On 8/17/15, Mark, Seth, and Wes were joined by Boston University economics grad student and long-time PEL fan Seth Benzell to talk about two texts: “The Use of Knowledge in Society” by F.A. Hayek (1945) and On Ethics and Economics by Amartya Sen (1987).
Go listen to Seth Benzell's introduction for a straight-up summary of the two essays and how they relate.
Seth Paskin has long since wanted us to do an economics episode. He's a fan of Econtalk and like many of us, wants to understand phenomena like the housing crisis and how it's possible that the reasons for this that are given vary so widely and for the most part are predictably political. Economics as a science is supposed to be objective, yet on these very visible issues at least, there's such a partisan division that either economics (well, macro-economics, at least, as that's usually what we have in mind in these disputes: concerning the economy as a whole and not the workings of some particular price mechanism within a particular market) must itself be basically voodoo or else (as with climate change) one side of the "debate" is made up of obvious partisan hacks. Or, as has been argued to me, both sides of the visible political dialogue are partisan hacks, because all the really respectable economists are above the sort of showmanship involved in contributing to the public debate.
I got interested in this topic largely through my involvement with New Work. As recently as last winter I was helping Frithjof write the New Work FAQ, and the fact that I can't (and seemingly Frithjof can't) speak the jargon of economics means that we will not be taken seriously when covering a good chunk of what's involved in that program. So, last summer I worked my way through a couple of econ courses via iTunes U (which have so exited my head by now that I can't even easily figure out which ones, so I'll just link to this great list that I should return to), enough to feel justified in my initial opinion that libertarian objections to accomplishing anything like New Work (or otherwise intentionally interfering in the economy at all in any manner other than as buyer or seller) were more a matter of ideology than merely having one's eyes properly open to the harsh realities of economics.
It was always my plan and assumption that we would finally get around to talking about economics by going back to Adam Smith's The Wealth of Nations, having prepared the way nicely with our previous episode on Smith's ethics. This is still among our future plans.
However, Seth B. had come to my attention through helping me with (i.e., arguing with me about) the economic claims involved in New Work (which he's now written a paper on, that I have not yet read), and at some point I connected him up with Seth P., who was responsible for finally getting this on our calendar. Seth B. suggested a great swath of readings, which Seth P. culled to the current, quite breezy and manageable selection, which presents a seminal paper of Hayek's, which apparently everyone in economics reads despite their general contempt for history (they're doing a science, not the history of science!), and this short book by Sen based on some of his lectures to a partly lay audience, which avoids whatever it is about Sen's style that Wes doesn't generally like.
So, the good news is that these articles are very readable. The bad news from a philosophical perspective is that we're walking in right in the middle of a dialogue, and weren't so familiar with the positions that these fellows were arguing against. Now, this of course happens in philosophy all the time; we seldom read those contemporaries that were the targets of scorn for our favorite philosophers (e.g., have you actually read any F.H. Bradley or the other British Hegelians that Russell dumped on so much?). Still, in this case, I couldn't shake the feeling that both of these guys were arguing against straw men, though I'm sure that they of course had their real contemporaries' views in mind, and even name them on occasion.
Hayek's objection is to central economic planning. He claims (I think) that the economists of his day talk as if using theory, they can develop the most efficient, rational economic order, the best way of using all of the available resources. But realistically, one can't just sit down and plan a whole economy, figuring out what resources are in the country (much less the world) and what people need, because that's just way too much information, and even if you could store it all, you can't collect it, because people's needs are changing, and supplies more so, and every new advance in a way of doing something changes the equation re: how easy it is to produce something and/or perhaps creates a new demand.
While I have no doubt that in the 1940s, with Communism still a global force, this central planning was a real political option, Hayek properly points out this epistemological problem that makes the whole idea seem ridiculous. But note that the only option it makes seem this way is the idea of total planning of the whole economy. The concern of socialists and anyone else who wants to address poverty is with needs that are basically fixed, like hunger, like the need for an education, for fire and police service, etc. (A novel one among these claims that I think is contributed by New Work is our need for meaningful activity that I think is in most cases only possible outside of the economy, which comes down to a need for a lot of free time and a need for specific and ongoing guidance in figuring out what you really want to do with that time.)
