Theory über reality
Sovereign choosers and other self-deceptions of Theory: II
This is the twelfth piece in Lorenzo Warby’s series of essays on the strange and disorienting times in which we live. The publication schedule for Lorenzo’s essays is available here.
Meanwhile, Arnold Kling has some useful comments on Essay 11 over at his place.
This piece can be adumbrated thusly: social science is seldom science, while economics—thanks to its physics envy and ignorance of biology—is often useless.
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The weaker the reality-tests that have to be surmounted, the more Theory becomes a way of moralising and intellectualising self-interest, a vehicle for efficient self-deception. This applies even when it’s multiplying research projects or playing in-house status-games.
But Theory can, as I’m exploring in these essays, extend its value for social leverage further than that. It can become a mechanism for generating status-and-social-leverage strategies, or express collective self-interest in other ways. One can see this, for example, by what economists don’t notice or include in their migration scholarship.
The corruptions of Theory
There is a well-known economic phenomenon known as the Baumol Effect. It works like this. After adjusting for inflation, a haircut in 2022 costs far more than a haircut did in 1952, even though it is the same service with no change in productivity.
The reason it costs so much more is that productivity elsewhere—particularly in manufacturing—has risen dramatically, driving up wages. As you go down the productivity scale, wages are “pulled up” by competition with higher productivity work. Service wages have to keep up, otherwise people won’t do service jobs like hairdressing. We would all look like we did at the height of the pandemic—insert Sideshow Bob jokes here.
Australia has much higher migration rates than does the US and the UK. Yet, you do not see the nannies, gardeners, and other personal services to the rich in anywhere near the same scale in Australia as in the US and the UK. Australian car washes are still mechanised.
That is because Australia selects migrants such that their average level of education (their human capital) is higher than that of the residents. Migration into Australia therefore does not reduce the Baumol effect. If anything it increases it, as capital increases faster than labour.
In the US and UK, there are proportionately far more low-human-capital migrants. Such migration therefore works to reduce the Baumol effect, as labour increases faster than capital.
In other words, migration to the US and UK suppresses wages. The pandemic pause in migration demonstrated this, as (money) wages at lower skill levels in the US and UK immediately started to rise as migration pauses halted the suppression of the Baumol effect.
Australia, with much higher rates of migration, did not see any significant rise in (money) wages thanks to the pandemic migration pause. So, yes, making labour relatively more plentiful than capital does suppress wages.
We were then treated to the sight of economists in the US and UK ludicrously trying to rationalise away the obvious.
Social science is not science, sorry
None of the so-called social sciences are actually sciences, other than evolutionary Anthropology. Evolutionary Psychology is not quite there yet, mainly because it does not include enough evolutionary Anthropology. For instance, it doesn’t grapple with how rare courtship marriage has been in many human cultures.
Judging by evidence from forager cultures, courtship marriage has been largely or completely absent in many societies for thousands of generations. One study found that courtship was the dominant form of marriage in only 8 out of 190 forager societies while occurring in another 38. Courtship subject to parental approval was dominant in 15 societies and occurred in another 37.
Homo sapiens is the only species where it can be that neither member of a mating pair chose their partner. Indeed, this has been a common pattern across many human societies.
Economics is not yet a science, for it makes no serious attempt to be consilient with the anthropogenic sciences. Such consilience is a basic feature of science.
Biology studies phenomena emergent from chemistry, so has to be consilient with chemistry. Chemistry studies phenomena emergent from physics, so has to be consilient with physics. Social sciences study phenomena emergent from biology, so to be science, they have to be consilient with biology. Remember, nothing in biology makes sense except in the light of evolution.
Emergent phenomena are more complex structures or patterns that have causal effect. For instance, through reaching a scale that enables greater stability. But, in the case of biological beings, this too is an evolved characteristic.
The social is biological
… a scientiﬁc study of human action focusing on elements of thought and behavior that are in some degree social (nonbiological).
The notion that the social is nonbiological is mind-boggling nonsense. Every social action is the manifestation of an evolved capacity. Typically, they involve one or more adaptations to be social.
The elaboration of the claim is, if anything, worse:
Wherever nurture matters more than nature, or where some significant decisional element is evolved, we are on the turf of social science. (This does not mean that genetic dispositions are eliminated from consideration; indeed, they comprise an active research agenda in the social sciences today. However, one presumes that any outcome of interest to the social sciences is not entirely biologically determined; there must be some significant component of choice.)
