Tyler Cowen on Masonomics
He spoke at a lunch today. I didn’t take notes, so I may have some things wrong.Six attributes of Masonomics:
1. Signalling and self-deception
2. _____ and neuroeconomics
3. Markets always fail
4. Politics is not about policy
5. cultural relativism
6. Try to connect economics to life. As a researcher, you want your research to influence your own opinions and approach to life.
Also, what Masonomics is not: evolutionary biology (don’t try to reduce everything to “that’s how we evolved as hunter-gatherers”); Austrian economics (don’t try to reduce every topic to what some iconic Austrian figure said about ; if you listen to some self-proclaimed Austrians, it too often sounds as though there is nothing new to learn or study)
He sketched a pyramid, taken from his latest book, with the human mind at the bottom, beliefs in the middle, and economic behavior on top. Traditional economics only looks at the top of the pyramid. Masonomics wants to look at all of it, which means ignoring boundaries between economics and other disciplines, including sociology, political science, and psychology. I think that Tyler’s pyramid would fit well with Doug North, who in turn would credit Hayek.
Point 1 says that human behavior is not primarily motivated by the desire to consume goods and services. Rather, people try to obtain good inner states (it seems to me that in the first volume of Skidelsky’s biography of Keynes, Keynes and the other Cambridge apostles are much influenced by a philosophy like this), which in turn depends a lot on how they believe they are perceived by others and how they can perceive themselves. Life is a big theater, and we are putting on performances to impress various audiences and to benefit our own self-concept (devotees of Adam Smith will tell you that he anticipates some of this thinking). Most people think that they are more well-liked than they really are, that they are smarter than they really are, that they are better drivers than they really are, etc.
Points 1 and 2 say that behavioral economics should not just start with classical rationality and draw up a catalog of interesting small deviations. Instead, appreciate rationality where you find it, but don’t assume that it is the default.
Point 3 says not to assume that markets are close to perfect or that they need only a few tweaks to make them perfect. Again, appreciate markets when they work, but don’t assume that markets working is the default. Of course, don’t assume that government works well, either.
Point 4 comes from Robin Hanson. Tyler argued that politics is about determining what sorts of groups have high status in a society. I think this can relate to the idea that people are motivated to feel good about themselves and to believe that others think highly of them. Think of political identity as like religious identity or musical identity. Tyler pointed out that it’s pretty easy to predict what music will be on the iPod of an upper middle class sophomore girl at Brown will like certain music, and it is pretty easy to predict the musical tastes of a 25-year-old male gas station mechanic in Grand Rapids, Michigan, and those are quite different. You might not get as high an R-square predicting political affiliations, but you could still do pretty well.
Point 5 about cultural relativism is both descriptive and prescriptive. I think we know by now that imposing western institutions on post-Soviet Russia or post-colonial Africa has different results than those institutions produce in the west. Tyler says that researchers should spend time with the culture where they do research. Do not expect American culture to react to single-payer health care the way other cultures react.
I think that the term “cultural relativism” has too much baggage to be helpful here. I prefer Tyler’s other expression, “cultural thickening.” The sense it conveys is that culture is thick and dense, and you cannot move it around so easily with laws, policies, or constitutions. So I would replace the phrase “cultural relativism” with the phrase “cultural thickening matters.”
Point 6 is the one that gave me the most trouble. Tyler was ready to accuse other economists of believing one thing at a theoretical level and acting differently. He felt very strongly about this, but he did not give enough specific examples to enable me to understand. For example, suppose that Eugene Fama managed his personal portfolio by day-trading and trying to pick winners and losers. That would strike me as not living your research. But in fact I think that most economists who are heavy into efficient market theory do in fact use index funds.
In general, I take the view that humans have diverse tastes. So suppose we had happiness research that told us that the average person is happier doing X than Y (and I don’t even think the research reliably tells us that much). That does not tell me that I am happier doing X than Y. The average person may find TV a good way to relax. Not me.
Anyway, on the issue of integrating research into one’s life, I am not convinced that I do it any more than a typical non-Mason economist, or that Tyler does for that matter. I need to know more about what he means.
During the discussion, Veronique De Rugy said that she was somewhat dispirited by Tyler’s talk. Her problem appeared to be that Masonomics breaks the simple connection between policy analysis and policy, particularly with point 4. So why be a policy analyst? Tyler’s answer was more or less to just shrug. My answer was to say that the work she does has a 50.02 percent chance of leading to something better and a 49.98 chance of leading to something worse, and that’s probably about the best one can hope for in a complex world that we poorly understand and which therefore is filled with unintended consequences.
Here is much more on Masonomics.