The Dismal Science: How Thinking Like an Economist Undermines Community

[cmac2012]

by Stephen A. Marglin

http://www.amazon.com/Dismal-Science-Economist-Undermines-Community/dp/0674026543

The author was interviewed on a SF based NPR show, "Tech Nation." Interesting stuff about overmuch devotion to monetization. One bit that caught my ear is his contention that insurance as practiced today, the reliance on it to offset losses that is, has a deleterious effect on community. He mentioned that the Amish forbid use of insurance. When a barn burns down, or the like, the community has a barn raising. Using some faceless entity at some great distance to safeguard homes and family was deemed to be incompatible with the values they hold dear. And with someone getting rich from administering the setup, that wealth had to come from somewhere -- policy holders were getting back less than they paid out.

I'd had a similar notion about insurance years ago, that insurance tends over time to take the place of people's concern for their neighbor.

This review was at Amazon:

Robert Jones, Emporia, Kansas:

There are many things wrong with capitalist economics and I agree with Marglin that economic theory is made up of a great many half truths. I believe that Margin misses the most serious error in capitalism however. Capitalist economics employs a theory of value which is not consistent with traditional human values and society's legal system.

We must begin by distinguishing two different sorts of quantities, scalars and vectors. A scalar is a quantity that can be described by just a number. Your age, or height, or weight, or the number of people in a room, these are scalar quantities. A vector, on the other hand, is a quantity that requires two or more numbers in order to describe it. An example might be the journey "3 blocks north and 5 blocks east." These two distances must remain distinct. Motion northward can not substitute for motion eastward or vice versa.

Value monism is the idea that there is only one thing of value (pleasure perhaps) or that at least it is possible to define a single "common currency" in terms of which the value of all things can be measured (money). Value pluralism is simply the rejection of value monism, the idea that there are two or more things to be valued (e.g. your wife's love and your child's life) and that they can not be reduced to, or compared via, some common currency.

In capitalist economic theory a utility function maps any state of affairs (with its costs, rewards, opportunities, etc.) to a real number, a scalar. Frequently this scalar utility is simply money; in other situations it is some more generalized scalar quantity.

Human beings have multiple needs. For instance, we need air to breathe, water to drink, and food to eat. Many of these needs are "incommensurable," that is, they can not be measured by a common standard; one can not be traded off for another. No amount of water can make up for having no food to eat. A plentiful supply of fresh air can not make up for a lack of water to drink.

Human values, in turn, arise from our needs and are also incommensurable. (Berlin, Concepts and Categories, PU Press, 1998, pg XVIII) Economic utility must be a vector quantity, it can not be a scalar "money." Business and capitalism are profoundly in error when they employ a mere scalar utility. A common currency is simply impossible. (Just the instruction "travel 8 blocks" is not adequate to represent "3 blocks north and 5 blocks east.") In the words of Beardon et al "contrary to the widely held and inveterate belief of economists, there does exist a preference relation which is not representable by a utility function." (Beardon et al, 2002, J. Math. Economics, vol. 37, pg 17) Von Neumann and Morgenstern said "We have conceded that one may doubt whether a person can always decide which of two alternative...he prefers...It leads to what may be described as a many-dimensional vector concept of utility." (von Neumann and Morgenstern, Theory of Games and Economic Behavior, 1944)

Business and capitalism require value monism while the human value system is characterized by value pluralism; you need only observe the legal system. Upon being found guilty of some crimes it is only required that you pay a fine, whereas in other cases you must pay with your life, or at least some years worth. No one would be satisfied to see a serial killer merely pay a fine each time he took another life.

Not all human activities can be accurately modeled as a marketplace.

More reviews:

http://www.economics.harvard.edu/files%20/faculty/41_Marglin_jacket_copy.pdf

[kerry]

My Turkish Muslim friends won't buy insurance. On the other hand, until quite recently, home mortgages were not available in Turkey. I can't imagine any bank being willing to loan on a house without insurance. Perhaps this is not so bad. Do the Amish have mortgages and insurance?

[cmac2012]

Insurance makes sense in our current framework. But I agree whole heartedly that it results over time in a diminishing of community support among neighbors.

Our excessive reliance on monetization is what has led us to the sort of bizarre entanglements we now see. Oh hey, if I can make 6 or 7 figures trading in byzantine credit default swaps, what can go wrong? Cash flow is the measure of success, right?

