Economics: A Question

I’m studying economics for the first time this semester. I suppose I’m a little embarrassed that it’s taken me this long, but better late than never. Our text is specifically about micro-economics and public finance.

Reading the introductory material, I can’t help but notice (clearly, in print) something that I’ve suspected for a long time: economists think that people are robots. With the caveat that I’ve only read three chapters of this textbook, so far it seems to me that all of the economic theory (Pareto efficiency, welfare economics, etc) depends rather strongly on people being good little rational choice-making utility maximizers.

Thing is, I don’t feel like a mechanically rational utility maximizer, and I don’t think anyone else really is, either. Can someone who’s studied more of this than I have point me to some readings in one of the following two categories?

  1. An economist making reassuring noises that, yes, these things are only models, and as a result they’re only abstractions and approximations, and only a very shallow thinkier would take all of this perfectly literally.
  2. A serious thinker making a critique of rational choice and utility maximization as the underpinnings of (micro-)economics.

Thanks, smart people of the Internet!

Economics: A Question

Confessions of an Economic Hit Man, John Perkins

John Perkins has come a long way from when he was rigging economic reports for a high level government consulting firm and Amazon.com: Confessions of an Economic Hit Man is his memoir of those days and the soul altering transformation he went through. There is rampant, but subtle, 20/20 hindsight which detracts from the overall story as Perkins is, at times, naive and other times seemingly omnipotently prescient. This book would have been better as one of those long articles in Vanity Fair that I don’t read.

Confessions of an Economic Hit Man, John Perkins

Abstraction and Empathy

A prominent libertarian blogger, who goes by the nom de plume “Jane Galt,” wrote recently about the notion of “redistribution of wealth:”

While I am much more sanguine than most libertarians about redistributing material wealth from the richer to the poorer … I cannot believe in this sort of redistribution—“cutting down the tall poppies,” as I believe the Australians call it. Perhaps a little thought experiment will explain why.

Beauty, like wealth, is relative—it benefits its possessor only insofar as they are lovelier than the women, or handsomer than the men, around them. Presumably, if we disfigured all the good-looking actors in Hollywood, and the models in New York, and … well, heck, let’s slash the faces of everyone who’s better looking than I am. I am younger and slimmer than the average American, and have good teeth, long thick hair, and all the other accoutrements of an upper–middle–class upbringing. So we know that this would bring happiness to far more Americans than it would distress. We don’t have to turn them into Quasimodo—just make them no more good looking than I am. Just think how happy America could be made if Cindy Crawford had saddlebags and a squint.

But wait! Americans could be made even happier if Cindy Crawford and her ilk had acid poured on their faces to turn them into a twisted mass of scars, and were inflated a hundred pounds or so apiece through gavage. Physical pain could be alleviated by judicious application of modern painkilling technology, providing a huge psychic boost to everyone else at only a mild psychic cost … to the pulchritudinous elites.

Can you imagine a more blindly privileged position than that the value of wealth is solely relative, that the wealthy are happy only because there are those with less and that the poor are unhappy only because there are those with more? Leaving aside the risible opinion that for the wealthy to lose some of their money would be akin to a woman being violently disfigured, one is left to wonder that it has never occurred to Ms. “Galt” that maybe the poor are unhappy not only because they see that there are those that have more money than they do. Maybe the fact that they can’t afford food and a decent place to live has something to do with it. Maybe the inability to provide one’s children with all they need or want would weigh more heavily than the sight of a Lexus driving down the street. Maybe, just maybe, there are objective downsides to poverty.

This particular bit of nonsense is just one example of a phenomenon I’ve seen quite a bit of: a noted lack of empathy from conservative and libertarian thinkers. This isn’t a particularly novel insight—after all, the stereotype is that the hearts of us liberal types simply bleed empathy—but I’ve noticed one particular strain of empathy failure has to do with what I consider to be an error in levels of abstraction.

Abstraction is important. It is by generalizing that we turn experience into prediction, examples into rules. The ability to see beyond one’s own circumstances is, itself, a kind of abstraction, and one that can lead to more, not less, empathy. And of course dealing only with specifics bogs debate down with anecdotes, and fails to address principles.

But discourse that occurs only at the level of abstraction runs the risk of ignoring that which was abstracted. When talking about unemployment numbers or casualty rates it’s important to remember that there are real people behind these numbers. Taxation, for example, is fairly universally unpopular, but it’s also widely acknowledged to be essential for funding the services on which citizens rely. In a discussion about a criminally under-funded social program, is it not a failure of empathy to gloss over pleas on the behalf of those who are not served to argue instead about the justness of taxation at all? Is staking out an abstract principle nothing more than avoiding the unpleasant reality?

When considering the merits of a proposition like universal health care, what do you consider? Do you believe that millions of children and adults without the ability to pay for doctor’s visits and medicine is a tragedy that we, as a society have a duty to confront? Or is your primary concern “moral hazard” – the idea that if a person has access to health care they might use it “wastefully,” getting tests and treatments that they don’t need. (Even if such a proposition isn’t ludicrous to you on its face, that is, even if you accept that it reflects a likely or even possible outcome of universal insurance coverage, do you consider this to be a worse outcome than the status quo?)

When a group of women tells you about their experiences in a decidedly male-dominated society, and about how their experiences have affected their relationships with family, lovers, and even their own bodies, and when they insist that there is a pernicious sexism even in today’s enlightened society, and that even well-intentioned comments can sometimes cause hurt, what do you say? Do you apologize for giving offense, if you have done so? Do you keep silent if you have nothing constructive to say? Or do you muse aloud that it’s an interesting proposition and wonder how such a hypothesis might be tested, as if we were talking about a thought experiment and not real people and their lives?

