "Our claim is not that slippery slopes are the only objection to the new paternalism." Beyond that, my main objections to LibPat are fundamentally different than Rizzo's and Whitman's. I part company with the latter authors at a point where they are still in consensus with Sunstein and Thaler.

Rizzo and Whitman state that their main problem with the libertarian paternalist framework is that "it defines freedom of choice (and libertarianism) in terms of costs of exit, without any attention to who imposes the costs and how [emphasis in original]." The go on to make it clear that they define choice as corresponding to property and personal rights and public policy as a coercive abridgement of those rights.

In other words, Rizzo and Whitman agree with Sunstein and Thaler's narrow framing of choice exclusively in terms of the cost of exit. This is essentially a marketplace definition of choice, as Albert Hirschman pointed out in Exit, Voice and Loyalty. Neither Sunstein and Thaler nor Rizzo and Whitman address the other element of choice: voice.

Turning to Hirschman's classic to borrow his definitions of exit and voice, I realized that Hirschman framed his discussion explicitly in terms of the misbehavior of economic agents. The following passage from the introduction to Exit, Voice and Loyalty proposes a much more satisfactory approach to the "misbehaving" of humans than does the technocratic framing fix of Nudge:

Under any economic, social, or political system, individuals, business firms, and organizations in general are subject to lapses from efficient, rational, law-abiding, virtuous, or otherwise functional behavior. No matter how well a society’s basic institutions are devised, failures of some actors to live up to the behavior which is expected of them are bound to occur, if only for all kinds of accidental reasons. Each society learns to live with a certain amount of such dysfunctional or misbehavior; but lest the misbehavior feed on itself and lead to general decay, society must be able to marshal from within itself forces which will make as many of the faltering actors as possible revert to the behavior required for its proper functioning. This book undertakes initially a reconnaissance of these forces as they operate in the economy; the concepts to be developed will, however, be found to be applicable not only to economic operators such as business firms, but to a wide variety of noneconomic organizations and situations. 

While moralists and political scientists have been much concerned with rescuing individuals from immoral behavior, societies from corruption, and governments from decay, economists have paid little attention to repairable lapses of economic actors. There are two reasons for this neglect. First, in economics one assumes either fully and undeviatingly rational behavior or, at the very least, an unchanging level of rationality on the part of the economic actors. Deterioration of a firm’s performance may result from an adverse shift in supply and demand conditions while the willingness and ability of the firm to maximize profits (or growth rate or whatever) are unimpaired; but it could also reflect some “loss of maximizing aptitude or energy” with supply and demand factors being unchanged. The latter interpretation would immediately raise the question how the firm’s maximizing energy can be brought back up to par. But the usual interpretation is the former one; and in that case, the reversibility of changes in objective supply and demand conditions is much more in doubt. In other words, economists have typically assumed that a firm that falls behind (or gets ahead) does so “for a good reason”; the concept — central to this book — of a random and more or less easily “repairable lapse” has been alien to their reasoning. 

The second cause of the economist’s unconcern about lapses is related to the first. In the traditional model of the competitive economy, recovery from any lapse is not really essential. As one firm loses out in the competitive struggle, its market share is taken up and its factors are hired by others, including newcomers; in the upshot, total resources may well be better allocated. With this picture in mind, the economist can afford to watch lapses of any one of his patients (such as business firms) with far greater equanimity than either the moralist who is convinced of the intrinsic worth of every one of his patients (individuals) or the political scientist whose patient (the state) is unique and irreplaceable. 

Having accounted for the economist’s unconcern we can immediately question its justification: for the image of the economy as a fully competitive system where changes in the fortunes of individual firms are exclusively caused by basic shifts of comparative advantage is surely a defective representation of the real world. In the first place, there are the well-known, large realms of monopoly, oligopoly, and monopolistic competition: deterioration in performance of firms operating in that part of the economy could result in more or less permanent pockets of inefficiency and neglect; it must obviously be viewed with an alarm approaching that of the political scientist who sees his polity’s integrity being threatened by strife, corruption, or boredom. But even where vigorous competition prevails, unconcern with the possibility of restoring temporarily laggard firms to vigor is hardly justified. Precisely in sectors where there are large numbers of firms competing with one another in similar conditions, declines in the fortunes of individual firms are just as likely to be due to random, subjective factors that are reversible or remediable as to permanent adverse shifts in cost and demand conditions. In these circumstances, mechanisms of recuperation would play a most useful role in avoiding social losses as well as human hardship. 

