Economics is phrenology plus calculus

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.

Notes

  1. krebscycle posted this