Value Free Economics Is Really Irrelevant Economics

The Labour Supply curve

The Labour Supply curve (Photo credit: Wikipedia)

When students enter my economics class for the first time they are generally mystified by the subject. Everyone knows what history, government, English, Art, Math, PE, and computer class are. I don’t know of any of my colleagues who have to explain the essence of their subject when students first walk in the door. But when my students sit down the first day the first question is “What’s economics?”

Try answering that question in one sentence. The first time I answered it I said,”It’s the study of how we use our scarce resources to satisfy our wants and needs.” The response was a puzzled and irritated,”What the…? Now I just answer the question with a few questions,

“What’s the best way to spend $100?” Many crazy answers from  students like “Buy bud [marijuana]!”

“What’s the best way to spend $100,000?” More answers like “Buy a bud farm!”

“What’s the best way to spend $1 trillion?” Different answers like “How much is a trillion?” (We worked it out once. You could spend around $37 million a day for 75 years before you ran through a trillion.)

The students understand money as a scarce resource. They also understand in some sense that there’s a connection between their values and how they allocate their spending. They just don’t understand it when we get into astronomical figures like our GDP or national debt.

$15 Trillion in 100 dollar bills

When I ask “What’s the best way to use $100” two things are going on, both of which I consider to be economics although the current economic content standards for high school only recognize one. In the first instance, by “best” I can mean “most efficient.” Economics as a social science tries to get at the most efficient use of resources using statistics and mathematical models (If you want to see an interesting use of econometrics to get at what’s really happening in our economy visit http://www.shadowstats.com). On the other hand, by “best” I am asking a question about value. However, value talk is assiduously avoided in economics because it is unscientific, subjective.

But therein lies a real problem. What does a 17 or 18 year old give a rip about labor arbitration, nominal versus real GDP, variables that cause shifts in the demand curve, or multinational corporate alliances. In fact, most adults don’t give a rip about these things. It can be reasonably argued that they should to some degree be literate with regard to the economic terminology used in the news media. But economics is missing something – namely a soul.

Economics as a social science deals with human behavior in the aggregate. Social behavior can be measured statistically and mathematical models (complex equations with many variables) can be derived to try and make predictions about that behavior. So how successful is the social science of economics at predicting human behavior? It’s very successful except when it isn’t and it isn’t quite a lot. If economic models could predict accurately human economic behavior all anyone would have to do is learn the math and they would be rich. But economic models are rich in assumptions and you know the old saying about assumptions making an ass of someone – like taxpayers. This isn’t to say that mathematical models have no good uses. For example, businesses can use them to create various scenarios revolving around such things as “just in time delivery” or cash flow and then test them in order to have a basis for future decisions. But it’s the macro-economic scale of complexity that makes economic forecasting as difficult as forecasting the weather.

So back to economics missing a soul. Years ago I read a book by a group of sociologists entitled Habits of the Heart. For me the most valuable part of that book was the appendix which had the title Social Science as Public Philosophy. I will quote what I feel is the heart of the matter from page 300:

Let us consider how such a social science differs from much current work. It is of the nature of a narrowly professional social science that it is specialized and that each specialized discipline disavows knowledge of the whole or of any part of the whole that lies beyond its strictly defined domain. It is the governing ideal of much specialized social science to abstract out single variables and, on the natural science model, try to figure out what their effects would be if everything else were held constant. Yet in the social world, single variables are seldom independent enough to be consistently predictive. It is only in the context of society as a whole , with its possibilities, its limitations, and its aspirations, that particular variables can be understood. (bold faced type mine)

Then on page 302 they make a declarative that I believe must inform the study of economics to make it both relevant and useful:

Social science as public philosophy cannot be “value free.” It accepts the canons of critical, disciplined research, but it does not imagine that such research exists in a moral vacuum. To attempt to study the possibilities and limitations of society with utter neutrality, as though it existed on another planet, is to push the ethos of narrowly professional social science to the breaking point.

Although the authors were talking about sociology, the point they make applies to economics as well since it too is a social science. All of the economic questions that matter to us, from the personal to societal, are questions of value. Econometrics can help us measure our economic behavior and point out efficiencies and inefficiencies, but in the end all our questions about how to use our scarce resources are value questions.

When I ask a student how best to use $100 I am asking a question both about the efficient use of a scarce resource and about what is important to that student. For economics to be relevant it must teach students how to manage resources but also help them explore their own priorities and basic values which affect how they choose to allocate their resources. By plugging into the heart and helping students learn the right questions to ask themselves, their community and their government about what our societal priorities should be, economics can be relevant, stimulating and useful.

3 Comments ↓

3 Comments on “Value Free Economics Is Really Irrelevant Economics”

  1. Jessica Vealitzek November 14, 2012 at 3:43 PM #

    Couldn’t agree more. It took me way too long to understand the power behind my money–the power to make a statement, to establish what my priorities are, to refuse to support certain business practices. What we buy and who we buy it from is a choice and I love that you are teaching that to children early.

  2. Robert-preneur November 14, 2012 at 7:27 PM #

    Thank you Jessica! It took me way too long as well. I recommend reading “What’s Mine is Yours” by Rachel Botsman to see how much power we really are developing. I tink Lincoln would have agreed with you. 🙂
    Peace and warmth

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