At this point, it will be interjected that such a mechanism of recuperation is readily available through competition itself. Is not competition supposed to keep a firm “on its toes”? And if the firm has already slipped, isn't it the experience of declining revenue and the threat of extinction through competition that will cause its managers to make a major effort to bring performance back up to where it should be? 

There can be no doubt that competition is one major mechanism of recuperation. It will here be argued, however (1) that the implications of this particular function of competition have not been adequately spelled out and (2) that a major alternative mechanism can come into play either when the competitive mechanism is unavailable or as a complement to it. 

Enter “Exit” and “Voice”

The argument to be presented starts with the firm producing saleable outputs for customers; but it will be found to be largely—and, at times, principally—applicable to organizations (such as voluntary associations, trade unions, or political parties) that provide services to their members without direct monetary counterpart. The performance of a firm or an organization is assumed to be subject to deterioration for unspecified, random causes which are neither so compelling nor so durable as to prevent a return to previous performance levels, provided managers direct their attention and energy to that task. The deterioration in performance is reflected most typically and generally, that is, for both firms and other organizations, in an absolute or comparative deterioration of the quality of the product or service provided. Management then finds out about its failings via two alternative routes: 

(1) Some customers stop buying the firm’s products or some members leave the organization: this is the exit option. As a result, revenues drop, membership declines, and management is impelled to search for ways and means to correct whatever faults have led to exit. 

(2) The firm’s customers or the organization’s members express their dissatisfaction directly to management or to some other authority to which management is sub ordinate or through general protest addressed to anyone who cares to listen: this is the voice option. As a result, management once again engages in a search for the causes and possible cures of customers’ and members’ dissatisfaction.  

KLUDGE

There once was a very wealthy man whose children loved to play with toys. One day he came home only to see that his house was on fire.

"Fire! Fire!" the man shouted, as loud as he could. But the children didn't hear and went on playing with their toys.

"I have some wonderful new toys for you!" he called. And out of the house they ran and were saved.

Can TPP Be Saved And Is It Worth It?

Of those who post here and probably most of our readers, I remain more attached to the general argument for free trade, which is the cause that the TP, now doing badly in the US Senate after the failure to stop debate on fast track authority for it.  However, as Dean Baker has been pointing out from Day One, it is unclear if it is really a free trade agreement at all.  I see three big problems with it, and one possible thing that might both improve it and help it pass.

The one that would help improve it would be add some serious assistance for laid off workers.  It may be that the GOPsters simply will not support this, but this would probably get some Dems in the Senate to change their votes, and it is the right thing to do.  I have been looking at the international data on Active Labor Management Policies, and the US simply has near zero.   We are way behind all other high income nations on this.  Those Nordic nations are very open, far more than we are, totally dependent on exports, and so very free trade, and they spend a lot on this, with Denmark spending 2.3% of its GDP on it.  Sweden used  to be tops, but they are down to 1.1%, making Denmark the "new Sweden."  OTOH, the US is barely above zero, and if anything the TTP is supposed to cut the little we have.  What is with this?  This is really a no brainer.  Help those who might lose out, and maybe it might be worth it.

Maybe.  The next big problem with it is all the secrecy.  We do  not know what is in this, and the president and its supporters have gone out of their way to keep it secret.  This is just insane.  Senators can only look at it in a sealed room with no aides.  What are they hiding?  This just makes me lose pretty much all enthusiasm I might have for this.  What were (are) they thinking.  Just plain nuts.  (BTW, I have read that Vietnam would be the big gaining country, which I have no problem with, but given all this secrecy, how is anybody supposed to know?)

Finally, there is the whole intellectual property rights part.  Again, details are missing, but most reports suggest that enforcing US intellectual property rights abroad is a very big part of this, maybe the biggest, a point Dean B. has emphasized.  But it is probably the case that we have overdone this already in the US.  We are already paying way too much for drugs, and why on earth should Disney own the rights to Winnie the Pooh nearly a century after the books were written.  We are supposed to support the imposition of this sort of rent seeking nonsense on the rest of the world too?  My enthusiasm is nowhere at all on this part, quite the opposite.  Dump this stuff.

