Wednesday, September 8, 2010

Liberalism, Its Origins and Consequences - Chapter 4 - Our Foolish Compatriots

There is an aphorism that compares opinions to certain bodily orifices, the point being everyone has one. (With a bit of an implication about the quality of most opinions thrown in as well.) And that is actually a fairly profound statement. The truth is, not only does everyone have opinions, everyone has a different belief about the value of each and every thing on this earth. While there is some general consensus, and some opinions may be widely held, there is still enough diversity that we can say there is no opinion held by everyone.

Let me draw a few examples. I forget where I read it, but I recall someone, perhaps P.J. O'Rourke, arguing that if we lived by purely democratic rule every dinner would be from McDonald's and we would all be married to Mel Gibson, as women outnumber men. (This was back before Mel was seen as an antisemitic religious extremist.) It sounds silly, but just think if every decision had to be made based on pure majority rule, with every one of us forced to go along with the result. Do you recall the last time you visited a public library and griped that they had 100 copies of the latest best seller but not one of the book you wanted? Well, imagine that for the rest of your life, but, even worse, imagine that instead of not finding your book, you were forced to read the best seller instead.

I bring this up because it helps to illustrate the importance of individual valuation. We all have varying tastes, values, beliefs, and the rest. Even if we ignore big items like religion, culture, philosophy, political beliefs, all those extremely significant topics, we still differ hugely even on the small items. For example, some love lima beans, some can't swallow even one. Some love onions, others can't smell them without getting sick. Or, to leave food behind, the latest heart throb or super model may appeal to some, but others find them vapid, or even unappealing. We differ widely in our opinions on almost everything. And that is very important.

As I said in the last chapter, we all work to satisfy wants. Similarly, we exist in society to find satisfaction. If we did not care about our wants, we could simply sit in peace until we died of starvation or exposure. Or, if we still valued life, we could put in the bare minimum of effort to maintain our lives and spend the remaining time in happy delirium. We have wants, and find enjoyment in fulfilling them, and so we judge the success of our individual efforts, as well as of our economy and our society, in the degree to which those wants are fulfilled. There are some who would disagree with this statement, but in general, most western governments founded on liberal principle (in the 19th century sense of "liberal") agree that government exists to serve the citizens, and so it seems fair to say that the success or failure of the state rests upon how well the needs of the citizens are met.

And liberalism implicitly acknowledges that principle as well, as two of its foundation principles are based upon invalidating the argument, while leave it superficially intact. As we argued in the previous chapter, one principle is that there is a single "right" answer, a single set of values which is correct. That is intended to invalidate subjective valuation, creating an external standard of success, apart from the happiness of the citizens.

But more important is the second principle, the one we are discussing here, which serves, in some ways, as the foundation of the first principle, and that is the premise that individuals cannot be trusted to decide for themselves.

There are many justifications for this premise. First, that the public does not correctly value choices because they are unable to correctly value the options available. We discussed this a little in the previous chapter, but will visit it again. Second, there is the possibility that citizens can determine their own wants, but wants are not relevant, needs or some other "objective" valuation is. And thus the subjective values of individuals again do not matter. Third, some allow for subjective valuation, but then argue that lack of information, or complexity of the system prevents citizens from correctly making choices to achieve those values. Since this one does not invalidate subjective value, the argument is not that there is a "right" answer so much as the complexity prevents any right answer, and so the system imposes the best solution possible to avoid the chaos individual choice would bring. But more of that later. And finally, there is the theory that citizens themselves are fine, but outside forces, motivated by either greed or malice, somehow manipulate the citizens, either into making mistaken value judgments, or into choosing badly based upon their valuations, and thus cause citizens to fail once more to make good choices. (In the chapter after next we will be examining in more detail the difference between the theory of external forces versus the theory of inherent flaws and seeing how they differ from one another.)

All of the above have several features in common. First, they deny the possibility of citizens making a good choice initially. Second, and much more important, they also argue that the self-correction mechanism so important to the free market concept, does not work, making that initial bad choice more significant, as individuals cannot easily recover from their errors. (We will discuss this more in the next chapter.) Third, excluding the chaotic market version, all believe there is some ideal solution which should be imposed on everyone to produce ideal results, though every theory differs on what "ideal" means.

