Economics thinking

Mistakes in business or in science are costly and deplorable, but mistakes in the conduct of life are usually dangerous to life itself. To the tack of illuminating man’s progress toward a better understanding of human nature, this book is dedicated.

Alfred Adler (1927)

Everybody gets something out of every transaction.

House of Games

1.

Tyler Cowen in conversation with Chicago’s Agnes Callard—her home turf, subject “Philosophy vs. Economics.” The economist Cowen is facing a hostile audience; the conversation opens with Callard to students—“[Tyler] sees economics everywhere, so he can help us see it and then we can destroy it.” It’s a joke, which is how we know she’s serious. He’ll be accused in Q&A of being an automaton: “My question is how do you read a book? When you read Macbeth, do you analyze it in terms of incentive models and opportunity costs, or do you realize it’s an individual with feelings and existential questions you can’t answer with economic models?” (Cowen’s response: In the literature course I’ve taught at Georgetown the past decade…) So watch how he positions himself from the outset: light self-deprecating humor mixed with references to concepts and debates only an insider to philosophy would know. In other words, his is signaling to say: I understand you world. I have seen through both lenses, which means my support for economics is informed instead of blind. Do they understand his world? Do they want to? Dismissal belong after comprehension—the laws of top-down cognition preclude the opposite order.

Once the pair squeak past smalltalk, the topic becomes human dignity, utilitarianism. Callard relates reading a recent new story:

This morning the New York Times front page headline read that eight people died in the Midwest from the cold, and I thought, “oh, that’s sad,” […] but then I thought well wait a minute that’s how I usually think about it, let me try to think about it like an economist. I thought, well, what about all the people who didn’t die because of the car trips they didn’t take because they stayed in their houses. But then I thought, well but what about all the businesses that were closed and all the money that was lost from sales that didn’t happen. But then I thought, what if this kind of brief shock to the economic system actually overall somehow improves our economic situation, and it’s at that point that I feel like my mind is getting a bit lost and I just want to go back to my first thought and be like it, “it’s sad that those eight people died.”

No need for cheap jabs that a credentialed philosopher’s instinct is to retreat from complexity back to instinct. Cowen agrees that the analysis is complex, presents how he’d look at the equation to better understand whether overall deaths had increased or decreased from cold—portraying, ostensibly, an economist’s frame (per query). But this isn’t actually what Callard’s interested in, or driving at:

My initial reaction to this story was one of empathy and sadness… We might think we have a kind of moral or human obligation [to feeling sadness when bad things happen] and my worry is that the whole line of thinking that you just produced alienates me from my inclination to have that human reaction.

To be clear—this is not so much an interpretation as a rephrasing—she is worried that contextualizing or better understanding a situation can detract from feelings which one might be morally obligated to feel, irrespective of that context. Cowen tries to salvage the situation:

When people die due to net weather effects or air pollution effects in the United States, on average those tend to be people who are older. If you go to a country such as Eritrea and you look at life expectancy figures per capita, income figures, child mortality, deaths from malaria, I think on average we are too sensitized to matters which are geographically or demographically or intellectually close to us and we are too desensitized to that which is far from us. This is a long-standing theme as you know, David Hume, Adam Smith: “my goodness all those people could perish in a flood in China and you care more about having a little scratch on your finger.” So I think the bias that we have is how we allocate our empathy and we’re allocating it for largely selfish reasons. Economics can help explain some of that.

Though the speakers keep the tone light, and the conversation is friendly, it also frustrating at points to watch. What Cowen’s response reveals is that Callard appears to have skipped a step, or changed the goalposts. Initially, her “economics hat” investigation was into whether the event was a tragedy, how much of a tragedy. In her subsequent response, she has leapt to already presuming that it is a “bad thing” (hence the moral obligation); she has resolved to take her implicit emotional assessment of situation at face value, rather than get critical. (All this because contextualization has caused her “mind [to get] a little lost” —an eyebrow-furrowing sentiment for a philosopher to express.) The empathy allocation bias, as Cowen notes, is a prime example of why we ought not conflate moral or ethical weight with the weight of our feeling. Her suggestion that a moral imperative might exist to “feel sad” whenever a “bad thing” happens in the world is too ludicrous to be entertained—it would entail feeling sad every second of one’s life, a suggestion too ludicrous to be entertained. Perhaps she means one ought to “feel sad” whenever the New York Times says to—a sadly common position among unquestioning liberals.

