Quote of the Day

Today’s Quote of the Day comes from page 18 of the Liberty Fund edition of The Collected Works of James Buchanan: Volume 12: Economic Inquiry and its Logic (emphasis added):

The economist may, within limits, discuss this “choice,” provided he remains within what we have called “the logic of choice” [the individual decision-maker will select that option which stands highest in his ordering preference].  He cannot, however, plug in the Homo economicus introduced in his abstract models of economic behavior and then use this as the basis for constructing specific choice-influencing constraints aimed at welfare improvement.  Individuals chose on the basis of their own preference orderings; they may, within limits, behave as the abstract theory of economics postulates.  But rarely do they behave strictly as the automations of the analytical models.  Yet this is precisely the unrecognized assumption that is implicit in most modern policy discussion.

As Buchanan says, this assumption that people behave as the perfect Homo economicus in the model is implicit, not explicit, in most modern policy discussions.  It is from the “scientism” nature of much of modern economics that makes this assumption implicit.  The good economist recognizes this assumption is a tool for simplifying a complex world.  This assumption, and the models that come from it, give us valuable insights into how the world works.  But it is not the be-all and end-all.  Using models, and only models, for policy planning, no matter how much mathematics they have in them, will ultimately lead to disappointment.

3 thoughts on “Quote of the Day

  1. I remember Steve Martin, balanced on his hand ..feet in the air.. then asked to do a one handed push up. He says. Your sobriety tests are hard.
    Well that’s how I feel about this one.
    Buchanan’s wording is so hard that you can miss a typographical error in the quote. (Chose instead of choose.) But worse it can be used like the wording of Bible verses to give credibility to any interpretation.
    Here’s mine….
    I presume he is talking about decisions to be made in the way of policy. Policy is for me “an edict enforced by men with guns.”
    So why is Buchanan advising that models are faulty? The implication is that no model or some other model would be better when evaluating policy. Shouldn’t he be pointing out the value of doing nothing… even if you hired God to tell you the one way to force the market? If doing nothing is better, you distract the reader when you spend most of the paragraph describing why the firing squad is arrayed in an improper way.

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  2. And yet government apparatchiks will ever work hard, and sometimes with enthusiasm and dedication that we often don’t give them credit for, to devise models that try to move something in a direction according to pre (but ill) conceived models. Thus, a seemingly on the surface laudable goal to increase health insurance leads to compulsive insurance and market distorting subsidies. When these interventions ultimately fail, it never leads to proper retreat to freedom and the free market, rather it leads to yet another “tweak.” The main challenge being that the tweak often comes in the form of a 900 page inscrutable mandate that compounds the error. All the while, failing to understand the entirely predictable actions and intentions of man.

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