Before we examine each theory in detail, let me mention one final thesis, one which is heard at times in academic circles, but is rarely used politically, as its mass appeal is extremely limited. This is the utilitarian theory. It is almost identical to our normal trinity, but is based on the idea that citizens make choices which are "economically flawed". Every version of this theory is different, as each is based on an individual vision of what a "well run" economy looks like. However, they all are similar in arguing that the economy, its participants being left to their own devices, will produce results which differ from the author's preconceptions about economic success, and so participants in that economy must be forced to act differently. You need only look at Keynesian or Monetarist texts to find dozens of examples. However, as it requires both a huge quantity of economic jargon to hide the arbitrary nature of the measures used, and as much of the public cannot be excited about economic optimization, this theory has never seen success outside of academic and policy wonk circles, and so tends to serve as an academic justification for more populist liberal theories, rather than being offered to the public as a theory on its own.

(Please note that in practical terms, the utilitarian theory is effectively the same as all other theories using the same trinity of beliefs. Utilitarian theories think citizens are unable to determine economically optimal solutions, either from general ignorance or incompetence, lack of information or lack of proper economic theory. They believe that there is a single optimal solution, or, at most, a small set of equally desirable solutions (usually termed, from mathematical graphing terminology "local maxima"). And they believe that a small group of experts are aware of these solutions and can provide them to the public at large. In short, these economic utilitarians are identical to liberals, to technocrats, to socialists, to populists, to communists, fascists, "moderate Republicans" and anyone else who would impose their will upon everyone else in the guise of saving them from their own ignorance or gullibility.)

Which leaves us with the four theories we listed above. Which we shall examine now.

The first proposition is likely the most common, though often it is not stated explicitly. This is the belief that the state does exist to satisfy wants, but that the public is simply unable to determine their desires properly. Sometimes it is argued this is due to a lack of information, or perhaps due to the complexity of the market, or maybe a lack of direct experience, or the inability to properly evaluate all choices. However it is argued, the basic thesis is that the public does not know its own wants.

In practice this is often not an argument made directly, as arguing that the public is blind to its own wants tends to offend those whose support politicians need, and to raise charges of arrogance (which we will discuss in a later chapter), so instead the subject is discussed in terms of market complexity, misleading advertising, deceptive practices, and incomplete information. Many times jargon is also brought in from the unpopular economic inefficiency theory to help hide the basic premise. Instead of portraying the argument as it truly is, a public too incompetent to deal with the world and identify its own wants, it is instead described as a specific defect of our modern economy, something wrong with the free market which deprives the public of opportunities they once had. However, though it sounds better, in the end, it is the same argument, just worded differently.

There is an important corollary of this thesis. That is that there is a single, optimal solution set. This too is not stated openly, but there is no other way this theory could make sense. If valuation is subjective and constantly varying, how could we possibly know whether or not the public was able to know their own wants. There are only two ways. If the public was so incompetent that they actually worked in the opposite direction assumed by the free market theories, that is they made continually worse choices over time, that would be obvious, as people would become ever more despondent. As that is not happening, then we have to turn to the other explanation. And that explanation requires that there be some set of choices which are "objectively" better, a set of "right" choices. And so long as the public fails to choose them, and also shows no signs of learning to move toward those choices, that constitutes proof of public incapacity. In fact, that is the only possible proof, as without a set of "right" choices or a public growing increasingly depressed and dissatisfied, it is impossible to support claims that the public cannot identify their wants.

It should go without saying that I consider this thesis absurd. First, I deny the existence of any single objectively right choice. But even more significantly, there is no way to identify satisfaction except for individual response, in fact that is the definition of individual satisfaction. The only way this thesis makes sense is if the public not only makes the wrong choice, but cannot learn to correct their errors, and that requires that they be blind to the satisfaction they experience from any choice, as so long as they know whether a choice is more or less satisfying they have sufficient information to correct course.

Yet, if we postulate a public unable to recognize satisfaction, then the whole system breaks down. If the public does not know what it enjoys, then it basically cannot experience enjoyment, and so would be unlikely to trade, or even to work for more than bare subsistence. So long as the public can tell if it is more or less satisfied than at another time, it should have enough knowledge to learn from mistakes, and with learning the theory fails as well, as the individual, recognizing the failure of his original action will self-correct, gradually developing a superior approach. And so, in order for this theory to work, as we will examine in greater detail in the next chapter, we must postulate an individual capable of recognizing satisfaction but incapable of learning, or else capable of learning, but incapable of acting upon that improved knowledge. (There is a third possibility which we will discuss briefly in a future chapter, but it is rarely used in modern times, though we are seeing hints of it more and more.)