Cowen goes on to assert that there is a discrepancy between the most descriptively accurate way of conceptualizing human affairs, and the best public-facing one, in terms of consequences. In other words, he’s willing to grant a noble lie can be useful, but would like to separate the pragmatic optics of information out from its veracity. Callard—again bizarrely, as she is a philosopher, conceptual decoupling is quite literally her job—seems unable to decouple this is from the ought, or does not want to.

One wonders if she’s engaging in Socratic performance art, or playing host and tossing him soft pitches to knock out the park. Elsewhere, she has written about “utilitarianism as esoteric doctrine,” the kind of philosophy that only a few thinkers, at the top, privately hold while publicly denying. And of course, the premise of the conversation is a discussion for philosophy students; Callard’s objections may more represent her model of their possible objections than her own model. If these are her gambits, my hand is in my mouth. Where I reference “Callard’s philosophy” we can read “the philosophy espoused by Callard,” which she may or may not believe.

Again and again a basic pattern of ideological conflict plays out over the two-hour discussion: Cowen points out that gift-giving is largely symmetrically reciprocal (“How many gift-giving relationships are long-term one-way? Is it a coincidence I invited you to my university to speak, and now you’ve invited me to yours?”); she accuses this kind of analysis of “devaluing friendship.” If it is not the economist or philosopher’s job to soberly assess the facts, rather than dwell in sentimentality, one wonders whose is.

2.

This attitude emerges frequently in left-adjacent thinking as well as the religious spheres of the right. The fear is more or less that neoliberal cultures of efficiency or rationality “commodify” and “disenchant” life, stripping its spirituality. “Economics thinking” has become a slur. But where the phrase is a powerful line of criticism—the assertion that improper, lossy reductions of reality have taken place, a simplistic model that does not predict the messiness of reality—it is used just as equally to challenge any reductions, in our modeling of sociality and personhood, of the sentimental and romantic into material or evolutionary frames. At least insofar as it comes to the fear of science as great disenchanter, I am more likely to take young Emerson’s tack, writing in his journals that the lobster is a “monster” until one knows “what it is for”—its fitness and adaptedness to its environment, the elegant appropriateness of its behavior and anatomy. To argue that “mere” perception, constituting the imposition of a flawed and partial schema onto an object of consideration, are far inferior to actual sight, a perception guided and informed by real understanding of the thing as it is. “Recognition” is always misrecognition. And the world as it is—life in its forms, behaviors, complexities—is far stranger than the world as it once appeared, in the magical, mythological thinking of ancestors.

The world has changed in other ways these years. Once a single, shared, “enchanted” narrative model—fusing religion, naturalism, and human telos in a single cosmology—united a community, guiding the two sides of the social coin—action and interpretation. The map, however flawed, could be used in social life without friction, because it was shared, and all other social agents considered its reference. Today these narratives have fragmented; we bump constantly into those running different interpretive scripts. The power of these fictions is already defeated. To avoid better explanations on the basis of such fictions is to live in denial, which is death.

3.

In game studies, there is a phenomenon where, in games whose rules and physics are opaque or difficult to discern, superstition emerges among players. No doubt this is also what led to premodern spiritual and religious systems. But bad models are a recipe for neurosis. When people don’t have good working models of the world, safe things scare them, and dangers pass as safe. They are easily lured, conned, hoodwinked; their expectations are frequently violated; they don’t know who to believe, or what. Having a good model of the extent, and inevitability, of suffering around the world—putting the deaths from cold into context—allows one to have a contextually appropriate response, rather than an instinctual and contextually inappropriate one. The situation is the same with models of sociality—bad models actively break down friendship and social belonging because the relevant parties create, out of ignorance, dynamics neither party wants, or follow philosophies of sociality that are counterproductive to their real goals. “Don’t you think optimizing for outcomes commodifies daily life?” You shouldn’t be reading this, this isn’t the blog for you.

