The Phenomenal World

The Phenomenal World

November 6th, 2018

Ideology in AP Economics

—   Jack Marley-Payne

Ideology in AP Economics

—   Jack Marley-Payne

 
 

Ideology in AP Economics

Introduction

When the media talks of ideological indoctrination in education, it is usually assumed to refer to liberal arts professors pushing their liberal agenda. Less discussed is the very different strain of ideology found in economics. The normative import is harder to spot here, as economics presents itself as a science: it provides an empirical study of the economy, just as mechanical engineering provides an empirical study of certain physical structures. When economists offer advice on matters of policy, it’s taken to be normatively neutral expert testimony, on a par with the advice of engineers on bridge construction. However, tools from the philosophy of explanation, in particular the work of Alan Garfinkel, show how explanations that appear purely empirical can in fact carry significant normative assumptions.1 With this, we will uncover the ideology embedded in economics.

More specifically, we’ll look at the ideology embedded in the foundations of traditional economics—as found in a typical introductory micro-economics class. Economics as a whole is diverse and sprawling, such that no single ideology could possibly be attributed to the entire discipline, and many specialized fields avoid many of the criticisms I make here. Despite this, if there are ideological assumptions in standard introductory course, this is of great significance.

A huge number of people take an introductory economics courses, including many of those involved in high-level political decision making, and for the most part, they will have no interaction with these more nuanced sub-fields. Including something in a standardized intro course effectively canonizes it, and policy makers who’ve taken such a course will be comfortable relying on its principles in decision making, except in the unlikely event that a relevant specialist is in the room at the time to point out their shortcomings. Bloomberg’s Noah Smith makes a similar point about the significance of introductory texts in relation to the deeply flawed theory of labor they offer. 2

To this end, we’ll use MIT’s EdEx guide to AP Microeconomics, taught by renowned economist John Gruber, as our foil: it is a high quality, easily accessible teaching resource that provides many students with their first exposure to economics (from hereon, I’ll simply call it ‘MIT Micro’).3 For the most part, this course makes a good faith effort to be even-handed and to demonstrate how different political viewpoints can be defended within the framework it sets up. This book is among the best of its kind, which allows me to make observations about embedded ideology of the discipline without indulging in cheap shots, as often happens when economics is criticized from the left. The point here is not to claim that economists are ideologues, but rather that certain ideological principles are deeply embedded in the subject matter, regardless of the intent of the person presenting it.

2. Garfinkel's View

Though many economists view their discipline as an empirical science, they nevertheless believe it can be used to inform moral debate. This is hardly controversial, since facts about how economies function are bound to influence how a just economy should be regulated. As Gruber puts it in MIT Micro:

[We can] use the tools of economics to address what are known as normative questions, such as is this a good thing or a bad thing? Normative questions have answers that are opinions…Even [so] the tools of economics can be very powerful to help inform these opinions.

In keeping with this sentiment, Gruber is conscientious throughout the course about trying to distinguish a normative thesis proposed within an economic framework from an empirical economic discovery—unlike many economic pundits. Garfinkel argues, however, that even if the distinction between empirical and normative claims is scrupulously regimented, economic explanations can still distort the normative debate.

Garfinkel’s general point is that explanations come with a contrast space: we don’t simply explain why something holds, instead we explain why something holds rather than some alternatives. For example, when answering questions about why the airline industry functions as it does, economics can explain why it is an oligopoly rather than perfectly competitive, but cannot explain why the airline industry uses jets rather than individual rocket packs—for this we’d have to turn to physics. The contrast space determines what explanations are apt answers to a given question.

As Garfinkel observes, the contrast space one appeals to may have normative consequences. He uses the example of the robber Willie Sutton, who was asked by a priest why he robs banks: Sutton replied, “that’s where the money is.” Sutton’s response explains why he robs banks rather than bakeries or museums, but the fact that he’s robbing something is simply assumed—it is not part of the contrast space. This means that discussing whether robbery is right or wrong is not on the table. In general, in order to criticize something, one must be able to point to a better available alternative—if a condition is excluded from the contrast space, avoiding it is not nefarious or unjust, it’s just inevitable.

