Our Economist-Run World

A chance conversation about the Harvard economist Kenneth Rogoff (who is well known for his work on financial crises and less well-known for his work on what we should eat) got me thinking about all the different areas of human existence in which economists offer up advice.  Advice, I should add, that tends to be followed.

  • Economists opine on sex (relationships are a lot like barter economies and therefore telling women to be chaste is to rely on illogical economic research);
  • Economists opine on climate change (to meet their obligations in future years, pension funds should look into renewables);
  • Economists opine on love and marriage (in the financial arrangement that is marriage, love reduces but does not eliminate the need for costly bargaining);
  • Economists opine on art (the Chinese vanity capital market is booming this year)

And on a multitude of other subjects that, one would think, have nothing to do with economics per se.

In our data-driven world, economists often have the last (and sometimes the only) voice at the table.  Economists have (in a famous example) convinced politicians to put a price on the environment.  The result is cap and trade: which sets a limit on how much pollution companies can emit and allows companies that are able to cut their pollutants to sell their allowances to companies that have not “made the cut.”

You may also have heard that in 2009, a group of economists sent a very public letter to the White House outlining four components that any health care reform statute ought to have (deficit neutrality, tax on high-cost insurance plans, Medicare Commission, and a reform of the health care delivery system).  All four components were enacted into law.

These are well-known instances but if you think for a moment, you will recall countless other examples.  You hear a lot about how discrimination costs us “human capital” or about how the money we spend on wars might be better used elsewhere.  Closer to home, you might see a tax on sugary drinks—public policy that is in line with one of Kenneth Rogoff’s two recommendations (he also recommended subsidizing healthy foods).

At first, you might think there isn’t much wrong with any of that.  After all, who would argue with eating better food, having cleaner water and air or having equal rights?  I too am very much pro-clean air and water as well as pro-equal rights among other things.

I am, however, a bit skeptical about the economics-centered reasoning used to get us there.  Many (perhaps most) economists assume that, for the most part, we behave as if we were completely rational beings; as if (for example) we could not only know our preferences but could rank-order them.  In that context, it makes perfect sense to tax sodas.  The more sodas cost, the less we will buy them, the healthier we will be and the less likely we will be to use public funds for our healthcare.  In such a world it makes sense to advocate for equal rights on the grounds that if we treat everyone the same, we will all be more productive and therefore more wealthy.

In such a world it also makes sense to build houses—even whole neighborhoods—that are so alike that thousands of homes in a Las Vegas development can be described in a few words (stucco homes… with marble countertops, ample square footage, and walk-in kitchen cupboards).

To a perfectly rational being that does not make much difference; what matters are the amenities.  But irrational human beings (like yours truly) wants her home to look special.  The last thing I want is to live in (what seems a fundamentally boring) development where the only way to differentiate between houses is to look (very closely) at the house numbers.  I want my world to have variety in it.  Not because variety adds utility but because variety adds color to life.

But our economist-run world is quickly losing that variety.  Houses, cars, streets, furniture, clothes, even art are all beginning to look increasingly alike.  Color is sacrificed—again and again—on the altar of utility.  Is that the world in which we, human beings who are not necessarily rational, want to live?

Or would we, instead, prefer to live in a world that reflects our ideas and our ideals; ideals that we act on not because it is the optimal and the rational thing to do but because it is the right thing to do?  Of course in that other, more human, world we might do the wrong thing too.  Color is not risk-free.  Boring (many would argue) is safer.

They may be right.  But even if they are, would you prefer to live in a world optimized for economists or humans?


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