Jon Elster, "Sour Grapes"

I now move on to the second of Jon Elster’s books that I proposed to discuss in the previous post. Please note that, since I’ve dropped several names there — and since I’ll likely be dropping some more here — at the end of this post you’ll find a list of readings referred to in both.
 

Jon Elster, Sour Grapes: Studies in the Subversion of Rationality (Cambridge: Cambridge University Press, 1983).

I claimed earlier that Elster’s work has some possibly very damaging implications for economics as a rational science, particularly economics done in the rational choice tradition.

By “rational choice”, I refer to an approach to economic analysis that takes as its methodological starting point the idea that the preferences of agents are to be viewed as rational, even if they seem prima facie irrational to the third party observer. An example might be the approach of Nobel Prize-winning economist Gary Becker to a phenomenon like addiction: it may seem as if the choices of smokers are irrational, but they begin to make more sense if we view them as rational from the point of view of maximizing one’s present preferences. After all, if the choice of smokers to smoke were completely irrational, then why is it that when the price of cigarettes goes up, their consumption goes down? Economically, there is much about the behaviour of addicts that displays characteristics of rational economic choice.

(I would counter that this is correct to a certain extent, but that addictive products display a notable lack of demand elasticity — although demand falls when prices rise, the reaction of demand to price is much less sensitive than it is with, say, pickles or ice cream. If the price of heroin goes up, although a few addicts may kick, many will simply steal more purses to keep up with the rise in price. Few turn to crime to support their taste for expensive ice cream. There are many good reasons not to accept a rational choice theory of addiction. For an excellent critique, see Rogeberg 2004.)

Satisfying Preferences: Whose? Which?

Ulysses and the Sirens very much concerns the difficulty of whose preferences are to be satisfied. We might say that, in utilitarian or rational choice fashion, the preferences of all agents are to be given equal consideration. But Elster complicates this by showing us that each of those agents is composed of an indefinite number of intertemporal agents with possibly conflicting preferences, and with no clear cut indication of which of these selves is to have normative priority.

Sour Grapes takes things to a deeper level. Whereas economics pretends to be a descriptive rather than a prescriptive or normative science, Elster examines the nature of desires to demonstrate that it might not be so easy for economics to avoid normative prescriptions. To be more clear: whereas economics claims to be concerned with finding the best way of satisfying the preferences of the greatest number of people regardless of what those preferences are, Elster shows that economics cannot avoid making evaluative judgments about people’s preferences.

Economists are too apt to take people’s wants (or the ordering of these wants, in the form of preferences) as brute facts, as given. Their task then becomes the technocratically straightforward one of figuring out how best to satisfy the greatest number of them.

By contrast, Elster shows that not all desires are worthy of being satisfied. Now, on the face of it this is nothing new; moral philosophers have been saying as much since the time of Socrates. But Elster is not just concerned with the immoral nature of some desires. No economist in his right mind denies that satisfying the desires of sadists is on all fours with satisfying the desires of people with less perverted tastes. But the economist will try to parse this in terms of utility: they will say that as a matter of (contingent) fact, one satisfied sadist must mean one or more normal people must be made very dissatisfied victims of the sadists, the predictable result of which would be net disutility. That, they’d say, is why the preferences of sadists should not be satisfied. But notice that they are still taken into account.

This explanatory scheme might give economists some rationale for discriminating against the wants of sadists, although not on the grounds that the desires of sadists were wrong or immoral. After all, if it so happened that sadists and masochists were evenly distributed in the population and could somehow be paired up, the economists might have to revise their judgment, and take the preferences of sadists (and masochists) seriously.

Elster’s critique of preference-satisfaction has less to with variations in the moral worthiness of desires, and more to do with the fact that some desires are to be preferred to others in terms of their rationality. Indeed, his analysis implies that rationality is so easily subverted, that we ought not to put too much stock in the satisfaction of preferences at all, at least not unless we are willing to roll up our sleeves and examine the nature of the preferences we propose to satisfy.

We tend to think that preferences have at least some minimal rational ordering. For example, it is comforting to believe that our preferences obey the law of transitivity: If I prefer A to B, and I prefer B to C, then all things considered I must prefer A to C. Elster presents a variety of situations in which people’s preferences are not transitive in this way.

Path-Dependency and Context Dependency.

Often our preferences are path-dependent in that they are dependent on my previous history of choices and desires. In other words, they depend heavily on the temporal order in which choices are presented. Preferences are also context-dependent in that they are responsive to changes in the situational variables in the choice-context. Path-dependency is evident, for example, in what psychologists call “availability bias”, the observed tendency of people to prefer that which is most recently presented to them over that which was presented to them earlier. I may prefer A to B and B to C, but where C is presented to me after A, I might prefer C. So what is my real preference, the one that economists should be trying to figure out how to satisfy?

