Economic Imperialism: A Selection of Essays from "Economic News Weekly" (Volume 5)

Author: Gao Xiaoyong
Publisher:
Publish Date: 2005-07-01
Features: The term "economic imperialism" refers, of course, to the "invasion" of economics into the traditional domains of other social sciences. This invasion is not a whimsical or baseless endeavor but rather a genuine analysis of aspects that people had not previously considered, offering new insights and fostering the development of disciplines. The ability of economics to achieve this is closely tied to its unique analytical methods.
First, economics, in its essence, is not, as some superficially observe, the study of "counting money." It examines human behavior—how individuals, under the condition of scarcity of resources (including time), can achieve the greatest effects through changes in behavior and choices. Therefore, in a certain sense, economics is a "behavioral effectiveness science," and its fundamental logic and analytical methods can be universally applied in contexts where human behavior is involved.
Second, economics not only studies individual behavior but also the relationships between individuals. This is, of course, nothing special, 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 people, and all human activities rely on the consumption of resources and the distribution of income. Economic interests form the foundation of all other interests, so understanding economic relationships can indeed provide a deeper understanding of the issues studied by other social sciences. For this reason, economics appears very "dominant" and "assertive," becoming a "preeminent discipline."
The concept of "economic imperialism" was, of course, initially proposed by economists to describe the expansionary trend of economics. After it gained traction, the term might lead people to misunderstand economics, thinking it is all-encompassing or that it is boasting about its capabilities. In reality, true economics as a science is very "humble" or even "meek." To put it more precisely, if a person truly understands economics, they would be very humble, knowing that what economics can explain and address 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 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 (economics calls these "preferences"). From minor preferences like food tastes and clothing styles to major ones like ethics, morality, and ideology, they can all differ. Moreover, each person faces specific conditions—abilities, interests, family background, social relationships, and expectations about future changes in their own and societal environments—that are unique to them.
Therefore, even if an economist knows that individuals will always act according to the "axiomatic assumption" that people pursue the maximization of their interests, we still do not know the specific "system of interests" each individual seeks to maximize. Economists can provide more information and knowledge to make people's decisions more informed and correct, but that is all—they still cannot replace the choices and decisions of each individual (both 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 in terms of quantitative analysis and "scientific falsification." We can use abstract concepts like "preferences" and "utility" to formulate "theoretical hypotheses" about the basic patterns of many human behaviors, including those related to "economic imperialism," such as 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 (the 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 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 individuals in making decisions but also does not intend to change people's values or moral 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, enjoy 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 you can change your values and behavior choices under the influence of preachers, inspirations, or persuasions from ethicists, politicians, priests, writers, or journalists. 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, in principle, intend to change your thoughts.
Some people always want to give economics more missions, including changing people's moral concepts, and include it in the scope of economics. But that would no longer be "economic imperialism" but "economic piracy," because it would be seizing what does not belong to you.
Someone once asked me, "In a market economy, because of 'repeated games,' people who lack integrity will eventually face punishment. If people realize this, they will be more trustworthy, so in a market economy, people's credit ethics will improve. This doesn't show that economics is related to morality or that economic operations can change people's moral ethics?" But if you think about it carefully, what is called "commercial credit" is not because people have changed their credit ethics but because they realize that lack of integrity in a market economy is ultimately "unprofitable" (they will be punished). In other words, it is still out of "calculation" that changes their behavior, not because they have "become better" and thus changed their behavior. Making people "better" is a very meaningful thing that is worth every one of us striving for as individuals, but economics does not consider it its own core work. The core work of economics is to change people's behavior through changes in systems and policies, such as punishing those who lack integrity.
Third, based on the two limitations mentioned above, the role of economics in public policy issues is also very limited. Economics can indeed make its own contributions 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 their interests constitutes constraints on others pursuing their own interests. At the same time, everyone's effort to maximize their own interests must take into account the behavior of others as constraints (all of this is based on the axiomatic assumption of resource scarcity). Therefore, economics can use basic concepts like "equilibrium" to tell everyone that what we call the maximization of interests is actually "conditional extremum" and "unreachable." Moreover, to reach this equilibrium point, everyone must make some compromises. If you take too much advantage, others or other interest groups will "react," 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 special privileges or corruption, the emergence of wealth gaps can only be attributed to innate differences, postnatal efforts, or 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 social wealth gaps leading to increasingly tense social relations and refuses to carry out necessary or reasonable income redistribution or 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 rich will change, which is also "unprofitable" for the wealthy. While the wealthy may pay a bit more in taxes for social welfare, within a certain range, it may be "profitable" for them in the long run (please note that here, economics relies not on the "goodness" of the wealthy but on 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 to "pick sides" but to tell everyone that extreme income inequality is not in anyone's interest. However, overly radical public policies and social security systems, like those in developed countries, that push for social welfare systems too early, are also not in anyone's interest. We should avoid extremes and pursue some kind of "sustainable equilibrium."