“I don’t believe you.” Fair enough, an example: Maggie May never accepts her neighbors’ offers of favors, because she doesn’t want to impose on them. At the same time, she wishes she were closer to the people living on her street. She has a mental model of sociality where “favors” are what we say they are—the neighbor will go out of her way, making a small self-sacrifice out of kindness or felt obligation, and mutter her husband about. “No, I would never want to put anyone out on my behalf.” What has actually happened is that the neighbor has offered an alliance via a small “loan”—a gift given up front which sooner or later will be met by a gift from Maggie May; the pair will continue to do small favors for one another, and should they prove helpful, stabilizing forces in one another’s life, they may come to rely deeply on one another, becoming friends in the process. “My mother told me never to go into debt.” She was wrong—never go into a debt you can’t pay off.

Here’s Thomas Schelling expressing the dynamic more formally, in a description of bargaining strategy. What I’ll suggest soon is that all communication and by extension all sociality is bargaining—there is a base calculus, the transaction between people of their respective desires. Emphasis added:

What makes many agreements enforceable is only the recognition of future opportunities for agreement that will be eliminated if mutual trust is not created and maintained, and whose value outweighs the momentary gain from cheating in the present instance. Each party must be confident that the other will not jeopardize future opportunities by destroying trust at the outset. This confidence does not always exist; and one of the purposes of piecemeal bargains is to cultivate the necessary mutual expectations… if a number of preparatory bargains can be struck on a small scale, each may be willing to risk a small investment to create a tradition of trust… if a major issue has to be negotiated, it may be necessary to seek out and negotiate some minor items for “practice,” to establish the necessary confidence in each other’s awareness of the long-term value of good faith.

4.

This is David Graeber’s thesis, or part of it: debt is baked into human sociality. Plato’s Republic opens with Kefalos suggesting morality is founded on payment of debts. In Aramaic, the Galilean tongue spoken by Jesus and his disciples, the word for “debt” and “sin” are identical. The Lord’s Prayer (“forgive us our trespasses”) originally uses that Aramaic term in place of “trespasses.” 

Where does this come from? The “standard” economic story, originating with Adam Smith, is that barter preceded money. After a century of studying hundreds of hunter-gatherer societies, this story now appears false. What binds these societies—and by extension, likely our ancestral communities—is their use of credit—systems of gift-giving and mutual indebtedness, with informal and approximately quantified tallies. This mutual indebtedness is fundamental to sociality—it creates an ongoing premise for interaction between families, and if a party proves itself trustworthy, it facilitates greater coordination.

Reciprocity, then, is not “just” a logic of sociality; it’s the dynamic that underlies it.

5. 

All communication is manipulation. Some manipulation is mutually advantageous.

“You’re not talking about manipulation. You’re talking about persuasion or influence. Manipulation is a bad thing.” Sounds like a tractable definition. Whatever man, words are fake: for our purposes, “manipulation” is any attempt to modify someone’s behavior in a way that’s at least advantageous to yourself. Why else would you tell someone something? “I speak to express myself.” Again, wrong blog; the line you just repeated was invented by romantic poets; just because it makes you feel creative doesn’t mean it’s true. This is the kind of blog where I remind you that Robert Trivers has published thousands of pages on how humans engage in strategic self-deception, and that you should go read some of them if you believe quaint things like “I speak to express myself.” “Sometimes I don’t want them to do anything, I just want them to think something… like, that I’m a good person, or I love them?” And why do you want them to think that?

People aren’t Machiavellian; that shit takes way too much energy. They’re just optimizers for what they want. And all human interactions are fundamentally bargains between people: I want some things, you want some things. What makes it interesting is, most people frame bargains as pure conflict. “Our interests are diverging! I want the cheapest price, he wants to lighten my wallet.” No, you’re using words to obfuscate the underlying reality. I’m not even a math guy, but it’s elegant as hell: there is a range of prices at which it is profitable for the salesman to sell, and a range of prices that are worth your purchase. Stalemate—no deal—and you both lose. Anywhere in that overlap you both win; the question is just how much and who walked away with more. That’s what’s being fought over, but the bargain encompasses the full picture: mutual interest, divergence. As Schelling shows, all conflicts short of all-out war are defined not just by conflict but by shared goals. You’re coordinating and conflicting at the same time, otherwise you’d kick his table over, shout obscenely, and storm off when he gives a “disrespectful” price. Oh, we’re all adults here? What do you think “being an adult” is, in everyday life?

