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A Massacre of Straw Men: Episode 1

March 20, 2011

Here I will introduce five simplistic positions and attack them.  These are all ‘straw men’ – weak and faceless, built to represent nobody’s argument in particular – yet I don’t feel they are entirely disconnected from things people say in the real world. The topic of this episode is: lazy economics.  I doubt that anything here will come as news to even the most amateur economist.  Yet we live in a world where lazy economics abounds.   Lazy economics, like lazy science, must have a bucket of cold water thrown in its face.  I am not an actual economist, I am just a slightly less lazy one, but I am filling up my buckets.

So why attack bad arguments?  Why massacre straw men?  Perhaps because we all, in our weaker moments, lean on these for support.   Philosophers typically spend prodigious amounts of time and ink focusing on magnificent (nearly true) arguments (which extremely few people have ever even heard of).  There is surely a place for focusing on bad (probably false) arguments (which many people hold).  A Utilitarian approach to truth, perhaps.

Bring on the straw men.

1. “Your salary shows how much society values your job”

It doesn’t take a child long before they look at e.g. David Beckham and say, “But mum, he doesn’t deserve 15 million pounds, does he?”  At which point the mother may retort: “No, but society is complicated, and thousands of people go to see him play, so society values him very highly.”  An economist may add that the marginal revenue of David Beckham – the extra amount which David Beckham individually brings to his club – is high (because of the amount of seats that he’ll fill, mugs he’ll sell etc.), perhaps as high as £15mil per annum.    So society – the football supporters in this case – show that they value David Beckham highly.

But has ‘society’ valued David Beckham in any real sense?  OK, a great number of football supporters value what he does (or else they should probably stop buying his mugs).   But society?  Let’s say that 1 million people become David Beckham fanatics and spend all their pocket money at his games.  Does that mean that the other 59 million people in the country care a jot about what he does?

Picture an unscrupulous city investor.   Like with fat people on the news, you only see up to his torso.   This guy invests in mergers which damage the pension payouts for the elderly, but which fattens the wallets of his clients.  Let’s say he earns £15mil per annum, passed through a tax haven.  Even if you thought David Beckham was valued by society, was this guy?  And as much?

OK well say that this city investor quits because of the bad moral taste he wakes up to every morning.  So it’s harder for the clients to find someone to do their bidding.  So they offer £25mil and now a more unscrupulous city investor steps up to the plate.  The clients certainly value this guy.  But does society value this guy, and £10mil more?

People may reply that ‘value’ and ‘society’ are just inherently vague concepts.  Perhaps so, but my point is that people in society have vastly different amounts of money, and therefore any attempt to measure a ‘value’ that society as a whole places on a job is open to gross distortions.  Should the rich be more represented in how we see what society values as a whole?  I can’t see a good reason for thinking this.

2. “Our nation’s GDP shows how productive our country is”

A simple joke involving dog pooh, that my school economics teacher told me, will suffice.  Two economists walk in a field, call them Milton and Friedman.   Milton says: “I’ll pay you £1000 to eat that dog pooh”.  Friedman does.  It tastes bad.  They walk on a bit more and see another pooh.  Then Friedman says: “OK, well I’ll pay you £1000 to eat this dog pooh!”  Milton does.  It tastes awful.  It now dawns on Friedman that they are back to square one, but have both had to eat dog pooh. He notices Milton smiling and asks, “What’s there to be happy about?  We both ate pooh!” “Ahh,” Friedman replies, “indeed, but our GDP has increased by £2000!”

The message is very simple.   People can increase GDP without producing anything or ‘doing any work’ or ‘adding value’.   People can also produce things (pretty much anything), exchange these things, and bring about much utility, without charging for these things – without this registering at all on GDP.  GDP was, after all, never designed to measure such things.

Imagine two nations.  In Nation 1, people are friendly.  They cook for each other, they entertain each other, they help repair each other’s houses – and they don’t earn all that much.  In Nation 2, people are more solitary.  They don’t do much for each other, and they earn a lot so that they can do the very same things that the people of Nation 1 do.  In fact they ‘produce’ the same things.  The GDP of the second nation is much higher, but so what?

What does GDP show?  It shows the total amount that the inhabitants of a country depend on the labour of strangers, and how much strangers depend on their labour.   And as odd as this measurement of stranger-dependency is, we elevate it to the status of the highest marker of a nation’s success.

Someone may say, “But… it shows how much work is done in a society, overall!  It’s useful!”  Well it’s only useful to the extent it tracks something we care about.   Let’s borrow and extend G.A. Cohen’s rather incendiary example of seeing money as increasing freedom.  Imagine that overnight every pound in your pocket gets transformed into a key and every good or service provided by a stranger can now only be accessed by using a certain number of keys, and once we’ve used them the keys become owned by the provider of that good or service.  I have to use 5 keys to unlock a burger, the burger guy has to use 3 keys to unlock a taxi ride, and so on.  These keys in some way measure the amount of freedom that we each have to enjoy each of the things provided by strangers.

We are, in essence, imprisoned to various degrees by the locks on all goods and services (or, if you like, emancipated to various degrees by the ‘ability’ the keys give us).  And how do we measure the ‘productivity’ of the nation?   It’s simple: we count the keys.

3. “Your salary shows how productive you are”

See everything in (2), as most of this will apply on the individual case.

4. “Your salary shows how much society values you”

See everything in (1) and (2).

5. “A strong economy must have a high GDP per capita”

In some senses this is certainly true.  If by a ‘strong economy’ you mean one that can support e.g. an expensive army, or a strong public healthcare system, then fair enough (unless the country can do this in non-monetary ways suggested in (2) ).   But by a ‘strong economy’ we could mean one which is efficient, one which can sell its goods at decent rates on the global stage, one which has low rates of unemployment, or a number of other things.

