September 7, 2007
Bryan Caplan
Only a handful of people (and I'm not one of them) will be able to comprehend Steve Landsburg's "The Methodology of Normative Economics," but the conclusion is both profound and accessible. Highlight:
What evidence is there that people care about the social planner’s objective function except insofar as it affects material allocations? The most apparent evidence is the energy that economists and others devote to studying such questions, revealing that somebody (either the researchers themselves or those who fund their research) cares about the answers...
It is no use to respond that these moral arguments are mere smokescreens that disguise the real material motivations of those who fund our investigations. For why should such smokescreens be at all effective unless there is an audience that cares about moral issues? The “smokescreen” response denies the moral motivations of one segment of society but must attribute similar motivations to a different segment.
Indeed. It's striking how quick people are to assume that their political opponents (and even their allies!) are just pretending to take morality seriously. There are some cynics out there, but they normally
avoid moral argument, rather than engage in it insincerely.
If you think that no one could sincerely hold the moral views they claim to hold, you should try to convince someone to abandon their religion. After a few hours, you'll probably have every right to doubt their rationality. But if you think that "it's all an act," you're just being paranoid.
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CATEGORIES: Economic Philosophy (108)
I think the result is, any complete and compact description of a bounded economy has a unique solution, and the only workable social functions are those that remove some previously imposed and inefficient social function.
Or, external social planners can only contribute productivity tools within the normal contect of economic forces, they have to act like players, not referees.
My economic model assumes that same preliminaries as the auther. Individuals maximize wealth by moving right on the X spectrum but staying close to the aggregate in their investment profile. I further assume these two optimizations are contradictory, and the economy is always unstable.
There is a further assumption that adds a further restriction on solutions. There is an absolute constant in the human brain called the uncertainty constant. It is the measure of the precision of an observation which is comfortable to the human. Precision is measured in the standard form, mean value divided by variance of the measuement. When observations are too precise, the human takes risks, when it is too imprecise the individual reduces risk, when precision is at nominal, the human takes no action.
The uncertainty constant need be a stable value relative to the range of uncertainties in a volatile economy so that its quantum effects can be seen. The prediction of my theory is that linear estimations of the aggregate economic output whould have a precision that always returns to the human normative value, a constant.
Hence, any given economy is limited to certain quantized energy states such that total uncertainty remains constant. My speculation, if true, goes deeper into the growth process than Solow's classical work, and explains the concept of major inflection points and how they work in human history. It also works well with the concept of increased outlook as a major variable in determining economic growth.
Speaking of morality,
The recent discussions at Megan McArdle's and Marginal revolution were on "the lie of tax cuts increasing tax revenue".
Problem is, that's a lie. Any tax cut that increases economic growth will eventually lead to higher tax revenues and eventually recoup the previously missed revenues.
At 3% GDP growth, if a cut from 28% to 26% increased GDP growth .25%, in 30 years revenues would be higher and GDP would be 8% higher. In another 18 years previously missed revenue would be recouped and GDP would be 12.5% higher. If the rate increase were only .125%, the point would be about 65 years with recoupment at about 85 years.