Again, at the bottom line, given that we do not even know which industries in the US are  most likely to be hurt by all those Vietnamese imports, it would behoove the supporters to do something to minimize the damage to those who might be injurned, the laid off workers.  Put some decent support in their for those, and this thing might be worth passing, might.

Barkley Rosser

The Power of Framing and the Framing of Power

In their review of framing analysis literature, Vliegenthart and van Zoonen pointed out that "'frames' are part of a collective struggle over meaning..." thus "an individualist approach to political sense-making does not do justice to the interactive and social nature of interpreting politics." That is to say, neither the construction nor the reception of frames takes place in a vacuum..

So called libertarian paternalism ("NUDGE-ing") is oblivious to this social context of power and collective struggle over meaning. It is all about molding individual choices and meanings to better align with presumed (by the noodges?) deliberative preferences.

There is a history of framing discourse that goes back -- explicitly using the word -- at least to Gregory Bateson's "A theory of play and fantasy" (1955) and Erving Goffman's Frame Analysis: An Essay of the Organization of Experience (1974). The concept of gestalt, articulated by Wertheim in 1912, has obvious salience too, as is acknowledged by Kahneman and Tversky. Amos Tversky was married to Barbara Tversky, a cognitive psychologist who specialized in visual perception, no stranger to gestalt theory.

In a 1993 article, which has subsequently become "the standard reference in frame research," Robert Entman defined framing in the following terms:

To frame is to select some aspects of a perceived reality and make them more salient in a communicating context, in such a way as to promote a particular problem definition, causal interpretation, moral evaluation and/or treatment recommendation Framing essentially involves selection and salience. To frame is to select some aspects of a perceived reality and make them more salient in a communicating text, in such a way as to promote a particular problem definition, causal interpretation, moral evaluation, and/or treatment recommendation for the item described.

... 

Frames, then,

• define problems -- determine what a causal agent is doing with what costs and benefits, usually measured in terms of common cultural values; 
• diagnose causes -- identify the forces creating the problem; 
• make moral judgments -- evaluate causal agents and their effects; and
• suggest remedies -- offer and justify treatments for the problems and predict their likely effects.

... 

Frames highlight some bits of information about an item that is the subject of a communication, thereby elevating them in salience. The word salience itself needs to be defined: It means making :i piece of information more noticeable, meaningful, or memorable to audiences.

Vliegenthart and van Zoonen fault Entman's definition for assuming an intentionality to the framing while at the same time ignoring the contingency of a frame's power. Earlier frame studies had emphasized that frames were "the result of interactions and conflicts between collective and individual social and media actors," Here, again, is an instance of "reification":

Reifications are simultaneously an accurate portrait of existing social reality and a false consciousness, serving the existing framework of values and interests. Psychological reifications clothe existing social arrangements in terms of basic and inevitable characteristics of individual psychological functioning; this inadvertently authenticates the status quo, but now in a disguised psychological costume. What has been mediated by a sociohistorical process — the forms and contents of human consciousness and of individual psychological experience — is treated as though it were an "in-itself," a reality independent of these very origins. 

Frames do indeed define problems, diagnose causes, make moral judgments and suggest remedies but they don't do so universally or at the discretion of the policy architect. The problem with libertarian paternalism is not that Sunstein and Thaler are evil-doers or that the nudge machinery might fall into the wrong hands. The problem is that the approach subsumes collective action problems under a illusory rubric of individual preferences mediated by a sort of deliberative Maxwell's demon -- a nudgineer of human choices. Social, political or economic power is nowhere to be seen in this rather flat drama. The nudgineer --or noodge -- is a benevolent technocrat, first cousin to the Walrasian auctioneer and most likely indistinguishable in countenance (or should I go with the spell checker's suggestion, incontinence?).

Guy Standing sees "social policy, which has become directive and moralistic... driven by libertarian paternalism, or behavioural economics" as a threat to freedom:

The drift to behavioural nudging gives discretionary and arbitrary power to bureaucrats, commercial surrogates and ‘experts’ lurking behind politicians. Social policy is becoming part panopticon, with dataveillance supplementing surveillance, and part therapy, manipulating people’s minds, with cognitive behavioural therapy a favoured tool of utilitarians. 

