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The hole at the heart of economics: the consent of the governed

• paganel 10y ago
  I'm curious at which point did the science of "economics" changed from "let's see which laws govern the free commercial exchanges between private citizens" into "let's see how we can govern people by imposing laws and regulations related to the commercial exchanges between them". I'm guessing this dates from Keynes's time.
  • pjc50 10y ago
    Economics started out being called "political economy", and regulation of commercial exchange goes back to the Romans. Regulation of coinage and weights and measures is a statutory feature of any society which has such things. There is no libertarian Avalon from which we have been expelled. (I like how they've quoted https://twitter.com/dsquareddigest https://twitter.com/dsquareddigest - he's an excellent person to follow for common-sense politics/economics with minor snark. And he's right that “‘it just isn’t done’ is basically the central organising constitutional principle of the UK.”)
    • CalChris 10y ago
      The word tax comes from the Latin taxo but taxes go back even further than the Romans. Egyptian Pharaohs had tax collectors. Probably further, it's just that we know more about the Egyptians because they kept records. In fact their tax collectors were called scribes. http://www.reshafim.org.il/ad/egypt/economy/taxation.htm http://www.reshafim.org.il/ad/egypt/economy/taxation.htm
    • anigbrowl 10y ago
      There is no libertarian Avalon from which we have been expelled. As an aside, I'm struck by how often theorists of both left and right unconsciously recapitulate the Garden of Eden narrative when attempting to articulate their basic premises. I'm starting to think there's a correlation between clinging to such unsupportable premises and hostility to the notion that humans are just particularly successful animals whose basic behavioral patterns are widely observable in the animal kingdom.
      • ubernostrum 10y ago
        This is why people should read Thomas Hobbes. His critique of "state of nature" thought experiments -- in which bright-eyed optimists somehow managed to convince themselves that people are naturally respectful of others and would only need to form extremely limited libertarian-style governments, and then only to deal with the tiny fraction of a fraction of people who wouldn't respect "natural" rights to life, property, etc. -- is devastatingly on point, showing exactly what such a "state of nature", if it ever existed, would look like and why a powerful centralized government would arise as the answer.
        • pjc50 10y ago
          Hobbes vs Locke vs Rousseau, if I remember rightly? Three very different views of this topic.
    • icu 10y ago
      Having lived in the UK for 8 years now. I would say this sentiment is better put as 'be sensible'. The knock on effect from being sensible is 'it just isn't done'.
  • lhopki01 10y ago
    Shouldn't that be the "science" of economics?
    • Symmetry 10y ago
      If we can call geology and linguistics sciences we can call economics a science too.
      • notahacker 10y ago
        Climate science is the most obvious comparison. Both involve: - a few basic axioms, based on principles well understood at certain scales but not universally accepted to work in combination and on a bigger scale - a lot of very messy empirical data, such that you need to be well versed in statistical techniques to understand whether it supports a hypothesis or not - predictions that are on a small scale frequently wrong and little agreement on magnitudes, despite scientific consensus over the general direction of movement - a lot of debate over whether proposed regulatory or technocratic solutions will actually do more good than harm and relatively little evidence of the size of the benefit they might bring that isn't contingent on trusting said imperfect prediction models. And a fair bit of inertia about doing the regulating because the companies that proposed to be regulated have a pretty good idea about what they stand to lose. - a lot of arguments over whether it's all a big con, driven far more by politics than understanding of the subject matter
  • laretluval 10y ago
    It's the difference between science and engineering.
    • carsongross 10y ago
      Calling economics either science or engineering is ridiculous. It has proven almost completely useless from a predictive standpoint.
      • ktRolster 10y ago
        It has proven almost completely useless from a predictive standpoint. That's not true at all, economics can predict many things. Here are some things that economics can accurately predict: mv = pq is very well tested. Economics can accurately predict that if you print too much money, you will get inflation. This has been verified over and over in many countries and at many times. The idea that increasing demand for a product (without modifying supply) will increase the price of that product is predictive and well supported. Price controls cause shortages: this happens over and over. When someone says, "economics is useless from a predictive standpoint" they are showing their ignorance.
