A Difference of Opinion

Opinions espoused by economists are muddled by the claim that economics is an objective science, or even the belief that it could be objective and accurate, even if it isn't now. The primary problem lies in the inextricability of the observer from the observed, which is not difficult to overcome in, say, Newtonian physics. If a human being drops a ball from the Tower of Pisa, the fact that he's a human being conducting a physics experiment is presumed to not have an impact on the trajectory of the ball. This is a fairly good presumption - suspension bridges behave quite unpredictably if our personal intentions mattered to the force of gravity. Not until physicists progressed to the study of quantum behavior did it become clear that in a very absolute sense, the observer does impact the observed (i.e. - observing an electron can cause it to collapse from a wave into a particle) The discussion about economics is especially confusing because this underlying assumption that we can usefully make observations without impacting the observed is so patently false. We're dealing with a two-way street, a feedback loop, between the economist and the economy.

This is why John Tiemstra wrote the piece, "Why Economists Disagree", and made the crucial observation that, "The differences concern the understanding of human behavior in an economic setting or, in other words, in economic theory." (50) This is an excellent frame of mind from which to approach the styles of economic thinking that are the focus of this course. The first three styles we've been asked to respond to are the "Philosophical/Theological Style", the "Mercantilist Style", and the "Classical Political Economy Styles".

In order to provide a marginally equivalent view of each perspective, readings reflecting these styles have been made available. To discuss their main points, I'd like to conduct a thought experiment in which some of the authors of these readings teach a class in economics. We'll reflect on the subsequent "two-way street" economic impact each instructor might have.

In our first economics class, St. Thomas Aquinas, the author of the Summa Theologica, which includes sections on the "sin of usury" and "fraud committed by buying and selling", is preparing his first lecture. Aquinas takes as given the idea of markets and trade, but pays particular attention to the behavior of participants given particular scenarios. Enumerating each trade-related scenario at which the question of sinfulness arises, he helps his class reflect on what would be the proper action to take. Charging a "just price" for goods would be discussed, since the representation of a cheap object as an expensive one would essentially be a fraud and a lie. Students from Aquinas' course would emerge reflecting morally on each and every transaction with another - the common unit of business, and making careful determinations of whether or not the transaction is just and fair to both parties. This is the philosophical/moral style of approaching economic problems. Its impact on its students would clearly be to inform their microeconomic behavior with others, and to the extent that it is accepted and followed, would diminish fraud, information assymetries, and predatory lending - all of which are problems in today's economy.

The second class would be taught by none other than Bill Gates. His testimony in front of the Joint Economic Committee was used in the assigned readings as an example of the Mercantilist style, but it is perhaps important to note that the influence on Gates during his testimony was political - since he was testifying before the US Congress. Nevertheless, the testimony is full of discussion of America's dominant position in the software market, and how this particular achievement sets us apart from other nations. His syllabus would likely be a national history of information economics, with some discussion of what lies ahead. These dual themes would come across strongest to Gates' students of economics: innovation can increase the competitiveness of nations, and national progress is a good thing that increases productivity and opportunity. Many students would emerge from such a class thinking about the "big picture". They'd ask, "How does this affect the country?", or "What contribution can I make that will make us competitive with China?".

Finally, Milton Friedman and his wife, Rose Friedman, would teach the final course. Their writings in "Free to Choose" make it clear that free and open trade, comparative advantage, and open markets, allow society to reap the benefits of universal self-interest on the part of economic agents. Students from such a class would understand the dangers of government regulation on trade, and its many unintended consequences for economic liberty. A student from such a course would participate in the economy as though he were not in a society at all - but on a personal mission to do well for himself, all the while believing that self-interested motives ultimately benefit society. They've become accustom to the classical political economic style.

Now these students will meet one another, and argue.

The Aquinas student will take issue with the Gates student, saying that often the goals of economic consolidation and national improvement can lead to overcharging for a products, not to mention the highly impersonal feeling "consumers" will ultimately feel from "producers" (housed in large multinational corporations. The Friedman student finds himself defending both students, on the basis that they have the right to choose mass-produced products, or personalized customer service - but finds himself rather peevish about how judgemental the Aquinas student seems to be. The Aquinas student believes that the Gates student would blithely support large and corruptible organizations, and believes that the Friedman student would mindlessly support every sort of self-interested hedonist. In their defensiveness, the Gates and Friedman students both agree that the Aquinas student knows nothing about economics, and tell him to leave. The Aquinas student leaves, but due to his clear understanding of how individual people feel about being cheated, he remains popular and continues to influence larger numbers of people in both economic and personal ways.

This is the difference of opinion in economics today. We pick and choose what variables we feel are the most important to our economic worldview, and then build up theories around those variables. This informs debates, and is a real intellectual calling, but it ought not be confused with science, because ultimately, the 2-way street of human society, dialogue, and economy will transform those ideas into actions. Once economists observe these new actions, they'll need to find some way to account for the way it was shaped by the intellectual debate detailed above.