Let’s recall the very basics of reciprocity. There are many situations in which coordination between individuals leads to better outcomes for both parties. But any given individual in an agreement is incentivized to freerided and cheat—which is why you rehearse convoluted defenses of music piracy to yourself in the shower, rather than purchasing the album and supporting the artist. “Someone else will keep their lights on… someone richer,” while the files download to your Macbook Pro. 

It is much talked-about that mobile phones and Internet access make much of spontaneous human communication unnecessary, or at least optional—asking the time, asking for directions, asking locals for information, asking an employee for help or a friend for consumer recommendations. These things were defensible by necessity—or perhaps, more accurately metaphorically, they could be retreated from—an attempt to make friends through requests for information could be justified, on the surface, on those grounds. Lest we do not disappear into our own solitary existences, we should remember that such requests for information are requests for minor favors which put us in the others’ debt, enabling and implying future interaction.

6.

What is a signal, in signaling theory? Economics or evolutionary theory, the concept is the same: Signals are behaviors whose primary purpose is to influence other, responsive organisms’ behaviors in turn. A signal by definition is dispatched for the benefit of the signaler: A bird’s tail feathers protruding from its home, in a way visible from outside, is not a signal to passing animals, but an unintentional or unavoidable cue. Something—the presence of a bird—is “evidenced” by the tailfeathers’ protrusion—but it is not an act of communication by the bird, it is not an intentional attempt to manipulate organisms’ behavior. In other words, all communication is signaling, should we stick to strict definitions: behavior intended to modify other organisms’ behaviors.

7.

House of Games (1987, David Mamet) setup: Margaret is a best-selling psychiatrist so overwhelmed by work, so frustrated by her helplessness to meaningfully improve her patients’ lives, that she enters a manic state, shows up in a pool hall across town and starts threatening a loanshark who is pressuring a patient of hers. It’s no coincidence that literal financial debts are the MacGuffin that makes this plot run. 

The loanshark, Mike, turns out to be more petty conman than gangster; Margaret’s intrigued. His bluffing and persuasion tactics sound like a great idea for her next bestseller. She asks him to show her his moves. It’s clear what she’s getting out of it—another book, excitement in her life, a model of masculine assertiveness. (Mike: “I think what draws you to me is this: I’m not afraid to examine the rules and to assert myself.”) But it’s not clear what he’s getting out of it, and she never stops to ask. This is her first error. 

Mike takes her to a Western Union, pulls a con on a wholesome, off-duty marine who needs a bus ticket to Camp Pendleton. The con works by presenting false information—after all, values are hard to alter, but its priors that regulate action. At the last minute, when the marine’s practically begging Mike to take his money, Mike walks away, tells him to keep it. Remember Schelling small series of trust-building exchanges, “practice” for the real thing? Why would Mike skip on the money, he’s a criminal? Because he doesn’t want to appear that way. He’s gaining Margaret’s confidence. The marine’s not the mark. She is.

Eventually and predictably, the bestselling psychiatrist gets scammed out of $80k in cash, believing, under false pretenses, that it’s a mob payoff—that the payment, in cash, handed over to Mike, will save her life. How could she be so gullible? He told her what she wanted, then he gave it to her. She was getting everything she ever wanted. The real question is: Why would she ask questions? 

This is exploitative manipulation. It isn’t exploitative because he lied to her, or because his intentions were “bad.” It’s exploitative because their relationship took more from her than it delivered in turn, and because it was designed, deceptively, to do so. The final scene, where (spoilers) Margaret shoots Mike to death in an abandoned airport hanger, marks the end of their ongoing transaction—the part where they “settle up.” The final scenes show her so healthy and self-contented she’s practically glowing. She’s taken life into her own hands—asserted herself. It’s a comedy because it ends happy, and it ends happy because she walks away from it better than she started.

8.