The remaining option, and the one most often adopted, if only tacitly, is to somehow posit that satisfaction and valuation are separate, that an individual can recognize his satisfaction, but cannot then use that knowledge to evaluate relative worth in future transactions. As we shall see very soon, this can be accomplished by splitting "true value" from satisfaction, but, even when that is not the case, it is still possible to do something similar. In the case of those postulating individuals unable to recognize their own preferences, the solution, most often, is simply to posit something analogous to a resistor in the human mind. One can tell if an experience is pleasing or not, as that is a strong enough stimulus, but one cannot tell anything more finely detailed, whether A is better or worse than B, only that both A and B are pleasant. It is not worded this way, but in the end, that is the argument made, that people can identify those things they like and dislike, but they cannot rank them, and certainly cannot establish relative rankings of worth between them. In short, there is subjective valuation in a gross sense, but it breaks down on any more detailed level.

But, of course, that is a hard sell, as most people can, through introspection, discover that they can rank their wishes pretty effectively.  Some proponents of liberalism use this to make the favorite appeal, the appeal to arrogance. ("Yes, YOU can tell the relative worth of things, because you are smart, but most of THOSE people aren't as smart as you, and can't do that...") It works much of the time, but sooner or later, contact with others, and the discovery that those others are more like us than different cause this theory to run into trouble. And so, rather than try to sell individuals on humans able to identify satisfaction but not the degree, proponents of liberalism and other interventions instead resort to the second choice we mentioned above, splitting satisfaction and "value" into two separate entities, making the ability to recognize personal satisfaction irrelevant when judging the worth of various choice, or establishing what one should or should not do within the economy.

Before we go on, let us look at the basic premise of this theory, the idea that satisfaction and worth are independent of one another, and see what the rationale for such an argument might be.

As with many political arguments, especially those leading to conclusions which go against one's intuitive understanding of human action, the basis for this theory is often founded on aberrant behaviors. As with many political arguments, it seems those who behave in antisocial or self-destructive manners provide the best examples, at least in the minds of some. (I personally think the creation of an analogy between a deviant mind and the majority of normal individuals tends to lead to incorrect conclusions about normal behavior, but I will argue that point later in this essay.)
                      
The argument usually starts by portraying, in overly simple terms, the subjective value argument. The theory is stated in a bare bones manner, basically arguing that the value of a good, what we should pay for it, is based entirely on how much one likes it. That is not entirely accurate, as price is based on much more than individual perception of satisfaction, but it is close enough that we can let it go for now.

The proponent of a dichotomous valuation then argues that such a theory can lead to very dangerous outcomes. For instance, if we draw our values entirely from our wants, would not an alcoholic want us to produce huge quantities of alcohol, as he desires it greatly, even though it is harmful for him? Similarly, would not overweight individuals consume more than they should?

They also tend to offer less dramatic, but more elitist arguments as well. They will appeal to the listeners' sense of superiority by arguing that leaving production and valuation entirely in the hands of the wishes of the masses would result in tons of pulp paperbacks but no great literature. Lots of lip gloss and baseball caps but no spacecraft and supercolliders. And the list would go on and on, postulating that the subjective value school would somehow enforce this militant democratization which would produce destructive results. It is an absurd theory, as it rests on a horrible misstatement of the subjective value school, but it is an argument offered regularly, and one which often wins over listeners.

In order to remedy this problem, the proponents argue that we have to look at goods in terms of their satisfaction but also in terms of their "worth". Or, to use terms often put forth, we need to separate "wants" from "needs" or "luxuries" from "necessities". Most often the proponents do not define with any precision the way this second aspect will be defined. We all know how we establish the want individuals feel for something, but there is rarely offered a formula or measurement for establishing the "need" we have for a good. (This may be intentional. as I wrote in other essays, by failing to establish the criteria this allows each listener to assume his own prejudices are the "obvious" choice, which all will follow. As he thinks he beliefs are self-evident and correct, they must be shared by all, and so he can believe his wishes will match those of the future government right up until the moment that future government tells him differently. But we will discuss this a bit more in our future chapter on arrogance and its role in the theories supporting liberalism.)

