Tuesday, August 21, 2012

Our deepest mistakes are often a matter of Scope

The Sandel argument in the post below is an instance of a more general issue. Markets are wonderful things, up to a point.

Many problems of public policy are not so much about right rules, as the right scope: the right boundaries for what we do. We often overapply rules or approaches.

I've been educated as an economist, so I understand the ingeniousness of the tools, the thrill of seeing the problem in a new way, of how simple ideas like transaction costs or principal-agent problems can be illuminating. But just because you have a hammer, it does not mean every problem is a nail. Sometimes it pays to use saws, or drills, or planes or levels or tower cranes instead.

Some people find difficulty understanding this, however, because they like the automaticity, the pristine purity of applying the same rules to everything. It is a matter of personality, of temperament, of intellectual inclination, of being a hedgehog rather than a fox. Some people want a guarantee that applying a set of rules will provide one unambiguous outcome.

But it is also wrong. For most things, if you take them too far you get a bad outcome. This is common sense in daily life. One chocolate chip cookie, good. Twenty, bad - queasy, uncomfortable and fat. Two headache pills, good. Twenty, bad - a stomach pump in the hospital.

But we often don't follow this when it comes to universal rules or one-size-fits-all methodology. Economists take pride in "rigor" instead. Internal consistency may be a mark of technical rationality, but it also closes off any influence from outside or a sense of limitations or balance. Scope becomes too wide. "Rigor" is only remotely sustainable because economics has closed itself off from moral dilemmas, reducing welfare to a monistic utility.

I wonder if the underlying intuition of dialectic, leaving aside its technical Hegelian aspects, is not so much a matter of contradiction as a natural tendency of people to carry things beyond the bounds of good judgement until crisis or catastrophe intervenes: at which point they go to the other extreme and overlearn the lessons of failure. It is not so much thesis/antithesis and synthesis, as a drunk veering from one side of the road to the other in a car, weaving up the road just before ending up in the ditch.

This is why we tend to value experience in practice. You can learn principles in books, explicit propositional knowledge. But the tacit knowledge and skill is often in grasping where the principles need to be adapted to a particular situation, or how to make them work in the field. Experience and expertise is often a matter of seeing the problem more accurately in the first place, rather than knowing the universalist rules.

You can see underlying features with parsimonious models, sure. But one-size-fits-all theories inevitably create blind spots. And they make us less flexible in adapting to circumstances. Consistency only works if the same set of rules apply without distinction in all circumstances. But that is not accurate. Consistency has to be weighed against scope.


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