How the Corruption of Economics Validated Corruption in Politics
The Self Fulfilling Prophecies of Reductionism.
All of my life I’ve seen the sporadic claim in print, attributed to economists, that voting doesn’t matter. Economists make the odious claim that voting isn’t rational based on the reductionist definition of rationality that accords with reductionist mathematical models. This is partially defended on the pretense that one doesn’t get a “payoff” from the act of voting, other than maybe a fleeting unquantifiable feeling of having participated. It’s further explained that one’s own vote as an individual has a very low probability of being directly consequential on the outcome of an election.
The logic of these arguments comes from false definitions of rationality and mathematical models based on spurious axiomatic claims. They reflect the corruption of the study of economics by the business interests that have funded the economics education and research and shaped it to their preferences accordingly. The most readily available sources for articles and defenses of not voting are right-wing think tanks. However, thanks to idea laundering, you can read why economists don’t vote in the New York Times.
Aggregate effects matter. By the logic employed by economists, one shouldn’t care about the recent Supreme Court decisions affecting Miranda rights or concealed carry since isolated, they don’t amount to a considerable change in our way of life. But the court’s decisions never occur in isolation. The effects of the changes to the law will aggregate, like votes, for a cumulative emergent effect that can’t be seen from the constituent events. Numerous small decisions made by disparate participants in society are how societal effects come about. The aggregate effect from the number of voters is the cause of the outcome. To frame voting in the context of a single cause and effect is either ignorant or malicious propaganda.
Rational Choice Theory posits that people make choices by doing a cost-benefit analysis and then making the choice that is in their best interest. This is the concept of rationality used when right-wing think tanks argue that myopic greed is what rationality consists of. Rational Choice Theory doesn’t stand up to experiments. Rational Choice Theory doesn’t account for social norms, personal ethics, situational context, the presentation of choices, personal history, or subjective emotional state. The failures of rational choice theory are the foundation of behavioral economics.
It’s well known that rational choice theory is far too reductionist to give any pertinent information about reality. Yet, its use persists due to the contention that the math derived from it is useful. This is completely irrational. If you have an equation that describes reality, like the addition of 5 pencils to another 5 pencils, expressed as 5 + 5, you can’t swap one of those 5’s out for a 13 and still end up with a description of 10 pencils. If reality is too complex to accurately predict with mathematics, then you simply can’t make the prediction. Falsifying reality to make the mathematics work isn’t providing anything of value unless you derive personal pleasure from doing mathematics.
Public Choice Theory is the application of reductionist economic models to political decision-making. Much of the baffling decision-making from elected leaders and the obtuse analysis from political writers that seems so detached from observable reality can be explained by ideas from Public Choice Theory.
Median Voter Theory is probably the most well-established idea to come from Public Choice Theory. It puts forth that if you place voter opinions on a left/right spectrum, the candidate whose views are most aligned to the middle of the spectrum will win the election. This is another idea that is promoted by right-wing think tanks, though it’s been accepted very widely as self-evident because a couple of generations of Americans didn’t experience any elections to contradict it until recently. It’s especially popular as a rhetorical cudgel to be used against economically leftist candidates who might act contrary to the status quo. The political status quo, established as it is through lobbying, campaign contributions, and investments, somehow come to represent the median voter’s desires in perpetuity when it’s used in this rhetorical way.
As with rational choice theory, there are far superior models one can use to analyze voter and politician behavior, such as the probabilistic model for those more mathematically minded, or the investment theory of party competition for the more empirically minded. Both of these theories are more current and empirically grounded than the median voter theory. It is nonsensical that median voter theory would still be considered a “default model of voter behavior and candidate choice” in 2022 unless the point hasn’t been to reflect reality at all.
As Public Choice Theory gets into special interests, the economic models directly and explicitly justify corruption. Efficiency and motivation are considered solely in terms of money as if our whole lives are no more complex than a balance sheet. From these models, political corruption and voter ignorance are validated as rational. From public choice findings, we can learn that government prevention of monopoly consolidation is ineffective, government laws to prevent pollution are ineffective, and every legislative decision is a quid pro quo.