To arrest this drift to social engineering, the Voice of those subject to the steering should be inside the institutions responsible for social policy. This means more than putting token ‘community leaders’ on boards. It must be a collective democratic voice. At present, we see the opposite, with privatisation and commercialisation of social policy. We need social policy democracy, before it is too late.

One might again paraphrase Marx to observe that "framing is collective or it is nothing."

Sandwichman Denies Fraternizing with the Ghost of Joe McCarthy

premise 1: X criticizes Y
premise 2: Z criticizes Y
conclusion: X is "in league with" Z

Let's be more specific:

Sandwichman likes Harold Rosenberg's critique of party Marxism.
Joe McCarthy was also a critic of Marxism.
Therefore Sandwichman is "in league with" McCarthyism.

By the same token, of course, anyone who objected to Sandwichman's tacit alliance with McCarthy could be accused of being "in league with" that other Joe.

It's all so complex.

Obama and Shell: Betting on Climate Policy Failure

Bill McKibben nails the main point in his op-ed in today’s New York Times: a sane response to the climate crisis will require that most existing oil, coal and gas now under the ground, stay there.  So what’s the sense in expediting more fossil fuel development projects in vulnerable environments?

But there’s a specifically economic aspect to this madness.  Shell is proposing to spend billions of dollars to bring additional arctic oil to global markets.  If there’s a spill, and happy talk from the company doesn't make that prospect any less likely, it will cost them billions more.  As a financial proposition, this makes sense only in a world that goes on, year after year, failing to act on climate change.  If the policy paralysis were to end, and if tough limits were placed on the amount of oil and other fossil fuel resources that can be extracted, the high-cost operations, like those in deep water or extreme locations like off Alaska’s north coast, would have to be abandoned and the investments in them written off.  (The same argument applies to the Alberta oil sands and the Keystone pipeline.)

In other words, Shell is betting billions that we will fry ourselves before we take effective action to limit greenhouse gases.  Obama is saying, based on our record, it looks like a good bet.  Go for it.

One of the arguments I've been trying to make is that the single most valuable thing economists can contribute to the climate debate is careful analysis of how we can reduce the interim disruption serious policy will have on our living standards.  The most obvious observation is that we will suffer less loss of wealth if we don’t sink costly investments into long term projects that will be valueless when policy finally kicks in.

Never Enough, Greek Style

So, today we read in various news outlets that Greece has made its latest debt payments necessary for continuing not to default.  But the news stories, such as that in the NY Times, give them little credit for this and instead emphasize how much deep doo doo they are in and how they must kowtow to their creditors on a variety of things that the creditors are demanding they do.  Otherwise, as has accompanied every other payment and adjustment this year, we are told doom will appear come early June or late June or when the moon is in the Seventh House or when Varoufakis takes off his shirt in public and mkes naughty remarks about other finance ministers in Europe.

So, what are these demands that the mass media reporters pass on from the European VSPs as so important that Greece must kowtow and do them Or Else?  Details are not given, but they apparently involve pension cuts and labor market "reforms."  On the former, without doubt, cutting pensions reduces budgetary layouts, thus reducing fiscal pressures in the short run (although by leading to reduced spending by pensioneers down the road, this contributes to an economy-depressing austerity down the road that may make it harder to lower that debt/GDP ratio).  The details of the labor market reforms are not reported on, but let me say here that these do not have a direct effect on the budgetary pressure, and only may have some longer run effect, although, frankly, the scholarly studies on this topic are not nearly as clearcut as those demanding these changes think they are.

Something completely not mentioned in any of these stories that I have seen is that Greece has already engaged in exactly these kinds of policies, notably in 2012 in the wake of the crisis set off by the Greek government admitting that it had been misrepresenting the size of its budget deficit for many years.  The pension cuts exceeded $4 billion, and there were changes in labor market policies.  These were followed by substantial declines in Greek GDP, leading to this round of further demands of More of the Same, Never Enough.  The argument is that Greece is paying a higher percent of its GDP as pensions than any other euro member, but without noting that what it pays per pensioneer is well below the eurozone average.

