Monday, October 12, 2015

Your periodic reminder that "the economy" still tells us little about individuals

Lots of well-deserved heat on Annie Lowrey's noxious "No, Depressed American Towns Do Not Look Like Zimbabwe," where she argues that "in human terms, globalization has absolutely, completely proven positive-sum."

Jeff Spross insists that Lowrey's argument "doesn't justify calling on Americans to ignore their own immediate experience in favor of viewing all economic matters from 30,000 feet." Matt Bruenig observes that she hasn't "actually responded to the point that oursourcing has hurt specific groups of people...[she] retreat[s] back into pointing to aggregate gains." And Loomis, too, criticizes her failure to "ground her ideology about globalization in the lived experience of workers".

The consensus, it appears, is that Lowery's understanding of the economy fails to account for the plight of its individual members. And while there are all kinds of contributors to this failure, I'd like to focus on one in particular: the inability of capitalist theory to aggregate individual utility into social utility. Steve Keen:
However, to be a theory of economics rather than one of individual of psychology, [the neoclassical] model of the individual must be aggregated to derive a model of a market, where many individual consumers and sellers interact...In literally every case, the attempt to move from the analysis to the individual to the aggregate failed - in the sense that results that were easily derived for the isolated individual could not be derived from the aggregate. (Debunking Economics, 19)
I've elaborated on this elsewhere, though Keen does a significantly better job. Bottom line is that Lowery's pro-globalization arguments rest on an intellectual foundation that crumbles under minimal scrutiny. (All it took here was Spross pointing out that she's relying on an average.) She doesn't have some kind of special scientific insight into how we should measure prosperity that the victims of globalization and their sympathizers lack; it is not as if she has spent any kind of significant time studying Sonnenschein-Mantel-Debreu conditions and harbors some kind of secret proof that they actually hold. In fact, despite her article's charming reference to the "economically illiterate," it's not clear that Lowery has any formal education in economics beyond any gen eds she might have taken towards her B.A. in English. And when she claims that Zimbabwe generates about $1,700 in "goods and services per person every year," it's not even clear that her own autodidactic efforts are going so well. Could she possibly mean Zambia?