Economics Is Not About Policy
Imagine if the field we call microeconomics were actually devoted to giving business advice to Microsoft. Dozens of journals are devoted to telling Microsoft the best way to make a profit. There would be papers at conferences about the optimal price of an Xbox; papers about a market niche that Microsoft could get into, or maybe advocating the retirement of the Bing brand. Maybe Microsoft should even consider goals other than making a profit; after all the poverty rate in Redmond is still 6.6%. A lot of microeconomists teach at universities, but once you make a name for yourself, you get scooped up by Microsoft for a lucrative eight-year gig, after which you can start a consulting firm making money by predicting Microsoft's business strategy.
That'd be pretty weird, no? It might be more apt to call microeconomists consultants instead of social scientists.
Macroeconomics is actually kind of like that. Except instead of Microsoft, their target is the Federal Reserve. Or Congress. Or worse, "the government" – as if it were a pure agent that just needs to be set on the right track.
There is of course a reason for treating the government like the object of advice in a way that would be pointless for a private company: the system constraint binds much more tightly on market actors than government actors. Markets often select for determinate behavior, which is why there's a discipline of economics at all. Government decisionmaking, on the other hand, is less constrained; more discretionary; less predictable. Which is only to say, mythology matters more in politics.
All these differences being acknowledged, when you give up trying to understand government and start trying to influence it, you're not doing social science anymore; you're doing mythology.
Now, that's not necessarily a bad thing. If social norms are necessarily not rationally justifiable past a certain point, then stable social cooperation depends upon myths.1 By mythology I mean a bridge across the is-ought gap that legitimates certain ways of acting. The mythology of liberalism used to be natural rights; now that role is being fought over by economic efficiency and social justice. Economists presumably believe that the patterns of behavior (including policy norms) legitimated by the mythology of efficiency are better in some sense than the patterns of behavior legitimated by the mythology of social justice. So far so good, and this might motivate a good deal of policy work. In this connection, a distinction is sometimes made between "positive" and "normative" economics. But I want to emphasize that the normative import of economics, the mythology of efficiency, is something else entirely from social science. The economist may also be a consultant – or an oracle – but this is a fundamentally different hat from the social scientist hat.2
But doesn't this recognition in some sense delegitimize the mythology? If you recognize a mythology as such, after all, it loses most of its force. By adhering to this distinction, aren't we giving up the fight to less scrupulous opponents who don't qualm to blend mythology and social science?
While this is a disadvantage, it doesn't necessarily tilt the playing field against one's preferred norms, and it comes with a few advantages as well. First, the thrust of left antiliberalism is very much in the spirit of this distinction. Natural rights as a legitimating myth fell apart because it failed to deliver on its promise to derive ought from is. Now the argument runs: economic efficiency is just a mythology too – therefore we should prefer egalitarianism, or social justice, or whatever. However, the distinction between mythology and social science cuts both ways. If it's true that crossing the is-ought gap deductively requires some mythology, then recognizing this fact consistently means that egalitarianism and social justice are mythologies too – neither more nor less rationally justifiable than liberalism and the rule of law! If we demand our policy norms to be rationally justified, there can be no "therefore" at all following the exposure of liberalism as a mythology. Arguing against a mythology simply for the fact that it is a mythology undercuts the normative basis for every conceivable norm.
Second, keeping the distinction in mind can make the economist a more effective oracle, even if he doesn't explicitly indicate every time he switches his social scientist hat for his oracular hat. At the very least it teaches him to avoid blithe and feckless exhortations to an imaginary unitary political chooser. In this sense, the economist's policy advice is always subservient to the broader goal: to delegitimize the normative support for rent-seeking.
I am aware that making a methodological argument also depends on a legitimating mythology of science. This is unavoidable. The best I can hope for is to start from a norm with as broad a consensus as possible, taking it as an end in itself. In the case of the economist as oracle, that norm is the desirability of social cooperation. In the context of this methodological argument, that norm is the wertfrei character of science. From the standpoint of this norm, the economist as social scientist can have no other goal than to understand the object of his study, whether that object is a market or a government. Treating the government as a pure chooser, a receiver of policy advice, usually hinders any attempt to understand it in the social-scientific sense.
In a sense, the form of the argument is pessimistic: consensus on a foundational norm can never be guaranteed, and without consensus on a basic norm as an ultimate end, foundational differences can be irreconcilable. Still, you've got to start from somewhere to get anywhere.
The inherent desirability of social cooperation, which I stipulate as an ultimate end, is itself a myth in the sense of the next sentence.
James Buchanan seemed to recognize this in his Nobel Prize address, where he argued that the point of normative public choice was not at all scientific, but explicitly oracular in our sense:
We do not, of course, observe the process of reaching agreement on constitutional rules, and the origins of the rules that are in existence at any particular time and in any particular polity cannot satisfactorily be explained by the contractarian model. The purpose of the contractarian exercise is not explanatory in this sense. It is, by contrast, justificatory in that it offers a basis for normative evaluation. Could the observed rules that constrain the activity of ordinary politics have emerged from agreement in constitutional contract? To the extent that this question can be affirmatively answered we have established a legitimating linkage between the individual and the state. To the extent that the question prompts a negative response, we have a basis for normative criticism of the existing order, and a criterion for advancing proposals for constitutional reform.
MethodologyNormsScienceArmen AlchianJames Buchanan
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