The notion that there is one species, Homo sapiens, who makes choices, while all other species are wind-up biological automata who don’t is a statement of anti-scientific arrogance that is hard to credit.
Did this man never own a pet?
What is much more distinctively human is the degree to which we are aware of our choices and our subsequent capacity for deliberative choice. Hence wisdom traditions tend to point in two directions at once: a deflating consideration of our own choices and a stilling of the distractions of self-consciousness so as to expand awareness and calm focus.
Thresholds and salience
A pervasive feature of social action is that living beings face a basic threshold problem: if they suffer too much damage, they die. A living organism is one that uses information and resources to maintain itself.
Thus, they will tend to have a greater aversion to loss than regard for gain. Gains have declining marginal utility (an efficiency consideration). Loss has increasing terminal danger (a persistence or resilience consideration). It increases marginal disutility.
Hence, biological beings are more threatened by loss than benefitting from gain. It is hardly surprising if there’s a range of phenomena where we display more aversion to loss than enthusiasm for gain. This is something we’ve known for millennia. In the words of the Roman historian Livy: “men feel the good less intensely than the bad” (segnius homines bona quam mala sentiunt: Annals XXX, 21).
Threshold effects are pervasive for biological beings. Including for humans. Peasants will accept lower average productivity due to dispersing their fields so as to ensure lower variance in production from year-to-year. This stops their production falling below the threshold for successful subsistence.
Why do we play and sleep as well as work? Because, at a certain point, other things become more salient. Why does the connection between happiness and income fall away at a certain point? Because things not amenable to purchase become more salient.
Biological beings regularly economise, so they have resources to deal with the next thing, but generally avoid maximising. If a living being maximises, it “maxes out”. This means it’s not dealt with whatever is currently salient: there’s a good chance that it’s dead. Another term for maximising is exhaustion.
What biological beings do is satisfice. They do enough to deal with whatever is currently most salient and then shift resources and attention to the next salient thing. Hence the pressure to economise so as to have spare resources for the next thing: economising is conducive to survival. Efficiency is only selected for to serve resilience, thereby enabling lineage persistence.
Hence trade-offs are pervasive in the biosphere, as it is full of entities directed to their own survival and reproduction. They are goal-oriented with limited capacities, so they functionally strategise.
The central insight of evolutionary theory is that strategies do not require intention. Just consequences for entities that are selected to act to survive and reproduce. Which is to say, feedback and response.
Given the filter of consciousness, that strategies can be functional without being consciously intended is true even of beings highly capable of acting intentionally.
To put it slightly more formally:
Living thing = something that uses information and resources to keep itself functioning.
All organisms operate with limited capacities and shifting salience.
So gains have decreasing marginal utility.
Due to threshold effects (such as death), losses have increasing marginal disutility.
If X and Y are actions with marginal utility X(mu) and Y(mu),
then the resilient pattern is to satisfice as follows:
Do X when information is X(mu) > any not-X(mu).
As soon as information is Y(mu) > any not-Y(mu), do Y.
Selection favours perception and attention mechanisms that allow effective response to what is salient for the continual functioning and reproduction of the organism.
For maximising to happen, the pattern of salience has to be unchanging all the way to the exhaustion of capacity.
The tendency for broken bones to heal stronger, for stressed muscles to regrow stronger, for immune systems to become more resistant, are all anti-fragile mechanisms to shift the “maxing out” limit further away from the death threshold.
Much of Nassim Taleb’s critique about misunderstanding risk revolves around asymmetries and fragile efficiencies—particularly from tail dynamics—that threshold effects create.
The concept of satisficing was developed by Herbert Simon, who received a Nobel memorial for his work on it and bounded rationality. He discusses his work in his Nobel Prize lecture. Maximising remains, however, much more mathematically tractable. Simon is a particularly good example of someone integrating insights across disciplines.
Selecting for resilience
Selection for the resilience-advantage of satisficing over the threshold-vulnerability of maximising can be seen in the physiology of humans.
Humans are physiologically adapted to be long-distance hunters, running prey to exhaustion. Our shoulders have evolved to make us the biosphere’s best throwers, our pelvis and feet to sustain energy-efficient long-distance running. Our fur turned to hair so we can use our entire skin to sweat and so not overheat: dogs have to use their tongues and paws. We developed fat stores to sustain prolonged effort even with our energy-hog large brains—we are the primate with the highest proportion of body fat—while our ketone energy system allows us to use our fat stores over prolonged periods without food.