A second way explanations influence normative debate comes from the kind of causal mechanisms they allow one to appeal to. Garfinkel uses the example of a student, Mary, getting a B in her final. One contrast space for explaining this would include alternative scenarios in which Mary gets A, or Mary gets C, while not considering factors external to Mary. In this case one could cite Mary’s work ethic, her ability to perform under pressure, or her teacher’s disposition towards her. Though these are empirical factors, they can be used to underpin ethical claims. If the explanation for Mary getting a B rather than an A is her questionable work ethic, then we will conclude that the grade is deserved. If the explanation, though, is that the teacher despises her, and grades her exceptionally harshly, then we will conclude that the grade is unfair.

However, if we ask ‘why did Mary get an A on this exam?’ and consider in the contrast space, not just features about Mary, but features about the examination system, we may arrive at different conclusions. When contrasting the exam with other possibilities, we might note that the teacher is grading on a strict curve that only allows one student in the class to receive an A, or that the exam includes a huge number of questions and a tight time limit, so that it rewards speed rather than understanding. Pointing to one of these factors as an explanation for Mary’s grade could lead us to conclude that the result was unfair.

What these examples are meant to illustrate is that, when explaining something, one can only appeal to causal factors that distinguish between alternatives in the contrast space—so if the contrast space is unaffected by events we consider morally objectionable, it prejudices the moral debate by excluding them from the discussion.

Turning to economic explanations, Garfinkel criticizes the individualism of the explanatory framework. He sees the central question in economic justice as being ‘why is there this distribution of goods among individuals?’ If the factors providing an answer are without reproach, then it seems the current distribution is just, while if they bring up problems, we may conclude it is morally unacceptable.

The contrast space is the set of different possible distributions of individual holdings; the question is why there is one distribution rather than another. Further, according to Garfinkel, the basic object of economic explanation is why any given individual holds a given share; one thus begins by explaining this for each individual in a society, and then conjoins all the individual explanations to provide an overall explanation of the total distribution of goods in society. Garfinkel’s primary target here is a libertarian conception of justice, which wants to look at the individual causal histories of each person’s acquisition of goods. On this view, if there is no injustice to be found in how a person acquired their holdings, then those holdings must be an acceptable part of a just societ. 4

Garfinkel points out that this model of explanation is unacceptably restrictive. First, looking at individual’s holding in isolation rules out identifying relative levels of wealth as a source of injustice. He uses the example of levels of weapon ownership: citizens may be concerned with a peer collecting a large stockpile of weapons, and the problem is not with them having 10 guns or 20 guns, considering the number in isolation. The problem, as compared to a situation in which everyone is equally matched, is with the shift in power dynamics brought about by a single person owning far more weapons than anyone else in the community. Analogously, holding a great deal more money than anyone else allows one to distort the political process undemocratically.

Second, looking just at the causal histories of individual holdings in isolation prevents us from seeing the causes of structural features of wealth distribution. If, when asking “why are goods distributed this way?”, we worked with a contrast space that recognized structural features of the economy, our explanation might appeal to Piketty’s claim that Capital tends to accumulate at such a rate that those without inheritance stand little chance of earning their way into the upper classes, or Ta Nehisi Coates’ explanation of how systemic discrimination like redlining contributed to the contemporary racial wealth gap. 5 These explanations might lead us to find injustice in the current system that was not apparent when we restricted our attention to individualist explanations.

Though Garfinkel’s criticisms are persuasive, they target the explanations of political philosophers of a certain era who draw upon economic considerations, rather than economic explanations themselves. Economists do not generally subscribe to such strict individualism as Nozick. Indeed, many of the key elements of economic explanation—supply and demand, or the competitiveness of a market—are clearly structural in nature. Garfinkel’s insights do lead to a critique of general economic explanation, but this requires further investigation, specifically a look at economic conceptions of welfare.

3. Economics and Welfare

Economic models broach normative questions by employing the notion of utility. As MIT Micro puts it: “Utility is what we call happiness, or well-being… A utility function describes how happy the goods you consume make you. A utility function tells you how well off you are.” If this is intended as a complete definition of happiness, it is woefully inadequate. Whether you are happy depends on much more than the goods you consume. It depends on the structure of society and your place within it, your friends and family, your health etc. I’m sure economists would readily admit this: they are not concerned with all aspects of happiness, only the economic component.

