Why Does Neoclassical Framing Matter?

I have spent a reasonable amount of time focusing on how neoclassical economics frames issues, rather than critiquing it purely from an empirical or logical perspective. I expect the response of some is simply: so what? Framing issues in a certain way can be analytically useful: governments versus markets can help us decide whether a bigger or smaller state is required; presenting information asymmetry and the like as imperfections and studying them one at a time allows for clearer analysis; presenting the economy as a separate entity allows us to approach it from a purely analytical perspective.

Maybe I agree with the sentiment, but my problem is that the way neoclassical economics is framed plays in the hands of the status quo, and thus allows for reactionary and populist rhetoric that will inevitably win the debate, having framed it in the first place. It also affects the behaviour of ordinary people –  any one familiar with reflexivity will agree that the way we model and structure the system will affect how participants behave inside it.

The problem is the whole idea of the economy or ‘market’ as a separate entity, free from legal or historical context, and self-equilibrating, at least in the long run or with a few tweaks. This makes it easy to reject progressive ideas/reform – why would anybody want to tamper with a system like that? It doesn’t matter that the actual conclusions of neoclassical economics – should you study it – are fairly moderate; what matters is the way that certain legislation is presented as interventionist, whilst existing structures are ignored as ‘natural’.

This way of presenting issues appeals to a couple of human biases – firstly, status quo bias; humans have an innate inclination to stick with the current state of affairs and fear change. By presenting the current state of affairs as natural and self equilibrating, this is strengthened. It also interacts with the just world hypothesis - if people’s income is their productivity, if ‘the market’ is formed by people’s preferences whilst the ‘government’ the forcefully imposed on them it is fairer to leave things as they are, as even if the outcomes seem to be unpalatable, they are just.

I have spoken before about how I think presenting the economy as a complex, non-equilibrating system would alter perceptions and help us manage it. Not only this, but I expect it would change the average man on the street’s perceptions. You might think I’m overstating my case, but consider: since the Reagan-Thatcher ‘revolution’, there has been a massive change in social values – people are behaving more selfishly; there is a general idea that the rich and poor are deserving of their lot; work is, in many ways, written off and instead we focus on consumption.

Neoclassical framing strikes me as a damaging way of looking at the world, skewing debate and altering people’s behaviour towards socially undesirable outcomes, and protecting the status quo as some sort of inevitable or natural state (not to mention that neoclassical economics can’t see outside capitalism itself). The government policies that help the rich are hidden, which leads to articles like this, that play into the hands of the wealthy by speaking of ‘managed’ markets versus ‘unmanaged’ ones. Perhaps if our views weren’t so skewed by neoclassicism, it would be obvious that markets are currently managed in favour of the rich.

About these ads

,

  1. #1 by atm0spheric on January 14, 2012 - 8:45 am

    The concept of market participants freely negotiating mutual benefit is attractive, but:

    a) there is no proof that this maximizes total benefit; the greatest total benefit may require a subgroup of participants to be disadvantaged.

    b) trading is not instantaneous, and preferences change, so equilibrium is not a foregone conclusion.

    c) competition, greed and envy mean one participant’s perceived advantage may depend on the perceived disadvantage to another participant.

    So it is naive to believe you can leave the market to sort itself out. It is also naive to believe you can entrust the regulation of markets to politicians.

    • #2 by Unlearningecon on January 14, 2012 - 12:38 pm

      I think the entire premise of ‘mutually beneficial, voluntary transactions’ is bunk and needs to be abandoned. The standard explanation of ‘it’s mutually beneficial because people do it’ is simply begging the question and cannot be passed off as meaningful scientific analysis.

      So while I agree with your sentiment, what you are doing is accepting the above then pointing out potential problems. What we need to do is completely rewrite the framing.

      • #3 by JMRJ on January 27, 2012 - 1:06 am

        So -a constitutional amendment, then? In the US, I mean.

  2. #4 by JMRJ on January 27, 2012 - 3:15 am

    Well, at one point I drafted one, but I think it needs work and I’ve changed my mind about a few things:

    http://strikelawyer.wordpress.com/2011/01/15/us-constitution-28th-amendment-jubilee-text/

    In the comment above I was addressing the idea of “completely rewriting the framing”, which the host here indicated, and which in general terms I agree with. The first thing is to recognize that so much debt is never going to be paid at all that we can’t pick and choose and we need a jubilee. A complete reset. Start over. This idea is exhilarating and catastrophic at the same time.

    Now on this Steve Keen and I agree. But he prefers to keep the same system, really, after a jubilee is accomplished by flooding the system with “money”, directed first to pay off debt in nominal terms.

    I prefer to take the opportunity, since the economy has to be reset anyway, to just be completely honest and cancel debt. Wipe it out, with the constitution. Almost all of it. And afterwards, return to redeemable money, the absence of which I believe lies at the root of the current crisis.

    So the general idea is here:

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-ii/

    And here:

    http://strikelawyer.wordpress.com/2011/12/27/saving-the-world-revised-edition-part-iii/

    • #5 by Unlearningecon on January 27, 2012 - 11:30 am

      People have an intrinsic aversion fiat money,debt based money systems and the way that banks create money out of thin air. But they needn’t:

      http://coppolacomment.blogspot.com/2011/11/merits-of-debt-money-system.html

      • #6 by JMRJ on January 27, 2012 - 3:11 pm

        You’re right that people have an intrinsic aversion. Do they “need” to? Well, they have it, whether they need it or not. Good to have an exchange with someone who knows a fact when he sees one.

        As a general rule I think intrinsic beliefs like that should be respected. Not necessarily adhered to or given undue weight, but not patronizingly dismissed as irrational or sub-rational either.