Our libertarian fans have been waiting for us to get to Hayek after our episode last year on Robert Nozick, and I'm afraid they'll be disappointed here, in that we didn't read Hayek's The Road to Serfdom or any other work of his that really emphasizes his disdain for government intervention. (Apparently, Wes at least did read the latter, and brought it up in our conversation only to say that Hayek explicitly doesn't object to government interference in the economy to help the poor and to correct for a myriad of other market failures. I can't promise at this point that we'll ever read that book, as it seems not really a work of philosophy per se, though that's never a deal-breaker for us.)
Now, Hayek does praise the price system as (along with division of labor, another thing that New Work, in this respect following Marx, does not much cotton to) having provided a historical foundation for modern society, seeing how it serves to, in effect, communicate all this information about supplies and demands that the central planner can't get his giant visible hand on. I think one can accept that without thinking that prices adequately reflect human values, that prices are in general (much less in all cases) fair, or that the price system is a good way to control who gets what necessities of life. We spent a little time on this point, but not much, because Hayek doesn't actually make much out of it in this short essay: Prices are miraculous, and serve at least to make it possible for a distributed network of individuals to run a somewhat efficient economy, whereas a central planner would have no such hope.
Shifting to Sen, we get into a more current, more apparently live dispute than Hayek's disagreement with central planning. Sen objects to the total dominance of the "engineering" approach to economics that vastly oversimplifies human nature to try to make mass human economic behavior predictable. The appeal of such an approach is obvious, in that it works very well in easy-to-understand circumstances à la the law of supply and demand: If an item is plentiful, then people won't pay much for it. If demand goes up, prices go up, and more suppliers want to get in on that, and the current suppliers want to make more because their profit per item has gone up. We assume in these cases that buyers always want to pay as little as possible and sellers want to make as much money as possible: This assumption is often called self-interest or rational self-interest, in that in deciding to buy something, we're weighing that against all the other things we could buy, or all the other things we could do other than to go buy something, and in general, in the aggregate at least, will pursue whatever we take to be valuable.
As with all claims that "everyone is selfish" (that we've derided since early in our podcast's history), supporters of this view tend to interpret people's actions to support their view: If it seems that someone is acting selflessly, then he's really just doing what gives him his jollies, i.e., he gets off on being kind, so he's still being selfish. We might identify whatever it is we value as in essence being the self, or if behavior can't be feasibly interpreted as selfish we might à la Rand deride the person as acting irrationally. Homo economicus is the basic playing piece in making economic predictions.
Sen isn't happy about this, and thinks that even where capitalism has been successful, as in Japan (in the time he was writing this), there are ethical and not merely selfish common motivations. After all (and the following is my interpretation, not Sen's), to be selfish would require cheating whenver possible, but maximal economic success for a society is not helped if everyone has to cautiously look out for being cheated all the time. Just as the need to constantly bribe people would be tantamount to a levy that slows economic activity, so the assumption that others will keep their promises (if well justified by people's actual behavior) smooths the way for fruitful activity. One can argue that cheaters get punished by losing business, but common experience as a consumer should tell you that no, maybe you can't stay in business indefinitely by screwing over everyone all the time, but you can definitely screw most of the people some of the time or some of the people most of the time and last a long goddamn time (in my case, the first one that comes to mind is Jiffy Lube, where I feel I have to fend off a lot predatory upselling on every visit, yet I continue to go there because it's at least a known quantity and character of screwage).
So Sen makes a series of ever-finer distinctions re: what's really going on when economists treat people as personal-welfare-maximizers and (as was emphasized in our episodes on utilitarianism and happiness, among others) describes how problematic it is to really characterize "the good" for people, and how (as Sandel argued) we can't just remain neutral and say (à la Rawls's liberalism if applied to economics) that the good for people must just be what they are seen actually pursuing as evidenced by how they spend their time and money. Sen thinks that thinking about ethics will enrich our economics and likewise thinking about economics can even enrich our ethics, i.e., to pursue the good, you have to understand how, as a mass society, to bring about desirable outcomes, and this brings in economics, politics, and sociology at least.
I'll give away my verdict here, which is that these supposed benefits are presented as a challenge, as a research program, as an exciting possibility that scholars should be looking into. These supposed benefits of interconnection are not actually delivered on in that particular Sen book; like a lot of fine philosophy, we just get the outlines of a solution, and I suppose I'd need to become much more immersed in that tradition to say to what extent his concerns were listened to and effective in bringing about further sophistication in economic thinking. This would at the very least require us to get a hold of one his more current books (perhaps invite him on the show? Hmmm? Nobel prize winners all over our podcast, oh yeah, after Lucy Lawless wins the peace prize and Danny Lobell wins the Nobel consolation prize for the annual pizza eating contest).