Economic Imperialism VI

Author: Gao Xiaoyong
Publisher:
Publish Date: 2005-06-01
Features: The Economic News was able to establish a unique position in both the theoretical and decision-making circles within China in less than two years, primarily due to the exceptional vision and organizational skills of its editor-in-chief. Gao Xiaoyong's efforts in running Economic News mirrored the intent of R.H. Coase, who edited Journal of Law and Economics in the 1960s and 1970s, in discovering young authors. The limitations and effects were distinct. Coase expanded the journal, making it a cornerstone of new institutional economics. Xiaoyong, without university support or advertising revenue, faced significant challenges. The Economic News remains the only economic commentary newspaper in China that does not carry commercial advertisements. In May 1994 and June 1998, the Economic News exclusively interviewed nearly twenty Nobel laureates in economics, a world-first initiative that garnered high attention and praise from China's theoretical, journalistic, and decision-making circles. Over the past decade, the Economic News has made arduous efforts to popularize economic thought, encourage young enthusiasts, and foster public interest and understanding of economics, showcasing its explanatory power in real-world contexts. Twelve years ago, Gao Xiaoyong founded the Economic News, encouraging economists to write essays and. Over the past dozen years, such articles have played a role in popularizing economics, helping people better understand social phenomena, and advancing economic reforms and development. Xiaoyong has compiled these essays into a six-volume collection titled "Economic Imperialism."
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 unexplored, offering new insights and driving disciplinary development. The ability of economics to achieve this is tied to its unique analytical methods.
First, economics is not, as some superficially perceive, merely "the study of money." It examines human behavior—how individuals achieve the greatest outcomes under scarcity of resources (including time) through changes in behavior and choices. In this 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 studies not only individual behavior but also interindividual relationships, which is not unique, as all social sciences examine the interdependent and mutually influential social relationships between people. However, survival needs are fundamental to human beings, and all activities rely on resource consumption and income distribution. Economic interests form the basis of all interests, so understanding economic relationships can indeed provide deeper insights into issues studied by other social sciences.
For these reasons, economics appears "dominant," "assertive," and "preeminent." The concept of "economic imperialism" was initially proposed by economists to describe the expansionary trend of economics. However, as the term gained traction, it may lead to misunderstandings, suggesting that economics is all-encompassing or self-aggrandizing. In reality, true economics as a science is quite "humble" or even "modest." More precisely, if someone truly understands economics, they would be humble, knowing that economics can explain and address only limited issues.
First, personal choices and decisions are inherently individual matters—even the most insightful economist cannot make decisions for others. This is because the fundamental concepts of economic analysis—"happiness" or "pain," "utility" or "cost"—are entirely "individualistic." Each person has a unique set of evaluation standards and value systems (economists call this "preferences"), ranging from tastes in food and clothing to ethical morals and ideologies. Moreover, each person faces distinct conditions—abilities, interests, family backgrounds, social relationships, and expectations about future changes in their environment. Thus, even if economists know that individuals always act according to the widely accepted "axiomatic assumption" that people seek to maximize their interests, we still do not know what specific "interest" system each individual seeks to maximize. Economists may provide more information and knowledge to make decisions more informed, but that is all—they cannot replace individual (personal and corporate) choices and decisions! Economists do not even have the right to judge the correctness of others' decisions, as they fundamentally do not know what preference system led to those decisions!
This "individual specificity of preferences" leads to significant limitations in quantitative analysis and "scientific falsification." We can use abstract concepts like "preferences" and "utility" to formulate "theoretical hypotheses" about the basic laws of human behavior, including economics-imperialism-related topics like marriage, divorce, crime, institutional reform, and the pursuit of equality. However, since the "goods or bads" involved in these behaviors lack market prices (transaction costs are too high), our quantitative analysis stops there. Due to the personal nature of preferences and the incomparability of utility between individuals, we can only offer rough logical frameworks for social behavior as hypotheses but cannot conduct precise quantitative analysis or rigorously falsify these hypotheses.
Second, economics not only cannot replace individual decisions but also does not intend to change people's values or ethics. Economics always takes different people's value systems as its premise for analyzing economic and social phenomena, rather than attempting to alter them. Whether you prefer sour or sweet, traveling or drug use, whether you care only about yourself or also about friends and the nation—these are merely your personal preferences and value judgments. While you might change your values under the influence of ethicists, politicians, priests, writers, or journalists, that is not the mission of economics as a discipline. Economics treats your unique preferences as premises and updates them if you change, but economists do not fundamentally intend to alter your thoughts.