        • lucozade 10y ago
          > mv = pq is very well tested I presume you mean that m is usually positively correlated with p over some unspecified time horizon? A problem I often find with economic truisms is that they tend to carefully ignore the time component. Over a short enough time horizon this is clearly untrue. Over a long enough one it's pretty much tautological. Market theory has a similar property. > if you print too much money, you will get inflation Again, usually. Hasn't really been happening over the last few years in the US and Europe. Presumably we just wait for some arbitrary long period until inflation starts to rise again? Does the theory tell us how long? So it's not that economics can't make predictions. It's just that they're often not useful predictions. It is quite good at postdictions, of course. The utility of which is at least a tad suspect.
          • 10y ago
  • noir-york 10y ago
    Early economics was really political economics and most early economist where political thinkers and philosophers. A couple of points: 1. negative externalities make necessary laws and regulations if you want an efficient market. 2. Keynesian economics (presumably what you referring to) has nothing to do with restricting free trade, but deals with the boom-bust cycle and how a government can manage it.
    • paganel 10y ago
      > 2. Keynesian economics (presumably what you referring to) has nothing to do with restricting free trade, but deals with the boom-bust cycle and how a government can manage it. Yeah, I'm now reading Benjamin Constant (I've read guys like Jean-Baptiste Say and Jeremy Bentham before) and there was is close to no mention in their works about the government having the intrinsic need to "manage" anything. Which brings me to my second question: who has empowered the Government to actively manage economic cycles? And assuming it has acquired these powers all by itself, based on which premises/presumptions does it accomplish its economics-related actions? It's funny reading Constant and how he warns about the perils of moral hazard associated to the active involvement of Government in the economy. 200 years have passed and we still make the same mistakes.
      • matt4077 10y ago
        > who has empowered the Government to actively manage economic cycles? Voters > based on which premises/presumptions does it accomplish its economics-related actions? Find causal relationships -> create causes for effects that you would like to see > the perils of moral hazard associated to the active involvement of Government Maybe the 18th century governments overstepped their boundaries when, dunno, they stopped slave labor of 8-year olds in coal mines. Today, the term applies almost exclusively to private industry. Mostly financial.
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        • aminorex 10y ago
  • burkaman 10y ago
    That's just the difference between observation and application, the same as any other science. Math vs. applied math, chemistry vs. chemical engineering, physics vs. applied physics, etc.
  • MichaelBurge 10y ago
    With the passage of the 16th amendment in 1913, establishment of the Federal Reserve in 1913, expansion of the interstate commerce clause in Wickard vs. Filburn in 1942, and Roosevelt's Social Security and other New Deal programs in the 1930s. After these, a lot of power shifted from the people to the federal government. And then the government needed economists to tell them how to use this new power. And because there are dozens of federal agencies employing economists, they're never going to say "We shouldn't be here at all" but rather "Let's hold back a little bit on using our power here". They're going to adjust their message so that politicians are more likely to appoint them to positions of power. Academia isn't any better: They crucially depend on government money, and the effort is always on more government influence(and money) even if a few professors write theoretical books saying otherwise. In finance, I believe economics is still useful since you can make measurable predictions, and execute trades and deals off of them. But, economists at finance companies aren't nearly as noticeable as economists in the government and academia. If you completely cut those items in the first paragraph, it would become nothing more than a moderately useful branch of philosophy.
    • matt4077 10y ago
      > After these, a lot of power shifted from the people to the federal government. That's the fault in this line of reasoning: the people never had the economic powers of a government. Government derives its power from being the solution to a collective action problem. Or, in other words, the people gained power by pooling their decision making process.
      • pmyteh 10y ago
        To be fair, government is one possible solution to a collective action problem. There are other possible solutions involving various kinds of voluntary cooperation. It just turns out that some collective action problems (such as the existence of child labour, for example) are much easier to solve by a body with coercive power than one without. But you're quite right that the notion that 'the people' once had such power before being oppressed by the creation of collective government is an ahistorical idea, normally deriving from dubious state-of-nature theories.
  • panglott 10y ago
    Capitalist and market economies rely on political systems that can deliver private property rights, independent courts, and inclusive economic and political institutions. Economics and politics are simply conjoined topics.
