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Previously publishedhere.

Mainstream economics measuring success


Much of mainstream economics is based on mathematical models which, it is claimed, represent the success of various economic policies. "Success" is often described as a number - the higher the number, the more successful the economy. And that number is often calculated in a way  that depends on two values "consumption" and "leisure". The intuition is that it is better to consume more and have more leisure. So we often see a formula kind of like

Success = U(consumption,leisure)

where U is some calculation balancing the two good things. Now to make things easier, economists often pretend there is a single consumer who represents the economy and so build models of the economy in which the goodness value of that one representative or aggregate consumer is the value used for the whole economy.

Let´s look at a really simple example of how this works. Suppose we approximate "consumption" by earnings, on the theory that the more you earn, the more you consume. Just an approximation. And suppose we measure leisure in hours of non-work and then calculate U(C,L) = C + L times ValueofLeisurePerHour. We just assign some value per hour to leisure, multiple the number of leisure hours by that value and add it to earnings (C ).  Suppose we have a society of two people, A and B and just add their earning and their leisure time together. Maybe we value leisure time at $10/hour and we have two people each working low wage jobs 8 hours a day for $10/hour - just to keep it simple. Then Success per day is  8x10x2 (for two people working 8 hours a day) plus 16 x 10x2 for their leisure hours for a total of 480. We measure Success as 480. Great. Suppose though that A decides to pimp out B and sends B out to the bus terminal where in an 8 hour day, B can earn $500 turning tricks. A now just needs 1 hour a day to beat up B and collect earnings. Say A leaves B with $80 a day. Now we calculate Success again, 1x420 + 8x10 for earnings since A works 1 hour a day for $420 and B works 8 hours for $10 hour equivalent (after A takes most of it). That's a total of $500. Add in the leisure which is up since A only works 1 hour a day for $390 and we now have a Success value of 890 - PROSPERITY! Up more than 50%!

Well, maybe B doesn't particularly like this arrangement, so, generously, A takes some of his new wealth and hires Professor M. from Harvard to come and give them an objective opinion. Plugging the numbers into his spreadsheet, Professor M. might note that things would be even better if A forced B to work 16 hours a day at the bus terminal - say doubling B's fees for service. In that case Success would be calculated by adding 500 to A's earning and subtracting $80 from the leisure calculation for B. Now we are at 1310 instead of 890. B should be grateful to participate in this massive increase in economic Success. Professor M. says he is just doing the science and that objections to his suggestions are emotional and irrational.


Utility


In economics jargon, what I have called "Success" is called "utility" and utility functions illustrate how mathematical convenience is used to justify unpalatable and frankly creepy theories of what people should want. Look, we are told, it's not perfect, but the math is simple and it  gives a simple approximation of the real thing - this is just like ignoring friction in Physics 101. But is it? Is the concept of a representative consumer meaningful in an economy where some profit at the expense of others? It would be easy enough to add a factor representing inequality by reducing "utility"  for consumers who are, say, below 1/2 average earnings. What is the justification for not doing that? Does a utility function that depends only on consumption and leisure time at all approximate prosperity? What about the utility of living in a society where most people are not poor and desperate enough to stick a knife in your back for a slice of bread? Because in the real world, economics theories are generally sold to A but B is not guaranteed to accept Professor M's explanation. Shouldn't the utility function also include "social stability" as a parameter? How about "environmental sustainability" so that increased consumption produced by, for example, burning rubber tires in the street, is balanced against dying painfully of cancer or something?

The example of A and B above is, like most examples in Economics, contrived but it illustrates a general rule:

Rule: By mainstream measures it is economically advantageous for a society to engage in brutal exploitation - slavery, debt peonage, mass immiseration, environmental destruction, and the like.  

Walter Johnson points out that in 1860 the "value" of the slaves in the United States exceeded the value of the entire industrial system: factories and railroads. From an aggregate economic point of view, slavery drove prosperity. The foundational models of Economics rely on the kind of averaging and aggregation that justifies exploitation. If a slaver can drive human beings to work under conditions of terror to produce more "value" than they would produce otherwise, Economics tells us that everything is good. This is not accidental: Economics as a discipline developed during the English industrial revolution and the mathematical trappings encode a great deal of the ideology of the English elites at the time. Consider the famous British intellectual Thomas Carlyle, in 1849, bemoaning the abolition of slavery in the sugar islands of the Caribbean.

