How free to choose is ‘homo economicus’?

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Is economics the analysis of forms of rational conduct? Could you go further and define it – as Gary Becker’s work does – as the study of any conduct that responds systematically to modifications in any variables in the environment? Or is it something less expansive than that? This is the question with which Michel Foucault draws to a close his [amazon_link id=”140398655X” target=”_blank” ]Essays on the Birth of Biopolitics[/amazon_link].

[amazon_image id=”140398655X” link=”true” target=”_blank” size=”medium” ]The Birth of Biopolitics: Lectures at the Collège de France, 1978-1979: Lectures at the College De France, 1978-1979 (Michel Foucault: Lectures at the Collège de France)[/amazon_image]

Interestingly, he specifically points to behavioural economics – the incorporation in economics of “non-rational” choice from behavioural psychology – as a further extension of terrain. And there is a central paradox therefore in mainstream economics: is homo economicus a free agent the government should leave alone to engage in market activity, [amazon_link id=”1433200155″ target=”_blank” ]free to choose[/amazon_link]? Or instead is the agent responding to variables in not necessarily “rational” but systematic ways who can therefore be steered or manipulated by government action?

Somebody clever – I can’t remember who – recommended the book to me. I must admit that although there are some interesting points, I found it very heavy going. It’s because of the language of this style of philosophy, which seems very obscure to me. It reminded me of the story Bob Lucas once told, about discussing a problem in a particular model of the labour market with Ed Prescott. The next morning he found in his office a note from Prescott with an equation on it, solving the problem. Lucas said: “Many people would ask for words to explain what the equation means, but an economist will ask for an equation to explain what the words mean.”

The dog ate my homework

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The new book by Richard Layard and co-author David Clark arrived in the post yesterday, [amazon_link id=”1846146054″ target=”_blank” ]Thrive: The Power of Evidence Based Psychological Therapies[/amazon_link]. It continues Professor Layard’s campaign for greater provision of mental health treatment – David Clark is a Professor of Psychology. The first half of the book covers the human and economic cost of mental illness, the second half is about which therapies are effective. I think I’m persuaded without reading it, but will do so to see whether it addresses the question of why governments so often treat mental health services as a low priority and what might change that.

A confession, though: the dog caught this one coming through the letter box and it has teeth marks right through it. I expect there was a lot of barking too – my apologies to the postman.

The dog ate my homework

Cautious giant leaps

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The argument of [amazon_link id=”0691161623″ target=”_blank” ]Why Government Fails So Often and How It Can Do Better[/amazon_link] by Peter Schuck is set out wonderfully succinctly in the title, and the book does an excellent job of telling half of the story about the role of governments and markets in delivering economic outcomes.

[amazon_image id=”0691161623″ link=”true” target=”_blank” size=”medium” ]Why Government Fails So Often: And How It Can Do Better[/amazon_image]

The chapters cover a range of reasons for ‘government failure’. To list them, they are: incentives not aligned with the policy’s aims; non-rational choice; lack of information; lack of flexibility in delivering outcomes when circumstances change or things don’t work out; lack of government credibility so essential co-operation is not forthcoming; mismanagement including fraud and abuse. Schuck argues that these barriers to policy success have a “deep, structural, endemic nature.”

The book has many examples of policy failure – it’s an American and to be honest far less amusing version of [amazon_link id=”1780744056″ target=”_blank” ]The Blunders of Our Governments[/amazon_link] by Anthony King and Ivor Crewe. It’s hard to argue with the examples. This book cites also Clifford Winston’s [amazon_link id=”B00D0DIABU” target=”_blank” ]Government Failure versus Market Failure[/amazon_link], which has many more. indeed, there have been loads of policy failures, in all kinds of places and contexts.

An aspect of the argument here that I strongly agree with is the failure of policy analysts to build themselves into their ‘impact analysis’ or whatever framework they use for assessing the likely success of the initiative. In other words, the incentives the policy will create for the people affected to change their behaviour are hardly ever incorporated. Economists often think of themselves as being ‘outside’ the society, in a benign deus ex machina role.Yet all policies alter people’s behaviour and have many side-effects.

