Economic Storytelling [2]: Hail the Conquering Capitalist Comes

handel    hail the conquering

Handel wrote “See, the Conquering Hero Comes!” for his oratorio Judas Maccabaeus, created to commemorate the Duke of Cumberland’s stomping out of the Jacobite rebellion at the Battle of Culloden in 1746.

Two hundred years later, hay fever stricken non-hero Woodrow Lafayette Pershing Truesmith rode a myth of his own heroism, fabricated by well-intentioned friends, to a public moment of truth in the 1944 film Hail the Conquering Hero. But that was Hollywood, and everybody was happy in the end as Woodrow lived out the popular “redemption” narrative that Silicon Valley loves, as we’ve seen previously. As for the Jacobites, their story became a cautionary tale — a more sobering narrative genre.

These two conquering hero stories illustrate why non-narrative economists think we’re better off leaving stories at the water cooler:  narratives contain too much subjectivity, interpretation, cognitive bias, self-deception, and wishful thinking to be trusted, and therefore add nothing to economic policy-making, which is all those things already. You can talk “normative” all you like, but narrative policy will end up being a matter of power, not plot.

Plus, narratives can have unexpected outcomes. This article chronicles the pendulum swings that have characterized political/economic narratives for the past century, and warns that popular narratives of economic doom can have catastrophic consequences because they’re forged in simplistic thinking to the exclusion of more complex analysis:

 “[Catastrophe narrative favor] the politics of the strong man glaring down the nation-doubters… It’s globalism or ‘nation first’, jobs or climate, friend or foe.

“The alternative is not to be wistful about flat-world narratives that find solace in technical panaceas and market fundamentalisms; the last thing we need is a return to the comforts of lean-in fairy tales that rely on facile responses to a complicated world.

“Nowadays, the chorus of catastrophe presents differences as intractable and incompatible, the choice between them zero-sum.

“We need to recover our command over complex storytelling, to think of tensions instead of incompatibilities, to allow choices and alternatives, mixtures and ambiguities, instability and learning, to counter the false certainties of the abyss.”

Why We Need To Be Wary Of Narratives Of Economic Catastrophe, Aeon Magazine (Jan. 22, 2019)

I.e., if we’re going to have economic narratives at all, they need to be complex, not simplistic, and take into account the full range of “positive” and “normative” ethical judgments, as well as both mathematical modeling and fundamental human behavior. Anything short of that promotes polarized thinking, which is not only the standard of the day, but might be inescapable as long as the human brain is in charge. Coach, consultant, and author Karl Albrecht wrote the following in Psychology Today iun 2010 — before discourse disappeared entirely from American public life:

“Recent research suggests that our brains may be pre-wired for dichotomized thinking. That’s a fancy name for thinking and perceiving in terms of two – and only two – opposing possibilities.

“These research findings might help explain how and why the public discourse of our culture has become so polarized and rancorous, and how we might be able to replace it with a more intelligent conversation.

“The popular vocabulary routinely signals this dichotomizing mental habit: ‘Are you with us, or against us?’ ‘If you’re not part of the solution, you’re part of the problem.’’

Albrecht goes on to say that “imagination, creativity, and innovation all thrive in the ‘twilight zone,’ not at the poles of opinion,” and offers these seven antidotes to the plague of silo-building:

  1. Have fewer opinions.
  2. Keep your opinions and conclusions on probation.
  3. Let go of the need to be certain about everything.
  4. Seek the “third hand”- and any other “hands” you can discover.
  5. Modify your language.Replace the word “but” with “and” as often as you can, even if it sounds weird at first.
  6. Remind yourself every day that your “truth” is not the same as any other person’s truth.
  7. Avoid head-butting contests with opinionated people.

Good advice no doubt, but storytelling or not, these days capitalists and capitalism are the conquering heroes making their grand entrances. In fact, they’re so powerful that they’re eclipsing the historic “nation-state” in size and influence.

We’ll look at that next time.

Homo Economicus [5]: Ethics and Economics

homo economicus

This Harvard Crimson op-ed argues that that economic policy-making doesn’t embrace the full human story because what’s missing in free market self-interested capitalism is due regard for “normative ethics” :

“Economists distinguish between ‘positive’ and ‘normative’ judgments. Positive judgments are testable and predicated on objective facts. Normative judgments weigh those facts according to subjective personal values.