All so we do not hunt to our exhaustion, we do not “max out”, but can hunt furry herbivores to their exhaustion in the middle of the day, when furry carnivores are not likely to be active.
Efficiency is selected for to serve resilience and operates to satisfice, to shift to the next most salient thing, and not to maximise. This means economists (and social scientists generally) should—along with observing threshold effects—identify patterns of salience. You do this by asking people and applying their answers within a reality-grounded analytical framework.
Ronald Coase (1910-2013) did this by enquiring of businesspeople how they decided whether to make something in-house or buy it, thereby identifying what became known as transaction costs. Elinor Ostrom (1933-2012) did this via field work examining how communities managed common-pool resources. That is, both economists identified patterns of salience and responses to them.
Complete-information models are even more biologically ridiculous than optimising-as-presumptively-maximising. All biological beings economise on everything, including their information receiving (perception) and processing capacity.
Complete-information is also structurally ridiculous. It is simply physically impossible to perceive something from every perspective. Search costs are pervasive throughout the biosphere, including for humans, so there are always transaction costs.
Indeed, search is fundamental to commerce, hence capitalism being such a misleading label. It pretends production is just the mechanical application of factors of production without discovery processes, or that a central commercial role was not mobilising and coordinating factors of production as continual discovery processes.
Much of the value of markets comes about precisely because they economise on information.
I used to find the description of command economies as state capitalism transparent excuse-making. Well, yes. But once one liberates oneself from thinking that capitalism is a useful label for a mercantile economy, state capitalism has a certain apposite quality, given the production-as-wind-up-toy implications of the label capitalism.
Command economies are systems for rendering the discovery processes of commerce either absent, corrupt, or otherwise attenuated while transferring power, authority and resources to those who control capital (and labour and land) thanks to state control.
Samuelsonian optimisation, with its elegant, Physics-envy, mathematics of maximisation, took Economics away from science. The only basis on which Economics, or any other social science, can be scientific is by being consilient with biology. And maximising is not what biological beings generally do.
Moreover, biology is the most historical of the natural sciences. Biology is one long lesson in the power of path-dependence. One of the problems of Economics, as I’ll explore in a later essay, is that it does not grapple enough with time.
Time is, startlingly, often not important in physics but is central to any study of biological action. So Economics’ weakness regarding the time dimension in human action is another manifestation of the anti-scientific—because not oriented to the correct level of structure—emulation of Physics, rather than the consilience with biology required for Economics to be science.
A lack of consilience with biology—treating humans far too often as disembodied Platonic rational actors rather than evolved, embodied decision-makers—means that Economics regularly fails basic reality tests. It enables the use of Theory as moralised and intellectualised self-interest by Anywhere (highly educated folk with networks not based in particular localities) elites.
An example of this, of course, is the claim that migration policies that make labour more plentiful compared to capital do not suppress wages. Or not noticing that migration benefits capital (including human capital) more than labour, while significant movement of culturally-distinct newcomers into a locality disadvantages those whose connections (i.e. their social capital) are locality-based.
Thus we have the Fogel effect (migration increasing competition for positional goods, so potentially destabilising political systems, while also regularly raising rents and housing costs and increasing congestion effects); the Borjas effect (migration increasing return to capital more than labour), and the Granovetter effect (migration breaking up local social capital). Almost all of which—along with the suppression of the Baumol effect from importing low-human-capital labour—economic analyses of migration habitually miss or underplay.
Locality-based Somewheres—people who are born, marry, work, raise children in the same locality—are systematically disadvantaged by migration that suppresses their wages; breaks up their social networks; balkanises their society by driving their concerns out of the public arena; drives up housing costs, and increases returns to capital relative to labour. Patterns Anywhere economists either generally fail to notice, gloss over, or mischaracterise.
This despite a Nobel-winning economic historian (Robert Fogel) publishing a study (Without Consent or Contract) showing how the development of railways and steamships enabled mass migration that suppressed working-class living standards and helped to destabilise the Antebellum American Republic along the fault-line of slavery.
You have to be remarkably unobservant—or an economist—not to notice how mass migration is currently destabilising the US, the UK and France along the metropolitan-provincial divide. I discuss the actual economics, rather than the Economics, of migration here.
To cite the Australian race-horse-principle of social dynamics: in the race of life, back self-interest, because it’s the only horse that’s trying. Meanwhile, evolution reminds us that strategising behaviour need not be consciously intentional to be strategically effective.
The next essay examines how, in the absence of binding reality tests, truth is a weak social signal.
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