I Don’t Get Economics

Dear Reader,

I have decided that there must be something I fundamentally don’t understand about economics. I should say from the start that my husband is an economist. He works in finance, but his degrees are in economics.

It seems to me that economists make two basic assumptions: that people act in their own self-interest and that they are rational. The first of these I have no issue with. It seems like basic biblical theology to me; fallen man is self-centered. Economics does not make a judgment that this is a bad thing as I would but it does recognize the basic truth. I will say, however, that it seems then that the theories of economics could not account for truly selfless acts.

It is the second presupposition, that people act rationally, that is the big stumbling block for me. I just don’t think they do a lot of the time. On the one hand, we are far too easily swayed by our emotions which are themselves a complicated muddle. On the other, even when we do use our reason, it is a fallen faculty (along with the rest of our human natures) and as apt to lead us astray as to lead us rightly. The truth is people use their reason to justify whatever they want to do anyway and those decisions are not usually, if ever, based on logical evidence (see two earlier posts: CM on Reason and The Way of Reason).

I picture in my head as I consider this issue the ex-husband of a friend of mine. He is somewhat of an extreme example, I will admit, but he has made a lot of bad decisions, both in his life and in his finances. He committed adultery (with his wife’s best friend no less), left his wife and kids, ran his business into the ground (he was self-employed), failed to pay his creditors, and even after getting himself arrested and being given payment schedules by a judge failed to comply and meet his obligations. I don’t know where he is now but in the time I knew him every decision he made seemed to be drive him further and further into debt and into legal trouble.

So as I picture this individual in my head I ask why — why would he behave so illogically? The truth is he was acting neither rationally nor in his own self-interest. When I ask my husband about such things (though I did not use this or any other specific example in our conversation), he starts to talk about “people don’t always have all the information” or “they don’t have the knowledge to make the best decisions.” Now he is a good man and we agree in most things theologically speaking, but it seems to me that what he is saying boils down to: if people act irrationally it is because they have a lack of knowledge or understating. The corollary to this would be “if we can give them information and knowledge, they will behave rationally.” This would certainly not have been true for my friend’s ex and I can’t imagine it would be true for most people.

Now an old friend of ours from grad school (though we are no longer in touch) is a behavioral economist (there was an article on him recently in Harvard Magazine; read it here). I have a little most respect for behavioral economics because it addresses just this problem. It looks at those cases in which people do not make the best decisions and asks why this is so. Furthermore it goes on to propose solutions: how can we get people to make better decisions? In the article I alluded to above, “The Science of Scarcity” by Cara Fienberg (Harvard Magazine, Mar-Apr 2015), Sendhil and his colleagues looked at how a lack of food and other resources affects people’s behavior. What they found is that it does indeed affect people in very measurable ways. People become unable to concentrate on other areas; their measured IQs drop; there are even chemical changes — a lowering of available glucose in parts of the brain (which as the parent of a child with type 1 diabetes also intrigues me though I don’t know where to go with it). All of these things make sense to me. While I could not have known the specifics about IQs and glucose levels, the basic idea seems so intuitive that I almost wonder why we need a study to show it.

But, as much as I liked the article and like that this whole side of economics takes into account that people do not always behave rationally, their solutions are ultimately worldly, not spiritual. They point to biological changes and physical effects. What I would like to see is a Christian behavioral economist, someone who understands our fallen natures and how pervasive sin is in our lives and our thinking. Because when I think back to this man I knew who spiraled out of control, while he certainly experienced increasing scarcity over time and while I am sure that affected him in the more physical ways as the article suggests, his basic problem was a sin problem. Which is not to say that poverty is inherently the result of one’s own sin; far from it. Rather, we are all sinful beings. The things that motivate us are quite often bad things. They are covetousness and greed and selfishness and revenge and lust, among many others. I just don’t see how we can discuss and predict human behavior reliably without taking these things into account.

Do you know the old joke about the physicist? He is called in to  a farm to increase milk production and starts by saying, “Well, let’s assume a spherical cow.” The point of course is that the physicist is ill-suited to the practical problem because he starts with an assumption which has no bearing on the real world. My point is that I feel like economists do this to some extent too. They assume rational people who act in their own best interests. I don’t really doubt that a lot of the conclusions they have reached are valid, but it seems like there is a point one can’t get beyond with such assumptions. Behavioral economics recognizes that there is something funny going on here, that the facts don’t fit the models, and asks why. But, while it goes much farther than more traditional approaches, it cannot answer all the questions unless and until it takes into account our fallen human natures.




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