“Although Enlightenment-era economics was normative and philosophical, contemporary economics is a precise and quantitative science that seeks to determine what happens in the world under a particular set of assumptions. Policymakers, political philosophers, and ordinary citizens can then evaluate those occurrences according to their own normative judgments and determine whether they find them desirable.

“Responsible economic scholarship requires assigning positive and normative judgments separate roles in the policymaking process. They do not simply trade off; they have entirely different jobs.”

 “[Economists] are often characterized as robots completely devoid of ethics, chasing professional ambitions that are as sterile and soulless as they are. Authors, including in these pages, have written that human ethics are incompatible with good economic policy. This line of argument claims that our economic logic should be free from our personal values, and we must prevent our moral judgments from “getting in the way” of objective decisions…  this logic is flawed… It is not the strength of one’s feelings that matters, but rather that they fulfill their proper role in the decision making process.”

The article urges policy-makers to give equal time to both positive and normative judgments. This commentator agrees, but admits that normative  concerns — the province of behavioral economics — can be messy:

“[In economics], the beauty of a mathematical model may have little to do with the complexity of local institutions and other bottlenecks to getting prices to work or markets to clear without externalities.  Behavioral economics is far messier than standard models of rationality.”

Yale economics professor and Nobel Prize winner Robert Shiller advocates for “narrative economics” — a practice driven by the human love of storytelling  — to bring a human touch to the profession. “Not everyone is equally proficient at understanding narratives,” he says, “and economists are among the worst at appreciating them.” He thinks economists need to fix that.

“Twenty-five years ago, Chicago Booth’s Dick Thaler and I set up a series of workshops at the National Bureau of Economic Research on what we called “behavioral economics.” Behavioral economics was economics with an input from the psychology department. Every department has its own tool kit for approaching research; we were very much influenced by psychology. Maybe a little sociology, maybe a little anthropology, but nevertheless all social-science fields. I’m starting now, with my more recent work, to think that we have to look at the humanities as well.

“There is something difficult to formalize about human beings, but something that we nonetheless have to understand, and I think one way to do that is with an approach that I’m calling “narrative economics”: taking economics and adding the study of the narratives that people transmit.

“The human brain is built around narratives. We call ourselves Homo sapiens, but that may be something of a misnomer…. The evolutionary biologist Stephen Jay Gould said we should be called Homo narrator. Your mind is really built for narratives.”

Economics And The Human Instinct For Storytelling, Robert Shiller, Chicage Booth Review (May 8, 2017)

As usual, Silicon Valley is ahead of the game, having already embraced the power of story as its own cultural norm:

“In Silicon Valley these days, you haven’t really succeeded until you’ve failed, or at least come very close. Failing – or nearly failing – has become a badge of pride. It’s also a story to be told, a yarn to be unspooled.

“The stories tend to unfold the same way, with the same turning points and the same language: first, a brilliant idea and a plan to conquer the world. Next, hardships that test the mettle of the entrepreneur. Finally, the downfall – usually, because the money runs out. But following that is a coda or epilogue that restores optimism. In this denouement, the founder says that great things have or will come of the tribulations: deeper understanding, new resolve, a better grip on what matters.

“Unconsciously, entrepreneurs have adopted one of the most powerful stories in our culture: the life narrative of adversity and redemption.”

Silicon Phoenix:  A Gifted Child, An Adventure, A Dark Time, And Then … A Pivot? How Silicon Valley Rewrote America’s Redemption Narrative, Aeon Magazine (May 2, 2016)

More on economic narratives coming up.

For more on ethics and economics, see Ethics and Economics (The Library of Economics and Liberty), The Economics of Ethics and the Ethics of Economics:  Values, Markets and the State (2010), and Ethics in Economics: An Introduction to Moral Frameworks (2015).

Homo Economicus

homo economicus

John Stuart Mill coined the term homo economicus to explain economic behavior. This is from . Investopedia:

Homo economicus, or ‘economic man,’ is the characterization of man in some economic theories as a rational person who pursues wealth for his own self-interest. The economic man is described as one who avoids unnecessary work by using rational judgment. The assumption that all humans behave in this manner has been a fundamental premise for many economic theories.