  • RockyMcNuts 10y ago
    'free commercial exchanges' have co-evolved with very complex cultural, legal, technological systems. if you had to explain to an alien what happens when you go to a store and exchange a piece of paper for a candy bar and get some paper and metal back, you'd be there for a long time and have to explain much of human history and civilization. 'which laws govern' i.e. are naturally imposed and who is 'imposing [somehow unnatural] laws and regulations', seems to be largely in the eye of the beholder. the idea any of this happens in a state of nature seems naive.
    • kazagistar 10y ago
      Agreed. Property itself is not natural but imposed by force via governance. The entire system of finance has always existed by coercion of non-participants.
      • solipsism 10y ago
        This is nonsense. Many non-human animals are territorial. Is that nest a community nest, or does it belong to a specific group of birds until they're done with it? Similarly, some non-human animals have organized systems that maintain cultural norms (like punishing individuals who steal). I don't understand this libertarian appeal to nature. Surely we can do better than the drunken walk of evolution that has led to present day "nature".
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        • rayiner 10y ago
          > Many non-human animals are territorial. Is that nest a community nest, or does it belong to a specific group of birds until they're done with it? Territory is very different from property. Territory is something you defend. Property is something society agrees to defend for you.
          • anigbrowl 10y ago
  • beefield 10y ago
    Well, theories of market failures belong to the rare species of economic theories that actually are falsifiable and thus scientific in popperian sense, so one could argue that answer to your question is, at that point when someone thought that it actually is good to add a piece of science into economics.
  • pmyteh 10y ago
    From the very early days of the discipline (basically the eighteenth century, when it was called 'political economy') economics has had a strong normative slant. It's always been about what should be done, as well as about describing what currently exists. This is normal, because the foundations of a given society are intensely political and have a huge impact on the nature of economic activities that exist (whether independent courts will enforce loan contracts, for example, is a political decision with major consequences for capital flows). Recently, the public face of economics has been largely microeconomic modelling, which looks (from a distance) like an apolitical applied science. But the economic historians and the political economy people have always been part of the discipline as well, whether they be Marx or Milton Friedman.
  • xapata 10y ago
    The transition began once we started to understand that commerce is not a natural phenomenon, but something enabled by social organization. Whatever social policies (laws/norms) exist will affect how commerce proceeds. Studying economic dynamics under only one set of policies would be only a tiny portion of the field.
    • anigbrowl 10y ago
      Why do you think social organization is unnatural? There are (iirc) 17 eusocial species, most of which are insects but two or three of which are mammals, depending on how you define eusociality.
      • xapata 10y ago
        Not social organization but free commerce -- a particular social organization. And "natural" in the sense of natural rights -- ethically correct and a stable equilibrium. Free commerce might be ethically correct, but that's certainly not obvious to everyone and it does not appear to be a stable equilibrium for social organization.
        • anigbrowl 10y ago
          Oh I see what you mean now. Thanks.
  • vkou 10y ago
    Prior to Keynes' time, there was no such thing as 'free commercial exchanges between private citizens' either. Consider serfdom, slavery, guild systems, the Enclosure Act, private armies, strikebreakers, debter's prisons, workhouses, unequal pay for equal work, press-ganging... You can look all across history, and hardly find an example of free commercial exchanges at work.
    • ThrustVectoring 10y ago
      Even today it's not "free". Try selling methamphetamine, or buying advance information from insiders on Alphabet's next quarterly earning report. What we have are markets that are designed to be safe, fast, easy, clear, and beneficial to society.
      • vkou 10y ago
        We're doing OK on the first three, but depending on the market, 'clear' and 'beneficial to society' are highly contentious. My point is that most of history's economic miracles were built either on the backs of theft, coerced labour, or government largess. There was no golden age when businessmen could be businessmen, and enterprise was free.
        • ThrustVectoring 10y ago
          The 'clear' markets are generally better functioning than ones that are more opaque, and there's been deliberate effort to making them more obvious. Think grain categorization and grading.
    • ubernostrum 10y ago
      One of my favorites: English labor law, prior to the 20th century, was still rooted in master/serf traditions. If an employer violated the terms of an employment contract, it was a civil matter and the employee had to fund the resulting lawsuit out of his own pocket (i.e., employee could not ever successfully fight a violation by the employer). But if the employee violated the contract, it was a criminal matter prosecuted free of charge by the state.
