Storytelling is central to the human experience. It sets us apart from other animals to almost the same degree as language itself.
As stories are generated and retold, we develop a kind of grammar. These days, we call the units of that grammar tropes. I have a trope in mind that I wanted to begin with, but for once TV tropes appears to have failed me. There’s one that’s in the ballpark of what I’m going for, but not exactly there. But I’m betting you’ll find this familiar.
Imagine a father who has very particular expectations for their son. Beyond expectations, he have been excited by the prospect of his son taking over the family business, or becoming a doctor or lawyer, or starting a family, ever since he was born. The father has invested an enormous amount of emotional energy into this vision. The son wants to go to college, or wants to be an actor, or doesn’t want to have kids, or is gay. When he confronts his father about it, it is a tremendous blow. His father is completely devastated to lose this story of his son’s life that he had held onto so tightly. But the father pulls himself together, and gives his blessing, even if it isn’t needed. Even if the son is still dependent on the father materially, the father respects his son’s autonomy too much to try and strong-arm him into the path he wanted.
The son goes on to pursue his chosen path, and the father never once gives him grief about it again. But he also never entirely recovers from the disappointment. Perhaps it is only a lingering sadness, perhaps it becomes a more acute depression as the years go on. But he genuinely cares about and respects his son, and never makes him feel as though this depression is his son’s fault. Perhaps he skillfully conceals it; perhaps the son lives in a distant city so the visits are few enough that not much skill is required. But he takes pride in the life that his son has, even if he still can’t help letting the glimmering dream of what could have been weigh on him.
A Story of a Different Kind
Now, let’s tell that again in the language of economics.
The father had strong preferences when it came to how his son was to live. His son’s life choices thus constituted an externality on him, positive or negative. When given the opportunity to attempt to credibly threaten to impose costs should his son deviate from his preferred path, the father revealed through his action that he more highly valued his preference for being respectful than his preference for the specific life plan he had in mind for his son. This choice entailed certain costs but it gave him the most value out of his available options, as it must have if he made the choice voluntarily.
Has rather a different feel to it, doesn’t it?
At my request, Mark Lutter offered a few critical comments on Deirdre McCloskey’s latest paper. I’m not going to get into the comments on economic growth; for one thing, I’m not all that qualified to. For another, McCloskey hasn’t really made her positive case there yet. But I want to address his last three points, especially the last one:
McCloskey is arguing that economics should embrace speech, stories, shame, and the Sacred. I agree. Economists should also take culture more seriously, take beliefs and morality more seriously, and rely less on complex mathematics. However, economists can do all that just fine within the existing framework.
Related is his sixth point that “she argues that things like identity and morality cannot be captured by neo-classical economics, but gives little reason as to why.” I would say that “cannot” is probably the wrong word. You can capture anything within any framework, if you desire to—but beyond a certain point it often means assuming the can opener.
What McCloskey means when she makes statements about “the immense literature on ethics since 2000 BCE” or “the exact and gigantic literature about ideas, rhetoric, ideology, ceremonies, metaphors, stories, and the like since the Greeks or the Talmudists or the Sanskrit grammarians” she is advocating learning from the humanities. She is saying that there has been a conversation about human nature and culture and ideas for thousands of years, and economists would do well to familiarize themselves with it. If they’re going to dismiss it, they ought to dismiss it from a place of knowledge rather than because it is the path of least resistance.
I think the central point of debate here is what should be integrated into what. Should the sacred be integrated into “the existing framework” in economics, or should the existing framework be integrated into something bigger, older, and richer? I think you know my answer, and McCloskey’s.
The story I started out with is based on insights drawn from a storytelling tradition that I have been immersed in since practically before I spoke my first word. You tell me: do you want to reduce that story to the version that can be accommodated by the existing framework in economics? Or do you want to use the insights of economics without giving up on what is at work in the older tradition?
The Conversation of Social Science
“Cross-discipline” is a phrase used to describe the collaboration across the traditional boundaries between academic schools, but usually still within social science. It’s the talk among economists, sociologists, and psychologists, to name a few prominent fields that come to mind.
It’s this conversation that I thought of when I read Mark’s seventh point:
Seventh, and this applies to McCloskey more broadly than just this paper, what basis does she have for abandoning central economic assumptions. For ideas to matter either preferences are not constant (what she seems to be arguing given her jabs at de gustibus) or rational expectations is false. You cannot have all constant preferences, rational expectations, and ideas mattering. Given the importance of constant preferences and rational expectations the burden of proof is on McCloskey to change methodological assumptions. This burden of proof is especially difficult to reach in complex problems, and she fails to meet it.
Setting to the side whether McCloskey provided enough evidence, it seems odd to say that the burden is on those who are challenging assumptions just because those assumptions are important. Especially since constant preferences is one of the most notorious assumptions of economics outside of the field. To quote Daniel Kahneman:
To a psychologist, it is self-evident that people are neither fully rational nor completely selfish , and that their tastes are anything but stable. Our two disciplines seemed to be studying different species, which the behavioral economist Richard Thaler later dubbed Econs and Humans.
Kahneman and Thaler are one side of a big conversation that started in the 70s between psychologists and economists, the impact of which is still being felt in the latter field today. Psychologists like Kahneman can point to experimental evidence indicating that people’s preferences are not stable.
Economists, especially the institutional and Austrian variety, argue that taking people outside of institutional and cultural contexts into the highly specific environment of (usually) a college lab can only yield limited insights. Moreover, they point out how microeconomics makes the best predictions in specific domains, most concretely in auctions or in finance. And those predictions rest on the assumption of stable preferences, among others.
