Economics - the "dismal" science - and how they get it wrong

Well, that's a simple minded title for this post. I've been reading economists and the history of economics for some years now - and I still find it fascinating. But it's like reading the old psychologists - it's amazing how powerful their insights and ideas were - and how wrong or incomplete they actually were in retrospective.

Let me tell you a story. I started off my academic life pursing the ONE thing everyone said was the most important - the study of theology. I mean, after all, if there is this deity thing, we should clearly be paying attention to it. But that eventually fell away. My friends thought psychology was important back then too - but it was a particular approach - Existential Psychology. None of this Freudian junk. This can really help people.

I was then fascinated by LAW - hey - we regulate ourselves, we control things with this legal system - that is the way to make a difference and I should learn more about that. A guy name of Ralph Nader was popular at the time. Well - I did that. And I'm not done learning on that score - but it's no magic bullet either. So, sociology and cultural change seemed the next best thing. I went to Africa and Nicaragua and talked with people, and read books about them. How do peoples and societies really change? Why are some nations more economically advanced than others? If you've been following along here - I think I have a handle on that - and it is useful - but we have a long way to go on that score before we can actually make a difference in the world. See: http://carlscheider.blogspot.com/2014/03/culture-is-key-to-development.html.

SO - ECONOMICS - this is really what runs the world. I talked with a local economics prof. He gave me some suggestions to read on histories of economics, and the theories of economic thought. I think I finally have a handle on that. It would take me another lifetime to really grasp it - but I think I know enough to make a comment or two about it.

My major learning was that economics and theology or religion, have a lot in common. They are both pretty much based on a commitment to believe some "rules" or "principles". You become an adherent of one school of economics, with a particular set of principles, and then you interpret everything that way. You pretty much ignore science and facts and research. Religion is very similar.

Turns out, it is the marriage of the current psychology and economics thought which is the real key to moving us all forward. We are, after all, highly sophisticated apes, who think more with our emotional of "affective" brain stem, than with our upper and frontal lobe. See Thinking, Fast and Slow, by Daniel Kahneman - who happened to win the Nobel Prize for economics! He's on to something there. He actually provided the foundation for a whole school of economics, called Behavioral Economics - instead of grand theories and models that people create in their head, he asked why we don't actually do experiments on human beings and see what they do in terms of economic decisions. He did quite a few, which led to the Nobel Prize - and it turns out we are not as rational as we would like to believe. He developed something called "prospect theory".

But somehow his research and conclusions are not well accepted by most economists. They continue to argue about models and theories that assume that humans are fundamentally rational. The nearest they can come to actually accepting that we are not really rational, is to pose a bunch of complexities in their models. They now talk about "reflexivity" and "uncertainty". These "forces" drive human behavior, so we have to pay attention to them. Well, DUH!

I am of a liberal or leftist or progressive bent - meaning that I think we are actually capable of changing things with rational and considered actions - and that we are not simply at the whim of some blind market or force of tradition and history. I am also NOT as afraid of upsetting the apple cart, as my more conservative friends are. I have hope. Despite our animal instincts, we have a rational component, and I think, given enough time we will figure out how to actually be in charge of this social and economics stuff. Hey - if we can master the structure of the matter that makes up this universe, we should be able to figure how how a few billion humans can interact on this one planet with some measure of success.

So I lean to reading folk like Paul Krugman, Joseph Stiglitz and the like. This recent article criticizing Krugman's theories is quite good.  http://www.3ammagazine.com/3am/paul-krugmans-philosophy-of-economics-and-what-it-should-be/

The author is actually trying to help, not just criticize. I try to avoid people who are just NEGATIVE about things. That's the easiest thing to do in any field - especially the political. If you don't like it, tell me what would make it better. But this author is a "philosopher", so he is dealing with history and ideas. If he were a "psychologist", we might have had better advice about how humans actually work.

This piece offers Krugman the advice of including things like uncertainty and reflexivity in his theoretical models. Well and good - but we still are a long way from making any positive change in how things are going. We are trying to understand history, and come up with theories that may guide our fearless leaders - but we are still pushing on a string here. The factors which drive people are inside their heads. Until we marry our recent understanding of psychology and economics and politics - and put it into our elementary education system - we are going to be flopping about from one crisis to the next.h

I found a good shot at this is the more populist book, You Are Now Less Dumb. Don't be put off by the title. It's quite good. It gave me some good insights - which I insist on sharing here.

