TCS Daily

Why People Hate Economics

By Arnold Kling - November 21, 2005 12:00 AM

"the separateness of these two mechanisms, one for understanding the physical world and one for understanding the social world, gives rise to a duality of experience. We experience the world of material things as separate from the world of goals and desires.

...We have what the anthropologist Pascal Boyer has called a hypertrophy of social cognition. We see purpose, intention, design, even when it is not there."
-- Paul Bloom, writing in The Atlantic

Paul Bloom's essay "Is God an Accident?" in the latest issue of The Atlantic, suggests that humans' belief in God, Intelligent Design, and the afterlife is an artifact of brain structure. In this essay, I am going to suggest that the same artifact that explains why people are instinctively anti-Darwin explains why they are instinctively anti-economic.

Bloom says that we use one brain mechanism to analyze the physical world, as when we line up a shot on the billiard table. We use another brain mechanism to interact socially, as when we try to get a date for the prom.

The analytical brain uses the principles of science. It learns to make predictions of the form, "When an object is dropped, it will fall toward the earth."

The social brain uses empathy. It learns to guess others' intentions and motives in order to predict their reactions and behavior.

The difference between analytical and social reasoning strikes me as similar to the difference that I once drew between Type C and Type M arguments. I wrote, "Type C arguments are about the consequences of policies. Type M arguments are about the alleged motives of individuals who advocate policies."

Type C arguments about policy come from the analytical brain and reflect impersonal analysis. Type M arguments come from the social brain. In my view, they inject emotion, demagoguery, and confusion into discussions of economic policy.

As a shortcut, I will refer to the analytical, scientific mental process as the type C brain, and the emotional, empathic mental process as the type M brain. What I take from Bloom's essay is the suggestion that our type M brain seeks a motive and intention behind the events that take place in our lives. This type M brain leads to irrational religious beliefs and superstitions, as when we attribute emotions and intentions to inanimate objects.

We need our type M brains, but in moderation. Without a type M brain, one is socially underdeveloped. In extreme cases, someone with a weak type M brain will be described by Asperger's Syndrome or autism. On the other hand, as Bloom suggests, there are many cases in which we over-use our type M brains. For example, social psychologists have long noted the fundamental attribution error, in which we see people's actions as derived from their motives or dispositions when in fact the actions result from context.

Economics is an attempt to use a type C brain to understand market processes in impersonal terms. We do not assess one person's motives as better than another's. We assume that everyone is out for their own gain, and we try to predict what will happen when people trade on that basis.

Perhaps one of the reasons that economics is taught using math is that mathematics engages the Type C brain. By getting students to look at equations represented in graphs, the instructor steers them away from thinking in terms of motives. The down side of this is that when they go back to looking at the real world, many people who have taken economics courses simply revert to using their type M brains.

Explaining Higher Gas Prices

For example, consider the run-up in gasoline prices that occurred after Hurricane Katrina. Looking for the cause of higher gas prices, the type M brain asks, "Who?" The type C brain asks "What?"

Some Senators, appealing to the type M brains among their constituents, hauled oil company executives into a hearing to ask them to explain why they raised prices so high. One might just as well imagine hauling people before a Senate hearing and holding them personally responsible for gravity or inertia.

No one sets the price of gasoline. If they could, oil company executives would charge $10 a gallon or more. However, because of competition, they have to charge an amount that will allow them to sell the gasoline that they are able to produce. After Katrina, they were able to produce less gasoline, so that at $2 a gallon they would have run out. They raised their prices to the point where they could not raise them further without losing most of their business to competitors.

If an oil company had decided magnanimously to sell gasoline at low prices, it would have run out of gasoline. If enough companies had done so, there would have been so little gasoline left that by October the public would have been at the mercy of those few suppliers that held any inventories. If gasoline had cost $2 a gallon in September, the shortage in October might have pushed the price up to $5 a gallon.

If a monopolist were in charge of the oil industry, he would shut down some refineries in order to reduce the availability of gasoline. A monopolist would rather produce less gasoline and charge $3 per gallon than produce more gasoline but have to charge $2 a gallon to sell it all.

Fortunately, the oil industry is not run by a monopolist, and we do not have to face $3 a gallon all the time. A competitive firm will not shut down its refinery capacity to keep supply off the market, because that only benefits its competitors.

Hurricane Katrina temporarily did for the industry what a monopolist would do permanently. The hurricane shut down refinery capacity. As a result, oil companies earned high short-term profits. But those high profits did not reflect a sudden outbreak of greed among the oil company executives. Profits are explained by type C analysis of context, not by type M attributions of motive.

Politics and Government

Type M thinking views government as a parent. Conservatives want their government/parent to police moral behavior. Liberals want their government/parent to provide nurturance. Type C thinking instead thinks of government as an institutional arrangement. Rather than anthropomorphize government as a parent, type C thinking leads me to prefer the Separation of Family and State.

Type M thinking treats political conflicts as battles between good and evil. "Our" side is wise and sincerely motivated. The "other" side is stupid and evil.

Many economists revert to type M thinking when they look at politics. See my Challenge for Brad DeLong.

Type C thinking treats political conflict as an inevitable competition among various interest groups. Actors in the political sphere respond to incentives, just as they do in other spheres.

Politicians try to exploit the type M brain. Politicians appeal to people's fears. Their message is, "You are in danger. Fortunately, I care about you, and I will save you."

The many political crusades against Wal-Mart reflect type M thinking. For example, the state of Maryland, where I live, is considering legislation forcing Wal-Mart to provide expensive health insurance to its employees.

The type M brain sees Wal-Mart management as Scrooge, and Maryland's politicians as the ghosts that are going to get the company to see the evil of its ways. However, Basic type C economics says that forcing the company to provide more health insurance benefits would lead to lower wages for Wal-Mart workers.

International Trade

Economists view international trade as equivalent to the discovery of a more efficient production process. As Alan Blinder put it recently, "It has long been a mystery to economists why so many people view creative destruction that stems from technology as okay, while similar creative destruction that stems from international trade is something to be opposed."

Hardly anyone feels guilty about using tax preparation software rather than paying an accountant to handle their tax returns. Yet many people would tell you that there is something wrong with outsourcing tax preparation to accountants in India.

Neither economists nor non-economists tend to think of tax preparation software as an alien outsider trying to steal our jobs. However, many non-economists' type M brains instinctively think of Indian accountants as trying to do us harm. Economists are trained to look at international trade through the same type C eyes that we view technological innovation, and we are constantly amazed by the general public's hostility toward it.

Paul Bloom offers extensive evidence that the majority of people do not accept the type C approach to evolution, death, and other matters. If biologists have been unable to get people to change their type M minds, then perhaps economists should not feel so bad.

Arnold Kling is author of Learning Economics.


1 Comment

Economics as an M-theory; oil vs. dodos
Economics is a C-theory that has an M-theory at its core, which you state very nicely: "We assume that people are out for what they can get." Without that assumption about motives, the whole C-theory superstructure would collapse. Consequently, in looking at behavior where that's *not* the motive (e.g. strategic behavior, where what counts is not how much you can get but how you stand *relatively* to others), it works poorly. And strategic behavior is not rare: you employ it every time you walk or drive down the street.

The difficulty with a statement like "We will never run out of oil", if it is to be taken literally (and not as a metaphor for, say, "We will always have exploitable energy sources") is that a 17th-century economist would have said on exactly the same grounds "We will never run out of dodos", dodos being an economic good equally with oil, though eaten rather than burned or used to make pavement. But we *have* run out of them.

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