Here’s a rather cute example illustrating both path-dependency and context-dependency. Let x = a Vermeer painting, y = a Renoir painting, and z = a Monet painting. One each of x, y and z is up for auction. Let’s assume I have a lot of money, I’m not a huge fan of Impressionism, and that I don’t currently own a painting by any of these artists. Because I am rich and the paintings are for sale, the feasible set is {x,y,z}. In this situation, I have the following preference ordering: x > y > z. But, if the context is one in which a week earlier I inherited my uncle’s Monet painting, then it becomes conceivable that my preference ordering could be z > x > y (because I already have the beginnings of a Monet collection), or possibly z > y > x (because in addition to the beginnings of a Monet collection, I also already have the beginnings of an Impressionist collection).

The point is that our desires and preferences are closely tied to our previous experience and life history. For example, it is highly unlikely that I will have a preference for fine wines if no wine at all has ever passed my lips.

If Ulysses and the Sirens demonstrated the importance of the time dimension in human preference, Sour Grapes demonstrates the importance of how preferences are formed. Hence the title of the book, referring to Aesop’s fable of the fox and the grapes, in which the fox pretends not to care for the grapes that he cannot have, by telling himself that the grapes are in any case sour.

Adaptive Preferences.

Elster brings our attention to a phenomenon similar to sour grapes, which he calls adaptive preferences. The latter differs from the former in the fact that where the fox pretends not to like the grapes he cannot have, a person with an adaptive preference actually prefers precisely that which he can have over that which he cannot. His preferences are formed out of his feasible set of choices.

This is not just a phenomenon of settling for second-best, because it’s not something that is necessarily conscious. Nor is it necessarily a bad thing, for in countless cases it is a healthy response. After all, imagine how unbearable life would be if we continually felt discomfort at not having the things we want, given that we simply cannot have most of the things we want. Our minds tend naturally to tailor our desires to our possibilities and that’s probably a good thing. It seems only reasonable that our preferences be limited to some feasible set of options.

But adaptive preferences can also have a more sinister aspect. A slave for example might come to “prefer” the life of a slave and to “love” his master, because in the absence of other options, he settles for what he has. Does this mean that the “preferences” of slaves ought to be respected? Can such preferences serve as a justification of the institution of slavery? Economists have few resources to answer these questions because they are normative/evaluative.

It is part of the economist’s training not to care about the ethical nature of slavery, but only whether as an institution it is efficient. In assessing this efficiency they will presumably do a calculation of how well it satisfies the aggregate preferences of society, and within this aggregate, for the purposes of calculation, the desires of slaves are on all fours with – count for no more or less than – the preferences of masters. Therefore, if the masters are happy, and the slaves are “happy” (in the adaptive preferences sense of the term), then, other things being equal, there is nothing (economically) wrong with slavery. Luckily for society, most economists have historically found slavery to be an inefficient institution.

I should like to presume, dear reader, that your intuitions accord with mine in finding that the economist misses the main point. The preferences of the slaves, being adaptive in the worst way, have been perverted. Slaves tailor their desires to their feasible set, but that feasible set has been artificially and immorally limited by the masters. The adaptive preferences of slaves should not count in the way that normal preferences count (I am intentionally using evaluative terminology like “worst”, “perverted” and “normal” here, because they don’t scare me in the way they seem to scare economists and other social scientists). As Elster puts it, “my suggestion is that we should evaluate the broad rationality of beliefs and desires by looking at the way in which they are shaped” (p. 15). Much later on in the book, he elaborates this point:

“[W]e should not take wants as given, but inquire into their rationality or autonomy. These, in the general case, are properties that cannot be immediately read off the wants themselves…. Rationality in the broad sense depends on the way in which the states are actually formed. Two individuals may be exactly alike in their beliefs and wants, and yet we might assess them differently from the point of view of rationality, judgment and autonomy.” (p. 140)

I fear I have not managed to do full justice to the genius of Elster’s book. Sour Grapes is really a virtuoso performance, so far-reaching are the topics with which it deals with and the sources upon which it draws. I mentioned in the previous post that Elster is an analytical Marxist. But even a Marxist is capable of speaking good sense from time to time. By way of an ending to this post, here are some other propositions Elster defends in Sour Grapes, propositions that Marxists (and indeed all social scientists) must grapple with:

1. There is no reason to suppose that beliefs shaped by a social position tend to serve the interests of the persons in that position (p. 143).

2. There is no reason to suppose that beliefs shaped by a social position tend to serve the interests of the ruling or dominant group (p. 147).

3. There is no reason to suppose that beliefs shaped by interests tend to serve these interests (p. 156).

4. There is no reason to suppose that beliefs which serve certain interests are also to be explained by those interests (p. 163).

Further Reading

AINSLIE, George. Picoeconomics: The Strategic Interaction of Successive Motivational States within the Person. Cambridge: Cambridge University Press, 1992. [Picoeconomics as a field of study can be thought of as micro-micro-economics. It concerns itself with such phenomena as time-preference, time-inconsistency, and hyperbolic discounting.]

