Economic Imperialism: A Collection of Selected Articles from the Economic News (Volume 6)

Author: Gao Xiaoyong
Publisher:
Publish Date: 2005-07-01
Features: The fastest in timeliness, largest in volume, and most diverse in viewpoints among economic commentaries in China. It is also the only newspaper in the country that does not carry commercial advertisements. In May 1994 and June 1998, The Economics News conducted exclusive transoceanic 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 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 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 understand social phenomena more deeply, and promoting economic reform and development. This has 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 "study of money," as some superficially observe. It examines human behavior—how people achieve the greatest effects through changes in behavior and choices under the condition of scarcity (including time). Therefore, in a certain sense, economics is a "behavioral effectiveness science." As long as there are people and human behavior, the basic logic and analytical methods of this behavioral effectiveness science can be universally applied.
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, survival needs are the fundamental needs of people, and all human 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-powerful or that it is self-aggrandizing. In reality, true economics as a science is quite "humble" or even "modest." To put it more precisely, if someone truly understands economics, they will be humble, knowing that what economics can explain and solve is actually very limited.
First, how an individual makes 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 basic 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 background, social relationships, and expectations about future changes in their own and the social environment—are all different.
Therefore, even if an economist knows that a person will always act according to the "axiomatic assumption" that everyone seeks to maximize 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 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 make "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, since 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 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 the different values of different people as its 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 use, 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 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 its 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 turn it into "economic pirates," because that would be seizing things that do 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 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 not keeping their word is "not cost-effective" in a market economy (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 individual's 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 do not keep their word.
Third, based on these two limitations, economics' role in public policy issues is also quite limited. Economics can indeed make contributions to public policy issues, because one of its tasks is to study the relationships between people and how the behavior of one person seeking to maximize their own interests constrains others' pursuit of their own interests. Everyone's effort to maximize their own interests must take into account the behavior of others seeking to maximize their own interests as their own constraints (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 of the benefit, others and other interest groups will "rebel," 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 special privileges or corruption, the gap between the rich and the poor can only be attributed to innate differences, postnatal efforts, and opportunities. It has an unavoidable nature. 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 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 for the wealthy to get rich and enjoy wealth will change, which is also "not cost-effective" for the wealthy. While the wealthy paying a bit more in taxes for social welfare may be "cost-effective" for them in the long run (note that what economics relies on here is not the "goodwill" 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 good for anyone. However, overly radical public policies and social security systems, like those in developed countries, that aim to establish social welfare systems too early are also not good for 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 basic concepts economics relies on, such as "utility" and "preferences," which are "individualistic," it is very difficult for economics to 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." Clearly, this state, which is often mistakenly used by some as a "best 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 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 "justifiably" say that the reform has improved the overall situation of society, because we do not know whether the total increase in welfare for the 99% is enough to 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 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 made, because what economics can argue for is only this Pareto improvement.
Therefore, what is called Pareto optimality is only what economics can confirm as "unreachable," and Pareto improvement is only what economics can confirm as "improved." They both indicate that as a science, economics does not have a 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 logic," and why there is no absolute truth or authority (first because economics cannot provide such a 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 the decisions of a business are made by the individuals involved; public decisions are made through a social process by many people (including politicians) and the research findings of many disciplines (sociology, political science, ethics, etc.) working together. 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, 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 play your strengths and doing your core work, and your contribution would be smaller.
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 of the above, we must also say that economics cannot "dominate everything," and other social sciences may be even less capable of doing so. Economics, after all, due to the characteristics of its analytical methods, can still be slightly more scientific, more explanatory, and more broadly interpretable than other social sciences. In other words, it is more "imperialistic."