Economic Imperialism. Volume 6

Author: Gao Xiaoyong, Editor-in-Chief
Publisher:
Publish Date: 2005-07-01
Features: The fastest, largest, and most opinionated economic commentary newspaper in China's economic research field, and the only newspaper in the country that does not publish commercial advertisements. In May 1994 and June 1998, "The Economics News" exclusively conducted transoceanic, face-to-face interviews with nearly twenty Nobel laureates in economics, a world-first initiative that received high attention and praise from China's theoretical, journalistic, and decision-making circles. Over the past decade, "The Economics News" has made arduous efforts to popularize economic ideas, encourage young enthusiasts of economics, and inspire interest and understanding of economics among the general public, showcasing the explanatory power of economics in reality. Twelve years ago, Gao Xiaoyong founded "The Economics News," encouraging economists to write essays and. Over the past dozen years, such articles have played a role in popularizing economics, helping people deeply understand social phenomena, and promoting China's economic reforms and development. This has also allowed Gao Xiaoyong to compile a six-volume collection of these articles for readers, titled provocatively: "Economic Imperialism."
The term "economic imperialism" refers, of course, to the "invasion" of traditional domains of other social sciences by economics. This invasion is not whimsical or baseless but rather capable of analyzing aspects that were previously unexamined, offering new insights and driving disciplinary development. The reason economics can achieve this is linked to its unique analytical methods. First, economics is not, in essence, the so-called "art of counting money" as some superficially perceive it. It studies human behavior—how people achieve the greatest effects through changes in behavior and choices under the condition of scarce resources (including time). Therefore, in a certain sense, economics is a "behavioral effectiveness science," and its fundamental logic and analytical methods can be universally applied wherever human behavior is involved.
Second, economics not only studies individual behavior but also the relationships between individuals. This is not particularly unique, as all social sciences study the interdependent and mutually influential social relationships between people. However, in reality, the need for survival is always people's basic need, and all human activities depend on the consumption of resources and the distribution of income. Economic interests form the foundation of all other interests, so understanding economic relationships can indeed provide deeper insights into issues studied by other social sciences.
For these reasons, economics appears very "dominant," "assertive," and "prevalent." The concept of "economic imperialism" was initially proposed by economists to describe the expansionary trend of economics. However, as the term spreads, it may lead to misunderstandings about economics, making people think it is all-encompassing or that it is boasting about its capabilities. In reality, true economics as a science is very "humble" or even "meek." To put it more precisely, if someone truly understands economics, they will be humble because they will realize that economics can explain and solve only a limited number of problems.
First, how individuals make choices and decisions is something only they can do—even if an economist understands human behavior thoroughly—they cannot make decisions for others. This is because the fundamental concepts economics relies on—"happiness" or "pain," "utility" or "cost"—are entirely "individualistic." Each person has their own unique evaluation standards and value systems (economists call this "preferences"), ranging from small things like food preferences and clothing tastes to larger issues like ethics, morals, and ideology. Moreover, the specific conditions each person faces—abilities, interests, family backgrounds, social relationships, and expectations about future changes in their own and the social environment—are all different.
Therefore, even if economists know that individuals always act according to the "axiomatic assumption" that people pursue the maximization of their own interests, we still do not know what specific "interest" system each person is trying to maximize. Economists can provide more information and knowledge to make people more informed and thus make better decisions, but that is all—they still cannot replace the choices and decisions of each individual (individuals and enterprises)! Economists do not even have the right to judge whether others' decisions are correct because they fundamentally do not know what preference system the other person is based on when making their decision!
This "individual specificity of preferences" leads to significant limitations in economics' quantitative analysis and "scientific falsification." We can use abstract concepts like "preferences" and "utility" to make "theoretical hypotheses" about the basic laws of many human behaviors, including those in the sense of "economic imperialism"—marriage, divorce, crime, institutional reform, the pursuit of equality, etc. However, because the "goods" or "bads" involved in these behaviors do not have a market price (transaction costs are too high), our quantitative analysis must stop here. Due to the individuality of preferences or utilities and the incomparability of utilities between people, we can only offer rough logical explanations for social behavior in the form of hypotheses but cannot conduct precise quantitative analysis or rigorously falsify these hypotheses.
Second, economics not only cannot replace individuals in making decisions but also does not intend to change people's values or ethics. Economics always takes different people's different values as the premise for analyzing economic and social phenomena and does not consider changing people's beliefs its mission. Whether you prefer sour or sweet, traveling or drug abuse, whether you care only about yourself or also about friends and the nation—all these are just your personal preferences and value judgments. Perhaps under the influence of preachers, politicians, priests, writers, or journalists, you can change your values and behavior choices, but that is not the mission of economics as a discipline. Economics only takes your special preferences as its analytical premise. If you change, it takes your new preferences as the premise, but economists do not intend to change your thoughts.
Some people always want to give economics more missions, including changing people's moral concepts, which would then no longer be "economic imperialism" but "economic piracy," because that would be seizing what does not belong to you. Someone once asked me, in a market economy, because of "repeated games," people who do not keep their word will eventually be punished. If people realize this, they will be more trustworthy, so in a market economy, people's credit morality will improve. Does this not show that economics is related to morality and that economic operations can change people's morality? But if you think carefully, so-called commercial credit is not because people have changed their credit morality but because they realize that not keeping their word is "not worthwhile" in a market economy (they will be punished). In other words, it is still out of "calculation" that changes their behavior, not because they have "become better" and thus changed their behavior. Making people "better" is a very meaningful thing that is worth every one of us striving for as individuals, but economics does not consider it its own core work. The core work of economics is to change behavior through institutional and policy changes, such as punishing those who do not keep their word.