Graeber:

In many human societies it is the case that if you praise somebody else’s possession it’s almost impossible not to give it to the person who praises it. This is another one of those things which has a very strange moral power, so much so that you really can’t break out of it. There’s a great story I always tell from New Zealand, a guy named Te Ringa who was a notorious glutton. He rarely did much fishing himself, everybody else in the neighborhood was a fisherman, and he would walk up and down the beach looking for people coming back from fishing and check out their catch and say, Oh look, squid, that’s my favorite, or Wow, that’s a beautiful fish. Okay, here’s your fish, here’s your squid. You just have to give it to him. After about two years people got fed up so they formed a war party and they killed him.

So: you take, and you take, and you take… 

9.

If the underlying logic of sociality is transaction, the underlying logic of transaction is desire. 

Transactions cannot be settled up “on the spot,” so they are handled through lines of credit—reciprocity. In some societies, there are strong norms favoring tit-for-tat, with various levels of forgiveness. In others, like Te Ringa’s, there are no such norms; the “economic” transaction is obscured by generosity, and blood pays the price for reneging on debts. See also modern (unregulated) loansharks, mob culture, Mean Streets—Charlie disrespecting his creditors. This is not how you want to do business typically—it’s bad for lenders, its bad for borrowers, but it emerges in economies where there are only “two-party” guarantees instead of “third-party” guarantees. Two-party systems devolve into honor cultures; third-parties—Hobbes’s Leviathan, the government—help keep peace. In all unregulated economies, agreements are “two-party,” which includes most social transactions. In two-party systems, reputations are the ultimate form of currency: they enable transactions, enable lines of credit to be extended, in a way that would be risky for the lending party otherwise. This is why so much conscious and unconscious effort is poured into the maintenance of reputation, and why damages to it are felt as so psychically painful.

For every Maggie May, hopelessly caught in a contradiction between not wanting to impose, and wanting to make friends, there is an informed dissenter, whose philosophy of (Emersonian) self-reliance is explicitly to avoid interpersonal entanglement. To not ask favors to not be asked to give favors. This strategy, and its foil—mutual ingratiation—constitute opposite poles of a, if not the, fundamental philosophical question of sociality. The question is fundamentally a personal one—there isn’t a “right” answer irrespective of person, in the same way there’s no “right” evolutionary form irrespective of environment. The solution is embedded in the context of the problem. 

And it’s this question that much of art and literature concerns itself with. In Hamsun’s Pan, the narrator toggles between town life and hermitage, the pangs of loneliness tempting him to sociality; sociality’s pressures repelling him back to the hunting cabin. As Graeber notes, the earliest known word for “freedom” means “freedom from debt”; these are the choices—liberty or entanglement. Jonathan Franzen’s Freedom depicts collegiate Patty, torn between sexual desire and familial obligation; husband Walter, who—so grateful is he to Patty for choosing him—immediately abandons his professional dreams, compromising into a shared life together; and their adult son Joey, tempted by infidelity and unsure what he owes his childhood love. Each sacrifices, but even then—no one does something for nothing. As Robert Pfaller notes, if you can’t—or won’t let yourself—get what you want, then you’ll make a fetish out of forgoing it. The sacrifice is hammered into an identity, libido is sublimated into the construction of ego, a public image of do-gooder, aesthete, ethical monk.

Freedom versus entanglement is a decision people have to make as human beings—to get close to people, to enter “traditions of trust.” It is a fundamental civilizational dynamic, a profound difference in how societies self-organize. In historical terms, we live mostly—unprecedentedly—alone these days. With wealth the household size drops; lonely from the luxury of privacy. In as recent as Ptolemaic and Roman eras, eight members, multigenerational; now it is four for eighteen years plus or minus a few, at which point it becomes two again. Modern Americans (and Western Europeans) are “weird” (Henrich); libertarianism, atomization, and individualism all go together, as do our our religions of work ethic, our cults of progress, our technological comfort. This is an integrated way of living in which the parts of exhibit fitness with both one another and the whole. There are other ways, but they do not come “piecemeal”; sampling is difficult; effects are emergent. We are on one local maximum of a fitness landscape, and higher peaks lay across wide valleys; in the fog, it is difficult to tell whose is higher, ours or theirs. 

10.

