Tuesday, 17 November 2015

For Those Who Ever Thought I Sounded Uncaring....

Some people tell me that as my Philosophical Muser Blog is underpinned by economic and philosophical analysis I can appear to be slightly uncaring with regard to the emotional and ethical aspects of situations under discussion. Yet I would hope that anyone who knows me in person knows how highly I regard emotional and ethical aspects of life. Why, then, can it come across as though I don't in some of the articles I write?

I think I know the answer - it's to do with the familiar distinction between positive statements (statements about how things are) and normative statements (statements about how things ought to be). The former involves matters of fact, and the latter involves matters of opinion about ethical considerations. Economic analysis is primarily about positive statements not normative ones. An economist who insists, for example, that rent controls, import tariffs, business subsidies and the minimum wage are ill-advised policies is dealing in positive science not normative values.

To make a normative statement and say what ought to happen one must combine matters of fact with how those facts affect the people involved. If for example rent controls damage the rental sector and impair important information-carrying price signals then one can suggest that politicians ought to vote against it as a policy, and that to do otherwise would be to unethically put vote-winning and popularity over factual assent. This is precisely what you should expect from economic analysis - it is the framework in which ethical statements should be uttered.

Here's an example of a common problem. Usually when there is a phenomenon or a policy change people only tend to focus on how it affects the obvious group (Note: it is absolutely vital that for every policy or topic you consider you must factor in the proper consideration of the fourfold analysis: What are the tangible benefits, the tangible costs, the intangible benefits, and the intangible costs?).

So for example, with a minimum wage rise people's first and often only concern is low-paid workers; with rent controls people's first and often only concern is tenants; with rises in interest rates people's first and often only concern is borrowers, and so on. Economists sometimes seem unsympathetic - but it really isn't the case - it's simply that economists know that in situations like the above, everyone needs to be considered - not just the most obvious group.

That is to say, minimum wage laws have to consider employers too, and people who sit just below that rung of the ladder in the employment market. Rent controls have to also consider landlords, and more widely developers and builders. And increased interest rates, while bad for borrowers, are good for lenders and savers and the value of the pound. Economics is simply about factoring in everyone in the equation.

I'm fully seized of the way economists often speak in such a matter of fact way.  It is not meant to be cold, it's just that economics very closely resembles science (it's one of the softer sciences) in that its truths are based on empirical observations and patterns distilled from data. Economics is very much concerned with human behaviour as well as mathematics and logic too. To say, for example, that labour has a value the same way that goods and services do is not to treat people uncaringly, or to dismiss their well-being (quite the contrary if you value facts and truths as essential parts of human well-being) - it is simply to make a scientific statement, not much different from saying that amino acids give our cells vital nutrients, or that recklessly printing more currency increases the probability of hyperinflation, or that a balanced diet is better for a child than a diet solely consisting of crisps and chocolate.

The other criticism economists get is that while we are good at the theoretics, we are less good at applying those theoretics to actual goings on (a popular case in point is the criticism that not many economists predicted the financial crash of 2008). Again, this is to misunderstand the situation. I'll explain by considering an analogy between economists and garage mechanics. Garage mechanics are in the business of fixing cars when there is a fault. They locate defects by asking the customer what brought them to the garage; they then look at the area of the car in question; they run the engine and listen for anomalous noises; they look for oil spillages, water leaks, structural damage, and so forth. But on top of that they have a service history book - so by consulting that they can also predict when different parts of the car might wear next, as well as forecasting potential hazards.

What they can't predict, though, are rare and unforeseeable events that might impact the car's performance. If the driver starts to drink and drive, or if he crashes on the motorway, or if a hurricane causes a tree to fall on it, then the car will be subjected to future events beyond the forecasting of the garage mechanic. In short, the garage mechanic doesn't know everything about the car's future, but he clearly doesn't have 'no' idea either.

That's a pretty good analogy for what an economist is like - but instead of cars, driving and parts, we have people, behaviour and arguments. Economics looks at how people behave, what incentives they respond to, and all kinds of associative explanatory theories. No human explanatory protocols are perfect, and there's no predicting with 100% accuracy, but that doesn't matter - there are always plenty of reasons to think as we do, and (as my Blog posts indicate) numerous ways to observe patterns, pick holes in people's arguments, see where hypotheses are in error or only half-right, and show the inconsistency between what people claim and what is actually the case.

Lastly, the other reason why people can find themselves affronted by blogs like mine is that they value their opinions - and they are not quite ready to face up to the reality that opinions are like brass when compared to the gold standard of facts, the rhodium of reason and the platinum of logic.

Unlike facts, reason and logic, which withstand all external scrutiny hurled against them, opinions merely confer a judgement that if wrong has about as strong a protective barrier as a shield made of baked camembert. It may be tasty, but it will always be carved up by the gold, rhodium and platinum utensils that penetrate it.

I wrote a whole blog post on the danger of hiding behind the protective shield of opinions (click the link to read more - No One Should Be Entitled To Their Opinions) - but to give you a brief digest if you're pressed for time, if I think that Yes Minister is the best British sitcom, that onion rings are rancid, and that George Orwell's Animal Farm is superior to his Nineteen Eighty Four, these are opinions because there is no objective standard outside of my own view by which such claims can be corroborated. Many people may agree with me, but that doesn't make them facts.

Given that this blog deals with lots of issues whereby other people's opinions are maladies that are best cured by facts, reason and logic, it is understandable that the doctor that tries to administer the medicine is sometimes seen as the knifeman trying to lacerate the flesh. But I promise you, it isn't so - I just want to place a higher premium on what's factual, reasonable and logical than on what's popular and comforting but ultimately short-sighted, misleading and damaging. On a daily basis it strikes me as strange and regrettable that so many of our politicians and social commentators are somewhat reluctant to do the same.