BECKER, Gary and Kevin MURPHY. “A Theory of Rational Addiction,” Journal of Political Economy 96 (1988), 675-700. [Locus classicus for the rational choice approach to addiction.]

BRENNAN, Geoffrey and James M. BUCHANAN. The Reason of Rules: Constitutional Political Economy. Cambridge: Cambridge University Press, 1985. (Reprint, Indianapolis: Liberty Fund, 2000.) [Deals with the political and constitutional dimensions of a “multiple selves” theory.]

ELSTER, Jon. Ulysses Unbound: Studies in Rationality, Precommitment, and Constraints. Cambridge: Cambridge University Press, 2000. [More recent book carrying forward his work in Sour Grapes and Ulysses and the Sirens. He even applies his ideas to film and jazz music.]

ELSTER, Jon (ed.). The Multiple Self. Cambridge: Cambridge University Press, 1987. [A collection of essays by various authors, including Schelling and Ainslie.]

FRANFURT, Harry. The Importance of What We Care About. Cambridge: Cambridge University Press, 1988. [On the difference between first- and second-order desires, or roughly, between desires and values.]

KAVKA, Gregory. Moral Paradoxes of Nuclear Deterrence. Cambridge: Cambridge University Press, 1987.

PARFIT, Derek. Reasons and Persons Oxford: Clarendon Press, 1984. [Presents a utilitarian ethical theory based on a “multiple selves” conception of agency. The gist of Parfit’s position is that utilitarianism should only concern itself with satisfying the desires of present selves. I strongly disagree.]

ROGEBERG, Ole. “Taking Absurd Theories Seriously: Economics and the Case of Rational Addiction Theories,” Philosophy of Science 71 (2004), 263-285.

SCHELLING, Thomas. The Strategy of Conflict. Cambridge, MA: Harvard University Press, 1960. [Book in which Schelling explored the notion of rationally motivated irrationality, especially in the context of relations between nuclear-armed nations. A Cold War classic.]

SCHELLING, Thomas. Strategies of Commitment and Other Essays. Cambridge, MA: Harvard University Press, 2005. [Title essay concerns precommitment.]

THALER, Richard H. and Cass R. SUNSTEIN. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press, 2008. [Applies some grossly oversimplified findings in social and cognitive psychology to problems of rational decision-making. They advocate a position they call "libertarian paternalism", in which the powers that be should design better institutions and choice-situations so that people can make better decisions. After reading it, I was left wondering why they bothered using the descriptor "libertarian".]

Jon Elster, "Ulysses and the Sirens"

Methinks this blog has become a little too obsessed with economics. It was certainly never the intention of The Spectacled Avenger to run an economics blog, but unfortunately that is the channel in which his slender genius hath run of late.

I have decided it’s time to switch gears a bit, but like any habit, breaking this one can be accomplished only gradually. As a first step, I propose to discuss the work of a man who is possibly the living thinker with the greatest influence on my thought. He is the Norwegian philosopher, economist, political theorist, social scientists, and all-around polymath Jon Elster. Anyone who has been reading this blog for any length of time should be surprised that I’m such a fan of Elster’s. He is, after all, an analytical Marxist. On the other hand, he’s my favourite kind of thinker: the adventurous type, not afraid of Big Ideas, and also not afraid to use the insights of authors like Montaigne and Stendhal in the service of economics and social science. He has written on such diverse topics as addiction, the emotions, Alexis de Tocqueville, constitutional design in the former communist countries of Eastern Europe, economics, jazz, film, and the conceptual foundations of the social sciences.

So smitten am I with Elster’s work, that I could not limit myself to discussing just one of his books, so I’m discussing what I consider to be his two best, Ulysses and the Sirens and Sour Grapes. As this will be done in two posts, I’ll begin with the former title first.

I consider discussing Elster as a natural step in the process of weaning myself from my late obsession with economics because his work has implications that sap the very foundations of economics as a rational science. It also represents the vanguard of many more recent – and in my opinion less insightful – books in the burgeoning field of what has come to be called “behavioural economics”, possibly the most sensational (and unsatisfying) of which is Richard Thaler’s and Cass Sunstein’s Nudge (Yale University Press, 2008).

Ulysses and the Sirens: Studies in Rationality and Irrationality (Cambridge: Cambridge University Press, 1979).

In Ulysses and the Sirens: Studies in Rationality and Irrationality, which is perhaps his most-cited book, Elster critiques the notion of rationality in the economist’s sense, as a faculty that is concerned with maximizing the satisfaction of agents’ present preferences. He contrasts this notion of locally maximizing rationality with what can be called globally maximizing rationality. This latter concept is perhaps best illustrated by those interesting situations where the best “strategy” is irrationality.

