August 02, 2004
Preferences Revealed
The only good thing about getting on a kiddy caterpillar roller coaster with your two year-old, wrenching your back, and having the injury get progressively worse until you are laid up for most of the weekend is that you get caught up on your magazines. This is how I found myself reading one of the most remarkably dense statements I have ever encountered, in a February issue of National Review, no less.
The statement comes from Stephen Moore, president of the Club for Growth, in his review of Gregg Easterbrook's The Progress Paradox. I'll confess at the outset an admiration for Easterbrook, who has convictions that lean left but whose pursuit of truth frequently leads him to chip away at the shibboleths of big-government socialism. Would that the Right had more people as intellectually honest. My feeling for Moore is mildly positive as well; I've heard him speak before, and his message about the unrestrained, shamelessly profligate spending of Republican-dominated state legislatures in the 1990's is sure to boil any thinking man's blood.
But here is Moore trying to puncture Easterbrook's claim that material progress may not secure happiness, and in fact may mitigate against it:
". . . as an economist, I'm a bit of a skeptic on Easterbrook's 'paradox of progress' argument. We economists believe in 'revealed preferences': If you choose something voluntarily, then -- we assume -- you are better off. If getting richer and having more and more things doesn't make us happier, why do we spend so much of our lives trying to get more money?"
I am hard put to come up with a sentence that more ferociously skewers by caricature the economist than that last. I wonder how an adult can even formulate such a thought without shrinking from it in embarrassment. Who among us does not know someone who has wrecked his life on the rocks of his own material success, and as a result is mired in deep, abject misery? Indeed, who among us has not lain awake in the twilight hours -- when the heart is least stifled and our thoughts most honest -- and feared that such might well be his own wretched lot?
But such is the nature of economics, that the model must trump human experience. Revealed preferences are a critical assumption because otherwise we must understand the black box of the human heart and mind, and this cannot be done with slide rule and statistics.
A great failing of professional economists, and of the ideologies which make them their high priests, is that they transmogrify simple descriptive models of human behavior into prescriptions. Man seeks material gain because it is what he believes is best for him -- this is a description that allows us to build predictive models of behavior. Somehow the average economist has turned this into a prescription for living. Eat, drink, and be merry, he says, for it grows the GDP.
Indeed, it seems that economists turn the old adage about accountants on its head: They know the value of everything, and the cost of nothing.
Posted by Woodlief on August 02, 2004 at 08:05 AM
Re: "If getting richer and having more and more things doesn't make us happier, why do we spend so much of our lives trying to get more money?"
Because for some people, too much is not enough.
To be moderately wealthy -- a typical American in suburbia, which by world standards is moderate wealth -- is much better than to be poor. Nothing could be more obvious.
Being stinking rich is fine too if you don't change into a self-absorbed jackass, but so many seem to do that. Only an economist could fail to see that too much is not enough. Even the Eagles, drugged as they were, figured that out on "Hotel California", 28 years ago!
Posted by: Jeff Brokaw at August 2, 2004 8:35 AM
As an economist I am embarrassed to hear anyone use the terms 'doctrine', 'theory', or any other scientifically nobilitating term in conjunction with 'revealed preferences'. It is a flawed assumption to hold the model of consumer choice together. It is no wonder that economists always retreat to equations and nonstandard math symbols when trying to explain it - try explaining it in simple terms with a straight face.
Most economists will defend RP by pointing out its least moronic aspects (such as the weak axiom of revealed preferences) are but a stepping stone to sounder theories of budget constraints and utility functions. Still, I personally can't get over the fact that my science has at its roots an idea as absurd as Ptolemy's solar system, or perpetual motion machines. Let's admit it's a stupid idea, patch up the holes in economic theory, and get on with our lives.
Posted by: yes, but at August 2, 2004 8:51 AM
I like Easterbrook a great deal myself, and I think Moore--well, I like much of what he says, but I think he often misses obvious points.
I think the most obvious point that Easterbrook reveals in this book is the basic truth of Maslow's Hierarchy of Needs. Once you have sufficient food, sex, shelter, security, and offspring, you are confronted with the greatest challenge: spiritual fulfillment.
Americans have problems with that. Christians tend to believe God is the hole that fills that last. Skeptics such as myself are not so sure, but acknowledge the challenge.
Posted by: Dean Esmay at August 2, 2004 1:47 PM