Another thing not noted in the current stories is that part of Greece's ability to make this payment was not just due to scrabbling together funds from local governments and other odd and unsustainable sources as noted in the stories, but also due to an actual (and unpredicted by the troika VSPs) increase in tax collections.  Granted, these are still not enough to get through that June/July round without some further restructurings, but that is going to go on anyway and as always.  But no credit is given, even though the Greek government, including that awful tieless Varoufakis predicted they would.  This just goes to show how right those other fin ministers were to get annoyed by all his "lecturing."

This is clearly an ongoing negotiation.  Varoufakis and Tsirpas have said that indeed they will engage in further pension cuts and labor market changes, although whatever they are proposing apparently is Not Enough for the troika gang.  Recognizing that such changes are not what they were elected to do, Tsirpas has suggested a possible referendum on all this, if it comes to it.  German Finance Minister Wolfgang Schauble, who seems to have been most annoyed by the tieless and lecturing Varoufakis, has said, fine, let the Greek people decide if they are willing to do what "is necesary."

Let us be clear.  None of this is "necessary."  It is posturing as part of a negotiation where in fact the creditor side of things will also have to bend on their demands.  If they do not, they will regret the outcome, and not admitting that, while not good game playing, is not something that Very Serious People should pretend about.

Barkley Rosser

Libertarian Paternalism and the Pantomime of the Rational Actor

Harold Rosenberg prefaced his 1949 essay, "The Pathos of the Proletariat" with a quote from Marx, "the working class is either revolutionary or it is nothing." "The hero of history," Rosenberg explained, "was to be a social class, a special kind of collective person."

But this collective person, the Proletariat, is "without human motivation, whether individual or collective." In Rosenberg's view, Marx never explained how an inert personification was supposed to transform itself into the heroic subject of history. When volume III of Capital finally got around to addressing class, the mute reply to Marx's question, "What constitutes a class?" was the epitaph, HERE THE MANUSCRIPT ENDS.

Rosenberg described Marx's conception of revolutionary subjectivity as "un-Marxian" in that it derived neither from political economy nor materialism but from dramatic formulas and imaginative metaphors:

The self-consciousness that converts the class from economic personification into historical actor is not an intellectual comprehension of class interests and relations but is part of the revolutionary act itself. The class engages itself in the drama of history by its passionate and willful poetry of the event [italics in original].

But this modern poetry can have nothing to do with the ecstatic, hallucinatory poetry of the past. The bourgeois French revolutionaries recognized their identity through a re-enactment of ancient Rome. The working class does not have the luxury of such indulgences. They are scarcely motivated to act "until the situation has been created which makes all turning back impossible." That situation constitutes a "growing mass of misery" and worsening crisis. But even that is not enough.Such misery could as easily precipitate escape into fantasy.

To sustain the revolutionary struggle, the conditions themselves must be joined by a remarkable collective act of will, a "readiness to sacrifice itself for the moment alone":

The proletariat must be prepared to die in order to exist and for nothing else. Such appears to be the impasse of truly secular (without ideologies, as well as without myths) historical creation.

The trouble is, until the revolution happens it's all just a hypothesis. And the longer the absence of evidence supporting that hypothesis endures, the more likely it is to be read as evidence against. Here is where things get messy.

Marx... refuses to regard proletarian action as an if of creative hazard. For him the revolution is an historical certainty. From this translation of the dramatic into the "scientific" arise the essential ambiguities of Marxism. ...though he thinks of the revolution as a tragedy, he does not behold its incidents as tragic, and his work lacks the pathetic tonality appropriate to its notion of the workers transforming themselves through constant risk of their lives. The rationalism of Marx's prose... wins against his beloved Shakespeare and Aeschylus. An optimism with respect to the historical drama as a whole subdues the anguish of the hero's striving against utter defeat through which the happy resolution is to be reached. Even in his description of the Commune and its executioners, the peak of his revolutionary eloquence, it is the foes of the revolution that he most vividly evokes.... For him the Commune is a single lost battle in a war that can have but one conclusion. Thus Marx himself prepares the shallow trust of Marxism in rationalistic formulas.

