I wrote:
> > Economists list three ways of dealing with "the economic problem"
> > (scarcity), which would include problems such as the way in which the
> > commercialization of agriculture drives the landless peasants to seek ways
> > to survive that involve deforestation and farming on steep hills,
> > encouraging erosion, floods, etc.
Ted asks:
>How is it possible on "rational choice" premises (which conceive persons
>as calculating machines ...) to reach without self-contradiction the
>conclusion that any outcome of the "decisions" of such machines is
>"inefficient"? Such outcomes include the
>institutional framework (e.g. the role assigned to markets), government
>policy in general and government policy with respect to small farmers and
>the natural environmental in particular. On such premises, the world must
>always be the best of all possible worlds no?
No, since the rational calculating machines only take into account the
costs and benefits to themselves. It's very common in economics to point to
the difference between individual rationality and efficiency from a more
social perspective. It's true that economists generally show a strong bias
toward privileging individual rationality over social efficiency. (This is
especially true of Chicago schoolmen.) But that arises because they avoid
accepting the fact that production is socialized, i.e., that externalities
(both technical and pecuniary ones) are ubiquitous. (In fact, the idea of
pecuniary externalities is generally rejected in an _a priori_ way and
usually not even mentioned. It's sort of a dirty secret...)
The "calculating machine" image of individuals that Veblen criticized has
been dropped by economists (even in some intro textbooks). Instead, the
currently-dominant model is basically tautological: people choose what they
choose and the only way one can figure out what their preferences are is by
looking at what they choose (revealed preference). "Rationality"
(consistency) is tautological, since people may have a taste for variety,
so that revealed preferences need not be consistent.
The parts that are not tautological is (1) the assumption that tastes are
given exogenously and (2) the usual assumption that people are totally
individualistic, not caring about the feelings of others besides their
immediate families. The first is preserved because economists usually
eschew reading sociology and psychology and usually sneer at these fields
(especially the former). (Matt Rabin of UC-Berkeley (Brad's colleague) had
a useful survey article on "economics and psychology," but I doubt that
this will effect the dominant perspective of the orthodox economists.)
The assumption that people are totally individualistic is contradicted by
the fact that people actually being willing to vote in a representative
election even though one's vote has absolutely no effect on the outcome.
But at least in the U.S., economists are products of an extremely
individualistic culture and so cling to the individualism assumption and
seek to preserve their theory by adding epicycles. (Of course, economists
usually ignore the role of the culture they're embedded in.)
Jim Devine [EMAIL PROTECTED] & http://liberalarts.lmu.edu/~JDevine