An example of this is the sort of Cold War nuclear strategy that Nobel Prize-winning economist Thomas Schelling famously explored: as a nation you make a nuclear threat, but the threat cannot be made credible because your opponent knows that you would be irrational (in the locally maximizing sense) to carry through on the threat. So you put in place mechanisms that effectively take the decision to launch out of your hands, mechanisms that will automatically trigger a launch after a certain point has been reached, and which cannot be overridden. This is the idea behind the “fail-safe” deterrent. The deterrent is globally maximizing (or so it is postulated). There is a gain from the deterrent that can only be achieved by seemingly non-rational means. In sum, if you want people to leave you alone, act crazy. And the best way of getting people to believe that you’re crazy is by actually being crazy. The paradox, of course, is that it is no mean feat to go mad on purpose.

On a more mundane level, "rational irrationality" occurs when you make any kind of inter-temporal threat or promise in which carrying out the threat or promise involves some cost to yourself. Let’s imagine that Alice threatens Bob at time 1 with X at time 3, if Bob doesn’t do Y at time 2. Let’s further assume that there is some cost attached to Alice if she carries out X. If Alice is perfectly rational (in the maximizing sense), and if Bob knows this, then if Bob is also rational he won’t do Y – in other words, Alice’s threat will have no effect. This is because at time 3 Alice will no longer have an incentive to carry out her threat. After all, doing so would now represent a net cost to her. The damage has been done; there’s no point in adding to it by incurring a cost that no longer serves a purpose.

Notice that the same incentive structure applies to promises: Alice promises at time 1 to do X for Bob at time 3 if Bob does Y for her at time 2. Assuming both are rational and that X has some cost to Alice attached, Bob will not rely on Alice’s promise because he knows that at time 3 she’ll have no incentive to hold up her end of the bargain. Once Alice has got what she wants, why would she bother to incur the cost of giving Bob what she promised to give him?

(Of course, we should note that this whole dynamic changes where there is the prospect of repeated interactions between Alice and Bob. We're only contemplating one-off interactions here.)

What kind of a society could we expect if it were impossible to make credible threats and promises? Most market exchanges in the form of contracts with intertemporal performance (which is most if not all contracts) in a large and impersonal society like ours would be impossible. In short, if economic coordination and market exchange are dependent on the making of credible promissory contracts, and on making credible threats for breaches of those contracts, then such economic coordination and market exchange would be impossible if human nature were modeled after the economist’s homo economicus, the rational maximizer. Luckily we’re not perfectly rational. We have the ability to bind ourselves to actions that are not strictly rational from the narrow locally maximizing point of view. By “bind ourselves” I mean to bind our selves. In the example given above, it would be helpful if Alice could somehow bind her later self to carry out the intentions of her earlier self. Such self-binding can be done, broadly speaking, in two ways.

Endogenous self-binding. This relies heavily on the inculcation of moral norms, and on emotional responses to those norms. This can come through upbringing or through the kind of character formation recommended in Stoic philosophy. Either way, it is dependent on appropriate emotional response. (Contrary to popular misconception, the Stoics did not advocate the extirpation of the emotions, but rather their harmonization.) In the example of Alice and Bob, Alice might be motivated to carry through on her promise by wishing to avoid the emotional cost of the guilt or shame she would incur for breaking it.

There is a good reason why emotions play this crucial role. Emotions are largely autonomic, meaning they happen whether or not we think it’s in our interests to have them. In our rationalistic culture we tend to view this as a bad thing, as a weakness in which passion overcomes our better judgment. But in the kinds of cases I’ve been describing, our “better judgment” is not better at all, at least not in the overall global sense. If Alice were red-faced with anger, Bob would have a signal that she is capable of carrying out her threat despite her better judgment. The signal gains its efficacy by virtue of the fact that it can’t easily be faked. There are good functional reasons why such mechanisms have been evolutionarily selected. You see, within a framework of strategic interaction, evolution selects for global maximization. And although some responses can be faked some of the time, evolution has also selected for human beings with an ability to sniff out the fakes.

Exogenous self-binding. This is best illustrated by the example of Elster’s chosen title. In order to be able to hear the song of the Sirens, a sound which drove men mad and made them steer into the rocks, Ulysses had his crewmen put wax in their ears and bind him to the mast of his ship. The crewmen were to have their swords drawn and were to ignore any appeals Ulysses might make to be untied. Rather than draw on internal resources for resisting the call of the Sirens, and assuming that he would be weak under its influence, Ulysses relied on externally imposed constraints.

In the example of Alice and Bob, Alice might be motivated to keep her promise because of the existence of an institution like contract law that attaches heavy penalties to such breaches of trust. Similarly, if I want to quit drinking, it might help if I give the keys to my liquor cabinet to a friend. If I want to quit smoking, I might place a hefty side bet with friends so that I’ll incur a financial penalty if my later self gives in to temptation. Thus, my later self will have an incentive to stay quit. If I need to save money for Christmas presents, I might open a savings account that does not allow me to make withdrawals before December, in the knowledge that I am likely to be tempted to spend the money before then. If I am a nuclear-armed nation, I may have a computer system rigged up to launch missiles upon detection of a credible and impending threat, in the knowledge that my later self might have doubts or lack the guts to press the launch button. The difference between endogenous and exogenous self-binding is that while the former depends on internal resources for binding, the latter depends on what could broadly be called "external technologies", whether in the form of artificial incentives or determinative mechanisms. Another term for such technologies of exogenous self-binding is “precommitment”. They constitute pre-commitment because they effectively determine me on a course of action before the occasion for choice even arises.

