Abandon all economic theories

Economic theories often claim to be about the way things are, as if they were objective scientific theories about the real world of human group behaviors —  as if they were about how we actually produce and distribute goods and services. But some of these theories have another element to them. And that element is: how things should be.

How can we distinguish whether a theory is a description of how things actually are, how our systems actually work as objectively observed and scientifically verified, and when a theory is attempting to say how things should work? When is a theory attempting to describe what people actually do versus what they should do?

It seems that most economic and political theories (and it is impossible to separate the two) have a lot of “should”s in them. Few if any have no “should”s.

Governments exist. Many of the “should”s have to do with the role of governments in our systems. How much should governments be involved in economics? Some people (some capitalists) say governments should have no role or a minimal role; some people (some communists) say governments should make all or most economic decisions. Clearly both extremes do not describe how any actual systems actually work. Governments always have some role. They make and enforce laws which constrain human behavior. Stop on red, go on green, be careful on yellow. And enforce contracts. And no government can make all economic decisions. Governments don’t know enough and they can’t possibly manage everything. They don’t have enough information and even if they did, they wouldn’t know how to put it all together and use it. So many of the “should”s are about the roles of governments.

Every law is a “should”. If a law were not a “should” then it would be a description of actual behavior and it would not need to be enforced.

Many “should”s are about individual behavior. Traffic laws, for example are about individual behavior. Most individual behavior occurs with or in groups of other people — in families, clans, tribes, towns, cities, clubs, associations, partnerships, corporations, states, nations. Many of the “should”s are about these groups, these human organizations.

“Should”s are not only laws. Customs and habits that most people (in some group) follow most of the time are also “should”s. Human life is full of “should”s.

Some “should”s take the form of: You should behave according to theory X because if everyone behaved as specified in theory X, then good thing Y will happen. Classic capitalists said that if everyone would pursue his own rational self-interest, then the resulting system would be the best for everyone. If everyone is greedy, then the resulting system will be best for everyone. Classic communists said that if you let the central government make plans for all the types and amounts of goods and services to be produced in some period of time, and if everyone follows the plan, then this will result in a good and efficient system that will be best for everyone. If everyone just works and obeys orders, everyone will be taken care of, it will be the best for everyone. Note that in both cases “best” is not clearly spelled out and there was no proof, no valid argument, that the “best” could be actually attained. Note also that in both systems many people were and are left out — their situations became worse.

There are many reasons why any preplanned social system for the production and distribution of goods and services will not work as expected. The main reason is we cannot predict the future at least in detail. And human behavior changes. Technology changes. Cultures change. Nature intervenes. Accidents and disasters happen.   

So we cannot dream up an ideal system with specified roles and rules for governments, corporations, organizations in general, and individuals, and claim that if every organization and individual behaves as specified (everybody and every organization always follows the specified rules), then the result will be the best for everyone. We can’t even claim it will be good for everyone, or for sure better than some other system. There is no such thing as perfection in such matters.

We cannot get 100% compliance with any set of rules and laws. At present huge numbers of laws are ignored by individuals and corporations and are not enforced by governments. So any such predesigned system would have to be built with the assumption of less than 100% compliance. And since nothing stays the same, since culture, technology, nature, and human nature are always changing, always evolving, any preplanned and highly specified system will not continue indefinitely to produce the same results it once may have produced.

So any system we might contemplate implementing must not be too highly constrained. It must have mechanisms to allow it to co-evolve with evolving nature, human technology, human nature, and culture in general.

In a sense we already have some of this co-evolution. Not so much in our theories (which are often presented as static, highly specified, and unchangeable), but in our practice. We are constantly changing our laws regarding our economic and political systems. The goals, purposes of the new laws are often to benefit or favor certain individuals and groups but not everyone. Sometimes the purpose of a new law is to make our practice (our operational system) conform better to one of our simple theories such as capitalism, communism, socialism, libertarianism, “the Austrian school”, Keynes, or the theories of any particular economist. But often, behind such a purpose is the more basic goal to benefit some individual or group.

We need something else beyond these simple, highly specified, over-constrained systems as the goals for our system changes, as our law changes. We don’t need any more theories like those listed. They are all simple-minded, limited, and do not (or would not) work very well for most people. Each may work well for a subset, some class or classes of people, the rich or the powerful, but often make things worse for most people.

