Economic Imperialism (Volume 6)

Author: Gao Xiaoyong, Editor-in-Chief
Publisher:
Publishing Date: 2005-07-01
Features: The fastest, largest, and most opinionated economic commentary newspaper in China's economic research community, 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 two dozen Nobel laureates in economics, a world-first initiative that garnered significant 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 thought, encourage young enthusiasts of economics, and inspire interest and understanding of economics among the general public, showcasing the explanatory power of economics in real-world contexts. 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 gain a deeper understanding of social phenomena, and promoting economic reform and development. This has allowed Gao Xiaoyong to compile these essays into a six-volume collection, 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 unexplored, offering new insights and fostering the development of disciplines. The ability of economics to achieve this is linked to its unique analytical methods.
First, economics is not, in essence, the so-called "study of money," as some superficially observe. It examines human behavior—how people achieve the greatest results by altering their actions 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 examine the interdependent and mutually influential social relationships between people. However, in reality, the need for survival is the fundamental need of humans, and all activities depend on the consumption of resources and the distribution of income. Economic interests form the foundation 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 spreads, it may lead to misunderstandings about economics, making people think it is all-encompassing or that it boasts of such capabilities. In reality, true economics as a science is quite "humble" or even "modest." To put it more precisely, if someone truly understands economics, they would be humble, knowing that economics can explain and address only limited issues.
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 set of evaluation standards and value systems (economists call this "preferences"). From small things like food preferences and clothing tastes to larger issues like ethics, morality, and ideology, they can all differ. Moreover, each person faces unique circumstances—abilities, interests, family backgrounds, social relationships, and expectations about future changes in their own and the social environment. Therefore, even if economists know that individuals always act according to the "axiomatic assumption" that people pursue the maximization of interests, we still do not know what specific "interest" system each person is maximizing.
Perhaps economists can provide more information and knowledge, making people more informed and thus making their decisions more rational. But that is all—economists still cannot replace individuals (both individuals and enterprises) in making choices and decisions! Economists do not even have the right to judge whether others' decisions are correct, because you simply 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 "preferences" and "utility" to formulate "theoretical hypotheses" about the basic laws of many human behaviors, including those related to "economic imperialism"—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 (transaction costs of pricing are too high), our quantitative analysis must stop here. Due to the individuality of preferences or utility and the incomparability of utility between people, we can only propose 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 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 its premise for analyzing economic and social phenomena and does not consider changing people's beliefs its responsibility. Whether you prefer sour or sweet, traveling or drug use, whether you care only about yourself or also about friends and the nation—all these are merely your personal preferences and value judgments. Perhaps you can change your values and 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 premise. If you change, it will take your new preferences as the premise, but economists do not intend to change your thoughts.
Some people always want to assign economics a greater mission, including changing people's moral concepts, which would turn it into "economic piracy," because that would be seizing something that does not belong to you. Someone once asked me, in a market economy, because of "repeated games," people who lack credibility will eventually face punishment. If people realize this, they will become 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. Instead, it is because people realize that lack of credibility in a market economy is ultimately "unprofitable" (they will be punished), meaning it is still based on "calculation" that leads to behavioral changes, not because they have "become better" and thus changed their behavior. Making people "better" is a very meaningful thing, something each of us should strive for as individuals. But economics does not consider this its core task. The core task of economics is to change behavior through institutional and policy changes—for example, punishing those who lack credibility.
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 one person pursuing the maximization of interests becomes a constraint 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 axiom 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 "counteract," 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, the gap between the rich and the poor can only be attributed to innate differences, postnatal efforts, and 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 the wealth gap leading to increasingly tense social relations and refuses to carry out necessary or reasonable income redistribution and 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 in which the wealthy become wealthy, and the enjoyment of wealth, will change for the wealthy, which is also "unprofitable" for them. While the wealthy may benefit in the long run from paying slightly more in taxes for social welfare within a certain range, this is "profitable" for them (please note that here, economics relies not on the "kindness" of the wealthy but on their "calculation." Those who hope for the wealthy to "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 beneficial to everyone. However, overly radical public policies and 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 certain "sustainable equilibrium." But if economics is asked to do more, its limitations become apparent. Due to the fundamental concepts economics relies on, such as "utility" and "preferences," which are "individualistic," it is 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 the state where society has reached a point 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." Clearly, this state, which some people mistakenly take as the "ideal state," is actually just saying "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 will become better, so they must classify this easily identifiable 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 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 additional gains from 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. The improvements economics can argue for are only Pareto improvements.
Therefore, what is called Pareto optimality is merely what economics can confirm as "unreachable optimality," and Pareto improvement is merely what economics can confirm as "improvement." They both indicate that as a science, economics has no right to speak on many other 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, in public policy issues like antitrust, and in the provision of various public goods (note that institutions may be an important public good), there are so many vested interests, and why there is so much debate with no absolute truth or authority (first because economics cannot provide such truth or authority).
Because of this, 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 it is "unanimity" or "majority rule," direct democracy or representative democracy, and so on. Here, we can understand why a good economist must be humble, because no economic decision can be made by the economist themselves! Private decisions or a company's decisions are made by the individuals involved. Public decisions, however, 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, a part of this, and in many cases, it may be a very small part. A good economic policy recommendation must, of course, follow the logic of economics, because this is your specialty, your unique perspective on 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 properly, resulting in a smaller contribution.
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.
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. At its core, economics, due to the characteristics of its analytical methods, can still be slightly more scientific, more explanatory, and more broadly applicable than other social sciences, meaning it is still more "imperialistic."