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7 of 8 people found the following review helpful:
4.0 out of 5 stars
Good criticism, poor alternatives, November 27, 2009
This review is from: The Dismal Science: How Thinking Like an Economist Undermines Community (Hardcover)
Stephen Marglin, the author of this book, is a trained economist from a few decades back. Presently, he is a member of the Department of Economics at Harvard University. It has taken courage on the part of Marglin to defy conventional economics wisdom among his colleagues and students to write this book.
This is because his book 'Dismal Science' works on a comprehensive and intense critique of the mainstream consensus, among economists, that a system of unfettered markets is good for the people. This, Marglin does, in order to put forth his theory that community-based economics would serve humanity better.
His training as an economist gives Marglin some credibility when he elaborates on why he rejects many of foundational assumptions of economics calling them "cultural myths" as against what conventional economists would term as "universal truths".
One of them is the idea of individualism that, Marglin writes, is be understood as "a collection of autonomous individuals, that groups--with the exception of the nation--have no normative significance as groups, that all behavior, policy, and even ethical judgment should be reduced to their effects on individuals."
Marglin continues articulating, "A second founding myth is the modern ideology of knowledge, an ideology that privileges the algorithmic over the experiential, an ideology that elevates the knowledge that can be logically deduced from what are regarded as self-evident first principles over what is learned from intuition and authority, from touch and feel."
The third assumption, and myth, according to Marglin, is that "the nation... is the only legitimate social grouping," where "it is legitimate to ask whether the nation will be better off by free trade, but it is parochial to ask whether workers, old folks, or farmers will fare better or worse."
The fourth myth is of unlimited human wants that can never be fulfilled and so economics tries to allocate scarce resources towards it. Marglin states that the western economy allows free play to unlimited desires and allows "rivalry--keeping up with the Joneses and the like--to be expressed in the acquisition of display and wealth."
These four foundational assumptions of economics, and other theories associated with any of these, are very craftily argued against in 'The Dismal Science'. One thoroughly enjoys reading the well-articulated and sharp points and elaborations made by Marglin, particularly in the middle half of the book in chapters titled 'From Vice to Virtue in a Century', 'How Do We Know When We Do Not Know?', 'Taking Experience Seriously', 'Why is Enough Never Enough?' and 'The Economics of Tragic Choices'.
The book provides very well-presented thoughts of the author although at times the frequent references to people, events and places from the history of economics get boring and pointless. There have been other critiques of economic theory in the past but Marglin's book is nevertheless a fresh and interesting addition to the list of critiques.
Marglin, however, fails to give justice to the second part of the book title 'How Thinking Like An Economist Undermines Community'. Even though he has one full chapter on 'What is Community? And Is It Worth the Cost?' it does not present a convincing case as to why community-based economics is necessarily free of the myriad problems that bog down market-oriented economics.
It is also to Marglin's credit that he stays fair to the mainstream economists in the sense that when he is stating their positions on economic theories and free markets there is no distortion of any kind. This, then, gives him enough credibility to launch his criticisms.
The second big failing in the book is that Marglin could have hit harder on the problems with foundational assumptions of economics. He could have, if he had put in just a bit more effort, to expose, through real-life examples, of the continuous failure of the fulfilment of the assumptions of economics. The fact that, more often that not, cronyism, unfair tax favours and corruption of government, and not free and fair markets, is how capitalists operate is ignored by Marglin.
The fact that some markets work, and work wonderfully, is despite the capitalists' cronyism and partly, also because, of human nature to adapt as best they can to circumstances forced upon by the policy-makers and industrialists who resort to conventional economics' flawed theories.
Are there alternatives to conventional economic wisdom then? Marglin thinks going back to communities would help. But, in my view, any system that is run by humans will not be free of the negatives of human nature such as manipulativeness, greed, deception and violent, or subtle, exploitation of other living beings and the ecology.
At any rate, 'Dismal Science' is a book worth reading, and I can safely recommend you to go buy a copy.
