Economic Imperialism I

Author: Gao Xiaoyong
Publisher:
Publish Date: 2005-07-01
Features: The "Economic News Weekly" 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 the "Economic News Weekly" mirrored the intent of R.H. Coase, the editor of the "Journal of Law and Economics" in the 1960s and 1970s, in discovering and nurturing young authors without financial support. The limitations and effects were distinct. Coase expanded the journal, making it a cornerstone of new institutional economics. Xiaoyong, lacking university funding or advertising revenue, faced significant challenges. The "Economic News Weekly" remains the only economic commentary newspaper in China that does not carry commercial advertisements. In May 1994 and June 1998, the newspaper conducted exclusive interviews with nearly two dozen 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 Weekly" 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 Weekly," 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 unexamined, 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 applied universally 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 interactive social relationships among people. However, in reality, survival needs are fundamental, and all human activities rely on resource consumption and income distribution. Economic interests form the basis 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 "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 truth, true economics as a science is very "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 matters only the individual can make. Even if an economist understands human behavior thoroughly, they cannot substitute for others' decisions. This is because the fundamental concepts economics relies on—"happiness" or "pain," "utility" or "cost"—are entirely "individualistic." Each person has a unique set of evaluation standards and value systems (economists call them "preferences"), ranging from tastes in food and clothing to ethical morals and ideologies. Moreover, each person faces unique circumstances—abilities, interests, family backgrounds, social relationships, and expectations about future changes in their environment. Therefore, even if economists know that individuals always act according to the "axiomatic assumption" that people pursue the greatest benefits, we do not know what specific "benefit" system each individual seeks to maximize. Economists may provide more information and knowledge to make people's decisions more informed, but that is all—they still cannot replace individual (personal and corporate) choices and decisions! Economists do not even have the right to judge others' decisions as correct or incorrect, because they fundamentally do not know what preference system the other person used to make 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 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 do not have market prices (transaction costs of pricing are too high), our quantitative analysis stops there. Due to the individuality of preferences or utilities and the incomparability of interpersonal utilities, we can only offer 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 different people's value systems as its premise for analyzing economic and social phenomena, rather than taking the responsibility of changing people's minds. Whether you prefer sour or sweet, traveling or drug use, whether you care only about yourself or also about friends and the nation—all are personal preferences and value judgments for economics. Perhaps you can change your values or behavior choices under the influence of ethicists, politicians, priests, writers, or journalists, but that is not the mission of economics as a discipline. Economics only takes your unique preferences as its analytical premise. If you change, your new preferences become the premise, but economists do not intend to alter your thoughts. Some people always want to give economics more missions, including changing people's moral values, which would turn it into "economic pirates," as it would be seizing things that do not belong to you. Someone once asked me, in a market economy with "repeated games," people who lack integrity will eventually face punishment. If people recognize this, they will be more trustworthy, so the credit morality of people in a market economy 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 morality 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 based on "calculation" that changes their behavior, not because they have "become better" and changed their behavior. Making people "better" is a very meaningful thing, worth every one of us striving for as individuals, 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 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, as one of its tasks is to study interindividual relationships and how individuals' pursuit of self-interest maximization constrains others' pursuit of their own interests. 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 axiom of resource scarcity). Therefore, economics can use basic concepts like "equilibrium" to tell everyone that our so-called "interest maximization" 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 "rebel," 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, wealth disparities can only be attributed to innate differences, postnatal efforts, and luck, making them unavoidable. However, given any society's ideology at any point in time (which is an "exogenous" constraint condition for economics), if the wealthy group completely ignores the consequences of widening wealth disparities leading to increasingly tense social relations and refuses to implement necessary or reasonable income redistribution and social welfare measures (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 get rich and enjoy wealth will change, which is "not cost-effective" for the wealthy. Meanwhile, if the wealthy pay a bit more in taxes for social welfare within a certain range, it may be "cost-effective" for them in the long run (note that here, economics relies not on the wealthy's "goodwill" but on their "calculation." Those who hope the wealthy will "have a change of heart" should consider that if people's consciences never change, what can you do?!). Here, the "policy recommendations" economics provides to society are not about "picking sides" but about informing everyone that extreme income inequality is not in anyone's interest. However, overly radical public policies and social welfare systems, like those in developed countries, that aim to implement them too early are also not in anyone's interest. We should avoid extremes and pursue a certain "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 make accurate and scientific judgments about the social effects of public policies. In these areas, the only theoretical tool economics can use is the so-called "Pareto efficiency" or "Pareto improvement." Pareto efficiency refers to a state where society has reached a point where it is impossible to improve at least one person's situation without worsening another's. We call this state "Pareto efficient." Despite being often mistakenly used by some as a "best state," Pareto efficiency simply means "we cannot make the situation any better" or, more precisely, it refers to: any further changes may make the situation better, but economists do not know if they will, so we must classify this easily judged situation as "efficient"! Perhaps a social reform, such as antitrust, could improve the welfare of 99% of the population. However, according to economics' "Pareto standard," as long as one person—the monopolist themselves—suffers even a slight loss, economics cannot "justifiably" claim that the reform has improved the overall social situation, because we do not know if the total increase in welfare for the 99% can compensate for the loss of the 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 the one person! Only if a portion of the new gains from resource efficiency improvements during the antitrust process is "sufficiently compensated" to the monopolist (as recognized by the monopolist themselves, not just by economists) can economics "recognize" that an improvement has been achieved, as the improvements economics can argue for are only Pareto improvements. Therefore, what is called Pareto efficiency is merely what economics can confirm as "unreachable," and Pareto improvement is merely what economics can confirm as "improvable." They 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, we can see why there are so many vested interests blocking policies like antitrust, why there is so much debate with "everyone has their own reason," and why there is 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 in the context of public goods, analyzing the political mechanism of public good allocation, studying the decision-making mechanisms of public policies, and even the decision-making rules at the constitutional level, such as whether to use "unanimity" or "majority rule," citizen voting or "representative democracy," and so on. Here, we can understand why a good economist must be humble, because any economic decision is not made by the economist themselves! Private decisions or corporate decisions are made by the individuals involved; 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, 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 (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 your job poorly, resulting in smaller contributions. However, when making 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. But after clarifying all these issues, we must also say that economics cannot "dominate everything," and other social sciences may be even less capable of doing so. Ultimately, due to the characteristics of its analytical methods, economics can still be slightly more scientific, more explanatory, and more broadly applicable than other social sciences, meaning it is still more "imperialistic."