We need a simple, clear, direct goal for our system changes, our law changes: We should design our system changes, our law changes to our economic and political systems, so that to the best of our abilities, the resulting system is better for everyone. We must eliminate the middle men — the simple-minded theories (which are mostly fake covers for benefiting the few at the expense of everyone else) — and we must aim clearly and directly at the goal of changes that benefit everybody.

Clearly since we will have no theory to guide us (and even if we did, it wouldn’t help), and we cannot predict the future in detail, we will have to use trial and error, which is the scientific method. That means we make our best estimate, our best guess, as to what to change. Then change it and look at the result. Check whether it made things better for almost everybody. (We must not get hung up on seeking perfection in every single step. Perfection is an illusion.) If the change made things better for a large enough number of people (and not just a few individuals or classes) then keep that changed law. If the change only benefited a few individuals or classes, then reverse that change and try something else. Trial and error. There really is no other way.

When I say abandon all the above theories I mean abandon them as exclusive overriding dogmatic systems. There surely is important knowledge about how human organizations work and can work, both internally and in cooperation with other organizations (for example maybe money, markets, property, contracts, laws, incentives, technologies, education, safety, redundancies, etc.) and this knowledge should be the basis for our best estimates and best guesses when changing our systems to make them better for everyone. In any case we must start with whatever we have now. No system as complex and interconnected as the present world system can be “overthrown” and a new one built from nothing.

Finally I want to spell out in more detail what the goals of our world economic and political systems should be: The goal should be to change our systems step by step as above into systems that provide almost all human beings with the human necessities which are: sufficient water, food, clothes, shelter, education, health care, opportunity to work with others to contribute to the welfare of everyone, maximal liberty consistent with the welfare of others, nonviolence — and all this consistent with the earth’s limited resources and consistent with preserving the natural world from further degradation and destruction.

We cannot know now if it is possible to reach such a goal. Nor can we know now that it is impossible to reach such a goal. To find the answer, we must try. We can measure how close we are to each of these sub-goals. This is something economists can do since they can stop wasting their time generating grand theories. Surely great progress can be made. Reaching the goal is not the main thing. The main thing is to keep moving our economic and political systems toward these goals. Let’s have a directed evolution. That will be a real revolution.

 

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Speeding up Cultural Evolution

In previous posts I have discussed deficiencies in human thinking as described in Daniel Kahneman’s book “Thinking, Fast and Slow”. The discovery and explanation of these deficiencies can reinforce pessimism. We might conclude that human thinking is so messed up that we are doomed to failures, confusions, mistakes that it’s a wonder we ever do anything right. Our economic theories are mostly crap; our democracy has been captured by the 1%; wars continue. Our understanding of human thought and behavior is wrong. Why bother to try to change or improve anything. Since our thinking is full of errors, confusions, illusions, delusions, conceits, and unwarranted optimism we would be foolish to try to fix anything that isn’t working or is working poorly.

If unwarranted optimism is bad, unwarranted pessimism is much worse since unwarranted pessimism leads to inaction, depression, and even death.

So how can we be optimistic after reading “Thinking, Fast and Slow”? We can be optimistic because we can see it as part of the larger process of cultural evolution. Groups of humans more or less working together — families, tribes, clubs, associations, corporations, towns, cities, states, nations, all organizations — change and evolve their social and individual behaviors by discovering, generating, assimilating new ideas through doing science and art and other social and individual activities. We invent new things, we make inspiring movies and videos, we speak and write stories and novels and poetry, we create images, symbols, illustrations and paintings. This is the process of change and evolution of human groups and of human cultures in general. Evolution is more than just change. Evolution builds on what came before. Change could be anything. The way cultures change is by building on what they already have. Thus cultures change through evolution.