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1 of 1 people found the following review helpful:
5.0 out of 5 stars
Read! This! Book!, March 5, 2011
Finally Liberals and Conservatives agree on something. Like conservatives George W. Carey and Robert Nisbit, liberal Stephen Marglin sounds the alarm for community and tradition's demise - though they differ on cause. Instead of centralized government and rights invention by the Court, Marglin takes aim at that most sacred of modernity's inventions, our Adam-Smith-originated economic model where the foundational assumptions of economics are those of modernity. Sounding like conservative Allan Bloom ("Shakespeare's Politics"), Marglin laments "the narrowing of economic minds as students set aside larger questions for career advancement". Not so much directed at students but at this civilization's assumptions central to economic theory that made students this way. Point being that both sides (and there are only two in America) - despite evermore dogmatic defiance - are recognizing the machine we made that now makes us in its image. An image lacking community, humane perspectives and human connectedness. Not to confuse community with "association", "special interest", facebook or bowling league, both sides agree "community" is something deeper. A face-to-face arrangement in which people share a common cause and need, as Marglin writes, "creating a common future, recalling a common past". This is decidedly not an adolescent counter-culture Sixties reaction, but a growing clarity of consequences of materialist thinking. Dismal is, however, not exactly a solution either. While we get the problem, how to fix it isn't clear. As Hayek showed in Serfdom, the devil's in the details of practical implementation. The kernel of Dismal Science is that modern economic models are approximations of reality (as anyone in science knows); that these models consider human aspects of society as perturbations or ignored altogether; that these inaccurate models are then made real through social engineering that force humans to fit as parts in the machine. Community becomes a foreign entity lost to shallows of modernity through the draining assumption that humans are "autonomous, rational, self-interested individuals seeking to maximize utility through efficient markets" and nothing more. To such an extreme that barriers to development like preservation of communities or the natural world are seen as backward hindrance to growth and globalization. Marglin's barn raising provides an example. Property insurance did not exist until the 17th century, but who today would want to be without it? If you pay an annual premium for your barn and your barn burns down, the insurance company pays strangers to rebuild it. While perhaps more efficient (or not) than gathering neighbors for a barn raising, in earlier times this was done. Responding to need, gathering those neighbors and building the barn strengthened interdependence and community. It is only when we focus on barns, says Marglin, rather than the people raising them that insurance appears a more effective means of coping with disaster. Marglin owes some credit to Karl Polanyi for breaking the ice on this question, but Marglin provides a more complete argument with 70 years of added experience since Karl wrote his socialist manifesto, The Great Transformation. In that book Karl argued that societies are now subservient to economies, not the other way round as they had been. In Dismal, Marglin argues similarly that markets are now superior to communities. Again, in one of those great historical ironies, we hear the echo of Karl's' brother Michael Polanyi (and Frederick Hayek's mentor, author of that great capitalist manifesto, Road To Serfdom) in Marglin's defense of community and tradition as not "anything goes". Occasionally dense with economist lingo (after all, he's also writing to economists), hang in there, the reward is very worth the effort, offering a fresh, experienced perspective to this latest creation of the Anthropocene (and but for human population, probably its most powerful force).
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3 of 6 people found the following review helpful:
4.0 out of 5 stars
The author needed Keynes's help here to nail his case shut, October 11, 2010
The author is correct that the rational economic calculator approach to economic theory first put forth by Jeremy Bentham leads to policies that destroy communities.One need look no further than the speculative highjacking and destruction of the housing market in the United States by Wall Street (Investment banks,hedge funds,private equity firms,rating firms,etc.).Wall Street securitization practices subverted the primary reason for housing policy in the USA, which was to build stable ,long lasting local neighborhoods and communities in which families would raise their children over a 20 year period.Wall Street speculators,using Benthamite utilitarian Max Utility reasoning and rationales,were able to take effective control of Fannie Mae and Freddie Mac and subvert housing policy from the goal of creating a nation of stable neighborhoods and communities to the creation of a nation of speculative houseflippers.
The author constantly refers to the "..utility- maximizing framework of calculation ..." or "... the applicability of rational maximizing behavior in markets..." as the basic foundation of economic theory.Unfortunately,he is correct.The graduate school-Ph.D equivalent of this approach is the standard Subjective Expected Utility (SEU) model ,based on the Ramsey-De Finetti-Savage approach to Subjective probability combined with a Von Neumann-Morgenstern Utility function.SEU is the primary model taught in all economics and business graduate schools in the world.It is merely an updated version of Benthamite Utilitarianism.The author is correct that this approach is what is wrong with economics.Unfortunately,he fails to demonstrate the severe technical problems that SEU theory suffers from.SEU theory is a very special case of J M Keynes's approach developed by Keynes in 1908 in his second Fellowship dissertation at Cambridge and published as the A Treatise on Probability in 1921.Keynes demonstrated the special case nature of Bentham's approach while Ramsey,Savage and De Finetti were still in the second grade.The author needed this to make his case airtight.It is provided below for the interested reader.