This thesis basically harks back to the arguments of the previous chapter, the concept that there is a single correct set of decisions to make. The idea that there is some method of valuation other than individual satisfaction clearly must rest on some external system of valuation, and, as a consequence, must also produce one set of optimal decisions. Thus, as I said before, these two foundations reinforce one another, but even more so, this specific version reinforces the other point even more forcefully. Without a single correct set of choices, one cannot have an objective measure, and with an objective measure, one must of necessity have a single set of correct choices.

However, though producing probably the most consistent theoretical basis for liberalism and other interventions, in practice this approach is not much different from all the theories rest upon a system error. That is all the theories not relying upon an outside force to produce the inability to decide. (We shall discuss the difference between the two shortly in superficial detail, and in greater detail in a future chapter.)  Whether the inability to decide properly is based upon an individual incapacity, valuation separated from want or market complexity, the results are much the same. Individuals must be led by an insightful source which can provide the set of proper decisions allowing them to overcome their incapacity. Yes, there are some very minor differences, which will be discussed near the end of this work, after we have looked at all the details fully, but in gross form, the three produce very few differences.

Which brings us to the third option, the argument that individuals are capable of determining their wants, and even ranking them in relative hierarchies, and that admits those wants are a proper measure of the worth of goods, yet still finds that individuals cannot make proper decisions. To reach this result, the theory basically postulates as real the excuses I mentioned being sued to disguise the first theory, that is that the market itself is too complex for individuals to make decisions.

The options here are endless. Perhaps the diversity of goods, and the constant entry of new products, along with the change in quality of existing products produces so many choices that individuals cannot gather the data they need to properly apply their valuations. Or perhaps the system itself, through advertising or other misleading information, makes individuals prone to make incorrect choices, and even when they attempt corrective action, to continue to act against their desires. Others postulate that the system tends to deliver incorrect information about the values others place upon goods and services, leading individuals to misjudge those choices, either placing too much value on them or else assuming they are unavailable and thus choosing less satisfactory options.

Whatever the justification, and the number of technical, jargon filled articles about "incomplete knowledge" and "game theory" are legion, the basic argument is that the system is set up in such a way that even with all the abilities they possess, individual cannot make proper choices, the market makes that impossible. As a result, it is up to the government to assist, to find a set of decisions which produce the best possible results, and to encourage individuals in this direction.

As you may have noticed, this theory is unique in one aspect. By admitting the existence of subjective valuation, and allowing its validity, not to mention granting that the validity of those two points also allows that individuals can make proper choices for themselves, at least given the proper environment, this theory does not require a "right" set of choices. Granted, in practice it still has one, as the system denies individuals the ability to choose and so the state must find a "good enough" set of decisions for everyone to replace their own faulty decisions, but in itself the theory does not require such a set of right choices.

In practice, however, that is rarely true, and you will almost never hear someone postulate this "good enough" decision. The lack of such a choice is not because this theory is never seen in practice, but, instead, because this theory is almost never offered in isolation. Unlike the earlier offerings, which are sometimes seen standing on their own, the argument for market complexity is almost always offered up as part of a hybrid answer, including one or more of the other theses, and so it tends to incorporate the set of "right" decisions from the theory or theories which are merged with it. But as we will discuss hybrid theories at the end of this chapter, let us wait until then to describe more about it.

Our final theory is actually something of a subset of the preceding three, as it incorporates aspect of all of them, being unique only in including a human agent as part of the cause. And that is theory that some external force, be it greedy individuals or malicious ones, are manipulating circumstances to make proper decisions impossible. In many cases this takes the form of the market theory, arguing that individuals manipulate market signals, preventing individuals from using whatever abilities they have, but in others it takes something akin to the want-need dichotomy, arguing that outside individuals manipulate the participants in the market to either confuse their wants with the true value of goods, or else to simply fail to recognize the true value of goods, and act on some other system of values.

