I don’t like economics. That has to be said. “Rational” this and that is all a bunch of hogwash. It’s not a “myth.” It’s certainly not a truth. And “reason” is in no way quantifiable. People choose to do things. A good individualist will believe that people choosing to do things is a good thing. The act of choosing, choice, is the greatest ability of an individual.
An individual’s choice is the individual’s morality. In law we sometimes call that mens rea. In the Common Law, the law of historically individualist societies, one must have a “guilty mind” in order to be held criminally liable. That doesn’t mean you have to know, fo example, that murder is illegal to be guilty of murder. That means you have to have wanted to do the action that led to the death of another. If one suffers an epileptic fit (a complete surprise, having never suffered one before) and crashes one’s car into a crosswalk full of people, one will not be guilty of manslaughter. If one chooses to drink while in control of a vehicle, gets drunk and crashes into people, one will probably be guilty of manslaughter, but not murder (depending on ones local rules). If one thinks to oneself “I’m gonna drive my car through all those people cause I really hate people!” and then does so one will probably be guilty of murder.
One’s choices determine one’s judgment. One’s choices determine one’s God (or Gods!). One’s choices determines one’s career (if any). One’s choices determine everything of meaning in an individualist society. Without choice there is no individualism. “Freedom” is the freedom to choose. “Liberty” is free will, unencumbered by the will of others (with the exception that one may not then encumber the will of others).”Equality,” in an individualistic society, is the equal ability of all individuals to engage in the process of choosing, of being an individual (whether or not the consequences of those choices are the same for different people).
The “free market” is something that has yet to be defined by anybody. People like to use the term. They use it to get what they want, either for or against what they describe as “free market” systems that may be bad or good depending on how one chooses to look at them. It’s not that hard to define though. The Free Market is simply the choices of many individuals engaged in trade with each other. To regulate the “Free Market” therefore, is to regulate the free will of people who are trading. That’s ok to some extent, even for a libertarian or classical liberal. “Ordered Liberty” (that exception to free will I mentioned earlier), requires that people exercise their freedom to choose to the extent that their choices do not hurt the freedom to choose of others. Therefore lying/fraud is bad (snake oil salesmen who sell a product that doesn’t do what they say it will), and stealing (using other people’s money for purposes other people did not intend it for) is bad.
People often make choices without knowing what the consequences will be. Sometimes they are lied to. Sometimes they’re simply ignorant. One can ask for protection from liars by banding together with others who are trusted. But people can never escape ignorance. Can you really trust anyone? Even if you can trust others, how can they be sure of what you are not? If knowledge is infinite (and it could be, for all we know), they’re probably about as ignorant, on average, as you are. You don’t know what you don’t know.
Economists use “rational” to describe a choice maker who knows . . . something. Economists call not really knowing something and making a choice about it anyway “risk.” That’s deep. They try to come up with numbers, or models, that approximate “reason” or “risk” or the consequences of choices, reasoned or risky (aka “externalities”). Usually they get so stuck in models that have little in common with actual human behavior that they come up with conclusions that are morally frightening, if not disgusting and repulsive. They forget that the freedom to choose is a moral imperative in our society, and instead talk about “efficiency” (aka more people making more money . . . at least on average).
Note for those who are still here: If an economist says “reason” is a “myth” they are lying to you. Modern economics relies on the notion that people make choices for a reason (it’s an empirical study, even if not scientific, with observable cause and effect). It doesn’t have to be a good reason. All economists these days claim to be empiricists (see Locke, Kant, etc.). That is to say, they believe in an empirical “model” of human action. Critiquing “pure reason” is not the same as saying “rational choice” is a “myth.” On that note, saying that people always make “good” choices, given a certain model (aka “rational choice”), is meaningless.
(Time for some hyperbole!) At the end of the day, all economists are people who believe that structuring society a certain way will cause people to behave a certain way. Therefore, all economists ignore/disrespect/hate individual choice and are collectivists who can rot in hell. If “Free Market” economists hold any appeal to me it’s that their models, sometimes intentionally, but usually by accident, allow for the most free individual choice (which, again, is a moral imperative, not a matter of efficiency).
That was all introduction to the point of this post (which follows)!
Justin Fox recently published a book called The Myth of the Rational Market: A History of Risk, Reward and Delusion on Wall Street. I think the title is a reference to a book by Bryan Caplan called The Myth of the Rational Voter: Why Democracies Choose Bad Policies. I don’t think the authors share much in the way of economic opinion (other than “pop economics” is a good way to make money).
I haven’t read The Myth of the Rational Market, so I can’t comment on it. It was brought to my attention because this op-ed (“Drilling for Uncertainty”) by David Brooks was posted by a friend of mine on Facebook. I wanted to respond to the comment with some “further reading,” and in Google searching for some Bryan Caplan (as a starting point for some discussion on the difficulties of making choices about, well, anything), I came across the Justin Fox book, and then this interview with Justin Fox on the Daily Show (apparently from almost a year ago on July 1st 2009).
You really need to watch the entire thing for my commentary to make sense (it’s only 6 minutes), but I’ll quote the bit that encouraged this post:
Stewart: “What if we did just have a Free Market? Would it be the Wild West? Would we go back to the 1900′s where the company then owned the town you live in and also the store and there’d be no…you know…what would be the repercussions of an actual Free Market?
Fox: “I mean there’s definitely an element now in American intellectual life. Minority bit getting a lot of attention, who are sort of saying if only we didn’t have all of this government interference things would be better. You look back at the 19th century and we had these bubbles and crashes all the time lime every 10 or 15 years. And because they were more frequent they were perhaps less shocking and maybe in some way less damaging but you also had less of a financial system.”
Less of a Financial System. What does that mean? Does Mr. Fox mean to say that with less regulators we have less regulators? Hmmm . . . lets assume no. Does he mean to say that with less regulators we have less money being made? Fewer banks? Fewer stock exchangers? Fewer mortgage lenders? Fewer risk takers? There was lots of risk taking going on in the 19th century. Why didn’t it result in horrible crashes? Jon Stewart, probably the best interviewer on TV today (not saying much), fails to ask the most important question. What is “less of a financial system?” EDIT: Does he mean people traded less with each other?
Earlier in the interview Jon Stewart asks if the market is not rational, how can we bring a rational force to bear on this irrational monster. Mr. Fox says that regulators get “caught up in the same nonsense as markets do.” So regulators can’t help. According to Mr Fox, the best solution is “simple, dumb rules” which don’t “quite make sense.” The reason they work is that maybe they “slow things down a little.”
Slow what down a little? Does he mean they temper the huge crashes? Like in the 19th century, when there weren’t as many rules, but “things” didn’t cause as much damage? EDIT (for clarity): Isn’t Mr. Fox saying the same things “free market” economists say, but with the added apology for massive government spending (involvement in the market) in the 30′s (aka “regulation”), which is the exact opposite of “simple dumb rules.”
Economists out there, please explain this to me. I don’t want to read Justin Fox’s book.
“We’re trying to do it without the world war, just with the spending,” says the fantastic Mr. Fox. Actually, we are doing it with the world war. Hooray for Jon Stewart’s “social democracy.” Oops, I libertaranted a bit there. I apologize