Political philosophy and economic theory are important tools. Debates about abstract concepts are often helpful and nearly always enjoyable, but a refusal to engage with those who are concerned about the concrete realities that underlie the abstractions is, to at least some extent, and abrogation of one’s moral duties. When debating the issues of our time we must not, in our zeal to see the forest, overlook the trees.

Abstraction and Empathy

How Continental Raised the Price on ALL Their Tickets, (at least to me).

I’m back from JR’s Family’s Lake Erie Reunion. It wasn’t as bad as I thought it would be, and indeed, I actually had a little fun. However, the major excitement was Sunday when we arrived at the airport to fly home. Somehow, I made the colossally idiotic mistake of buying my ticket for Monday the 18th instead of Sunday the 17th. I’m not quite sure how it happened because I AM quite certain I never entered the 18th as an option for flying. I do take responsibility for not confirming the information on my ticket was correct before buying it and for not checking it sooner to make a change.
I hoped the flight hadn’t sold out and that I would be able to sweet-talk my onto the plane at minimal extra cost. At worst, I figured, I’d pay the industry-standard $100 change fee. When I went to the Continental counter, the woman told me Continental has a strict policy of not allowing people to fly standby until the day of their original flight. She also informed me it would be $320 on top of what I had already spent in order to change my ticket to fly that day. Flabbergasted, I asked her how much it would cost to skip my original flight and buy a new ticket on the flight I had planned on taking. Incredibly, buying a new ticket and forgoing the next day’s flight would only cost $280. I didn’t understand how buying 2 tickets could be cheaper than changing my old ticket and if I was going to buy a new ticket, I wanted to do some comparison shopping.
First stop was Southwest Airlines where the woman was shocked Continental wouldn’t change my ticket or allow me to fly standby. She seemed genuinely offended as an employee of the airline industry that another airline would have such ridiculous policies. She informed me that the best she could do was a flight from Cleveland to Baltimore to Providence for $185. She even reserved the ticket for me without making me pay so I could check with some of the other airlines. She also suggested I call Continental to try to talk to a supervisor. United was $611 and Independence was $250.
Having collected my facts, I dialed Continental’s 800 number and waited on hold for several minutes before reaching Helen. Helen told me the same thing the woman behind the counter had, that there is a strict policy against allowing people to fly standby unless it’s the day of their original flight, that the cost to change the ticket would be $320, and that a new ticket would be $280. Helen didn’t seem to care when I argued that it didn’t make sense they would charge me so much (or charge me at all) since they obviously had seats available. I mentioned that Southwest was willing to fly me for $185 and told her that they may get the $280 out of me because I was desperate, but I would never fly Continental again. I also mentioned I would spend the next month telling everyone I knew how stupid I had been to buy the wrong ticket, but especially how greedy Continental had been in trying to take advantage of it. Helen told me there was nothing she could do and something to the effect of “You should probably fly on Southwest if you don’t want to pay $280.” She then suggested I try to get someone at the airport to do something about it.
I got back in line steeling myself for what I knew could be an epic battle. The problem as I saw it was my total lack of leverage. Continental didn’t need to do anything for me because I had already paid for a ticket for the next day’s flight. They didn’t need to do anything for me because they had their money and that was final regardless of what I decided to do. I had a minor scuffle with the woman directing people to the counter after she was offended I was talking on my phone while in her line. I don’t remember much about the incident, but I include it as further proof that Continental needs to focus harder on customer service.
I approached the woman at counter 19 tingling with trepidation and excitement. I felt excitement because I envisioned an intense match of verbal sparring where I could pontificate loudly on issues involving efficiency, logic, customer service, money, and right and wrong. I felt trepidation because the last thing I wanted was to spend $280 more than I had already spent.
And then nothing. I explained to the woman behind the counter that I had mistakenly purchased a ticket for Monday’s flight when I really wanted to fly today. She nodded and told me she could change my flight, but she’d have to charge me a $100 change fee. I quickly handed her my credit card before something happened to increase the price of my fare and walked away stunned after telling her she had made my day. I think she really appreciated me saying that. I had never been so happy to spend $100.
I don’t know if Continental thought someone else was going to rush into the airport 25 minutes before boarding willing to pay the premium price they had assigned to the ticket. That can be the only explanation for not allowing me to fly standby on a flight that clearly wasn’t full. And I don’t understand why 2 different employees refused to let me fly standby or pay $100 to change my ticket citing strict company policies before a third employee did so without pause. You’d think Continental and every other company would try to fill up every plane all the time and would willingly sell tickets to people at some small margin above cost 25 minutes before the plane boarded. Much like an ice cream store giving out ice cream in the event of a power outage, giving it out in exchange for good will and nothing more, Continental should have welcomed me aboard in an effort to fill up every sellable bit of space on that plane. (Empty seats are giant tubs of melted ice cream, as it were) In the end, the flight took off an hour late further lowering the value of the service Continental provided me. As far as I’m concerned, every flight I take on Continental leaves at least an hour late as my flight from Boston to Cleveland took off an hour and a half after it was supposed to.
In the interest of full disclosure, what I said to Helen about never flying on Continental again isn’t totally true. At this stage in my professional career, I can’t afford to be so stubbornly principled. The next time I’m looking for flights, I’ll fly on Continental if it’s significantly cheaper than any other option. This means that the Continental flight will have to be direct and cost at least $40 less than the next lowest option. So in reality, what I should have said to Helen was “You may get your $280 out of me, but it’s going to make each of your flights appear $40 more expensive than they are for the next 5-15 years. However, I will certainly stop flying Continental as soon as I make enough money to base economic decisions on terrible prior experiences.”

How Continental Raised the Price on ALL Their Tickets, (at least to me).