Just the fact that no one is touching this thread is indication of how ingrained our reverence for money is. I mean consider how many people would kill their mother for a large suitcase packed with untraceable $100 bills. Or how willing many are to despoil land and rivers in pursuit of the yellow metal that makes the white man crazy. Alone in a wasteland with a trailer full of gold, one would still die of thirst and/or starvation, so what is more precious: gold or water?

[tonkovich]

whats the old insult...

someone who knows the price of everything,...and the value of nothing

[MTUpower]

I never liked those suggestions that advocated the abolition of something without a solution that might work in it's absence. We can all think of things that don't work properly according to ourselves, but as the saying goes- got a better idea?

I many times categorize people into two groups: the "my idea" people and "the idea" people.

"The idea" people take a common solution and ask how to make it better. If you change "the idea", and make "the idea" better- you keep it, and "the idea" morphs into the latest positive change. It matters little if you or someone else came up with the change.

"My idea" people want to solve a problem with an answer they themselves came up with regardless if that solution is better or worse than the previous "idea".

You don't like insurance and money? What are people on this planet going to use in it's place?

As I'm sure you heard- it's a horrible system with glaring issues and it's the worst we have seen- except for every other system.

[tankdriver]

Originally Posted by MTUpower

I never liked those suggestions that advocated the abolition of something without a solution that might work in it's absence. We can all think of things that don't work properly according to ourselves, but as the saying goes- got a better idea?

The path to hell is paved with good intentions.

How can you come up with a new solution before recognizing there's a problem? Does the lack of a better solution mean what is current is good? I don't think so. Just because you don't have a better answer doesn't mean you should stop asking questions.

So often people on here talk about how terrible politicians and government have become (including yourself, I believe). None of them have proposed new forms of government that are better. That doesn't make their criticisms inherently false.

[MTUpower]

Originally Posted by tankdriver

The path to hell is paved with good intentions.

How can you come up with a new solution before recognizing there's a problem? Does the lack of a better solution mean what is current is good? I don't think so. Just because you don't have a better answer doesn't mean you should stop asking questions.

So often people on here talk about how terrible politicians and government have become (including yourself, I believe). None of them have proposed new forms of government that are better. That doesn't make their criticisms inherently false.

I agree with most of this. On the other hand, it does little good unless you improve it. Make it better by becoming a "the idea" person.

[tankdriver]

Originally Posted by MTUpower

I agree with most of this. On the other hand, it does little good unless you improve it. Make it better by becoming a "the idea" person.

If only I were smart enough.


It's always baffled me how economists call their field the study of people, and then their every theory goes about removing people from the equation.

[cmac2012]

Originally Posted by MTUpower

I never liked those suggestions that advocated the abolition of something without a solution that might work in it's absence. We can all think of things that don't work properly according to ourselves, but as the saying goes- got a better idea?

I many times categorize people into two groups: the "my idea" people and "the idea" people.

"The idea" people take a common solution and ask how to make it better. If you change "the idea", and make "the idea" better- you keep it, and "the idea" morphs into the latest positive change. It matters little if you or someone else came up with the change.

"My idea" people want to solve a problem with an answer they themselves came up with regardless if that solution is better or worse than the previous "idea".

You don't like insurance and money? What are people on this planet going to use in it's place?

As I'm sure you heard- it's a horrible system with glaring issues and it's the worst we have seen- except for every other system.

How are you going to hone what you have w/o noting what isn't working? As for what are people going to use in place of insurance, that's a big point of the book, that people prior to modern insurance (and currently with small groups like the Amish) relied on each other to pull through calamities, in a more personal way. It had it's problems too no doubt but supporting a large industry of people just to administer the book-keeping of our current system is a sort of drain of resources, IMO.

Too many people getting filthy rich in the insurance biz while jumping through hoops to deny claims. I mean, often, they're very good with claims, I've had no trouble but I've read plenty of horror stories. And how and why did Warren Buffett get so rich off of insurance and Coke? Both are somewhat worthless.

Insurance: betting against yourself.

[Pooka]

You can self insure if you have the money. I worked for one of the biggest oil company in the US and they carried no insurance of any kind.

We figured that any trouble we got ourselfs into we could get ourself out of.

Now everyone is concerned with 'managing risk'. We found risk easy to magage. First you start off with billions of dollars in your back pocket, and then you work hard not to screw up.

[cmac2012]

Insurance makes eminent sense in a society in which money is king. I think we are over-monetized in many ways.

Oh yeah, beats communism but that's not saying much. If our founding fathers had been content with the imperfections of the system they were under, would we still be sending £tribute to the King?