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Aug 25, 2009

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Chuck North

Good comments, and thanks for the book plug.

Adam Smith wrote a lot about this topic in The Theory of Moral Sentiments. He emphasizes the importance of empathy in discerning what is in other people's interest. Without empathy, one cannot decide what is best for another. At best, empathy allows us to understand the other person's needs from THEIR perspective, and take actions based on that. Even at less than its best, we can understand their situation and assess their needs based on what WE would want in THEIR position.

Empirically though, the least effective way to help someone is to decide what they need based upon YOUR own preferences. This is commonly done by people of all political stripes.

Travis Greene

Surely there's lots we can know about our economic actions and their impact on others. And though we may not know everything, we have a responsibility to act on what we do know.

Michael W. Kruse

Yes. We can't sit and do nothing because we don't know everything.

What I'm building toward is that we make our decisions in an environment of risk, not certainty. And there is an old joke that says to err is human, but it requires a computer to really mess things up. The more extensive and more complex the action to be taken, the greater the chance for big payoff or big disaster.

Passively trusting markets and uncritically embracing interventions to achieve a common good are imprudent. So how do we act with prudence? Are there grids through which we can process decisions? That is my question.

Travis Greene

Speaking of interventions, it seems to me that the economic story you've been telling has left out politics--the rise of the modern nation-state and the rule of law (vs. divine right of kings) took place during this same period. How do we know what's really responsible for prosperity?

I think that's why I am skeptical of this particular economic metanarrative. Even if partly or even largely true, I think it is at the least overly simplistic, missing out on the political dimensions. Not to mention the theo-philosophical.

Which, of course, is the reason for the need for dialogue in the first place, and the need for respect on both sides.

Chuck North

I'm a big believer in the importance of institutions in fostering the economic system we now have. Defined broadly, as Douglass North has done, "institutions" includes not only legal/political structures but also cultural norms and values. All of these play a role in generating the kind of system that can generate surplus wealth.

My point on empathy is that we can't simply impose our preferences on others and expect results from it. The best example of this is the repeated failure of foreign aid to help developing countries get better. Instead, it works better to make decisions based on the needs of others as they perceive them - for example, by investing at the micro level in things that people in Africa know that they need rather than trusting corrupt governments to spend aid money wisely.

(Of course, there are limits to this argument. An addict would be happiest if you gave him his next fix. That doesn't mean it is best to give it to him.)

Jesse

I think you may have left out a category above:
Free Market Pragmatist: Free Markets are the worst form of Economic System except all of the other Economic Systems. I've also heard it phrased "Markets Fail. Use Markets."

On Travis' comment: Free(er) markets only work if the rule of law is in place, as well as low corruption and the enforcement of private contracts. But so long as those exist (as the do, somewhat, in China - not a democracy) then you see a trend toward prosperity. I've seen lots of work on differing institutions effect on economic outcomes, and they do matter, but only via their impact on economics.

Michael W. Kruse

Jesse, I think the difference I was going for between these four and the Free Market Pragmatist is the pragmatism part. These four have a unwavering faith commitment that their solution is using the laws of nature or is ordained by God.

I see the Free Market Pragmatist doing a risk assessment but I can also see interventionist pragmatists operating on risk assessment versus, not ideology, as well.

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