Wednesday, May 07, 2008

Is it really slacking if I repost a good post

While chatting with teh Hot Bulgarian (I wonder if he knows I was bragging about him in a post at Dr. Socks? I also wonder if he knows that according to the media he and I can't possibly have sex because I am a Hillary supporter, but that's another topic). Anyways, he asked what a recovering economist was and I thought the best way to describe it was this post from last summer.

HE had to read it so now you do too

Assumptions about power

A good friend once said to me "Economics is the math of self-fulfilling prophecies". Since she can't remember saying it (blames red wine) I am stealing it for myself.

Maybe a better way of explaining it is that economics is all about assuming that all actors start from a completely equal place and that all actors follow all the rules all the time.

Tell me, where in history have people ever actually acted like that? Can you? No, because people don't act like that and people don't start from the same equal playing field. There is no "law of gravity" when it comes to people's behavior.

In economics when exceptions start pilling up to disprove a theory (like "trade benefits everyone") instead of rethinking the theory economists will say "they weren't following the rules". But not following the rules is exactly what happens when power is concentrated. Look at any human system- be it politics, education, sex and relationships, employment, sports- anything where there is section of people with enough power (financial, physical, whatever) to alter the rules to their benefit- they will. Women live under the daily fear of rape from all men(when statistically is a small number of men who do most of the raping), employees (who massively outnumber employers) have little ability to alter their pay or benefits on their own, politicians are much more easy influenced by powerful lobbies than individual constituents, sports stars get away with rapes and murders- etc (but not with dog fighting- cause dogs have so much more social capital than women these days).

So a better way of saying "trade benefits everyone" is saying "trade benefits the more powerful actors in a situation". That is decidedly different from everyone.

I'll give you an example using corn- my favorite to pick on subsidized crop. We subsidize the hell out of corn, that's why in America everything is sweetened with corn syrup instead of sugar cane and why ethanol additives in gasoline are from corn products instead of some other plant. Under NAFTA we were going to start shipping out super subsidized (and therefore super cheap) corn to Mexico. Now Mexico is not a corn-free country. You might have had these things called corn tortillas- they come from Mexico, and tamales, also Mexico. For a good chunk of the population, corn is a staple food and a staple crop. But it is not subsidized by the Mexican government. Corn farmers in Mexico do not have a giant agri-business lobby. They are mostly small family farms, the kind we romanticize, but filled with brown people who speak Spanish instead of white people in Iowa.

So the Mexican government agreed to import the subsidized corn as long as the US agreed to pay tariffs on the corn for several years so that corn farmers in Mexico would have a chance to transition to some other form of employment. That's nice, a little band-aid for the family farms.

But that's not what happened. Instead Mexican ranchers that wanted cheap feed, tortilla factories and businesses that wanted to switch from locally produced, unsubsidized sugar cane to cheap corn sweeteners got the Mexican government to ignore the tariffs as soon as NAFTA went into effect. Mexican corn farmers were reduced to subsistence farming.

Now an economist would say- they weren't following the rules (either by subsidizing the corn in the first place or by ignoring the transition tariffs) except that is how most international trade agreements end up. Rules that are meant to protect those with less power are ignored while those with more power benefit. Actually, that phrase right there sums up our entire social structure.

There is an old joke about a chemist, an engineer and an economist stranded on a dessert island with one can of food. The chemist creates a solution that will open the metal of the can. The engineer builds a contraption open the can. The economist says "Assume there is a can opener".

By making assumptions of a perfect world in order to study economics, we are trying to open a can with an imaginary can opener. There are too many exceptions to economic rules. That is why "math of self-fulfilling prophecies" is so fitting. In math or any other branch of science, if your results didn't match up to your theories, a new theory would have to be created. In economics, when you results don't match up to your theories, you can simply discard the parts that don't fit by claiming they didn't follow the rules. Therefore all your theories will match your findings regardless of the actual outcome.

UPDATE: After thinking about it some more I really think it should be "Economics is the science of self-fulfilling prophecies" since economics is a social science and is supposed to follow the scientific method (you know, until you start throwing everything out because it didn't follow the rules).

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