One can overemphasize the distinction between endogenous and exogenous self-binding. I may refrain from doing something I am tempted to do because of moral principles that have been internalized (i.e. made endogenous) through some process of exogenous moral training (e.g. reward and punishment structures inculcated from parents).

Elster’s work in this area dovetails with work by others, notably psychologist George Ainslie and philosopher Derek Parfit, on the notion of “multiple selves”. Put (over)simply, the idea here is that the human agent is best conceptualized not as one overarching self who has an ordering of preferences and who chooses between them, but rather as an indefinite number of intertemporal selves. In many of the examples we have been considering, the preferences of earlier selves may be thwarted by later selves that give in to temptation.

In situations like addiction, it is taken for granted that the earlier “pre-craving” self knows what is best for the later “tempted” self and so is in a position to constrain the latter through precommitment devices. But one can also conceive of cases where the later self is in danger from the irrational choices of the earlier selves. Indeed, even with addiction, we can take a broader view in which the earlier rational self binds the later irrational self in the interest of some still-later self.

I must admit my own reservations here about the “multiple selves” view of agency. It seems to me that it is difficult to make sense of these various selves wishing to manipulate each other unless we preserve some notion of unified agency, where these various intertemporal selves somehow retain identification with each other. Why would I now wish to go to such great lengths to “legislate” for my later selves, unless I identify them as me? After all, by the time the occasion comes for a later self to act, the earlier self will no longer exist. There seems to be an incoherence lurking here. Still, the “multiple selves” notion is provocative, with far-reaching implications.

Some of these implications are ethical, rather than merely metaphysical: if I am not me, but am rather a series of intertemporal selves, then it would seem that the relation between successive selves is no different than the relation between simultaneous agents, i.e. between different agents at a given time. If that is the case, what right does my earlier self have to limit the choices of my later selves? It is no different than my claiming the right to limit your choices? This is paternalism at best, tyranny at worst.

(On the other hand, we might view a person in the throes of addiction as exercising precisely such a self-tyranny: sacrificing the interests of later selves to the arbitrary desires of the present self. An analogous kind of tyranny occurs at the aggregate level, when a society sacrifices the interests of future generations through deep or prolonged deficit financing for current consumption.)

I could go on exploring the ethical and metaphysical difficulties of the “multiple selves” approach, but I’ll save it for the post immediately following the next one.

Krugman's Whoppers

If there’s one thing I hate to see in an intellectual, it’s smarminess ― even though I’m a prime offender myself. Of course, my status as an intellectual is debatable at best, so I reckon I’m off the hook. I especially hate it when such smarminess exudes from a figure who basks in the near-universal admiration of the public, even while being considered a charlatan by those who know something about his area of supposed expertise.

Paul Krugman is a case in point. He’s well-known as an op-ed writer for the New York Times and is a media darling. He is also Professor of Economics at Princeton and won the Nobel Prize for Economics in 2008. Thus, you would be warranted in assuming that the man knows a thing or two about economics. Certainly that’s the way the reading public views him. But even the greatest geniuses make mistakes. And when such mistakes are made, the bigger person will point them out civilly, and in a spirit of correction rather than triumph.

However, I am not a “bigger person”. I am a petty man, and I am content to glory in petty triumphs. As such, I would like to triumph in an obscure error Krugman made several years ago, and I would like to do this not in the spirit of correction, but in the spirit of giving the man a little taste of his own medicine. Methinks the great economist is in need of some cutting down to size.

Way back in 1996 historian David Hackett Fischer published an ambitiously thick book entitled The Great Wave: Price Revolutions and the Rhythm of History (Oxford University Press). It was very well-received, especially by the business community, which is an unusual honour for such an academic and esoteric work. On the other hand, many academics criticized it, and in fairness with some good reasons. It is a very interesting book but, as with any such work, not without its flaws.

One of Fischer’s critics was His Most Serene Eminence, Paul Krugman. In a review in the July/August 1997 issue of Foreign Affairs he ripped Fischer’s book apart, accusing the latter of committing many errors both factual and theoretical. One of these errors in particular Krugman rather uncharitably described as a “whopper”. The relevant passage is worth quoting at some length, for it fair reeks of that smarminess I referred to earlier:

Fischer’s impatience with analytical thinking extends to his own ideas; the book contains quite a few whoppers, assertions that fall apart if given even a moment’s serious thought. His discussion of the origins of the great price rise after 1500 provides an illuminating example. Fischer points out, correctly, that prices in Europe began rising well before New World silver began to arrive ― which, he argues, refutes any monetarist explanation. There is no mystery here: as he admits, there was a surge in European silver production in the late fifteenth century, mainly from mines in Bohemia and what is now southern Germany…. But Fischer insists, without evidence, that the rise in European silver production was a result rather than a cause of inflation ― that mines were opened and expanded to meet the “desperate need for liquidity” produced by rising prices.... Think about that for a minute. We can be sure that fifteenth-century mine owners neither knew nor cared about Europe’s need for liquidity ― they were simply trying to make a profit. Now ask yourself: does inflation (a rise in the price of goods and services in terms of silver) make it more or less profitable to open a silver mine? The clear answer is that it makes the mine less profitable: a pound of silver extracted from the mine would buy fewer goods and services than before. Had Fischer devoted even a few minutes to thinking his story through, he would have realized this.