Keynes's 1921 A Treatise on Probability(TP) analysis of decision making can be found in sections 6-8 of chapter 26 and chapters 15,17,20 and 22.We will concentrate on the conventional coefficient of risk and weight in chapter 26,as opposed to the interval estimate approach of the other chapters,because of the greater explanatory power exhibited by the conventional coefficient.The technical details can be found on p.315 and in footnote 2 on p.315 .Keynes presented a very precise analysis demonstrating that an analysis of uncertainty introduced non additivity and non linearity into the formal representation of decision making. The subjectivist, Bayesian approach regards decision making as another name for the application of the purely mathematical laws of the probability calculus that require additivity and linearity. The Subjectivist approach makes the crucial error of conflating probability theory with decision theory.Keynes realized that ,due to the impact of the weight of the evidence (confidence)on decision makers ,as well as the optimism-pessimism of the decision maker,decision theory would have to be able to take into account the importance of non linearity and non additivity. The concept of expected value or expected utility is crucial to the Ramsey-De Finetti-Savage-Friedman approach.Keynes demonstrated that expected value or expected utility can ,at best, only be a special case of a much more general theory .
The Ramsey-De Finetti-Savage-Friedman approach is the mathematical translation of Jeremy Bentham's Benthamite Utilitarian approach.
Bentham's approach was that the whole can never be anything more than the sum of the individual ,atomic parts. However, this requires the assumptions of additivity and linearity.Bentham assumed also that all decision makers can calculate the odds all the time.Keynes showed that this was not the case because this requires a w=1. Keynes's demonstration ,taken from chapter 26 of his A Treatise on Probability(1921;TP),of the special case nature of any expected value(utility) approach ,based on the purely mathematical laws of the probability calculus,shows this to be a very special case that rarely,if ever,occurs in the real world.This is why public policy based on utilitarianism fails . Bentham claimed that all individuals have the capability to calculate the odds and outcomes and act on the expected utility (the probability times the utility of the outcome) in a rational(optimizing) way.This is where the rationality postulate comes from.
This can be expressed by the following maximization problem ,where p is the probability of success,q is the probability of failure, and A is the outcome:
Maximize pA.
The modern version of this is to Maximize pU(A),where p is a subjective probability that is additive,linear,precise,and exact and U(A) is a Von Neumann-Morgenstern Utility function. The goal is to
Maximize pU(A).
The modern name for Benthamite Utilitarianism in neoclassical economics is SEU theory(Subjective Expected Utility). Therefore,a microeconomic foundation based on Utility Maximization is just Benthamite Utilitarianism updated with modern mathematical probability techniques.Modern macroeconomics is all disguised SEU theory.
Keynes rejected Benthamite Utilitarianism as a very special case that would only hold under the special assumptions of the subjectivist, Bayesian model-that all probabilities were additive,linear,precise,single number answers that obeyed the purely mathematical laws of the probability calculus.
Keynes specifies his conventional coefficient of risk and weight,c, model in chapter 26 of the TP on p.314 and footnote 2 on p.314,as a counter weight to the Benthamite Utilitarian approach of Ramsey.
Essentially, Keynes's generalized model is given by
c=2pw/(1+q)(1+w),
where w is Keynes's weight of the evidence variable that measures the completeness of the relevant, available evidence upon which the probabilities p and q are calculated.(Benthamite Utilitarians always assume that the value of w is always 1.)w is an index defined on the unit interval between 0 and 1,p is the probability of success,and q is the probability of failure.p+q sum to 1 if they are additive.This requires that w=1.Keynes's c coefficient can be rewritten as
c=p [1/(1+q)][2w/(1+w)].
Now multiply the above by A or U(A).One obtains
cA =p[1/(1+q) ][2w/(1+w)] A or
cU(A)= p[1/(1+q)][2w/(1+w)]U(A).
The goal is to Maximize cU(A) as opposed to the special Ramsey-Savage case of Maximize pU(A).
If w = 1 and all probability preferences are linear,then one obtains Ramsey's special result .
Academic economics of the sort that the author correctly challenges is based on very special assumptions about additivity and linearity that have been proven false by (a) the econophysicist followers of Mandelbrot , (b)the cognitive and behavioral psychologists ,such as Preston and Baretta, Tversky and Kahneman,Einhorn and Hogarth,Slovic and Lichenstein,Gardenfors and Sahlin,Gilboa and Schmiedler,etc. and their followers, and (c)Daniel Ellsberg as demonstrated in his 1962 dissertation published in 2001.
Current neoclassical economic theory is thus both Ptolomaic and Procrustian.It is based on artificially created models that always rest on the assumptions of linearity and additivity.Data is manipulated by either (a) eliminating the large numbers of outliers in the data sets as pointed out by Mandelbrot,which far,far exceed the very few outliers that should exist based on the a priori assumption of normality or (b)stretching the applicability of their very special assumptions in order to claim generality.Thus one encounters the truly bizarre claim that Keynes's theory is a special case of neoclassical theory.
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