  • anigbrowl 10y ago
    That suggests to me that you've read very little economics outside of magazines. Adam Smith talks at lengths about the goals and responsibilities of national governments in the seminal economic text The Wealth of Nations - which is notable for not being called The Wealth of Private Individuals. As with the Bible, many people like to quote bits from it that seem to support their instant argument; very few have bothered to actually read the whole thing.
  • adrianratnapala 10y ago
    As others have pointed out, economics always was "political economy". Largely because it is about the whole of society, so it's actionable results tend to be in the realm of public policy. BUT: it seems there was a change around about the time of Keynes. Until then, economists talked mostly the general kind of systems that would produce prosperity. Even Marx talked like that -- he might have believed in rational planning, but he wrote about how the capitalist system as whole (mis)functioned, and how the proletariat would "inevitably" seize control. He did not detail already existing "levers" that be used by governors to steer the economy.
  • rubberstamp 10y ago
    Economies can be modeled to fit any way so that it is in balance with fundamental rules in play within of a sovereign country/region. First thing that needs to be modeled correctly is the government. Whats is it? Is it going to be authoritative or democratic. Now if it is authoritative, it servers a minority in power. If its democratic, shouldn't it be optimized for welfare of its citizens? Once that is defined, it becomes easy to model economy right. The right thing that should've been done is to let go of attitude "too big to fail" and let the market correct itself. Contracts were made between banks and investment banks. Those were valid contracts. Those who found themselves at the short end of the stick knew what they were getting into. It was the expert bankers who created those contracts. They didn't held their end of the deal. They basically caused a mess and got away scott free.
• yosito 10y ago
  Wait, what does this have to do with the consent of the governed?
  • rocqua 10y ago
    For institutions (e.g. courts) to work, people need to respect the authority of those institutions. If you take moves that hurt trust in those institutions, people might no longer consent to being governed by them. Now, a world without courts is economically worse of, so take public trust into account when making decisions.
  • paulajohnson 10y ago
    In the writer's view (AIUI), the "consent of the governed" is not a constitutional property arising from the existence of universal suffrage, it is a dynamic property that rises and falls over time in response to political and economic events. No dictator can hold power without some degree of consent from those they govern because ultimately they can only rule by giving orders which are obeyed. If this consent collapses then the dictator is no longer in power. In democracies the rule is by institutions rather than by individuals, but the same principle applies: we can only have a liberal capitalist democracy for as long as enough people believe that liberal capitalist democracy is the right thing. Once enough people believe otherwise the government collapses and something else (probably a lot nastier) takes its place. Therefore it is beholden on those who manage our liberal capitalist democracy to ensure that they maintain this consent. Economic and political policies should be fashioned, in part, around this principle.
  • quantumhobbit 10y ago
    The point was that instead of focusing on maximizing utility across the whole economy, economists should have considered policies, that while not globally optimal, preserved the consent of the governed. The recent wave of populism, Brexit, Trump, etc., can be interpreted as a revocation of that consent. The implication is that now populists might impose much worse economic policy than a moderate consent-preserving policy beforehand.
    • deleted 10y ago
• irq-1 10y ago
  The author confuses "it just isn't done" with both tradition and the social constraints of polite society.
  • pmyteh 10y ago
    It's not clear to me that there's a confusion. These seem like related categories (and, as a UK political scientist) his analysis of the British constitution seems both funny and broadly accurate.
  • joeclark77 10y ago
    Lord Moulton called it "the realm of manners" in between the domains of law and of free choice. Mark Steyn interpreted it recently: http://www.steynonline.com/7468/the-realm-of-manners http://www.steynonline.com/7468/the-realm-of-manners
• aaronhoffman 10y ago
  With regard to the $1T platinum coin, sounds like more people should read "Man, Economy, and State" https://mises.org/library/man-economy-and-state-power-and-market https://mises.org/library/man-economy-and-state-power-and-ma... There is a lack of understanding around money and currency, and how they come to exist in an economy.
  • tgb 10y ago
    What specifically in that book is related to the $1T platinum coins idea? I haven't read it but I can't imagine it's particularly relevant: the platinum coins idea was merely a (hypothetical) legal maneuver that would have allowed Obama to sidestep Congress. It wouldn't have done anything unusual except that Congress wouldn't have voted to do it.
