Science, Economics, and many other fields purport to be focused on trying to explain observations about the world. That is, these fields are trying to be descriptive regarding what has been observed. Often times, they will use models and algorithms in an attempt to describe what has been observed. If the model is able to successfully predict what is observed, then it can be considered a good theory about the world.
However, if the field starts to forget that it is trying to describe the observations of the world, and instead starts to believe that the models are not merely trying to explain observations, it may become prescriptive. That is, it may start to believe that the model is not merely a model, and is instead the world itself. This is the concern Jean Baudrillard expresses in his work Simulacra and Simulation. This is what I want to talk about today.
Recently, I took an economics class. I found the class quite challenging. Part of my challenge was the manner in which the instructor decided to teach the class: constantly jumping around from topic to topic and not following any sort of structure. He provided a syllabus to the class, complete with a schedule of when he was planning to teach the various topics. However, he did not follow the syllabus at all.
As chaotic as the class was to follow, there was another significant issue I found infuriating: his sloppy use of language. Early on in the class, he laid out the different ideas as they would pertain to an individual. He introduced the idea of a Demand Curve, and how individuals would choose to purchase a particular product based on their willingness to pay for the product at various points. This related to something called an Indifference Curve, which related two products and how the individual would value them as related to each other. These are all interesting economic terms and ideas, but ultimately the driving force behind all of this is the idea that the value an individual places in something can be, in some way, quantified.
To put this all a little more simply, my instructor was suggesting that all things we valued could be measured based on how much money we were willing to pay for them. The Demand Curve specifically delineates how much we are willing to pay to have that something, and the Indifference Curve relates how the value of one thing relates to the value of another. The idea of utility emerges from all of this.
In economics, utility is considered to be analogous to happiness or satisfaction. That is, one could simply replace all occurrences of the word “utility” with the word “happiness” and the meaning of the statement would remain the same. In my class, the instructor was suggesting that all products could be measured by how much happiness it gave to the individual. But more than merely that, he further suggested that because this amount of happiness could be quantified, one could exchange various products in appropriate quantities in order to maintain or even increase one’s happiness.
It is time for me to provide an example, to help clarify what I am talking about. Consider 2 products: hot dogs and t-shirts. The particular products are unimportant, so I’ve selected a couple that are reasonably disposable, meaning one is likely to purchase many of them over the course of their lifetime. It is suggested that a hot dog will provide an individual with a certain amount of happiness. Similarly a t-shirt will also provide that same individual with a certain amount of happiness as well, though the amount is likely to be a bit different. By using an Indifference Curve, it should be possible to determine how many hot dogs provides the equivalent amount of happiness as a t-shirt. And vice-versa: there should be a certain amount of t-shirts that provides the equivalent amount of happiness as a hot dog.
For my example, let us suggest that the Indifference Curve is linear for the moment (in reality, this curve is never linear). And let us suggest that through experimentation I determine that one t-shirt is equivalent to 3 hot dogs. Then, if I want to maximize my happiness in this world, I should purchase 3 times as many hot dogs as t-shirts. But it doesn’t stop there. Let us suggest that t-shirts and hot dogs have some constant value (which clearly in reality they do not). Let us suggest t-shirts cost $15 and hot dogs cost $2.
This is where it may get a bit weird, but bare with me. Each t-shirt provides me with 3 hot dogs worth of happiness, and I know that each hot dog costs $2, therefore a t-shirt can be said to provide $6 (3 x $2) worth of happiness. Similarly, a hot dog provides 1/3 of a t-shirt of happiness, and as a t-shirt costs $15, therefore a hot dog provides $5 (1/3 x $15) worth of happiness. In other words, the t-shirt gives me 6/5 or 120% of the happiness of a hot dog. Welcome to economics!
At this point, if the linear curves and constant prices were true, it should be obvious that this individual should never bother to purchase any hot dogs, as they will always receive more happiness from the purchase of t-shirts. However, the curves are not linear, and the prices are not constant, and so life is already more interesting. Due to the idea of diminishing marginal utility, which suggests that the more of something you purchase, the less happiness you will derive from it, there will come a point of optimization whereby a certain number of t-shirts and hot dogs will be the ideal, providing the individual with the greatest possible happiness.
Confused yet? If you have kept up with all I’ve stated, then congratulations. This is the simple, basic stuff in economics. From here, it gets way more complicated. About half way through the class, we started aggregating individuals into groups and communities. Into markets, where we start talking about how large groups of people will react to changes in prices and in the supply of goods. It builds from this humble beginning, using linear curves and constant prices.
For me, the problem is left unresolved at the beginning. The issue of quantifying happiness. For if this issue cannot be resolved, building upon the shaky foundation does not offer any confidence in the results that follow. If I cannot resolve the issue of quantifying happiness, then how can I have any faith in the models used to explain how larger groups and communities behave?
In my class, I treated all of this as like a game. As like a puzzle. I separated these ideas from the reality I knew and understood, trying to “win” the game or “solve” the puzzle. In that way, I passed my class without too much trouble. However, there is a world of difference between believing that economics is a strong indicator of how the world works, and simply some pipe dream of a few wealthy individuals. I passed because I knew how to tell the instructor what he wanted to hear, not because I believed what he was telling me was the truth.
The concern I have with economics, at this point, is that those who have spent their time and effort trying to explain the world seem to have shifted from trying to describe how the world is behaving, into trying to prescribe how individuals ought to behave. This is where economics is moving into the realm of ethics.
Unlike a science, like chemistry, where the world will continue to behave as it will regardless of the formulas and algorithms used, economics is providing feedback to individuals and directing decision making. My instructor started the class by suggesting that economics was “the study of decision making.” By making such a claim, he is not suggesting economics is observing the world and trying to explain why people do as they do. He is instead suggesting that economics is concerned with figuring out how decisions ought to be made. In the case of individuals, it is concerned with how to maximize happiness. In the case of companies and businesses, it is concerned with how to maximize profits.
The class spent its time providing the results to various surveys and research, purporting to be trying to explain why people did what they did. But, instead of spending time with that information and analyzing it to understand, it took the information and massaged it into these strange equations and curves, suggesting that “If a consumer always buys goods rationally, then the marginal utilities per dollar spent on all goods will be equal.”
Economics, at least based on what I learned in this class, is prescriptive. It is not concerned with explaining how people behave. It is providing a model for how people ought to behave. It is suggesting that a “rational” person should purchase products and goods in particular ways in order to maximize happiness. And, at its core, suggesting that the happiness I derive from wearing a t-shirt is somehow similar to the happiness I derive from eating a hot dog.