According to Rosenberg, the dilemma for Marxism is that it must either admit the radical contingency of a revolutionary class consciousness, "or it must reduce the situation to a given number of external elements, definable in advance, and thus become identical with what is known as 'vulgar materialism' or 'mechanical Marxism.'" There is no "happy medium" of a foreseeable autonomy."The failure of the situation to give rise to revolutionary consciousness leads Marx and Marxists to a second type of effort to guarantee the revolution: through politics and propaganda."

Politics and propaganda -- or to use more modern terminology, nudge the proletariat into actions aligned with its revealed revolutionary destiny. The comparison I am seeking to draw is with the segue from rational choice theory to behavioral economics. To paraphrase Marx, Homo economicus is either rational or it is nothing. The failure of humans to comply with the standards of rationality prescribed by rational choice theory informs policies "to motivate behaviour change among those who, on reflection, would have liked to have made different choices for themselves." 

From "Nudging, Shoving, and Budging: Behavioural Economic-Informed Policy," Adam Oliver, Public Administration, early view published online 2015:

Thaler and Sunstein use the term libertarian to modify the word paternalism in order to signify that their approach is liberty-preserving. In nudge policy, there should be no burden on those who choose their pre-existing behaviours rationally and thus wish to continue with those behaviours. Therefore, the approach does not allow regulation or bans. The approach is only paternalistic in the sense of wanting to motivate behaviour change among those who, on reflection, would have liked to have made different choices for themselves. That is, a nudge is meant to bring the instantaneous decisions of those who think that their non-reflective actions are irrational into better alignment with their deliberative preferences, and therefore relies on the assumption that deliberative preference is necessarily rational. Thus, the focus is on reducing negative internalities – the longer term harms that people impose on themselves through their own ill-considered automatic decisions.

Libertarian paternalism rules out using significant financial incentives or overt persuasion to change behaviour. The essence of the approach is that behavioural economic insights, such as those summarized above, can and should inform the design of what Thaler and Sunstein call the choice architecture, or in other words, the context or the environment, so that more people make automatic decisions that, on reflection, they would like to make and yet, due to bounds on their rationality and human error, ordinarily fail to do so. 

The concept of libertarian paternalism and its application in the form of nudges has attracted the attention of governments in a number of countries, but none more so than that of the United Kingdom, where a right-of-centre coalition government lauded the apparent promise of the approach to offer non-regulatory inexpensive demand-side solutions to some of the most profound problems in contemporary societies. ‘This new approach’, according to a 2010 government report, ‘represents an important part of the Coalition Government’s commitment to reducing regulatory burdens on business and society, and achieving its policy goals as cheaply and effectively as possible’, Soon after being appointed Prime Minister in 2010, David Cameron established the Behavioural Insights Team (BIT), colloquially known as the Nudge Unit. Whether or not this moniker is appropriate requires an assessment of whether the interventions that were advocated as nudges by the BIT comply with the original requirements of libertarian paternalism laid out by Thaler and Sunstein.

Oliver maintains the term "nudge" has become a popular generic label for "a whole spectrum of policies, some of which are informed by weak evidence bases and others of which are divorced from the original requirements of libertarian paternalism." Some of these approaches Oliver describes as "coercive paternalism" and "behavioral regulation." The parallel with Rosenberg's critique of Marxism suggests we have been here before. It wasn't pretty.

For Engels in 1893 the continuity of the revolutionary movement no longer depends upon the reflexes of a proletariat that has been forced into revolt; it is no longer subject to the intermittences of the heart and mind of the working class.

In order that the masses may understand what is to be done, long, persistent work is required, and it is just this work which we are now pursuing, and with a success which drives the enemy to despair. 

Instead of learning in action, the working class is put to school by the Party; it marches with its will in the secure custody of the leadership. Marching has indeed replaced revolutionary action, the movement which was to have been the source itself of the "alteration" of the workers.

Rosenberg referred to this substitution of party leadership for class spontaneity a "demonic displacement of the ego of the historical collectivity":

As a liberating program Marxism founders on the subjectivity of the proletariat. So soon as it declares itself, rather than their common situation, to be the inspiration of men's revolutionary unity and ardor - how else can it offer itself simultaneously to the French working class and to non-industrial French colonials? - Marxism becomes an ideology competing with others. When fascism asserted the revolutionary working class to be an invention of Marxism, it was but echoing the Marxist parties themselves. If the class as actor is a physical extension of the Party, fascism was justified in claiming that a magical contest in creating mass-egos could decide which collectivities are to exist and dominate history. Moreover, it proved that heroic pantomime, symbolism, ritual, bribes, appeals to the past, could overwhelm Marxist class consciousness. What choice was there for the workers between the fascist costume drama and a socialism that urged them to regard their own working clothes as a costume? In Germany and Italy the working class was driven off the stage of history by the defeat of the Party - in Russia it was driven off by its victory.