The categorical nature of the debate as I have witnessed it can grow tiring. Personally, I am persuaded by the “of course preferences aren’t stable” line of argument; I find it hard to believe that the changes I’ve witnessed in people in my own life are merely anecdotal. On the other hand, preferences must be stable to some degree; while not completely unchanging, nothing would get done if they were just constantly cycling.
So my question is: to what degree are preferences stable. Or more methodologically significant: what degree of stability is required to explain the empirical phenomena that line up with economic theory? I’m sure there’s a literature on this, but I confess to not having read it. Perhaps Mark or a reader can point me in the right direction.
More Human Than H(u) = α + βM + γA + δN + ε
But the most important disagreement is right there in Mark’s sixth point:
A simple explanation of identity and morality is they serve to signal in group status. People want to trade with people who have a shared set of expectations about what constitutes fair trade. More importantly, they want to live with people with a shared understanding of permissible violence. Because the most convincing person is one who believes what they are saying, identity and morality are a central part of humanity.
This is the exact sort of thinking that McCloskey is going after.
A relevant passage from her paper:
I get the price theory: price and property, the variables of prudence, price, profit, the Profane as I have called them, move people. But the point here is that they are also moved by the S variables of speech, stories, shame, the Sacred, and by the use of the monopoly of violence by the state, the legal rules of the game and the dance in the courts of law, the L variables. Most behavior, B, is explained by P and S and L, together:
B = α + βP + γS + δL + ε
Signaling, avoiding violence, setting terms of trade; these are P variables or possible P and L variables. McCloskey doesn’t deny them. But if Mark thinks he’s “embracing” S variables “within the existing framework”, he’s wrong. He’s simply reduced them to P (and possibly also L) variables.
This can perhaps be understood by reference to an earlier Sweet Talk conversation on the subject of honor and honoring. Sam, ever the economist, pointed out that honorable behavior is often socially desirable. As a result, we confer honors upon people who have proven themselves to be honorable; we give them medals in public, we announce their names on a list, sometimes we even erect monuments. This serves to subsidize the positive externalities to honorable behavior.
I agreed, but quickly added that there is such a thing as honor. Honor is not simply about producing social value—not that Sam every claimed as much, mind you! No, honor is about doing the right thing, even if you are not honored for it, even if it results in a material or emotional loss. And the conversation, reaching back before the Greek tragedians and up to the present from thinkers such as Rosalind Hursthouse, is full of people arguing that you should do the right thing even when it is in some way spiritually or morally deforming. If the only options in front of you are all terrible ones, you still must do what a good person ought to do, given those options.
Rather than whether or not S variables can be integrated into economics, the real debate is whether they exist at all. McCloskey’s claim, which I believe, is that attempts to translate S variables the way Mark did is the same as writing them off entirely for P variables. In an otherwise marvelous paper, Vlad Tarko errs in seeming to think that McCloskey herself makes a symmetrical mistake by assuming that there are only S variables, or that they are the only ones that matter. In fact, The Bourgeois Virtues is simply about making the case that there are S variables at all, in the face of a discipline that effectively rejects it.
Tarko takes an approach that I think McCloskey would approve of, speaking of “incentive-invariant” ideas and culture. It reminded me of this section of her paper:
The equation is not wishy-washy or unprincipled or unscientific. The S and L variables are the conditions under which the P variables work, and the P variables modify the effects of the S and L variables. Of course. For example, the conservative argument that laws serve as education would connect L causally to S, by a separate equation. Or again, when the price the Hudson Bay Company offered Indians in Canada for beaver pelts was high enough, the beaver population was depleted, in line with P-logic. But S-logic was crucial, too, making the P-logic relevant. As Ann Carlos and Frank Lewis explain, “Indian custom regarding the right to hunt for food and other aspects of their `Good Samaritan’ principle mitigated against the emergence of strong trespass laws and property rights in fur-bearing animals; conflict in the areas around the Hudson Bay hinterland contributed to an environment that was not conducive to secure tenure, and attitudes towards generosity and even a belief in reincarnation may have played a role” in running against better P-logic rules that would have preserved the beaver stock.
What this is all getting at is that there are true, internal goods as well as external ones. Commitment to particular internal goods both face external constraints, and have implications for the shape of some of those constraints. S variables influence P variables and are influenced by them in turn.
The traditional agrarian way of life has been largely washed away by the tide of the Great Enrichment in the countries where it has advanced the furthest. But the Amish have largely preserved it in their communities. They have done this in part through a commitment to shared values; S variables. They also have a very unique way of governing their communities, and are highly committed to enforcement through practices such as shunning; L variables. They have also had to buy up farmland in order to maintain their way of life; as that strategy has been exhausted they’ve had to allow a larger and larger fraction to work off the farm and even open businesses; P variables.
McCloskey’s equation is, of course, just a useful metaphor. As David Weinberger paraphrased:
As Umberto Eco says, there are many ways to carve a cow but none of them include a segment that features a snout connectd to the tail.
McCloskey’s three variables are a useful way of carving the cow, as is “the existing framework” in economics. But none should stand on their own, and (to stretch this metaphor a bit further than its usefulness) all end up discarding large segments of the original animal.
The best approach to understanding the human animal is to take in the whole conversation, not just economics and not just social science. For McCloskey as well as Michael Oakeshott, the voice of poetry, one of the oldest voices, deserves a place. Personally, I stand with them.
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