Economic Imperialism: A Collection of Selected Articles from "Economic News Weekly" (Volume 2)

Author: Gao Xiaoyong
Publisher:
Publish Date: 2005-07-01
Features: 12 years ago, Gao Xiaoyong founded The Journal of Economics News and invited us economists to contribute articles, particularly encouraging us to write essays and that provided in-depth yet accessible analyses of various phenomena based on economic principles. Over the past decade, 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 these essays into a six-volume collection titled 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 driving disciplinary development. The reason economics can achieve this is tied to its unique analytical methods.
First, economics is not, in essence, the "study of money" as some superficially perceive it. It examines human behavior—how individuals achieve the greatest outcomes under the condition of scarcity (including time) through changes in behavior and choices. In this sense, economics is a form of "behavioral effectiveness studies," 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 the interactions between individuals. While this is not unique—other social sciences also explore the interdependent and mutually influential social relationships between people—it is in reality that survival needs are fundamental to human beings. All activities rely on the consumption of resources and the distribution of income, making economic interests the foundation of all other interests. Therefore, 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 might lead to misunderstandings, suggesting that economics is all-encompassing or that it boasts of such capabilities. In truth, genuine economics as a science is "humble" or even "meek." More precisely, 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 comprehends human behavior thoroughly—they cannot make decisions for others. This is because the fundamental concepts economics relies on—such as "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, 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.
Thus, even if economists know that individuals always act according to the "axiomatic assumption" that people pursue maximum benefits, we still do not know what specific "benefit" system each individual seeks to maximize. Economists can provide more information and knowledge to make people's decisions more informed, but that is all—they cannot replace the choices and decisions of each individual (whether individuals or enterprises)! Economists do not even have the right to judge whether others' decisions are correct because they fundamentally do not know what preference system the other person is 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, such as marriage, divorce, crime, institutional reform, and the pursuit of equality. However, since the "goods or bads" involved in these behaviors cannot be priced (transaction costs are too high), our quantitative analysis must stop here. Due to the individuality of preferences or utilities and the incomparability of interpersonal utilities, we can only present 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 individual decision-making but also does not intend to change people's values or ethics. Economics always takes different people's value systems 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—all 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 unique preferences as its analytical 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 more missions, including changing people's moral values, which would turn it into "economic piracy" rather than economic imperialism, 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 lack credibility will eventually face punishment. If people realize this, they will be more trustworthy, so won't credit morality improve in a market economy? But if you think carefully, so-called commercial credit is not because people have changed their credit morality but because they realize that untrustworthiness is ultimately "unprofitable" 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 thus changed their behavior. Making people "better" is a meaningful thing worth every individual's effort, but economics does not consider it its own core mission. The core mission of economics is to change behavior through institutional and policy changes, such as punishing untrustworthy people.
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 maximum benefits becomes a constraint on others pursuing their own interests. Everyone's effort to pursue maximum benefits must take into account the behavior of others as their own constraints (all based on the axiomatic assumption of resource scarcity); therefore, economics can use basic concepts like "equilibrium" to tell everyone that our so-called pursuit of maximum benefits is actually "conditional extremes" and "unreachable." Moreover, 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, 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, wealth disparities can only be attributed to innate differences, postnatal efforts, and opportunities. These disparities are 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 or aid to the poor (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 "unprofitable" for them. While the wealthy may pay slightly more in taxes for social welfare, within a certain range, this may be "profitable" for their long-term interests (note that here, economics relies not on the wealthy's "goodwill" 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 to "divide and conquer" but to tell everyone that extreme income inequality is not beneficial to anyone. However, overly radical public policies and social welfare systems, like those in developed countries, are also not beneficial to everyone. We should avoid extremes and pursue a certain "sustainable equilibrium." But if economics tries to do more, its limitations become apparent. Since the fundamental concepts economics relies on, such as "utility" and "preferences," are "individualistic," it is difficult 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 efficiency" or "Pareto improvement."
Pareto efficiency refers to a 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 efficiency." Clearly, this state, which some people mistakenly treat as the "optimal state," is merely a statement that "we cannot make the situation any better." More precisely, it refers to: if any further changes are made, economists do not know whether the situation will 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" 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.
Thus, what is called Pareto efficiency is merely what economics can confirm as unimprovable, and Pareto improvement is the only improvement economics can confirm. Both demonstrate 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" or 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, 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 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 to analyze the political mechanism of public good allocation, study the decision-making mechanisms of public policies, and even examine decision-making rules at the constitutional level, such as whether it is "unanimity" or "majority rule," direct democracy or representative democracy, etc. 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 decided by the individuals involved, while public decisions are made through a social process, involving the efforts of many people (including politicians) and the findings of many disciplines (sociology, political science, ethics, etc.). The contribution of economists is undoubtedly, but also only, a part of it, and in many cases, it may be a very small part.
Of course, good economic policy recommendations 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 (e.g., speaking from the perspective of a priest, or arbitrarily positioning yourself as the government without being appointed), you would instead be failing to leverage your expertise and fulfilling your core responsibilities, thereby reducing your 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.
But after clarifying all the above, we must also say that economics cannot "dominate everything," and other social sciences are perhaps even less capable of doing so. Economics, after all, is ultimately more scientific and has stronger explanatory power and a broader scope of explainable issues, meaning it is more "imperialistic" than other social sciences.