Similarly, as an exercise in "libertarian paternalism" behavioral economics founders on its takeover of rationality on behalf of the misbehaving humans. It reveals itself as yet another ideology competing with other ideologies. Instead of misbehaving, we will get marching in time to deliberative preferences. Instead of marching nudged by paternalistic libertarians, we will get marching led more forcefully by parties more aesthetically inclined to "heroic pantomime, symbolism, ritual, bribes, appeals to the past..."

The Long Arm of the Cold War

One thing I didn't mention earlier (but you can find in the literature) is that a great deal of rational choice and behavioral economics research was sponsored by the Defense Department. RAND Corporation, ARPA, Office of Naval Research...

You might call the military-industrial complex an "invisible hand" guiding vendors to the marketplace of methodological individualist ideas. Paid for with YOUR tax dollars -- or at least by siphoning off part of the increment in national income stimulated by funding research on rational choice. When I posted these thoughts to Economist's View, anne responded with the following column from 2011 by John McCumber:

The Failure of Rational Choice PhilosophyBy JOHN MCCUMBER
June 19, 2011 

According to Hegel, history is idea-driven. According to almost everyone else, this is foolish. What can “idea driven” even mean when measured against the passion and anguish of a place like Libya?

But Hegel had his reasons. Ideas for him are public, rather than in our heads, and serve to coordinate behavior. They are, in short, pragmatically meaningful words. To say that history is “idea driven” is to say that, like all cooperation, nation building requires a common basic vocabulary.

Rational choice philosophy promulgates a clear and compelling moral imperative: increase your wealth and power!

One prominent component of America’s basic vocabulary is ”individualism.” Our society accords unique rights and freedoms to individuals, and we are so proud of these that we recurrently seek to install them in other countries. But individualism, the desire to control one’s own life, has many variants. Tocqueville viewed it as selfishness and suspected it, while Emerson and Whitman viewed it as the moment-by-moment expression of one’s unique self and loved it. 

After World War II, a third variant gained momentum in America. It defined individualism as the making of choices so as to maximize one’s preferences. This differed from “selfish individualism” in that the preferences were not specified: they could be altruistic as well as selfish. It differed from “expressive individualism” in having general algorithms by which choices were made. These made it rational.

This form of individualism did not arise by chance. Alex Abella’s “Soldiers of Reason” (2008) and S. M. Amadae’s “Rationalizing Capitalist Democracy” (2003) trace it to the RAND Corporation, the hyperinfluential Santa Monica, Calif., think tank, where it was born in 1951 as “rational choice theory.” Rational choice theory’s mathematical account of individual choice, originally formulated in terms of voting behavior, made it a point-for-point antidote to the collectivist dialectics of Marxism; and since, in the view of many cold warriors, Marxism was philosophically ascendant worldwide, such an antidote was sorely needed. Functionaries at RAND quickly expanded the theory from a tool of social analysis into a set of universal doctrines that we may call “rational choice philosophy.” Governmental seminars and fellowships spread it to universities across the country, aided by the fact that any alternative to it would by definition be collectivist. During the early Cold War, that was not exactly a good thing to be.

The overall operation was wildly successful. Once established in universities, rational choice philosophy moved smoothly on the backs of their pupils into the “real world” of business and government (aided in the crossing, to be sure, by the novels of another Rand—Ayn). Today, governments and businesses across the globe simply assume that social reality is merely a set of individuals freely making rational choices. Wars have been and are still being fought to bring such freedom to Koreans, Vietnamese, Iraqis, Grenadians, and now Libyans, with more nations surely to come....

Great Moments in Presidential Logic (TPP Edition)

".....what I tell them is, ‘You know what? If you’re opposed to these smart, progressive trade deals, then that means you must be satisfied with the status quo.’”

Barack Obama, Portland, May 8, 2015, as quoted in the New York Times.