“Our beautiful black darlings are at last happy [freed from slavery]; with little labour except to the teeth, which surely, in those excellent horse-jaws of theirs, will not fail… . Sitting yonder with their beautiful muzzles up to the ears in pumpkins [any tropical fruit], imbibing sweet pulps and juices; the grinder and incisor teeth ready for every new work, and the pumpkins cheap as grass in those rich climates: while the sugar-crops rot round them uncut, because labour can not be hired, so cheap are the pumpkins … Where a black man, by working about half-an-hour a day (such is the calculation), can supply himself, by aid of sun and soil, with as much pumpkin as will suffice, he is likely to be a little stiff to raise into hard work! … [via Harry Cleaver]

The sugar plantations of the Caribbean were vast sources of wealth and economic growth as measured by Economics because they ground up human beings as raw material to produce sugar, rum, molasses - the foundations of a massive trading system. All the bullshit about efficiency, free markets, and the rest in Economic ideology evades the fundamental mathematical truth that the aggregate measures of "utility" justify slavery, piracy, murder, and theft. The vast majority of people in the sugar islands were better off working 1/2 hour a day and enjoying their lives than they were working sunup to sundown under the lash, which is why it is so convenient not to measure it that way. Under standard measures of economics, the "utility" of the Jamaican economy increased when human beings were brutally turned into factory parts in the sugar industry and decreased when they lived for their own benefit. If A can force B to produce wealth in such a way that net "utility" increases, Economics will applaud any crime. 

Alfred Marshall constructed modern mainstream economics  around the same time Francis Galton was developing eugenics.  Both theories feature mathematical models to justify privilege and, of course, advocates of both theories often insist that they are just running the numbers, just dispassionately looking at the math, not in the least advocating some crazy ideology.

Next: Integration of Gibberish. How to use the tools of the integral calculus to transform nonsense into more nonsense.

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Comment Preferences

  •  T&R for title. nt (3+ / 0-)
    Recommended by:
    Rashaverak, Redfire, happymisanthropy

    "The object of persecution is persecution. The object of torture is torture. The object of power is power. Now do you begin to understand me?" ~Orwell, "1984"

    by Lily O Lady on Mon Feb 17, 2014 at 05:21:17 PM PST

  •  The Only Profession in Which All the Incentives (7+ / 0-)

    are for lies and fraud.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Feb 17, 2014 at 05:29:23 PM PST

  •  You know you're dealing with lunatics when (7+ / 0-)

    they tell you that the basic unit of economic agency is the rational human being.

    To put the torture behind us is, inevitably, to put it in front of us.

    by UntimelyRippd on Mon Feb 17, 2014 at 05:31:15 PM PST

  •  It's about time someone took down utility theory (6+ / 0-)

    which is -- to use the charitable phrase of the philosopher Mario Bunge -- academic numerology.

  •  just because you might not understand it (2+ / 0-)
    Recommended by:
    annieli, grover

    doesn't invalidate it. odd how accurate krugman and stiglitz have been.

    The cold passion for truth hunts in no pack. -Robinson Jeffers

    by Laurence Lewis on Mon Feb 17, 2014 at 05:48:00 PM PST

  •  I had to take an Economics course in college. (7+ / 0-)

    It was required of all in the field that I was studying (engineering).  I got an A in the course, but I came away from it thinking it was largely bunkum, as far as a science is concerned.

    I formed this conclusion early in the semester when we were studying demand and satisfaction curves.  There is a common-sense validity to the law of supply and demand.  The more demand there is for a product, the higher the price it will fetch in the marketplace, unless the supply of the product can increase to match the increased demand.  And if there is an oversupply relative to demand, prices will fall.

    So far, so good.

    But where the professor lost me was when we got into curves that were based on units of satisfaction.  There were all these curves in the textbook based on that.  But nowhere in the textbook was the unit of satisfaction defined.  So, in class, I asked the professor what was the unit of satisfaction.  How do we quantify it?  The professor really could not give a satisfying answer.

    If you are going to plot curves, and thereby impart truly meaningful, precise information, you need to define your axes and the increments of each axis of the graph.

    E.g., you can plot, in two or three dimensions, the ballistic path of a ball thrown into the air or dropped from a moving vehicle, and the curve really means something.  That’s because the axes of the graph have precise definitions… time in seconds, vertical position (height) or horizontal position (distance from the point of release) in meters or feet, etc.

    If you have good data, you can derive all sorts of information that you do not already have, such as the coefficient of drag of the ball, the acceleration of gravity, etc.  And with that derived information, you can predict pretty accurately the behavior of the ball if it is dropped or thrown from the vehicle at a different speed or from a different height, based on mathematical modeling.

    However, for the modeling to mean anything, one has to know the units on which the curves are based.  Otherwise, the curves are just generalized statements of concepts and are not a proper basis for deriving any precise predictions.  At least that’s the way that I see things.

    To this day, I’ve still not learned what the unit of satisfaction is on which these textbook curved were based.  Perhaps someone here can enlighten me.

  •  Are you sure you meant (2+ / 0-)
    Recommended by:
    annieli, Larsstephens

    Phrenology and not Phenology?

  •  Beautiful. Just beautiful. (2+ / 0-)
    Recommended by:
    Rashaverak, grover

    Can't wait for the next one.

  •  Which economics? (3+ / 0-)
    Recommended by:
    Rashaverak, FG, Redfire

    There's more than one school of economic theory out there.