However, this qualification conceals an ambiguity. On the one hand are the aspects of happiness that can feasibly be measured and modeled within economics; on the other are those that are at least partially determined by the state of the economy. These notions are not equivalent: economic factors play a role in determining just about all aspects of human happiness, but many of these cannot be modeled within economics. To take one example, many economic factors play a role in perpetuating racial injustice, including lenient inheritance taxes, and patterns in home ownership and public-school funding that create de facto segregation. 6 However, economics—at least within its traditional framework, as presented as foundational to every economics students—is not able to measure and model how being a member of an unjustly treated racial group affects happiness. 7

The relationship between economic models and normative concerns comes to the fore in the analysis of welfare. From MIT Micro: “Welfare economics is about the measurement of economic outcomes on well-being. It gives us the tools and metrics to compare alternative market outcomes.” We can get to the bottom of the constraints the economic conception of welfare places on policy debates by looking at Gruber’s framing of the debate on redistribution and equity:

The economist's solution to this [question of understanding social welfare] is to create a social welfare function, which is loosely speaking, a utility function for society as a whole…The classic social welfare function is the utilitarian social welfare function, in which the goal of society is to maximize the sum of individualities. Everyone's utility is weighted the same, and this function just adds them all up.

The classical welfare function ends up looking fairly liberal due to the diminishing marginal utility of money. Marginal utility refers to the amount of happiness getting one more dollar would give. Marginal utility diminishes the wealthier one gets—in that another dollar means less to someone with lots of money than it does to someone with very little. An extra 1000 dollars will, in general, change the life of a person on minimum wage with no savings much more than a it will for someone who is extremely wealthy. Therefore, if the government takes ​1000 dollars from a wealthy person and gives it to a poor person, the utility of the poor person will increase much more than the wealthy person’s utility decreases: a tax system that redistributes resources from the rich to the poor will increase the total utility in a society.

Despite this, economists tend to stop short of recommending redistribution to complete equality. Gruber, in MIT Micro, employs the metaphor of a leaky bucket to illustrate the idea that, under normal conditions, transferring wealth entails inefficiency:

The benefit of redistribution is that resources that move from the rich, with their low marginal utility for these resources, to the poor, with their high marginal utility for these resources. Equity improves when the bucket carries resources from the rich to the poor. The cost of redistribution is the deadweight loss incurred when the tax and redistribution shrink the supply of labor.

The crucial claim here is that redistributing wealth shrinks the labor supply: "if the government taxes wages, it lowers the return to work by reducing the opportunity cost of leisure." As Gruber later notes, this only occurs if the method of redistribution reduces the effective wage for each hour of labor, as would occur with a credit that brings annual income up to some floor (but offers nothing to those earning above the floor). It does not apply to earned income tax credits or universal basic income. Indeed, earned income tax credits should increase the labor supply for those earning it, and given diminishing marginal utility, this should outweigh the reduced incentive to work for the high earners being taxed.

The permissible options for addressing inequality, as ‘informed by economics’, are severely limited. According to MIT Micro, “the decision of whether and how much to redistribute comes down to two things—how leaky the bucket is and how much of a leak society is willing to put up with.” In elaborating, Gruber recognizes a conservative viewpoint which resists redistribution on moral principal—not just because of an aversion to inefficiency. According to this view, wealthy people have worked hard and deserve their greater income, no matter the reduced overall utility this entails:

It's probably important to redistribute enough wealth so that people won't starve or die of the flu, but once we've met some basic standard, why should I tax you more if you decide to work 18 hours a day at a fancy bank to make a lot of money?

On the grounds Gruber gives here, one could defend a system of only minimal redistribution to ensure no one falls into destitution, or even no redistribution at all. On the other hand, one could minimize the significance of such desert claims and defend a more liberal redistribution proposal, insofar as it maximizes total utility. One could go still further and argue for a kind of redistribution that satisfies Rawls’ difference principle (making the worst off as well off as possible), though whether there is a plausible defense of this principle available is questionable. 8

This may seem like a pretty broad spectrum of views to choose from, but it remains inadequate. The key fact is that when deciding on matters of redistribution, one’s conception of a just society must be limited within the contrast space provided by the economic model. This means that one must use a social welfare function that draws only upon utility in its crude economic sense. This welfare function encodes its own kind of individualism, not in terms of explaining how individuals acquired their wealth, but in the relationship between individuals’ wealth and their happiness. Though the empirical side of economic explanations allows for structural features, the normative side does not.

When asking ‘why is there this distribution of goods?’, and looking for a justification rather than simply an empirical causal history, we will want to make reference to the level of welfare that comes with this distribution. Within the traditional economic framework, the contrast space only looks at the different possible levels of utility for different individuals, and different levels of wealth underlying them. Therefore, we are not able to appeal to structural features when answering this question.