Most often this thesis is based upon simple greed, the argument being that sellers and producers can gain the most profit by causing individuals to choose badly, and so they work to make sure individuals cannot make proper decisions. There are other theories based upon other motives, including simple malice, but in general such theories are limited to conspiracy theories. In fact, even conspiracy theories tend to stick to greed as the singular motive, as the many conspiracy theories about "war profiteers" and the "military industrial complex" show. Mostly this is because greed is a readily understandable theory, while ascribing actions to a desire to destroy for the sake of destruction is a hard sell.

The consequences of this theory are many, and we shall discuss some of the details in the chapter after next. However, in a lot of aspects the results are not much different from the other theories. The only really noteworthy large difference is that theories based upon individual deficiency, or market imperfections, tend to focus on cutting off "bad" choices, that is preventing an individual from choosing specific options. Theories based on outside forces tend to concentrate upon preventing certain actions directed at others. In other words, these tend to prevent individuals from making certain offers, or else requiring individuals to obtain licenses or otherwise provide certain guarantees before offering their services. This is not absolute, of curse, and there is a lot of overlap, but that is a good general rule. (On the other hand, it can be hard to see where the line is drawn. Are FDA regulations aimed at evil or incompetence? Do we prevent drugs from being offered without review because we think greedy sellers will market worthless goods? Or because we fear incompetent manufacturers will mistakenly offer such goods? It can be hard to tell, and, in reality, is often a moot point, as the results are the same.)

Before ending this chapter, let us look at one more aspect of  all four theories.

While I have described all four as if they were self contained and independent, perhaps even standing in opposition to one another, in practice, it is rare to find a theory based on a single aspect. Most often theoretical foundations of liberalism will rest upon a hybrid theory founded on some or all of these theories. For example, wants and needs will be contrasted, but at the same time arguments will also rest on the market's complexity, as well as the actions of cabals of dishonest sellers. As I said above, in practice the theory used does not produce many differences in the outcome, and so the theory chosen really has little effect on the practical results. There may be some small differences, and there may be some changes in emphasis, but, for the most part, hybrid theories do not work out much differently from individual theories.

And, having now looked the first two parts of the trinity of beliefs upon which liberalism is founded, let us take a break for a moment and examine a few specific aspects of these two. First, in the next chapter, we will look at one specific detail, the need for all such theories to deny the possibility of learning from our actions, and the logical problems such postulates create. Second, in the chapter following, we will look at the ways in which practices differ when founded on impersonal elements, such as individual inability to recognize values, or the splitting of value from desire, and when founded on the actions of individual actors. Third, we will examine one final theory, one currently out of favor but slowly seeing greater acceptance. That is the theory of an irrational economic universe. After that we will then examine our third element of the trinity, the need for an enlightened elite to provide answers. After that, we will finally write about the allegations of arrogance which I mentioned several times already. Following that we will move on to the consequences of these theories, that is the logical outcomes of adopting these foundation beliefs, and then finish by examining many specific questions which we have not been able to examine in detail in the main text, before closing with a summary of our thesis and all the points we managed to establish while examining it.

Continue to "Liberalism, Its Origins and Consequences - Chapter 5 - We Don't Need No Education".
Return to "Liberalism, Its Origins and Consequences - Preface".

POSTSCRIPT

Most of the topics in this chapter are based upon the same articles I cited in the previous chapter. However, there were a few unusual topics. First, I mentioned game theory, and its tendency to be able to produce utterly absurd "proofs" of completely erroneous ideas. I have written only a few essays on this topic, but they can be found at "Sterility of Formal Economics" and "Economic Illiteracy". Second, I discussed the problems with seeking mechanistic, and especially quantitative and deterministic processes in economics. Though I cited the relevant articles before, I did not do so in this context, so I am linking to "The Limits of "Scientific" Management", "The Limits of Technocracy",  "The Limits of Econometrics", "Knowing Our Limits", "Bad Economics Part 4", "Bad Economics Part 16", "The Rubber Yardstick, "The Problem With Economic Debate", "Numbers Aren't Always What They Seem",  "Michael Barone Gets His Economics Wrong" and  "Technocrats". I should also mention here that the arguments about "luxury" and "necessity" as well as "want" and "need" come from "The Most Misleading Word" and "Luxury and Necessity". I could probably cite more, but as I have said, the earlier chapters covered most of this ground already, and there are at least two future chapters which will provide looks at specific subordinate topics, so for not this should be more than enough citation for the moment.

Originally Published in Random Notes on 2010/05/25.

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