    Too many people have been educated in nothing but FOX News Economics, which is the group of theories that include Chicago school economics and Austrian economics.

    As you can guess by my tone, I think that the Austrian/Chicago/neoliberal school of economics is horseshit.

    I'm more of a Keynesian. I appreciate ideas like bounded rationalism (not everyone can min-max their choices, and in fact, people often behave stupidly), the concept of market failures (yes, they're real and happen all the time), the need for government interventions, and the Keynesian idea that in order to pull an economy out of recession and stagnation, stimulus is necessary, not austerity.

    •  mainstream econ (3+ / 0-)
      Recommended by:
      atana, arendt, Larsstephens

      As reflected in both Econ 101 curriculum and general accepted practice in the field. This means everyone from Becker to Krugman and kind of includes Stiglitz.  There are people doing interesting work, like Bowles, Gintis, experimentalists, and there is really interesting work in economic history  - but I mean mainstream which derives from Ricardo and then Marshall/Warlus etc. Keynes is interesting because he succeded in escaping from Marshallian econ to a certain extent - but the  New Keynsians - as Steve Keene points out - are not too Keynsian.

      self-appointed intellectual cop

      by citizen k on Mon Feb 17, 2014 at 06:55:28 PM PST

      [ Parent ]

  •  Nobody Gets to Hire an Economist (2+ / 0-)
    Recommended by:
    citizen k, Larsstephens

    If they can afford to.

    Economist should be an elected office, only food stamp recipients can vote.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Feb 17, 2014 at 06:31:18 PM PST

  •  but Economics minus Calculus is what's taught in (5+ / 0-)

    MBA programs now, so therefore Tuck, Wharton, Darden, Kellogg, et al.... are all schools of phrenology, which is an accurate description given Donald Trump and that thing atop his skull....

    Warning - some snark may be above‽ (-9.50; -7.03)‽ eState4Column5©2013 "I’m not the strapping young Muslim socialist that I used to be" - Barack Obama 04/27/2013 (@eState4Column5).

    by annieli on Mon Feb 17, 2014 at 06:50:44 PM PST

  •  Couldn't agree more. Thanks. n/t (1+ / 0-)
    Recommended by:
    atana
  •  Not being mathematically inclined, I've been (0+ / 0-)

    fruitlessly looking for equations to define what's actually going on with this science that's based on false assumptions.
    You've made a lovely start.
    However, it may just be that the "logic" employed by some brains is perverse. They argue from cause to effect and effect to cause quite arbitrarily, as if reality were a light switch with just two settings, "on and off." It's a binary mindset in a triangulating population.
    'Cause that's what humans are really good at, triangulating. The market, whether free or regulated, is full of triangulators -- self-servers who claim the products of others for themselves by dint of force.

    http://hannah.smith-family.com

    by hannah on Tue Feb 18, 2014 at 01:07:40 AM PST

  •  In May of 1949 Albert Einstein published (2+ / 0-)
    Recommended by:
    citizen k, semiot

    an article about socialism. Knowing in advance that some of his critics would use economic theory to say socialism could not work, he opened his article this way (emphasis added):

    Is it advisable for one who is not an expert on economic and social issues to express views on the subject of socialism? I believe for a number of reasons that it is.

    Let us first consider the question from the point of view of scientific knowledge. It might appear that there are no essential methodological differences between astronomy and economics: scientists in both fields attempt to discover laws of general acceptability for a circumscribed group of phenomena in order to make the interconnection of these phenomena as clearly understandable as possible. But in reality such methodological differences do exist.

    The discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately.

    In addition, the experience which has accumulated since the beginning of the so-called civilized period of human history has—as is well known—been largely influenced and limited by causes which are by no means exclusively economic in nature. For example, most of the major states of history owed their existence to conquest. The conquering peoples established themselves, legally and economically, as the privileged class of the conquered country. They seized for themselves a monopoly of the land ownership and appointed a priesthood from among their own ranks. The priests, in control of education, made the class division of society into a permanent institution and created a system of values by which the people were thenceforth, to a large extent unconsciously, guided in their social behavior.

    But historic tradition is, so to speak, of yesterday; nowhere have we really overcome what Thorstein Veblen called “the predatory phase” of human development. The observable economic facts belong to that phase and even such laws as we can derive from them are not applicable to other phases. Since the real purpose of socialism is precisely to overcome and advance beyond the predatory phase of human development, economic science in its present state can throw little light on the socialist society of the future.

    My reading of some of Einstein's public pronouncements leads me to think that he was not a hard-line socialist, but rather favored any government system that obeyed the Will of the People.

    My reading of some arguments, pro and con, about socialism finds that there is general agreement on its definition: a system of government in which the government owns the means of production.

    I wonder if anyone here can tell me the name for a system of government that does not own the means of production, but merely controls them?

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Tue Feb 18, 2014 at 04:47:35 AM PST

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