  • notahacker 10y ago
    To be honest, lack of understanding about money and currency isn't particularly likely to be alleviated by reading a polemical tome by an anarcho-capitalist gold bug, unless it's a small subset of the reading you do with the objective of understanding how some of today's monetary systems most ardent opponents feel about it (probably paired with David Graeber for an equally extreme critical view of the monetary system from a different perspective and entirely different history of how currency came to exist...)
    • mercer 10y ago
      I can highly recommend Graeber (been working my way through 'Debt'). Not because he's right - I can't tell - but rather because his view interesting and quite different from what I'd heard before.
  • nhaehnle 10y ago
    Frankly, a better understanding can be obtained from Understanding Modern Money by Randall Wray. That book contains some policy prescriptions that you may or may not like, but regardless of that, it contains (a) a solid history of the development of money that is based more on actual history and sociology, rather than made-up stories, and (b) a solid and relatively plainly written introduction of how modern fiat money systems actually operate, without all the weaseling of terms you read elsewhere (e.g. "banks parking money in the central bank" is a pet peeve of mine).
• guard-of-terra 10y ago
  This is main objection to e.g. negative returns on deposits. "it just isn't done". You do that, people will have zero faith in banking system. Tell you, living in society where nobody has faith in institutions is very unfun.
• nkurz 10y ago
  I thought this paragraph was particularly insightful: And yet, with the benefit of hindsight, we can see that the crucial question regarding whether or not to use fiscal stimulus was a completely different one—which is more corrosive to the legitimacy of the institutions which make the prosperity of a liberal, global economy possible: a long economic slump, or a short-term stimulus so large that it inevitably leads to spending on low-return projects or lines the pockets of government-friendly firms? We were all tying ourselves in knots working out whether the multiplier on infrastructure spending was 0.7 or 1.2 or 2.5, when what we ought to have been asking was: what course of action is most likely to avert a crisis of institutional legitimacy that will leave everyone much worse off.
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  • jsprogrammer 10y ago
    Reactionaries are trying to keep a grip on their beloved institutions. Institutions failed, as they are wont. If any course of action can lead to a crises of 'legitimacy', it was already time to break out.
    • sliverstorm 10y ago
      To be clear, are you talking about institutions as the article defines them? Institutions are organisations or patterns of behaviour built by societies to help solve social or economic problems which the law or private markets cannot fully address. If I'm on the right track, an example of institutional legitimacy might be, "Banks can be trusted to hold your money" (vs stuffing it under your mattress), and FDIC insurance might be an example of an action to support or create that legitimacy. Banks, at least as depositories for money, seem worth having...
      • jsprogrammer 10y ago
        The article says "it just isn't done" is an institution. A good example would be, "MSNBC utterly failed to fact check 2016".
• rhodri 10y ago
  drawing attention to a deep and abiding ideology here: economics often presents itself as a science describing a universal and indeed physical phenomenon. remember that "the market" as we it is not only an ideal model but a very limited one that vehemently does not apply to most of the world, both inside and outside of California. "Institutions are organisations or patterns of behaviour built by societies to help solve social or economic problems which the law or private markets cannot fully address." institutions have existed long before the rule of law, or the existence of private markets. what he does get right is the fallacy of "ceteris paribus" or "all else remaining equal" that is used in most economic arguments with their limited scope.
  • anigbrowl 10y ago
    Calling ceteris paribus a fallacy is like objecting to the notion of integers because nature often presents quantitative problems involving things that are neither uniform not discrete; you may as well object to someone counting on their fingers because 'in reality they're all attached to the same hand, man.' Ceteris paribus is a technique for decomposing complex problems into simpler elementary ones, not an assertion about underlying economic realities. It's employed most commonly in microeconomics, which works fabulously, in much the same way as classical mechanics continues to work fabulously for the vast majority of earthbound practical problems. Macroeconomics is beset by problems because our understanding of social and organizations structures is seriously incomplete, in much the same fashion as ants probably have extreme difficulty in forming ideas about the collective behavior of ant colonies.
• rconti 10y ago
  One can mount a perfectly sensible economic defence of big bonuses paid to workers at banks that lose massive amounts of money and require state support, and one can also argue that the public should be smart enough to understand such payments and not let them stick in its collective craw. But they’re going to stick; that’s how people work. And that effect on macroinstitutions, whatever they are, ought to be considered in some way.