Schuck’s book does end with a chapter on policy successes – in fact it finds nine, including Airline Deregulation in 1978, the 1975 Earned Income Tax Credit, the food stamp program, the interstate highway system and the 1965 Voting Rights Act. However, it concludes: “It is hard to know for sure why these (and other) policies have succeeded when so many others have failed. Low costs, simple implementation, strong public good characteristics, and replacing far worse policies are all given as potential explanations. However, Schuck also concludes: “To succeed, the programs needed to engage the actors’ self-interest; they did not need to create new values or transform behaviors.” But he believes that the ‘low hanging fruit’ has gone.

Hence his main recommendation – be cautious. “Realistic meliorism” – make things a little bit better but keep your ambitions modest. The policy ‘doing better’ bit of the book’s title is doing far less.

I’m all for realism. There’s a missing half of the story here, though, which is how government actions unavoidably shape markets, so that to argue ‘don’t do much and just leave it to the market’ is in itself a policy. Collective choices are inevitable and government is how we make those choices. [amazon_link id=”0691161623″ target=”_blank” ]Why Government Fails So Often[/amazon_link] should be read alongside Colander and Kuper’s  recent book [amazon_link id=”0691152098″ target=”_blank” ]Complexity and the Art of Public Policy,[/amazon_link] which is about policy as determining the structure of a complex, and uncontrollable (in the old-fashioned policy sense) economy and society.

That approach is hard to get right too, but as it’s impossible not to have a structure within which markets operate, because here we are at a point in history where we have actually existing markets, it surely makes sense for governments to think about that structure. And while caution, in the face of the record of policies ranging from the inept to the horribly counter-productive, is surely sensible, thinking about structure does not automatically point to incrementalism.  Sometimes a cautious giant leap might be just the thing.

Foucault – heavy going and light relief

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[amazon_link id=”140398655X” target=”_blank” ]The Birth of Biopolitics[/amazon_link] by Michel Foucault has been rather heavy going. I can get through two or three of the essays each time. It’s obviously going to be worth going on, though. The early section on Germany is intriguing. The book argues that its post-war reconstruction in the absence of a functioning state made economic order – on a “neoliberal” model – absolutely fundamental to what Foucault calls its “governmentality” or how people are governed. Often it’s said that the pre-war hyperinflation accounts for Germany’s particular economic obsessions, but there is surely something in the post-war disorder too that explains the particularities of the German economic model – and its inflexibility, if it’s indeed so existential for the state.

[amazon_image id=”140398655X” link=”true” target=”_blank” size=”medium” ]The Birth of Biopolitics: Lectures at the Collège de France, 1978-1979: Lectures at the College De France, 1978-1979 (Michel Foucault: Lectures at the Collège de France)[/amazon_image]

Anyway, all the good stuff on economics itself is yet to come. Meanwhile, I was tickled by this picture which appeared on Twitter of the use of Foucault to advertise polo neck jumpers.

Stylish?

The case for militantly moderate incrementalism

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I’ve started on [amazon_link id=”0691161623″ target=”_blank” ]Why Government Fails So Often (and how it can do better)[/amazon_link] by Peter Schuck.

[amazon_image id=”0691161623″ link=”true” target=”_blank” size=”medium” ]Why Government Fails So Often: And How It Can Do Better[/amazon_image]

He argues for ‘melioristic realism’ – modest practical improvements in outcomes – which are nevertheless ‘militantly moderate’ given the usual assumption in much policy debate that change must be sweeping and radical. “Policy makers have at best severely limited knowledge of the opaque, complex, social world that they seek to change, and meager tools for changing it.” There is a ‘remorseless’ law of unintended consequences. Incrementalism is therefore the only wise and honourable approach, Schuck argues. Indeed, it’s the only approach that increasingly cynical and distrustful voters will now accept, he thinks.

The book describes what he calls ‘moral hazard’, which is far wider than the usual definition of risk-taking behaviour in financial or insurance markets induced by the fact that somebody else bears the cost. Schuck extends it to all kinds of behaviour whose cost is partly borne by somebody else (i.e. taxpayers) – hence also welfare “dependency”, or crop subsidies, or corporate welfare dependency in sectors such as aerospace and defence sector.

I’ll review it properly when I’ve finished. It’s a US-focused book – here is the Boston Globe and an article by Peter Schuck on the Huffington Post site.