• People Love Stories. I learned this a long time ago, but it is really true. After a million years or so of listening to stories and songs around the fire, we are driven to listen to them, to love them, and to use them to guide our lives. But all of our stories are OLD, are focused on preserving tradition, and don't help us understand our current problems. 
• People Must Create Stories. Since are a tad above the apes, and we have some sense of self awareness, we are pushed to see out the meaning and purpose of our lives. After all, "What is the Meaning of Life the Universe and Everything? Ask Siri that and see what she answers. Or Google! Here we are, newly intelligent beings, and we are flopping about, wondering what the heck we are doing here. So we CREATE stories to explain ourselves to ourselves. Every people creates stories - not just the Jewish and Greek myths that we in the Western world find familiar. Joseph Campbell understood this. So we have the world religions, with their mythical stories, which empower our lives.
• We Need New Stories. The problem is that our stories, our myths, our sacred writings, are woefully out of touch with out current needs. They deal with things like creation, and family values, and the like. We teach them to our kids, and we are trying to preserve our traditions, but we need to create new traditions, new ways of understanding how we really make decisions. Kahneman clearly understands the problems with our mental processes, but his only advice on how to make better decisions is to "slow down", "think on it", "sleep on it". He seems to think that more time will make a difference in how people make decisions. It doesn't work that way. People respond immediately, from the gut, based on the "narrative" that is running in their heads about life, the universe and everything. The key to changing things, to moving us forward, is to provide people with new narratives, new stories to guide their gut feelings.
• Some examples. Nothing works like an example - I wish I had a few good ones. Can you come up with some?  

NEXT - Neuroscience
So, I've given up on all of these things, and I am off to neuroscience. Kahneman is pulling it into economics, so there is some hope for that "science".

But the real insight now is that we are barely rational. See: The Righteous Mind by Jonathan Haidt. After the venture into economics, and behavioral economics, I stumbled on this author. He has researched how people actually make decisions. It appears that we are barely rational. About 95% of what we do comes from our emotional brain, our FAST brain. He likens us to an elephant, with this "self" as the driver on top trying to direct the elephant. The elephant pretty much decides where it is going, and we agree to ride along. Rarely, can we stop, and actually THINK, and change the elephant's direction.

Evolution tuned our brain to watch for patterns, and to instantly respond to them. We look at a person, or a scene, and instantly our brain decides "friend or foe". If it is a truly dangerous foe, we start moving before we even consciously realize it. Try this experiment: when you meet someone new, wish them well - internally, in your mind. Their brain will see the subtle changes in you, in your face, in your posture, and it will cause them to respond in kind. They will NOT be aware of it at first, but it will do it. This happens all the time, but it takes considerable reflection to actually catch it happening. Our brain is a wondrous mechanism that has gotten us this far, but it is time we actually tried to get some control over it.

Haidt's study shows that conservatives and liberals differ in their basic approach to values - and never the twain shall meet. Our brains seem wired to one or the other inclination - which might be just the plasticity in our brain that lets us adapt to our peers and surrounding culture. For more on this, see my brief review of the book here:
http://carlscheider.blogspot.com/2016/02/why-are-those-idiots-from-other.html.

The downside to this research is that no one has yet figured out how to help us overcome this deep bias to act purely on our emotions and gut. More education does not seem to correlate, nor does intelligence. We are pretty much emotional animals. Some of the research even seems to indicate that we make decisions before we are even aware of them - this comes from MRI examinations. These researchers wonder if we truly have a free will. I choose to ignore that one - it does real damage to my sense of meaning and purpose. And it is my personal observation that, even though it is true that I have decided something before I am even aware of it, I CAN stop right there, reflect and move in a different direction. It takes work, but I can do it.

Which leads me to my next topic - moving right along. I have a suspicion that mindfulness, meditation, or activities of that ilk, might be able to help us overcome some of that instant, gut based decision making. I have not seen a really definitive study as yet - if you know of one, point me at it. And I'll repost here if I find something.

So . . . what do we do? Start teaching mindfulness in grade school? Is this the main benefit of religious belief - of SOME religious belief.

Your thoughts?

A POST NOTE as of 2022.10 - if you liked this. You really need to read this one:

The Science of Storytelling: Why Stories Make Us Human and How to Tell Them Better. Brilliant analysis of our need for and the power of stories. The primary story, of course, is the one we tell ourselves about ourselves. That story makes us who we are. If we encounter information that says our story is wrong - we automatically reject it - almost without thinking. It is too risky to go there. We need a new vision of how economics and politics just might work, of we can dare to go there.  See this book along those lines: Humankind: A Hopeful History