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Archive for March 8th, 2011

David Brooks was interviewed on National Public Radio this week, not for the usual political commentary, but to discuss his new book, The Social Animal, which in fact does look worth checking out. When asked by Robert Siegel what sparked his interest in probing the human mind, he responded:

Mr. BROOKS: Failure. I covered a bunch of policy failures, so in – and when the Soviet Union fell, we sent all these economists into Russia, when what they really lacked was social trust. We invaded Iraq totally oblivious to the psychological trauma and the cultural realities of Iraq. We had financial regulatory policies based on the idea that bankers were sort of rational creatures who would make smart decisions.

And I’ve covered education for 20 years, and we’ve reorganized all the boxes to very little effect. And the reality of education is that people learn from people they love. But if you mention the word love at a congressional hearing, they look at you like you’re Oprah.

And so all these policy failures were more or less based on a false view of human nature: that we’re cold, rationalistic individuals who respond to incentives. And so while all these failures based on this bad view of human nature were over in one side of my life, all these scientists, philosophers and others were developing a more accurate view of human nature, which is that emotion is more important than reason, that we’re not individuals, we’re deeply interconnected. And most importantly, that most of our thinking happens below the level of awareness.

This cold, rationalistic, atomistic agent is exactly the agent that inhabits economic models and plays game theory. It is because this is the type of agent that can be modeled neatly using the techniques borrowed from physics and engineering. In order to theorize about a more useful economic agent, the neoclassical economists standard tools of dynamic optimization and dynamic programming would have to be thrown out the window; economists are most unwilling to throw their entire toolkit out the window, for fear of being reduced to level of other, “soft” and “non-rigorous” social sciences.

Brooks also makes an interesting point about how this research has changed his view of markets:

And it’s made me much more suspicious, actually, of the free market, because we have to have – you know, the free market produces a lot of wealth, but it’s embedded. It’s embedded in a series of understandings. And if you don’t have those relationships, then people can’t thrive in that free market.

Do they have an ability to control their impulses? Do they have an ability to work in groups?

Groups are much smarter than individuals. And the groups that do well, it’s not shaped by how smart the people are in the group, it’s shaped by how well they signal each other. Do they take turns when they’re having a conversation? And so, even when you see something like the free market, you don’t see like Ayn Rand rationale individuals. You see groups and competing groups and collaborating groups deeply intertwined with one another.

It is becoming increasingly clear that a more useful economic theory will be one that is holistic, rather than atomistic, and more humbly interdisciplinary, rather than disdainful of other fields of study.

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These are just some great paragraphs from Matt Taibbi, and I should’ve posted them several weeks ago:

So there you have it. Illegal immigrants: 393,000. Lying moms: one. Bankers: zero. The math makes sense only because the politics are so obvious. You want to win elections, you bang on the jailable class. You build prisons and fill them with people for selling dime bags and stealing CD players. But for stealing a billion dollars? For fraud that puts a million people into foreclosure? Pass. It’s not a crime. Prison is too harsh. Get them to say they’re sorry, and move on. Oh, wait — let’s not even make them say they’re sorry. That’s too mean; let’s just give them a piece of paper with a government stamp on it, officially clearing them of the need to apologize, and make them pay a fine instead. But don’t make them pay it out of their own pockets, and don’t ask them to give back the money they stole. In fact, let them profit from their collective crimes, to the tune of a record $135 billion in pay and benefits last year. What’s next? Taxpayer-funded massages for every Wall Street executive guilty of fraud?

The mental stumbling block, for most Americans, is that financial crimes don’t feel real; you don’t see the culprits waving guns in liquor stores or dragging coeds into bushes. But these frauds are worse than common robberies. They’re crimes of intellectual choice, made by people who are already rich and who have every conceivable social advantage, acting on a simple, cynical calculation: Let’s steal whatever we can, then dare the victims to find the juice to reclaim their money through a captive bureaucracy. They’re attacking the very definition of property — which, after all, depends in part on a legal system that defends everyone’s claims of ownership equally. When that definition becomes tenuous or conditional — when the state simply gives up on the notion of justice — this whole American Dream thing recedes even further from reality.

 

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