This theme of self-assertion, in House of Games, is interesting. It’s a common one in contemporary discourse, particularly for its gendered contours. Where it is perhaps man’s common pathology to take more than he gives, it is woman’s to give more than she takes. At the same time, we hear often that women have papered over their desires, lost touch with their sense of I want. Tentatively, I am reminded of one of Schelling’s arguments—that ignorance is a great strength in negotiation. The realities of social obligation are strong, but felt; the social ledger exists inside heads; and while the realities of real debt and deep imbalances between people can and do strain social relationships in consequential ways, the fear and feeling of obligation and indebtedness—at least among the conscientious—long precede such consequences. And I have observed with my own eyes the psychic toll of feeling over-indebted, of losing sight of contractual realities and the objective history of the social ledger, in favor of quieting the ever-present “should.” This clash is the definition of neuroticism. To instrumentalize the paying of debts—to contextualize the “should” as instrumental to continued amicable relations, which is to say as part of an ultimate I want—is to grant agency. Where does a feeling of control originate? From a confidence in one’s ability to manipulate one’s environment. And where does an ability to manipulate one’s environment stem from? From one’s modeling of the environment. (See the Good Regulator Theorem.)

11.

Cowen and Callard’s talk moves on, at some point, to the morality of quantifying the value of human life. To Cowen, it is necessary to make these decisions, not just necessary but inescapable. If a mother chooses to buy a less expensive car to avoid going into debt, instead of a more expensive car with a higher safety rating, she has put a price on a probability of her children’s death (as well as her own). If a government chooses to allocate money, it must make similar decisions about the allocation of funds, given different initiatives’ efficacy at saving lives or improving constituent well-being. The weighing of lives is inevitable—non-optional—for anyone with the power to make such decisions. Shirking from such weighing of relative value is shirking from leadership: these are the kinds of people who, on principle, would refuse the premise of a trolley problem—behavior that displays, not a moral righteousness, but an unwillingness to get one’s hand’s dirty. 

Callard does not need to make such decisions, and can maintain the luxury of appeals to “innate human dignity,” sans skin in the game: 

In philosophy I never find myself talking the way you were talking; I just think ‘it is or isn’t okay’ to think that a human life has a certain kind of to put a price on human life and you know maybe human lives are have a kind of value that can be should be understood as having a dignity rather than a price and and now you might come back at me okay yourself so you might say that I’m self-deceived but I as a philosopher…

Yes, I (and Trivers) would assert she’s deep in self-deception land, a poor choice of territory “as a philosopher.” Cowen, despite being handicapped by his career as an economist, fares better with his repeated argument: the truth can set us free. But Callard is a strange Platonist, with an implicit belief in the value of noble lies, even at the highest levels of discourse. Where the Republic showed an authoritarian but soberly enlightened philosopher at the helm of a deceived crew, Callard’s trireme would be all delusion, would face both Charybdis and Scylla so that the captain might avoid the responsibility of her decision. Callard’s arguments are strange & indescribable; is as if she has muddled up what she wishes to be true with what appears to be true, defending or criticizing in a way far estranged from concern with the accuracy of our map. It is never, in her interjections, that Cowen’s analysis is wrong in its reductions, but that it might alienate us from ourselves and our initial instincts, here fetishized as the “true” or “noble” impulse, in a Rousseau sense.

What I’d really love is a good synthesis of these two views, a way to frame one set of concerns in light of the other, a way to meet both criteria at once. Instead, I’ve only vaguely gestured at the value of models, the costs of looking away. This unquestioning view is often cast as “ethical” and humanizing by advocates—typically in opposition to a “Vulcan” rationality. It is anything but. There is nothing sympathetic or redeeming about a cowardice to face the fact, especially when that cowardice results in atrocity. Nor is a shirking of contextualizing, sober assessments of the world one we would wish to further hemorrhage from fields, like economics and philosophy, whose ostensible charters are truth-seeking. We might learn a great deal from sober assessment; it might even liberate us from romanticism’s chains. Instead, the so-called humanists make constant claim to the higher ground, using sentimentality as a stand-in for soul, bemoaning the “cold” and “robotic” frameworks of the stronger-hearted.

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