Outside of Rational Choice theory, what are the foundations of this analytical method? A primary contention is that people’s interests are static. This is a feature of economic thinking in general, as economics is one of the few schools of thought that has stubbornly resisted incorporating dynamic systems thinking into its mainstream.
Another foundation is the profoundly unscientific idea that a “good” model should be taken seriously regardless of empirical evidence. This is a problem that’s deeply influenced economics as a whole and has rhetorical expression in several proverbs and fallacies, such as “the map is not the territory”, or the McNamara Fallacy.
As the world grows in complexity, the ideas derived from reductionist economic models look akin to radical libertarian ideology; informed as it was by pre-industrial life and applicable solely to that time before corporations had more rights and fewer responsibilities than citizens. Any static theory or ideology about society has a limited shelf life because society is dynamic and evolution is constant. Chaos Theory has been showing that reductionism has a limited utility in the study of our world since 1961. Mainstream economics is alone in ignoring this lesson.
One of the most lamentable contributions to economic thought which informs public choice theory is the principal-agent problem. This is another framework to tell people that the natural state of mankind is greed; presenting the central contention of rational choice theory as a conflict of interest for managers so severe as to be insurmountable without an abundance of performance-based financial incentives.
Rakesh Khurana discusses the Principal-Agent Problem, also known as agency theory, in his book on the history of management as a profession, “From Higher Aims to Hired Hands”. He is worth quoting at length;
“Writing about how managers are affected by the discourse that describes their practices, Nitin Nohria, Robert G. Eccles, and James Berkley have noted that “the way people talk about the world has everything to do with the way the world is ultimately understood and acted in, and . . . the concept of revolutionary change depends to a great extent on how the world is framed by our language” (emphasis in original). Jeffrey Pfeffer and his Stanford colleagues writing about the impact of economics on how students understand organizations have argued that “the assumptions on which theories are built and the language in which they are presented can exert a substantial influence on individual and collective behavior, separate from the theories’ conceptual structures and degree of empirical truth.” They have also found that in professional education, the identity and ideal types created for students have a normative status that takes on validity independent of their empirical validity. Offered a powerful theory about how the world works in the context of the formal systems of higher education, students become socialized into a belief system and then act according to those beliefs. In other words, theories about, for example, managers as inevitably self-interested “utility maximizers” can become self fulfilling prophecies.
The set of tenets inculcated in students by agency theory explicitly rejected such basic precepts of managerialism as that managerial work had a social function (e.g., upholding the legitimacy of American capitalism and democracy in the Cold War struggle against communism) beyond its purely economic one. Agency theory dissolved the idea that executives should be held—on the basis of notions such as stewardship, stakeholder interests, or promotion of the common good—to any standard stricter than sheer self-interest. How could they be if they were incapable of adhering to such a standard in the first place? Students were now taught that managers, as a matter of economic principle, could not be trusted: in the words of Oliver Williamson, they were “opportunistic with guile.” Jensen and Meckling, in a paper in the Journal of Applied Finance modestly titled “The Nature of Man,” took such an indictment of managers further by applying it to the entire human race; they quoted an amusing anecdote about George Bernard Shaw offering an actress money for sex in order to make the point that (in Jensen and Meckling’s own words) “pushed to the limit, every woman—and every man—is a willing prostitute.”Needless to say, all organizational life presents Unintended Consequences opportunities for purely self-interested behavior, because an organization’s overarching goals do not always provide guidelines for conduct in specific instances. Moreover, it is naive to think that managers never behave opportunistically. However, to admit to such organizational realities is different from legitimating opportunism as the dominant mode of managerial behavior.
With Public Choice Theory, the corruption of the study of economics by business interests and the destructive conception of human nature has been informing our political culture as a whole. This has been a problem since the 50s, since the Chicago School. Public choice concepts that use the ideas of economics as axioms get laundered through mainstream publications, which over decades have made the corrupting ideas of greedy oligarchs the common sense of the culture. Narrow concepts from Public Choice Theory for a time became the lingua franca of political writers due to the “common sense” idea that economics was a trustworthy science.
The effect that Rakesh Khurana observes on managers can be seen in our politicians. It’s been observed for decades that politicians aren’t acting in accordance with the interests of the people, and why would they be expected to, if they are told that doing so is contrary to their fundamental nature?