Thus Krugman. Now let us devote a few minutes to thinking his story through. Imagine that I own a fifteenth-century silver mine. I hire workers to dig up silver. What do I do with the silver they dig up? Krugman seems to imagine that I spend all of it on immediate consumption, and that since inflation has reduced its value, my silver won’t stretch as far, and so I will not care to mine more of it.

But if I don’t mine more silver, next year because of inflation I am able to consume even less than I could have if I had expanded production in the first place. Krugman’s argument is the equivalent of saying that because my $50,000 salary will only be worth $45,000 next year due to inflation, I will therefore refuse the raise my boss offers me. Furthermore, Krugman finds himself without an explanation for why it was that in the following century, miners in the New World flooded the market with silver, thereby contributing to the inflationary environment.

Krugman’s fallacy seems unspeakably elementary. The only way to make sense of such a slip-up is if Krugman is assuming a situation in which the marginal cost of further mining is greater than the decline in marginal return. But if this is so, it is an assumption he nowhere states, and it is purely speculative in any case. Furthermore, such a state of affairs could be largely microeconomic in nature and need not have anything to do with inflation per se, which is a macroeconomic phenomenon (although inflation would obviously exacerbate a decline in marginal return).

Let us give Krugman the benefit of the doubt (which is more than he bothers to give Fischer). Let us instead imagine, much more plausibly, that as a silver mine owner, I don’t spend all my silver at once on consumption. Instead, like other producers of goods, I sell my silver to buyers. Such an exchange would obviously have to be performed via some medium other than silver. For example, I might accept some other good which I believed I could sell on for more silver than it cost me to purchase it (which is essentially arbitrage).

Or I could accept gold in exchange for my silver. And indeed this is precisely why for most of European history there were two metals of exchange in circulation, gold and silver. And because the supply of gold was not tied in any natural way to the supply of silver ― after all, a silver mine is not a gold mine, nor do silver and gold have the same distribution in the earth’s crust ― the silver-gold exchange rate would fluctuate. This is a simple fact of monetary history about which Krugman of all people should have been cognizant.

There is yet a further possibility that Krugman doesn’t bother to consider. Again, assume that I am the owner of that fifteenth-century silver mine. I am aware that there is inflation, and so I am considering whether or not to expand my mining activities. It is entirely possible that I might believe the inflation is temporary, or that the value of my silver will rise, and that it is therefore worthwhile for me to sit on some of the silver I extract in the hope that inflation will abate. After all, one of the things that made precious metals the favoured medium of exchange for so long is their non-perishable nature.

Whatever way you cut it, Krugman’s errors here seem amateurish, and they are made egregious by the uncharitable nature in which they are expressed. I am aware that I have been just as uncharitable here, but I am frankly tired of Krugman being held up as some kind of omniscient economic sage. I know it might be hard to believe for many, especially ignorant journalists (there's a redundancy!), but Paul Krugman can’t walk on water.

In truth, his work has never really impressed me. It certainly doesn’t seem to impress many professional economists. Perhaps my lack of enthusiasm for his work has to do with the fact that he is an unreconstructed Keynesian, Keynesianism being the equivalent in economics of trying to build a perpetual motion machine. Of course, I’m no economist, but some would say that neither is Krugman.

The worst thing about Paul Krugman is that people listen to his half-baked economic nostrums. That’s why I’m frightened by his most recent whopper, advising the US government to adopt a “kitchen sink strategy” ― that is, to throw every bit of money at its disposal at the economy until it improves. This is shockingly stupid and irresponsible. It is unethical to advocate bankrupting future generations to pay for present consumption. It is to commit an intergenerational injustice. In any case, not only has the US government run out of kitchen sinks to throw, but it lacks a pot to piss in.

Reflections on the Iron Lady

Ah Maggie… There is something in Margaret Thatcher’s very name that causes certain people to become apoplectic with inchoate rage. I have seen this reaction in otherwise quite rational and intelligent friends of mine, including ones who are not even British. The most egregious example of irrational hatred of the Iron Lady came while I was watching a documentary movie about the band Joy Division last year. In the film, there was a montage of news clips and suchlike, which were intended to give some feel for the anarchic state of Britain in the 1970s, the historical milieu of Joy Division’s coming of age. One clip, an image of Thatcher, flashed on the screen so quickly as to be almost subliminal. I immediately recalled the two minute hate sessions in Orwell’s Nineteen Eighty-Four, where the assembled workers would yell and bray at an image of the evil Emmanuel Goldstein. I got the feeling that I was intended to surmise that Thatcher was somehow responsible for all the things that were wrong with Britain in the 1970s and, by extension, for Joy Division’s depressing music and singer Ian Curtis’ suicide.

