Economic Imperialism V

Author: Gao Xiaoyong, Editor-in-Chief
Publisher:
Publish Date: 2005-06-01
Features: Gao Xiaoyong edited The Economics News and his intention to discover young authors was similar to that of Ronald H. Coase when he edited Journal of Law and Economics in the 1960s and 1970s. Although their approaches were different, the outcomes were distinct. Coase elevated the journal to become a cornerstone of new institutional economics. Xiaoyong, without university support or advertising revenue, faced considerable difficulties. —Excerpted from Professor Zhang Wucai's Good Articles Are a Handicap
The term "economic imperialism" refers to the "invasion" of economics into the traditional domains of other social sciences. This invasion is not whimsical but rather capable of analyzing aspects previously unexamined, offering new insights and fostering disciplinary development. The ability of economics to achieve this is tied to its unique analytical methods.
First, economics is not, as some superficially perceive it, merely "the study of money." It examines human behavior—how individuals, under the condition of scarce resources (including time), can achieve the greatest effects through changes in behavior and choices. In a certain sense, economics is a "behavioral effectiveness science." As long as there are people and human behavior, the fundamental logic and analytical methods of this behavioral effectiveness science can be universally applied.
Second, economics studies not only individual behavior but also the relationships between individuals. This is not unique, as all social sciences examine the interdependent and mutually influential social relationships between people. However, in reality, survival needs are the fundamental requirements of humans, and all activities rely on the consumption of resources and the distribution of income. Economic interests form the basis of all other interests. Therefore, understanding economic relationships can indeed provide deeper insights into the issues studied by other social sciences.
For these reasons, economics appears "dominant," "assertive," and a "preeminent discipline." The concept of "economic imperialism" was initially proposed by economists to describe the expansionary trend of economics. However, after it gained traction, the term might lead to misunderstandings about economics, as it could imply omnipotence or self-promotion. In truth, true economics as a science is very "humble" or even "modest." To be more precise, if someone truly understands economics, they would be humble because they would recognize the limited scope of what economics can explain and address.
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 these "preferences"), ranging from small things like food preferences and clothing tastes to larger issues like ethics, morality, and ideology. Moreover, the specific conditions each person faces—abilities, interests, family background, social relationships, and expectations about future changes in their environment—are all different. Therefore, even if an economist knows that individuals will always act according to the widely accepted "axiomatic assumption" that people pursue the maximization of interests, we still do not know what specific "interest" system each individual seeks to maximize.
Perhaps economists can provide more information and knowledge, making individuals' decisions more informed and correct, but that is all. They still cannot replace the choices and decisions of each individual (both individuals and firms)! Economists do not even have the right to judge the correctness of others' decisions because you fundamentally do not know what preference system they are based on!
This "individual specificity of preferences" leads to significant limitations in economics' quantitative analysis and "scientific falsification." We can use abstract concepts like "preference" and "utility" to formulate "theoretical hypotheses" about the basic laws of many human behaviors, including those related to economic imperialism, such as marriage, divorce, crime, institutional reform, and the pursuit of equality. However, because the "goods or bads" involved in these behaviors do not have market prices (the transaction costs of pricing 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 propose rough logical frameworks 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 the different values of individuals 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—these are merely your personal preferences and value judgments. Perhaps under the influence of preachers, inspirations, or persuasions from ethicists, 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 a premise. If you change, it takes your new preferences as the premise, but economists do not fundamentally intend to change your thoughts.
Some people always want to assign economics a greater mission, including changing people's moral values, but if you do, it is no longer "economic imperialism" but becomes "economic banditry," because that is seizing something that does not belong to you.
Someone once asked me, "In a market economy, because of 'repeated games,' people who lack integrity will eventually face punishment. If people realize this, they will be more trustworthy, so in a market economy, people's credit ethics will improve. Does this not show that economics is related to morality, and that economic operations can change people's moral ethics?" But if you think carefully, so-called commercial credit is not because people have changed their credit ethics but because they realize that lack of integrity in a market economy is ultimately "not cost-effective" (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 worth every individual striving for as a personal effort, but economics does not consider it its own core work. The core work of economics is to change people's behavior through institutional and policy changes, such as punishing those who lack integrity.
Third, based on these two limitations, economics' role in public policy issues is also quite 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 individuals pursuing interest maximization becomes a constraint on others pursuing their own interests. At the same time, everyone's effort to maximize their own interests must take into account the behavior of others as their own constraints (all of this is based on the axiomatic assumption of resource scarcity). Therefore, economics can use basic concepts like "equilibrium" to tell everyone that our so-called interest maximization is actually "conditional extremum," "unreachable," and that to reach this equilibrium point, everyone must make compromises. If you take too much advantage, others or other interest groups will "push back," and in the end, your losses will be greater.
For example, 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, the emergence of wealth gaps can only be attributed to innate differences, postnatal efforts, or luck, and it has an unavoidable nature. However, given any society at any point in time, its ideology (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 make necessary or reasonable income redistribution or social welfare support (what is necessary or reasonable? This is also a question that economics finds difficult to answer, and here economists must be very humble!), society may eventually descend into turmoil or even civil war. The conditions and environment for the wealthy to accumulate wealth will change, which is also "not cost-effective" for the wealthy. While the wealthy may pay a bit more in taxes for social welfare, within a certain range, it may be "cost-effective" for their long-term interests (please note that here, economics relies not on the "goodness" of the wealthy but on 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 anyone's interest. However, overly radical public policies and social security systems, like prematurely implementing the welfare systems of developed countries, are also not in anyone's interest. We should avoid extremes and pursue a certain "sustainable equilibrium."