Towards A More Realistic Science of Economics

I recently got Microeconomics: Behavior, Institutions, and Evolution by Samuel Bowles, and yesterday I read the Prologue. I was gratified to read Bowles's bold and cogent expression of many of the limitations of the neoclassical model that have concerned me for some time: Making little reference to the specifics of time, or place, or indeed any empirical facts, the Walrasian paradigm deduced a few rather strong predictions concerning the outcomes likely to be observed in the economy. In Section V, “The Walrasian Detour”, of their 2000 paper Walrasian Economics in Retrospect, Bowles and Herbert Gintis state:

In retrospect, the Walrasian model, with its canonical assumptions—complete contracting and the conventional preferences of Homo economicus—was an intellectually exciting detour whose glamour hid the fact that it cast little light on the time-honored questions of economic institutions, policy, and the wealth of nations. Many economists believe that the canonical Walrasian assumptions are the unavoidable price to be paid for clarity and rigor in more abstract reasoning, while accepting that more empirically grounded assumptions should inform practical investigations in particular applied topics. Others recognize that the time may have come to reconsider the Walrasian approach and its assumptions, but regard it not as a detour but as having provided essential foundations for our current knowledge. We disagree with both views. We need different (but not necessarily fewer) abstractions, and we need not have taken the circuitous Walrasian route to the present....Most neoclassical economists in the postwar period were actively hostile to broader models of human behavior and to introducing strategic interaction into economic theory....After decades of Walrasian respite, complex institutions and multifaceted people again intrude on our thinking, forcing a retreat from the elegant but misleading abstractions that once monopolized economic theory.

I have long thought that an essential element of economists' eagerness to embrace the Walrasian paradigm was their desire that their discipline be seen as a science. Assuming strong axioms allowed them to use powerful mathematical tools to build up a grand edifice of theory. Extensive use of mathematics made economics superficially similar to physics, whose status as science no one could call into question. But science is defined by the use of the scientific method, not by the absence or presence of mathematics. How much weight we can place on axioms, and the conclusions drawn from them, rightfully depends on the degree to which they accord with experience, not the degree to which they allow abstract analysis. Furthermore, the needs of physics fructified in the growth of various branches of mathematics, and there is no reason why the needs of economics should not do the same, if economists replace their unhealthy veneration of mathematics with the respectful demands a craftsman makes of his tools. As Bowles continues in the Prologue: It would be salutary for economists to focus more on answering [empirical] questions and less on demonstrating the use of our increasingly sophisticated tools. But it seems that a more problem-driven and less tool-driven approach will require yet more sophisticated tools. The mathematical demands of the theoretical framework I am proposing will be greater, not less, than [those] of the Walrasian paradigm.

A Whole New Way To Update Your Anti-virus Software

Yesterday I heard Ray Kurzweil speak and got a signed copy of his new book, The Singularity Is Near. From his talk I learned of an intriguing development: microbivores, artificial white blood cells. These could download software to respond to various pathogens. Kurzweil pointed out that the Activa deep-brain implant for controlling Parkinson's tremors can already be reprogrammed from outside the body.

What Next For Katrina's Victims?

I've had some thoughts on how best to help the survivors of Hurricane Katrina in the longer term. I'm aware that this is still a crisis situation and many of them are desperate for basic needs. The human tendency is to give generously in a crisis, but to become fatigued once crisis mode has passed. These people will need help recovering for months to come. Furthermore, it will take time to come up with and implement these longer-term solutions. John F. Kennedy told the following story:

"...we must think and act not only for the moment but for our time. I am reminded of the story of the great French Marshal Lyautey, who once asked his gardener to plant a tree. The gardener objected that the tree was slow-growing and would not reach maturity for a hundred years. The Marshal replied, 'In that case, there is no time to lose, plant it this afternoon.'"

So, what are some of the longer-term needs of Katrina's survivors? It's clear that they've gone through a very traumatic experience, so perhaps they could benefit from some psychological counseling. What may not spring to mind so quickly is that they might benefit from various types of economic counseling, specifically career and credit counseling.

People generally think about what they should do with their lives at specific turning points, e.g., on reaching adulthood or retirement age. At other times the thought of uprooting themselves and possibly their families exerts a strong pull towards staying on their current path. Now that all of these people have been uprooted willy nilly, it may be the right opportunity for them to think about how best to rebuild their lives. To make their new life as much as possible like their old life may not always be the best choice, although it may be the natural first instinct. If they are to start fresh, either because they decide to or because they're forced to, they could benefit from some of the resources which usually are reserved for college career counseling centers.

I don't know much about how credit works for disaster survivors. As noted on Slate, people may owe mortgages on houses that no longer exist, but FEMA aid can help alleviate this problem. However, Americans in general are also saddled with large amounts of consumer debt. What happens to their credit card loans in the event of a disaster? If people are forced into bankruptcy, what are the implications of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005? Will it make a difference whether the survivors go into bankruptcy before or after this law takes effect on October 17th? Whatever the answers may be, it seems clear the survivors could use help with understanding and dealing with them.

The most glaring large-scale need is for housing, but it's not at all clear what to do about it. Homeless shelters constitute the conventional stopgap, but the existing shelters in the area almost certainly don't have the capacity to accomodate so many people. A discussion with Saheli prompted me to think about one of the systemic defects in how we treat homeless people in general: Because many of the homeless have problems with mental illness and drugs, the shelters often assume the worst about all of them. In particular, they separate men from women and children. But breaking up families will often make a bad situation worse, especially at times like these when those families have just been through a disaster. This got me to thinking about whether there's some way these people could at least have some sort of "home base" where they can stay privately with their families and think peacefully about how to rebuild, rather than being trapped with a bunch of stressed-out strangers.

I think it's also important that the survivors regain as much control as possible over their situations, as soon as possible. For this reason I think it would be good if they could have the option of temporary cooperative housing. In this model, often used in college communities, residents use their labor in maintaining the household to make up part or all of their rent. But unfortunately this obviously requires large residential structures, which aren't going to spring up from nowhere.

Habitat for Humanity does great work building affordable housing, but because their model requires human as well as financial capital, it would be hard to scale to fit this situation. It's more geared toward the chronic problems of the working poor. A few months ago Saheli blogged about Tumbleweed Tiny Houses. They're tiny by normal American standards, but may provide more living space than the survivors' current shelters, and have the benefit of looking very home-like and comforting. Alternatively, given access to pre-fabricated housing kits, the survivors might be able to build such shelters themselves. This would have the added benefit of being a positive, cooperative endeavor they could take part in together, giving them a sense of control in the process and accomplishment at the end.

Unfortunately the big problem with all these ideas is land. Where would these structures be built? How long would they stay there? What would happen to them once people pick up the pieces of their lives and move elsewhere? These are very tough questions and I don't know the answers to them, but I hope I've given people something to think about.