Do We Need ESSP?

Watts’ book can be regarded as an extended argument in favor of what I might term Epistemological Skepticism about Social Phenomena, or ESSP. Those of us with ESSP believe that we should be skeptical about how much we can know with certainty in the fields known as the social sciences. We may learn things that are true for a majority of cases under specific circumstances. But we are less likely to find perfectly reliable, broadly applicable laws comparable to those found by physicists.

The opposite of believing in ESSP is what Friedrich Hayek termed “scientism.” Scientism is a belief that social phenomena can be understood in a scientific manner. It is the belief that we should be able to explain and predict social outcomes on the basis of simple, powerful, verifiable universal principles.

Examples of scientism in economics include Marxism, Keynesianism, and most recently, Thomas Piketty’s Capital in the 21st Century.2 A scientistic epistemology seems to correlate with an ideology of centralized social control. In practice, Marxism has been totalitarian. Keynesianism has been used to justify major expansions in the size and scope of government. And Piketty advocates a tax on wealth imposed at a global level.

In contrast, those of us with ESSP are less likely to believe in sweeping policies imposed by government. We doubt the reliability of the social science that is invoked to justify such policies.

ESSP can be articulated in several ways. Perhaps the simplest formulation is one that I heard from my father, Merle Kling, who used to say that the first iron law of social science is, “Sometimes it’s this way and sometimes it’s that way.” That is, social phenomena tend to defy generalization. Behavior that occurs in some situations can differ from behavior that takes place in seemingly similar circumstances.

Another way of articulating ESSP has been provided by James Manzi in his book Uncontrolled.3 Manzi points out that the applicability of the scientific method of controlled experiments is often limited when we are studying social phenomena. At the same time, we confront what Manzi terms “causal density,” meaning that there are many causal chains and feedback loops at work in social processes. Because of causal density, there are not sufficient observations to enable us to make reliable inferences about, for example, the determinants of macroeconomic fluctuations.

Watts argues that we are duped by common sense into rejecting ESSP. Because common sense works so well in enabling us to navigate our everyday social environment, we are misled into believing that we have a similar ability to navigate the larger worlds of business, politics, and the economy. Watts writes,

… common sense is indeed exquisitely adapted to handling the kind of complexity that arises in everyday situations… But “situations” involving corporations, cultures, markets, nation-states, and global institutions exhibit a very different kind of complexity from everyday situations…. Yet… the failings of commonsense reasoning are rarely apparent to us. Rather, they manifest themselves to us simply as “things we didn’t know at the time” but which seem obvious in hindsight.

It occurs to me that the housing bubble that preceded the financial crisis of 2008 is a vivid illustration of a phenomenon that we consider obvious in hindsight. Indeed, most of the explanations and policy responses to the financial crisis seem to me to fall under the rubric of “obvious in hindsight.” The surprising ways in which events unfolded during and after the crisis have done little to increase the general belief in ESSP. Instead, scientism and faith in common sense seem well entrenched.

Watts writes,

At some level we understand that the world is complicated, and that everything is somehow connected to everything else. But… we can flip through the newspaper while drinking our morning cup of coffee and develop twenty different opinions about twenty different topics without breaking a sweat…. Yet policy makers empowered to enact sweeping plans that will affect thousands or millions of people are no less tempted to trust their intuition about the causes of poverty than ordinary citizens reading the newspaper.

The policy wonks back their schemes with scientific-sounding arguments. However, Watts argues that in fact they are biased by common sense. This strikes me as a useful insight.

I believe that macroeconomists are particularly prone to the sorts of mistakes that Watts identifies. For example, it seems to me that Keynesian macroeconomics draws its appeal in large part due to its congruity with common sense. We know that an individual business is likely to expand and hire more workers in response to an increase in demand for its products. Does it not make sense, therefore, to believe that an entire economy will expand and hire more workers if there is an increase in aggregate demand?

Macroeconomists rely heavily on the “representative agent model.” Watts is wary of such approaches. He writes,

… we do not speak of the genome as if it behaves like a single gene, nor do we speak of brains as if they behave like individual neurons, or ecosystems like individual creatures. That would be ridiculous. When it comes to social phenomena, however, we do speak of “social actors” like families, firms, markets, political parties, demographic segments, and nation-states as if they act in more or less the same way as the individuals that comprise them.

… no matter how much we try to dress them up in mathematics or other finery, explanations that invoke representative agents are making essentially the same error as commonsense explanations that talk about firms, markets, and societies in the same terms that we use to describe individual people.

ESSP says that the macro world of economies, cultures, and populations is too complex to be fully grasped using either common sense or more scientific approaches. Believing in ESSP does not automatically make you opposed to government intervention in markets. I get the impression that Watts is by no means libertarian. However, I think that if more educated people believed in ESSP, this would reduce the enthusiasm for ambitious government schemes.