Kahneman provides scientific facts about mistakes in human thinking he and other psychologists discovered by doing psychological experiments on groups of people living mostly in the last half of the twentieth century. Some of the mistakes in thinking he described may result from the physical structure of the human body and brain. Examples might be certain optical illusions and the fact that our memories do not store all the information about an event that we have at time of the event (see the cold hand experiment — Kahneman p. 381-383). A person might think that if a deficiency results from such structural factors that the error is then inherent to the nature of humans. But humans are adaptable. I am not saying that we can learn to store in our memories all the relevant information for the cold hand experiment (although I suspect we could with training), or that we can train our sensory systems to avoid sensory illusions. But we can, if are aware of dangerous situations, if we learn the categories of situations in which mistakes sometimes or often occur, then we can work around them, we can avoid them by thinking in a different way. As Kahneman said:

“The way to block errors that originate in System 1 is simple in principle: recognize signs that you are in a cognitive minefield, slow down, and ask for reinforcement from System 2. This is how you will proceed when you next encounter the Muller-Lyer illusion. When you see lines with fins pointing in different directions, you will recognize the situation as one in which you should not trust your impressions of length. …” — Kahneman p. 417.   

So Kahneman discovers and spreads the word about deficiencies in human thinking. This is not bad news. It’s good news. Now we know more about mistakes we often make and so we can correct these mistakes, work around them, or otherwise avoid them. This is progress. This is cultural evolution at work.

Most importantly, this new knowledge, as it spreads through the human population, will speed up cultural evolution since cultural evolution depends on human creativity which depends on human thinking, human choices, human decisions. So if we can learn to think better, learn to make better choices, learn to make better decisions, this will help us create new useful and beautiful things, help us create more humane and just social arrangements, improve our own individual behavior both with respect to ourselves (improved physical and mental health) and it will improve our behavior with respect to others.

There are many other things which have speeded up and which will speed up cultural evolution in the future besides just improving our thinking. Some are: cooperation, competition, care for others, maximal individual freedom, democracy, art, science, engineering, many human inventions such as writing, printing, mechanized farming and transport, mass education, computers, expansion of interpersonal communications (cell phones, the internet).

And for the future, to speed up cultural evolution, very shortly after now, maybe directed non-violent revolution — a pushed non-violent evolution towards a world whose economic and political systems will more justly distribute the goods produced by humans as a whole so that each individual person has the basic human necessities in order to live and thrive. These include food, clothing, shelter, education, health, maximal individual freedom consistent with the freedom and well-being of others, all in accord with the earth’s limited resources and preserving other life on earth.

This is not impossible. We can adopt this goal and work toward it. We will modify our economic and political systems carefully, one step at a time, always with the goal in mind, evaluating each step (did it get us closer to the goal, did it cause harm, did it have any unintended consequences). Then repeat, repeat, repeat. This is trial and error. But trial and error is mostly all we have here or in any other human activity. The grand, glorious theories have failed. Forget them. Maybe take some parts of them, some smallish principles, and see if we can use them to modify our present systems and move us closer to our just distribution goal. Since this is a non-violent evolution we must build upon what we know now. If some idea from our present systems would seem to bring us closer to our goal, use it, try it out, test it to see if it actually does work to bring us closer to our goal.

But look for new ideas too. Especially those which look likely to speed up our directed revolution.

Perhaps the very idea that there is some grand and glorious theory that can explain, model, and predict human economic behavior is itself a monstrous example of the Illusion of Validity. See Kahneman, chapter 20, “The Illusion of Validity”.

The very idea that such theories exist, or must exist, or could exist if only we could find them leads to a lot of wasted time and mental energy. Worse this idea is pernicious for at least two reasons. First is that the current candidates for grand theory are so wrong that they cause serious harm in the real world. Second, when people glom onto one such theory as the correct theory, the one and only true way, they cut themselves off from the possibility of change, and they try to cut everybody else off from the possibility of change and improvement too.

These are reasons why the revolution must not glom onto any grand economic type theories. Discard them all: Capitalism, Socialism, Communism, Anarchism, etc. (What other “ism”’s are there?). At most take pieces, smallish parts, maybe certain principles, certain ideas from any of them which look like they might make sense, might work in a new pragmatic framework that is being evolved carefully from our present system, and then adopt provisionally, check, test, evaluate, to determine if this old idea might actually work in our new evolving system to actually bring us closer to our just-distribution system.

Down with Grand Theories. The only test for any modification of our systems, any policy change, any new law, should not be does it conform to some theory, but rather it should be: Does it bring our systems closer to our just-distribution goals.