        I think the aversion is there because what Aristotle might have called “natural reason” tells you that money should, at bottom, be an asset and not a liability. This doesn’t account for a lot of things, such as the fact that what circulates as money is almost always a debt instrument. But doing away with redeemability entirely? The mind recoils, and I think it should.

        I’m really glad I found this. I have to thank Moira. I was growing quite tired of the Austrian stuff, not that I don’t think there’s something to it. But they’re very long on critique, and very short on solutions.

      • #7 by Min on January 29, 2012 - 8:26 pm

        People may have an aversion to fiat money, like Merle Haggard sang, “I wish a buck was still silver,” but I doubt if it is intrinsic. I grew up knowing that money was fiat, and it does not bother me in the slightest. What bothers me is gov’ts and central bankers pretending that it isn’t.

  3. #8 by moiracathleen (@moiracathleen) on January 27, 2012 - 3:32 am

    You know UL, I think your post presents exactly the right question.

    Should we approach these questions regarding the economy and the state from a purely analytical perspective? It struck me that this might be exactly the problem. We are living in an age of analysis, not synthesis. By this I mean today it seems there are so many experts, but too few generalists. Let me break it down.

    You will find the terms analysis and synthesis have their roots in ancient Greece. Analysis literally means to “loosen up” and synthesis means “put together.” Analysis describes an investigative procedure in which the whole is broken down into various components. Synthesis is the opposite. Synthesis is combining separate components in order to form a coherent whole.

    What the Greeks understood, that perhaps we have somehow forgotten, is that analysis and synthesis go together. There might be occasions when one or the other is more useful than the other. But for the most part you want to be using these investigative procedures together.

    Perhaps the problem you have so clearly and intelligibly identified is actually that there are too many experts using analysis to break things down into components. What is lacking today are generalists who are able to pull different ideas, facts, concepts, and visions together.

    To point to an example in recent history, which is the one I know best, I will point to the US founding generation. They were mathematicians, economists, lawyers, and artists. I am sure I am leaving out many things, but you get the point. They synthesized different ideas, concepts, and facts, and visions from math, astronomy, philosophy, law, economics, and history to create our constitutional system. In doing this they managed to create this “ideal” for self-government. The Constitution is not just a legal document, words on a paper. If you go deeper you can see that it contains the Pythagorean supreme but limited concept. It contains concepts pulled math, astronomy, and law. I am sure if you thought about it, you could find a few examples from the most notable economists in our recent history as well. Who are these people and what are the various components they synthesized to construct these systems that we rely on so heavily today. Or has that even happened in economics yet?

    Maybe the problem is how we train people today. How effective can the lawyer actually be where the lawyer lacks the ability to combine separate elements, that is pull ideas, facts, concepts, and visions from various disciplines. Maybe the economists have a similar problem. I am obviously not qualified to comment there.

    Perhaps the answer to the question you have presented lies with someone who can first analyze markets and governments by breaking them down into their various components and then pull together various facts, ideas, concepts, and visions to create something that reconciles all of these problems that are emerging in the various “systems” today.

  4. #10 by moiracathleen (@moiracathleen) on January 27, 2012 - 3:41 am

    A good example might also be the European Union. Constructed by “generalists.” They pulled together various ideas, visions, facts unique to European countries to create a central authority. Imagine if those constructing the EU had just looked at the US model and applied that to the EU member states. This would have failed. Instead they looked at the various components they were working with and then looked for a system that had similar components. They discovered one that had failed and cured what it was that probably caused that failure.

    EU and US facing similar economic problems? Should we apply the same response to these two very different models? Is the EU’s problem really because it is not enough like the US? Interesting questions. That should probably be answered by a generalist.

  5. #11 by Mike Parker (@Sysparatem) on January 27, 2012 - 5:19 am

    Interesting post Moira. Systems thinkers don’t get asked, the investigation unearths too much for comfort. e.g. much vaunted arguments about the efficiency of ruthless competition and non-regulation are uncovered as utterly false by any balanced empirical investigation. It is soon clear one is not dealing with genuine attempts to assess real effects.

    The discourse is about desperately maintaining a dysfunctional view and operational method to the advantage of a tiny few at the detriment of the majority.

    In the case of the EU this same underlying matrix of forces simply wears a different cloak.

    Schon and Argyris described this well in their definition of ‘espoused theory’ and ‘theory in action’.

    Within a self sealing system of thought there is no possibility of what they call double loop learning.

    This is where you try something out and then assess not only whether it has achieved the goal you originally set ( single loop ) but also whether or not the goal is still relevant / right (double loop).

    Self sealing systems of thinking are those in which any discrepancy between reality and the system of thought can be rationalised away.

    This has been neatly described as ‘policy based evidence’ in the case of politics and economics.

    The unenlightened self interest of a tiny few is just as real in Europe as the US that’s why a lot of us find it hysterically funny when GOP candidates refer to EU as a hotbed of ‘socialist welfare states’.

  6. #12 by Mike Parker (@Sysparatem) on January 27, 2012 - 5:46 am

    I should have added that in the above comment ‘espoused theory’ is the cloak and ‘theory in action’ is what drives the actual behaviour.

  7. #13 by human mathematics on February 21, 2012 - 5:38 am

    Of course frames matter. This is equivalent to the academic economists’ saying “Everybody is using a model, whether they say they are or not”.

    I could draw an analogy to logical proofs. “The” neoclassical frame has a lot of axioms to it, and within that framework you can conclude various things. Take away those axioms and you cannot draw some of those conclusions.

  1. “Plain Money” And “Seigniorage Reform” | Lawyers on Strike
  2. An FAQ for Mainstream/Neoclassical Economists « Unlearning Economics
Follow

Get every new post delivered to your Inbox.

Join 829 other followers