• ap22213 10y ago
  Many years ago I used to play a lot of D&D. I found that there were generally four types of players: social players, creative players, analytic players and competitive players. The social players liked to hang out and socialize. The creative players took their role playing very seriously. The analytic players would focus on tactics and strategy and solving puzzles. All three of these player types could work together well. But, when a competitive player joined, things would often become tense. The tension had little to do with the competitive aspect. In fact, all of the other player types would sometimes dabble in competition. The issue was that the competitive players usually broke the intent of the game or scenario. They would focus on the contract of the game (the rules) and seek out loopholes or ways to bend the rules to create superior advantage. These players were pejoratively called min-maxers or game lawyers. Basically, they were playing a different game than the rest. I often find that these archetypes fit in real life. Most people get along fine. They understand the social rules and the basic laws. They understand the intent of things rather than the wording of the contracts. They understand that contracts aren't perfect and that there is a lot of room for personal judgement. But, some people take the rules as an optimization problem. They seek to use them to both maximize their position as well as to justify their behavior. And, the rest of the people are constantly trying to keep up - trying to expand laws, regulations and social rules so that their actions are constrained. It's like a never ending arms race. Unfortunately, these are the people who now rule the world. But, it causes ripples where we all now have to assume those behaviors to keep up. The orginal intent of the game has been lost, and now the rules are the game.
  • Theodores 10y ago
    That is a very good analysis/extrapolation. Two more characters to add to your way of seeing: those with chronic narcissism and poseurs. The way the world works is that the narcissist politician/'competitive game player' is that one step ahead, it takes you time to prove they have cheated. The biggest obstacle to you is believing they did cheat. Your brain is wired up to imagine such a thing as unimaginable. However these guys don't have the ability to empathise, that is something they pretend because they do not have the wiring to the frontal cortex that you have. You give them credit as equals yet a huge chunk of their brain function is missing. They game the system as they have no shame doing so. The poseurs are those with all the gear but no idea. It takes them time to be accepted by your game playing clique, you may even put them through some hazing and initiation before they are accepted. They want to play the game but do not know the ins and outs. Therefore they become easy prey to believing what your narcissist game player tells them. In politics the electorate is essentially entirely poseur. Most employees have no idea how to run a company even the one they work for, even if they have worked there for decades. So, why on election day does the uninformed, propagandized to masses get to have a say? Invariably yet another narcissist gets into office, regardless of their political colours.
• pastProlog 10y ago
  > It seems reasonable to argue that bail-outs for banks amid broad woes for workers led to a loss of confidence in the system. Well that's one thing. We were told abolishing Glass-Steagall needed to be done because it was only something liberals who like big government wanted and was a 66 year old relic of the New Deal. Then the bankers come to the taxpayers 9 years later and demand to be bailed out because they're now "too big to fail" and if they're not handed a fortune of the taxpayers money quickly with little debate, the world economy would collapse.
• stcredzero 10y ago
  If anyone listened to or listens to "The History of Rome" podcast, or is otherwise familiar with Roman history, you'll note that the violation of "It just isn't done" precipitated a lot of stuff in Roman history -- much of it directly leading to totalitarianism.
• arca_vorago 10y ago
  Mainly for the neocons, but also for neolibs, I trace much of the willingness to disregard the consent of the governed to Leo Strauss. I have been saying it for a while, but essentially what is going on is the people in positions of power have decided that we the public are just so stupid we couldnt possibly comprehend the realpolitik things that need to be done, so they say one thing in public, and then a completely different thing once behind closed doors, usually at some think tank or institute or another. I think I have finally found the root of this problem though, in that any person who is currently in government and has taken the oath to the constitution and signed the required affidavit, that advocates the position that the people do not deserve or need to be informed because they are "too dumb", are technically in violation of their oath of office and therefor should be subject to removal from office and confinement or a fine, as is prescribed by law. The constitution is the supreme law of the land in the United States, created to protect, not to establish, our natural rights, and the entirety of it's power comes from the governed, the people. Any attempt to subvert that or casually dismiss that by any means other than constitutional is a violation of law. Of course the people with the power to decide to prosecute are mostly compromised so it's unlikely to happen at the current moment, but with a sea change in public opinion and involvement with justice through it's elected officials, this might not always be the case. I think a key point is to start getting rid of incumbents across the board.