There was, however, one rather insurmountable complication standing in the way of my brainwashing, namely my knowledge that Margaret Thatcher didn’t become Prime Minister until May 4, 1979, at which point Joy Division only had another year of existence left to it. Now, I’m no philosopher ― okay, I am a philosopher ― but isn’t backwards causation an impossibility? I suspect either that the film’s director was ignorant of history or else couldn’t resist getting in a cheap shot at a despised foe. I certainly get the impression that the Baroness has not made many friends among people in the arts and media.

I am rather more sympathetic to the old girl. I am certainly not one of those who worship her. For example, I suspect that there was a somewhat greater number of corrupt people around her than one finds in the average British cabinet. I am also uncomfortable with her war-mongering, which is ironic, considering that even people who hate her tend grudgingly to admire her performance during the Falklands conflict. I do like the way she stood up to the unions, which is arguably the thing for which she is most reviled. I admire the way she stood for principles, even in those instances where I happen to be in disagreement with those principles. This is in stark contrast to Mr. Blair, who was a moral vacuum: every time that little creature opened his mouth to speak, all I could hear was the wind whistling through the empty space that in most people would contain a soul. By contrast, Maggie could be brutal and callous, but an empty moral vessel she was not.

In truth, it is difficult not to acquire some small amount of respect for Thatcher when one understands a bit more about the state of British society in the 1970s. Having lived my life on the other side of the pond, I can’t say I’m an expert in this regard. Take for example the so-called “Winter of Discontent” of 1978-79, which ultimately led to Thatcher’s election. Inflation peaked in 1975 at 26.9%, which is mind-boggling by today’s standards (as I write this, Canada’s inflation rate stands at 1.4%). Prime Minister James Callaghan’s Labour government tried to put a stop to it by capping public-sector wage rises, which led to widespread strikes. The cap was 5%, which today sounds pretty high, but in the prevailing inflationary environment it would have represented a deep cut in real wages. On the other hand, the lorry drivers’ union struck in favour of a 40% pay hike, which was ludicrously above the already-absurd rate of inflation, so you can see what lunacy poor Mr. Callaghan was up against. Many of these lorry drivers drove the tanker trucks that distributed fuel around Britain. Indeed, 80% of Britain’s goods were transported by road. The government threatened to call in the army to ensure that essential supplies got through the picket lines. If all of this wasn’t enough, the gravediggers infamously chose to go on strike. After two weeks they settled for a 14% raise, but not before burial at sea was being considered to dispose of Britain’s dead. When such measures become necessary, one can only refer to the activities of the strikers in terms akin to treason.

Now, the “Winter of Discontent” happened under Labour’s watch, but decline had been proceeding apace under previous Conservative governments as well, so my remarks here are non-partisan. Indeed, there was the notorious “Three-Day Week” in 1974, instituted by Edward Heath’s Conservative government in the face of industrial “action” (I hate this euphemism ― “extortion” is the more apt descriptor) by coal miners, instigated, again, by government attempts to control rampant inflation by capping pay. Electricity consumption was limited to three days per week. My in-laws have described to me the experience of feeding their small children by candlelight in a nation that within living memory had been the greatest industrial power the world had ever known.

All of this forms the context for the following poignant quote from the very quotable Margaret Thatcher, spoken during the 1979 election campaign: “I can’t bear Britain in decline. I just can’t.” I tend to have a soft spot for leaders who are charged with turning failing organizations around, as Lee Iacocca did for Chrysler and the emperor Diocletian did for the Roman Empire. Thus I find Thatcher’s lament over Britain’s decline rather touching, because I think it was genuine. In this context, I have come to understand her appeal during that election. At the time, it was a widely accepted view, even amongst its own civil service, that Britain was essentially ungovernable. For better or worse, Margaret Thatcher governed it. She impressed her stamp so deeply upon the nation that Lord Mandelson, the amoral mind behind New Labour’s rise to power, would say in 2002, “We’re all Thatcherites now.”

Thatcher on “Society”

Speaking of quotes, there is another example of the sort of irrational hatred people nurse for Maggie. It has to do with her (in)famous line, “There is no such thing as society.” When people throw this one out, I get the impression that I’m supposed to be struck by the woman’s utter stupidity. Of course there is such a thing as society. After all, we’re living in it, aren’t we? Maybe the words are thrown up to demonstrate her callousness (and I admit she had a callous streak). After all, if there’s no such thing as society, then there can be no such things as “social justice”, or “social welfare”, or “social solidarity”, right? Instead, she must believe in a system of atomistic self-interest, where everybody must grab what he can, and the common good be damned.