Some people always want to assign economics a broader mission, including changing people's moral values within its scope, which would then turn it into "economic piracy," as it would be seizing what does not belong to it. Someone once asked me: In a market economy, because of "repeated games," people who lack integrity will eventually face punishment. If people recognize 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 ethics? But if you think carefully, so-called commercial credit is not because people have changed their credit ethics but because they realize that dishonesty in a market economy is ultimately "unprofitable" (punished), meaning it is still based on "calculation" rather than "moral improvement." Making people "better" is a meaningful endeavor worth every individual's effort, but economics does not consider it its core mission. The core mission of economics is to change behavior through institutional and policy changes, such as punishing dishonesty.
Third, based on these two limitations, economics' role in public policy issues is also quite limited. Economics can indeed contribute to public policy issues, as one of its tasks is to study interindividual relationships and how the pursuit of self-interest maximization by one person constrains others' pursuit of their own interests. Similarly, everyone's effort to maximize their own interests must take into account the constraints imposed by others' pursuit of self-interest maximization (all based on the axiomatic assumption of resource scarcity). Therefore, economics can use concepts like "equilibrium" to inform everyone that our pursuit of self-interest maximization is actually "conditional extremum" and "unreachable," and that to reach this equilibrium, everyone must compromise. If one group gains too much, others and interest groups will "counteract," ultimately causing greater losses for the first group. For example, social equality. Under market economy conditions, the general logic is that as long as there is equal opportunity, legal competition, no fraud, no privileges, or corruption, wealth disparities can only be attributed to innate differences, postnatal efforts, or luck, making them unavoidable. However, given any society's ideology at any point in time (which is an "exogenous" constraint for economics), if the wealthy group completely ignores the consequences of widening wealth disparities leading to increasingly tense social relations and refuses necessary or reasonable income redistribution or social welfare support (what is necessary or reasonable? This is also not an easy question for economics, and economists must be very humble here!), society may eventually descend into turmoil or even civil war. The conditions and environment for the wealthy to accumulate wealth will change, making it "unprofitable" for them. Meanwhile, if the wealthy pay slightly more in taxes for social welfare within a certain range, it may be "profitable" for them in the long run (note that here, economics relies not on the "goodwill" of the wealthy but on their "calculation." Those who hope for the wealthy to "have a change of heart" should consider: if people's consciences never change, what can you do?!).
In this context, the "policy recommendations" economics offers society are not about "pitting one group against another" but about informing everyone that extreme income inequality is not beneficial to anyone. However, overly radical public policies or social welfare systems, like those in developed countries, that are implemented too early are also not beneficial to everyone. We should avoid extremes and pursue a "sustainable equilibrium." But if economics is asked to do more, its limitations become apparent. Since economics relies on fundamental concepts like "utility" and "preferences," which are "individualistic," it cannot compare or measure interpersonal relationships, making it difficult for economics to provide accurate and scientific judgments on 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 a state where society has reached a point where it is impossible to improve the situation of at least one person without worsening the situation of another. This state is called "Pareto optimality." Despite being often mistakenly used by some as a "best state," Pareto optimality merely means "we cannot make the situation any better" or, more precisely, it refers to: if any further change is made, economists do not know whether the situation would improve, so they must classify this easily assessable 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 "justifiably" claim that the reform has improved the overall social situation, 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 or compare the utility of the 99% with that of one person! Only if a portion of the additional gains from resource efficiency improvements in the process of antitrust, which the monopolist themselves considers "fully compensated" (economists' approval does not count), is distributed to them can economics "recognize" that an improvement has been achieved, as economics can only argue for such Pareto improvements.
Thus, what is called Pareto optimality is merely what economics can confirm as "unimprovable," and Pareto improvement is merely what economics can confirm as "improvable." Both indicate that as a science, economics has no say in all other many possible social states and possible social improvements that are not "unanimously agreed upon" and cannot be achieved without anyone opposing them (because no individual's interests are harmed). Understanding this helps us see why, in public policy issues like antitrust, as well as in the provision of various public goods (note that institutions may be an important public good), there are so many vested interests and conflicting arguments, with no absolute truth or authority (first because economics cannot provide such truth or authority).
For this very reason, economics has taken the path of political economy, 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 "unanimity" or "majority rule" should apply, whether decisions should be made through referendums or "representative democracy," and so on. Here, we can understand why a good economist must be humble, as any economic decision is not made by the economist themselves. Private decisions or corporate decisions are made by the individuals involved, while public decisions are the result of 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, a part of it, and in many cases, it may be a very small part. A good economic policy recommendation must follow the logic of economics, as this is your specialty and your unique perspective for explaining the world. If you want to discuss issues from the perspective of other disciplines (e.g., 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 fulfilling your core responsibilities, thereby making a smaller contribution.
However, when giving policy recommendations, economists must 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.
After clarifying all the above, we must also say that economics cannot "dominate everything," and other social sciences may be even less capable of doing so. Ultimately, economics is still more scientific and has stronger explanatory power and a broader scope of explainable issues, meaning it is more "imperialistic" than other social sciences.