“The history of the term dates back to the 19th century when John Stuart Mill first proposed the definition of homo economicus. He defined the economic actor as one “who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labor and physical self-denial with which they can be obtained.”

“The idea that man acts in his own self-interest often is attributed to other economists and philosophers, like economists Adam Smith and David Ricardo, who considered man to be a rational, self-interested economic agent, and Aristotle, who discussed man’s self-interested tendencies in his work Politics. But Mill is considered the first to have defined the economic man completely.”

Homo economicus says the rational approach to commerce is to seek the most for the least. The idea has its detractors:

“The theory of the economic man dominated classical economic thought for many years until the rise of formal criticism in the 20th century.

“One of the most notable criticisms can be attributed to famed economist John Maynard Keynes. He, along with several other economists, argued that humans do not behave like the economic man. Instead, Keynes asserted that humans behave irrationally. He and his fellows proposed that the economic man is not a realistic model of human behavior because economic actors do not always act in their own self-interest and are not always fully informed when making economic decisions.”[1]

Austrian economist Ludwig von Mises sided with Keynes:

“It was a fundamental mistake … to interpret economics as the characterization of the behavior of an ideal type, the homo economicus. According to this doctrine, traditional or orthodox economics does not deal with the behavior of man as he really is and acts, but with a fictitious or hypothetical image. It pictures a being driven exclusively by ‘economic’ motives, i.e., solely by the intention of making the greatest possible material or monetary profit. Such a being does not have and never did have a counterpart in reality; it is a phantom of a spurious armchair philosophy. No man is exclusively motivated by the desire to become as rich as possible; many are not at all influenced by this mean craving. It is vain to refer to such an illusory homunculus in dealing with life and history.”

The Homo Economicus Straw Man, Mises Institute (Oct. 26, 2016).[2]

More recent criticism questions the role of rationality in human behavior not only in economics but more generally:

“Humanity’s achievements and its self-perception are today at curious odds. We can put autonomous robots on Mars and genetically engineer malarial mosquitoes to be sterile, yet the news from popular psychology, neuroscience, economics and other fields is that we are not as rational as we like to assume. We are prey to a dismaying variety of hard-wired errors. We prefer winning to being right. At best, so the story goes, our faculty of reason is at constant war with an irrational darkness within. At worst, we should abandon the attempt to be rational altogether.

“The present climate of distrust in our reasoning capacity draws much of its impetus from the field of behavioural economics, and particularly from work by Daniel Kahneman and Amos Tversky in the 1980s, summarised in Kahneman’s bestselling Thinking, Fast and Slow (2011). There, Kahneman divides the mind into two allegorical systems, the intuitive ‘System 1’, which often gives wrong answers, and the reflective reasoning of ‘System 2’. ‘The attentive System 2 is who we think we are,’ he writes; but it is the intuitive, biased, ‘irrational’ System 1 that is in charge most of the time.

“Other versions of the message are expressed in more strongly negative terms. You Are Not So Smart (2011) is a bestselling book by David McRaney on cognitive bias. According to the study ‘Why Do Humans Reason?’ (2011) by the cognitive scientists Hugo Mercier and Dan Sperber, our supposedly rational faculties evolved not to find ‘truth’ but merely to win arguments. And in The Righteous Mind (2012), the psychologist Jonathan Haidt calls the idea that reason is ‘our most noble attribute’ a mere ‘delusion’. The worship of reason, he adds, ‘is an example of faith in something that does not exist’. Your brain, runs the now-prevailing wisdom, is mainly a tangled, damp and contingently cobbled-together knot of cognitive biases and fear.

Not so foolish:  We are told that we are an irrational tangle of biases, to be nudged any which way. Does this claim stand to reason? Aeon Magazine (Sept. 22, 2014)

Even so,

“Although there have been many critics of the theory of homo economicus, the idea that economic actors behave in their own self-interest remains a fundamental basis of economic thought.”[3]

If the shoe doesn’t fit, why do we keep wearing it? And to what end? More next time.

[1] Investopedia, op cit.

[2]  The image above is from this article.

[3] Investopedia, op cit.