Awkward Utopia

On Awkward Utopia, we have recently discussed how robust the results have been from the so-called science of monetarism. I think that as far as it goes, the jury may still be out, though some authors on this blog would concur with the Austrians that the science of monetarism will only be whole once the deleterious effects of central banks are fully understood. But monetarism is yet a small part of the much broader science of economics. In Stigler’s The Theory of Price, 4th Ed. (1987), the author writes on page 9 that:

When we assume that consumers, acting with mathematical consistency, maximize utility, therefore, it is not proper for someone to complain that men are much more complicated and diverse than that. So they are, but if this assumption yields a theory of behavior which agrees tolerably well with the facts, it should be used until a better theory comes along. […] The essence of scientific progress is to edge up this ladder from ignorance to knowledge, and it is complicated by the fact that the ladder keeps getting longer!

The model to which Stigler refers forms a very solid basis for the science of economics. Humans tend to maximize utility. Perhaps we cannot state with absolute certainty that all humans do so, but we can state with something approaching absolute certainty that all humans tend to do so (barring for now those nagging questions about just who qualifies as human as a function of mental competence). The maximization of utility does not concern itself only with monetary gain. Rather, it refers to a consumer’s preferences, which need not involve anything that can be priced. These are powerful propositions that form part of the core by which all new contributions to economics must be judged.

Accordingly, one cannot help but lament the unsatisfactory publication “Money Ruins Everything” by Crooked Timber’s John Quiggin (a professor at the University of Queensland, a university I came to know and love in Brisbane) and Dan Hunter (another professor undoubtedly much smarter than I). Leaving the title alone, the abstract sums up the agenda of the paper:

Unlike 20th century innovation, the most important developments in innovation have been driven not by research funded by governments or developed by corporations but by the collaborative interactions of individuals. In most cases, this modality of innovation has not been motivated by economic concerns or the prospect of profit. This raises the possibility of a world in which some of the sectors of the economy particularly the ones dealing with innovation and creativity are driven by social interactions of various kinds, rather than by profit-oriented investment.

This seems like a tall order. In the comments of the Crooked Timber post announcing this publication, one of the authors addresses a concern:

Obviously, … there’s a sense in which all motivations are economic motivations. But there’s also a commonly used narrower sense (broader than profit but not encompassing social interaction pursued for its own sake), referring to activities directed towards increased access to market goods and services. Since “economic” in the first sense is redundant, I suggest you read it in the second.

It seems as though the authors are attempting to carve a slice out of the utility pie. Fear not, for they do so without success. After reading the paper, it is clear that the authors are trying to appropriate a story that is best told in economic terms for their own purposes. During the discussion on innovation, the authors write on page 11:

Newsgroups, weblogs, and wikis provide a large and growing proportion of current Internet content, and have contributed to new technical innovations, sometimes in areas where extensive commercial efforts have failed. All of these developments rely on emergent collaboration among users, with commercial operations playing a fairly minor supporting role. These examples illustrate a more fundamental point: much innovation arises without either government funding or the expectation of profit and is made by a third class the industry describes as “amateur.”

Indeed, the authors go to extraordinary lengths to explain that the “amateur” mode of production is quite special. They put forth 20, maybe upwards of 30 pages that are wholly redundant or irrelevant to the paper’s best points (mirrored in criticism here). The authors use all kinds of fun-sounding but useless sentences: “A profound shift is occurring in assumptions about the production of socially valuable expression” (p. 13), “The multiple motivations of amateur producers are significant, because they do not fit neatly into the utilitarian calculus assumed by economic theory. Amateur content producers are emphatically not just utility maximizers…” (p. 18). Socially valuable expression? Not utility maximizers? No and hell no. Amateur producers (including so-called citizen journalists, bloggers, and open source software developers) are all, every last one of them, utility maximizers. They may derive benefit from socialization, position in their little amateur field, doing something they are good at, completing a useful project, or maybe any of those things are their least hated (and therefore most favorable!) result.

The paper would be better if at least half of it was shaved and it re-focused on two sentences it mentions merely in passing. The first involves the role of communication costs (p. 31):

The crucial development was the reduction in communications costs, which meant that a project with a physical location in, say, Finland, could make use of the output of a few hours work undertaken by a programmer in Atlanta.

Right! So why all the hooplah over amateur production? After all, plenty of professionals are producing more too, one need only look at Google’s leisure time activities. We want a theory that will encompass as much as possible in its predictions and when we refocus away from the silly notion of amateur production and toward the reduction in communication costs (and all the myriad related costs that overall lowered the barrier to production of information). The second potentially interesting but unexplored sentence (p. 6):

Economists such as Becker attempted to apply a market-based analysis to the use and distribution of resources within households, using such tools as shadow prices and marginal rates of substitution, but with little lasting success. Economists have made somewhat more progress using models of bargaining, but the household remains, in large measure, outside the sphere of economic activity as society normally understands it. Instead, attention in economic policy analysis is focused almost exclusively on the roles of the market sector and government sector.

Prove it! Show us something interesting, not this tripe about amateur production and economics bordering on literary analysis. This paper will no doubt be popular for the many readers of Crooked Timber and other blogs who will congratulate themselves on being a part of this revolutionary and resurgent mode of production, but it cannot be considered a serious scholarly work of any sort and therefore should not be published by a peer-reviewed journal. Instead, it should be converted into a 50-post series on a blog, where it properly belongs. Indeed, as far as I can tell, the paper is just a naked attempt at so much citing and dancing around to get to policy recommendations such as these (pp. 51-52):

Therefore national regulators, who want to produce a vibrant corpus of material that is directed to the ethnic and cultural needs of their people, are much better off encouraging the amateur content producers within their country by intelligent use of their cultural policy. The forms that this encouragement might take are the ones that we are generally familiar with in dealing with policy. Public subsidy and legalcontrols are the most obvious candidates. As to the former, the most significant public subsidies should be reserved for the public provision of Internet access, on the basis that it has the biggest multiplier effect on the ability of local content to be disseminated. In some countries and locales this will involve the creation of municipal wifi networks, in other cases it will involve building out net infrastructure in other ways.

If this is the best excuse that you can come up with for regulation and subsidy, when market solutions are already paying the most dividends, then you will have to go back to the drawing board. More importantly, the economics should be left to the big boys.

In conclusion, I fear that papers such as these represent the most fundamental threat to economics as a science. So long as people are fooled into thinking that citations and histories equal economics, they will not understand the fundamental models by which the science really rules the social sciences roost. Unless and until these models are accorded the respect due to them, they will never form an important basis by which the public is educated and we will all suffer for the failure.