It is instructive to examine the original quotation in full, since it is rare to find a public person’s words so shamelessly edited almost beyond recognition. Actually, to my knowledge, she uttered those words twice on the same occasion. In an interview on October 31, 1987 in Woman’s Own magazine, Thatcher said,

“They’re casting their problem on society. And, you know, there is no such thing as society [my italics]. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first. It’s our duty to look after ourselves and then, also to look after our neighbour. People have got the entitlements too much in mind, without the obligations.”

Frankly, I don’t have very much to quarrel with in this, except that maybe she’s trying to make too many points at once. First, she is saying that too many people blame “society” for the things that are wrong with them, as well as for the wrong things that they do. Whatever “society” is, it should not be an excuse for one’s wrongdoing, nor for one’s lack of participation in one’s own life. Now, this doctrine can be taken too far, as can be done with any doctrine, but the basic point is, I think, a sound one.

Second, she doesn’t deny the existence of ties of affection to our fellows (although I certainly wouldn’t limit such ties to “families”, as she seems to imply). She should not be construed as being “anti-social”, as her critics imply, on the basis of a sentence fragment willfully taken out of context.

Third, she is saying that government does not represent some abstract metaphysical entity called “society”. It represents individual citizens ― it represents you and I.

Fourth, when she says that “it’s our duty to look after ourselves and then, also to look after our neighbour,” she is not simply saying that it’s an every-man-for-himself jungle out there. We do have responsibilities towards our fellow citizens, but it’s too easy to abrogate those obligations by sitting back and letting “society” do it on our behalf. She would say that these duties can be discharged better, more efficiently, and with more compassion by individual citizens. This opinion is debatable, but it is certainly not absurd. We could put it this way: Thatcher seems to view the ideal “society” as a kind of buddy system rather than in statist terms, where a universal and abstract corporate entity takes paternalistic care of me in an impersonal fashion, while having no personal knowledge of my particular circumstances and needs. It is an alternative vision, which you can agree with or not. It is classic Red Toryism, of the David Cameron variety; it is not a Hobbesian state of nature.

This vision sheds light on the point she was making later on in the same interview:

“There is no such thing as society. There is a living tapestry of men and women and people and the beauty of that tapestry and the quality of our lives will depend upon how much each of us is prepared to take responsibility for ourselves and each of us prepared to turn round and help by our own efforts those who are unfortunate.”

Thatcher and Hayek

Legend has it that while Mrs. Thatcher was sitting through another interminable meeting, listening to policy wonks and civil servants argue on and on about how to smoothly manage Britain’s inevitable decline, she reached into her famous handbag, pulled out a book, and banged it down on the table, exclaiming, “This is what we believe.” The book was Friedrich Hayek’s The Constitution of Liberty. What a woman! What a handbag! The book is nearly 600 pages long!

Thatcher’s remarks on society can be further examined in light of Hayek’s own thoughts on the same subject. The second volume of Hayek’s three-volume Law, Legislation, and Liberty was subtitled “The Mirage of Social Justice”. In that volume, he critiqued the very idea that there was such a thing as “social” justice. On his view, justice was largely a matter of private law relations and did not involve society per se. Indeed, in his opinion, there was no such thing as society, in the capital “S” sense of the term.

The story illustrates an interesting tension in Mrs. Thatcher’s world view. First, there is a libertarian strain in her beliefs, which is in broad accord with those of her mentor Hayek. She believed in the old-fashioned pull yourself-up-by-your-own-bootstraps liberalism of the Gladstonian variety. In short, at least with regard to the economy, she believed in the libertarian’s “minimal state”. This was very much Hayek’s own attitude; he was concerned with the implications of an ever-expanding realm of affairs over which the state took cognizance in the name of Society. Redistributive schemes that take money and property from some to give it to others always claimed to do so in the name of Society. Indeed, the logical result of such an attitude was the aptly named ideology of Socialism, which Hayek spent most of his career fighting.

But there was that Red Tory side of Thatcher that did not always sit well with her inner Gladstone. Libertarianism is ― or attempts to be, with questionable success ― a highly individualistic philosophy. It has little truck with collectives, whatever their size, structure or rationale. It is an unstable philosophy, because no economic activity could ever take place without organizing human beings into structured groups, and such groups would have little cohesion if the only thing holding them together was economic self-interest. Sooner or later all libertarians must face this fact. Although Hayek claimed not to be conservative, and even felt it necessary to append a postscript to The Constitution of Liberty entitled “Why I Am Not a Conservative”, his later writings became increasingly more Tory ― as evidenced by his eventual endorsement of (Christian) morality as a cohesive force. One must ask, “Cohesive for what?” For society? The early Hayek would have shrunk from the idea. The later Hayek embraced it, while at the same time hoping for a peerage from his friend the Prime Minister.

Deep down inside, I believe Thatcher wished for a British society structured like Grantham, the village in which she grew up, and in which her father ran his shop. I don’t believe that she necessarily wished for a Britain structured like a corporation, but many would say that this is more or less what she succeeded in creating.