Arnold Kling  

Villains, Victims, and Economics

PRINT
A Difficult Book... Bait-and-Switch: The Myth and ...

Tyler Cowen writes,


Wherever there are problems, people look for villains. The subprime mortgage crisis is a case in point.

...But financial markets rarely fit into simple moral narratives, and much as these stories may comfort many of us, they are not a good guide to understanding financial policy.


I think he is correct to question the narrative that says that the lenders are villains. He might go on to question the narrative that says that the borrowers are victims. I am sure there is a grain of truth in both narratives, but people are disposed to give victim-villain stories more credence than they deserve. I wrote about this in The Moses Complex.

If you want to write popular fiction, you need to include a diabolical villain. Having an innocent victim helps, too.

The job of the economist is often to dissipate this sort of dramatic tension. Sometimes, there are positive-sum games, with neither villains nor victims. Often, adverse outcomes result from incentives embedded in complex systems, so that blaming a villain is nothing but an attribution error.

In attempting to do his job, Cowen is fighting against a sort of Gresham's Law. Bad (in the sense of innacurate) stories of villains and victims tend to drive out good (accurate) economic analysis.


Comments and Sharing


CATEGORIES: Economic Philosophy



COMMENTS (7 to date)
ed writes:

"Often, adverse outcomes result from incentives embedded in complex systems."

Just because you follow your "incentives" doesn't mean you are not a villain. The whole idea of moral and ethical codes is that we want people to sometimes act against what would seem to be their incentives. If you steal my car, I will call you a villain, even if I might agree that you had an incentive to steal it.

John writes:

ed,

your example doesn't apply for obvious reasons of involuntary exchange...not to mention fraud and theft...none of which applies to any such system that Kling may be referring to.

Greg Ransom writes:

Arnold -- the OC Register has made it clear that at least some of the subprime lenders in this hot bed of the housing boom-bust were misleading borrowers -- and some of the subprime lenders were set up by "snake oil" style salesmen out to make a quick buck in during the Fed generated boom, one subprime owner didn't have even an elementary school education. And you read that right. Others were in it for the fast buck, developing unsustainable new subprime instruments, and cashed out just before bankrupting their companies, keeping there multi-million dollar homes and dozen or so luxury cars. This too was reported in the OC Register.

I simply don't believe you are informed on this matter.

MT57 writes:

I thought Cowen's article made a very good point. Reporters and editors often have a weak background in quantitative subjects and a strong background in subjects with a narrative methodology like history and literature. As a result, their reportage and editorial decisions have a bias in favor of narrative and story telling, as opposed to statistical and perr-reviewed research and methodology. In a country of 300 milion people, there are a lot of stories one can tell, Moreover, the daily media is driven by what stories can be researched and told as quickly as possible. For example, it is easier to find and report on a homeowner who overpaid for a house and is facing foreclosure than it is to find a person moving to town who might benefit from lower prices.

James writes:

Arnold,

You might as well call it "Grisham's Law" for that terribly unsophisticated novelist. He tends to tell stories in a very right vs. wrong fashion while papering over the nuances of every situation.

Greg Ransom writes:

The OC Register has been including the _whole_ "statistical sample" in its reportage,and has put up graphical analysis of that data by zip code. The have also taken a close up look house by house of whole blocks devastated by the Fed housing boom-bust and subprime mess. I'd wager that the average reader of the OC Register business section has a better understanding of all this than your average economic "scientist" misusing the logic of statistics and playing math games with formally inconsistent theoretical structures.

James wrote:

"For example, it is easier to find and report on a homeowner who overpaid for a house and is facing foreclosure than it is to find a person moving to town who might benefit from lower prices."

Charles writes:

The villian-victim story in the econmic world as funny as a sunday morning cartoon. The leners are blaming the borrowers and vicsiversa. What is with no one in this day and age take responisablity for there own actions. When the leners mess up they try to put the blam on the borrows to get the weight of their shoulders. When this issuse is put up on the big screan for everyone to see and to look at the big pitcure it is just funny. Thery are like little kids playing in the sandbox blaming each other of who stole the shovle.

Comments for this entry have been closed
Return to top