We are not able to look at how the welfare of society is dependent on racial disparities in wealth, or differences in democratic power depending on inequality levels. 9 We are not able to look at how the welfare of society is dependent on racial disparities in wealth, or differences in democratic power depending on inequality levels. The problems that arise from this are two-fold: First, we are not able to judge economic systems based on how well they do with regard to these structural aspects of welfare; second, we are not able to look at the histories of the structural features when evaluating whether the current levels of social welfare is justified. If we were, we might identify that, for example, a history of racial exploitation produced certain structural aspects of welfare, and thus that our economic system is unjust. 10

4. Conclusion

What is to be done? It would not necessarily be recommended that we revise the notions of utility and welfare to recognize all these structural factors, since that might well make tractable predictive models impossible. To be clear, the problem is not simply that economic models do not recognize all aspects of well-being, it’s that economic policy influences a whole range of factors relevant to well-being and injustice that are invisible to the discipline itself. Economists alone cannot determine what economic policies should be pursued. This should not be seen as a terrible problem for economics—after all, engineering research alone is not sufficient to decide whether it’s a good idea to build a particular bridge at a particular location (it can’t say whether such a bridge is affordable or needed). It does mean that economists should exercise humility in how to present their advice, and one would hope an introductory course in economics would emphasize this.

A starting point for improvement would be to embrace and make explicit the normative commitments that economic models bring, since much of what is objectionable comes from ideology creeping into apparently value neutral models. 11 Building on this, dialogue between economists and those in other areas concerned with aspects of justice affected by the economy is essential.12

The aim must be a continuous back and forth, with those in other areas offering input on the broader consequences of economic outcomes, and economists coming back with the empirical predictions on what happens in attempts to meet these outside goals.

It’s essential that these considerations are communicated to all economics students, no matter what level of expertise they reach. One should not subscribe to the individualist conception of welfare described above, without being aware of having made an ethical decision in doing so. And an introduction to economics is duty bound to make this clear.

Title Ideology in AP Economics
Authors Jack Marley-Payne
Date November 6th, 2018
Collection Metaresearch
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References & Links
  1. See Garfinkel, A. (1981). Forms of explanation. New Haven: Yale University Press.
  2. https://www.bloomberg.com/view/articles/2018-04-05/supply-and-demand-does-a-poor-job-of-explaining-depressed-wages.
  3. The course can be viewed for free here: https://courses.edx.org/courses/course-v1:MITx+14.01x+2T2017/course/
  4. The clearest defender of such a view is Robert Nozick in Anarchy, State, Utopia.
  5. Piketty, T. (2014). Capital in the 21st Century; Coates, T. N. (2014). The case for reparations. The Atlantic, 313(5), 54-71.
  6. For an exploration of aspects of this see https://www.vox.com/2016/6/6/11852640/cartoon-poor-neighborhoods
  7. These are exactly the kinds of questions that sub-disciplines alluded to above-such as developmental economics-attempt to answer. My problem is that these fields are rendered invisible in traditional introductions to economics.
  8. See Rawls, J. (2009). A theory of justice: Revised edition. Harvard university press. For criticism see, e.g., Harsanyi, J. C. (1975). Can the maximin principle serve as a basis for morality? A critique of John Rawls's theory. American political science review, 69(2), 594-606.
  9. This is an issue that has recently been pressed by Corey Robin - see e.g. https://www.nytimes.com/2018/08/24/opinion/sunday/what-socialism-looks-like-in-2018.html
  10. A recent, stark structural feature in need of explanation is the difference in welfare between Puerto Rican Americans and mainlanders in the aftermath of 2017's hurricanes. The economic explanation of this, focusing not on the immediate response, but the longer-term differences in infrastructure investment, are likely to reveal much injustice. See, e.g, https://www.vox.com/2017/9/25/16361310/hurricane-maria-puerto-rico
  11. This is in line with Anthony Atkinson's argument for a return to welfare economics - see http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.364.5383&rep=rep1&type=pdf
  12. A promising development here is Michael Porter's 'Social Progress Index' aiming to offer an alternative to GDP that better tracks happiness. See https://qz.com/678910/harvard-researchers-have-isolated-a-key-to-happiness-and-iceland-is-helping-them-test-it/
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