Third, based on these two limitations, economics' role in public policy issues is also very limited. Economics can indeed contribute to public policy issues because one of its tasks is to study the relationships between people and how the behavior of one person pursuing the maximization of their own interests constitutes constraints on others pursuing their own interests. Everyone's effort to maximize their own interests must take into account the behavior of others as constraints (all based on the axiomatic assumption of resource scarcity). Therefore, economics can use basic concepts like "equilibrium" to tell everyone that our so-called "maximization of interests" is actually "conditional extremum" and "unreachable," and that to reach this equilibrium point, everyone must compromise with each other. If you take too much advantage, others and other interest groups will "rebound," and in the end, your losses will be greater.
For example, regarding social equality. Under market economy conditions, the general logic is that as long as there is equal opportunity, legal competition, no deception, no privileges or corruption, wealth gaps can only be attributed to innate differences, postnatal efforts, and opportunities. They have an unavoidable nature. However, given any society's ideology at any specific time (which is an "exogenous" constraint condition for economics), if the wealthy group completely ignores the consequences of widening wealth gaps leading to increasingly tense social relations and refuses to carry out necessary or reasonable income redistribution and assistance to the underprivileged (what is necessary or reasonable? This is also not an easy question for economics, and here economists must be very humble!), society may eventually descend into turmoil or even civil war. The conditions and environment in which the wealthy become wealthy and enjoy their wealth will change, which is "not worthwhile" for the wealthy. Meanwhile, if the wealthy pay a bit more in taxes for social welfare, it may be "worthwhile" for them in the long run (please note that what economics relies on here is not the "kindness" of the wealthy but their "calculation." Those who hope the wealthy will "have a change of heart" should think about what they can do if people's consciences never change!).
Here, the "policy recommendations" economics provides to society are not "picking sides" but telling everyone that extreme income inequality is not in everyone's interest. However, overly radical public policies and social security systems, like prematurely implementing the welfare systems of developed countries, are also not in everyone's interest. We should avoid extremes and pursue some kind of "sustainable equilibrium." But if economics is asked to do more, its limitations become apparent. Because the basic concepts economics relies on, such as "utility" and "preferences," are "individualistic," it is very difficult to compare and measure interpersonal relationships. Therefore, economics can hardly make accurate and scientific judgments about the social effects of public policies. In these matters, the only theoretical tool economics can use is the so-called "Pareto optimality" or "Pareto improvement."
Pareto optimality refers to: when society reaches a state where it is impossible to make one person's situation better without making at least one other person's situation worse, we call this state "Pareto optimal." As is often mistakenly used by some as a "best state," Pareto optimality actually just means "we cannot make the situation any better" or, more precisely, it refers to: if any further changes are made, economists do not know whether the situation would become better, so they can only recognize this "easy-to-judge" situation as "optimal!" Perhaps a social reform, such as antitrust, could improve the welfare of 99% of the population, but according to economics' "Pareto standard," as long as one person—the monopolist themselves—is slightly worse off, economics cannot "justify" that the reform has improved the overall situation of society, because we do not know whether the total increase in welfare for the 99% can compensate for the decrease in welfare for that one person.
This is not because of anything else but because economics does not believe we can equate and compare the utility of the 99% with that of one person! Only if a portion of the new income generated by resource efficiency improvements during the antitrust process is "sufficiently compensated" to the monopolist according to what they themselves recognize (economists' recognition does not count) can economics "recognize" that an improvement has been achieved, because the improvements economics can argue for are only Pareto improvements.
Therefore, what is called Pareto optimality is merely what economics can confirm as the best it can be, and Pareto improvement is merely the only improvement economics can confirm. Both indicate that as a science, economics has no right to speak on many other possible social situations and improvements that are not "unanimously agreed upon" and cannot be achieved without anyone opposing them (because no individual's interests are harmed)! Understanding this, we can see why there are so many vested interests blocking issues like antitrust in public policy, why there are so many conflicting arguments with no absolute truth or authority (firstly because economics cannot provide such truth or authority).
Because of this, economics has taken the path of political economy in the issue of public goods, analyzing the mechanism of public good allocation in politics, studying the decision-making mechanisms of public policies, and even the decision-making rules at the constitutional level, such as whether it is "unanimity" or "majority rule," direct democracy or representative decision-making, and so on. Here, we can see that a good economist must be humble because any economic decision is not made by the economist themselves! Private decisions or a company's decisions are made by the individuals involved, while public decisions are made through a social process involving many people (including politicians) and the research findings of many disciplines (sociology, political science, ethics, etc.). The contribution of an economist is undoubtedly, but also only, part of the whole, and in many cases, it may be a very small part.
Of course, good economic policy recommendations must follow the logic of economics because this is your specialty, your unique perspective for explaining the world. If you want to discuss issues from the perspective of other disciplines (such as speaking from the perspective of a priest, or acting as a government without being appointed), you would actually be failing to leverage your expertise and doing a poor job of your core responsibilities, thereby making a smaller contribution. However, when economists make policy recommendations, they should also be aware of the existence of other perspectives, other disciplines, and other logics, regardless of whether you believe those logics are logical or not.
However, after clarifying the above issues, we must also say that economics cannot "dominate everything," and other social sciences may be even less capable of doing so. Economics, after all, is more scientific and has stronger explanatory power and a broader scope of explainable issues due to its analytical methods, meaning it is more "imperialistic" than other social sciences.