Imagine that in the UK our education and technical expertise improved so that we became more efficient at making what we produced and sold.  At the same time, we chose to move to 3-day-working weeks.  Our GDP per capita may well decrease but we would still have a strong economy in many senses.

Two responses people could give to this:

“But higher GDP per capita means a better quality of life.”

“But it’s a silly scenario because people will always want to buy more stuff (so they’ll need to work more to do so).”

I’m not going to argue against either of these; I think that both of them are false. They are both generalisations arising from correlations, and to be honest I’d be surprised if anybody actually believed them in a strict sense.  If they are straw men, then just poke them and I’m sure they will disintegrate.

NB for an entirely justified critique of this Massacre approach to argument, see this article, in which Glenn Beck is accused of doing a thing of similarly dubious worth.  And if you want to counter-massacre my men (whether straw or not): bring it.  The arguments will die; we will thrive.

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4 Comments leave one →
  1. zxcv permalink
    March 21, 2011 9:56 am

    Uh… nice writing Zeph, but really wrong (trying to massacre )
    1. Society *does* value the evil investor by giving him millions. If he makes 10 million, he must be earning the people that pay him more than that (unless you believe that the capitalist system isn’t entirely selfish). In turn, these guys get their initial capital from people who are willing to pay them (= value the service they offer). If you continue to follow ‘the money trail’ you’ll see that it comes down to the choices made by you and me, based on how much we value things. The two definitions in this story are that ‘value’ in this sense is nothing more than what we are ready to sacrifice by choosing a certain possibility, and that this value is transitive.
    How come he’s evil and valued at the same time? well he’s bad to the pensioners but good to the investors, he has economic value but not moral value. Nobody ever said that your salary shows how virtuous you are…
    2. Well GDP is always in balance with three other things: the amount of money, the prices, and the velocity of transactions (how often capital changes hands). The relation is given by the equation GDPxPrices=MoneyxVelocity
    Also GDP is products *measured* in money, but it isn’t *made* out of money but out of products.
    What happens in the joke is that the Velocity increases. Money has remained fixed and thus either GDP or Prices must go up. Now, deciding which one has in fact changed is a matter of determining whether something new has been produced. Since Milton is ready to pay a 1000 for seeing Friedman eat pooh, it seems right to conclude that Milton gained utility from it (hey, who are we to judge). So I would say that in fact Friedman has produced ‘pooh eating for your enjoyment’ which just as legitimate as bread or milk (seriously, economists aren’t supposed to judge which of these is a proper product).
    In your other example, nation 1 will have a very high Money and Velocity and therefore a doubly high *Prices* but not a higher GDP.
    5. GDP per capita makes for a strong economy- strong in this case means ‘able to do stuff’. A low GDP per capita would mean that someone is capable of producing something (working) but cannot find the resources (other than labour) to actually produce. That is why it’s called a weak economy, there is a lot of potential labour power but the material needed for producing is scarce.. The idea is that people are all equally capable in every country (which is beautiful) but are held back or supported by the lack/surplus of ‘things other than people’ available. And this idea seems to be completely true everywhere you look…

  2. March 21, 2011 2:35 pm

    Thanks for the reply. I’ll try to defend what I’ve said in turn:

    1. The only problem I have with the ‘money trail’ is that when you follow it back to ‘you and me’ you may see that you and me are represented to very different extents, depending on how much money we have. Let’s say that I was born with a trust fund of £1 million, you were born with one of £10. Both of us may ‘value’ different people in society for different reasons (not necessarily moral, possibly due to desert, effort, function – whatever), but it’s only our financial contribution which is measured in GDP. If someone were to say ‘but financial value is the only real value’ then that’s just begging the question that we started with.

    2. I agree with you that maybe I was presumptive to imply that nothing was produced in the Milton & Friedman joke. Yes, when judging utility or ‘work done’ we should be liberal and not just assume that e.g. making a house is ‘doing more work’ than writing a book, or giving someone ‘pooh eating enjoyment’ (!). What I’m getting at in the two nations example is that non-market transactions don’t register on GDP. Some things which we would very happily call ‘work done’ or ‘utility-generating’ if they were paid for are done without being paid for, and these don’t surface on people’s / the nation’s total income or expenditure figures. I confess I’m not familiar enough with your equation to comment on it, I think you’re probably right about Nation 1 having a change in prices. But I still think it stands that they may ‘produce’ the same amount of goods and services despite very different pricing/paying, and therefore measured financial figures.

    5. I agreed with the ‘able to do stuff’ point in my article. A low GDP per capita could mean what you say – and probably does in almost all real cases – but it could mean that someone is capable of producing & selling something but that they choose not to. It’s the ‘must’ in proposition 5 which I took issue with really. A country can be efficient at producing things, have low unemployment, have a high quality of life, yet have a low GDP per capita because its populace chooses (by changes in its culture for example) to not devote itself to market transactions.

    In one sense this is ‘merely’ a philosophical point. You’re right, most of the time a country has a very low GDP per capita it’s probably because it doesn’t have the resources yet has the labour, and my point is entirely irrelevant. Yet due to the fact that a) GDP per capita doesn’t correlate well with quality of life at the top-end, and b) GDP per capita is blind to distributional inequalities, I think it’s important – mainly with economically well-developed countries – to see the limitations of it as a measurement of the economy.

  3. zxcv permalink
    March 21, 2011 3:41 pm

    maybe these can clarify a bit about the joke part:
    http://en.wikipedia.org/wiki/Quantity_theory_of_money#Equation_of_exchange
    http://en.wikipedia.org/wiki/Money_velocity

    I think the basic point you are making is that any economic measurement (salary, GDP, etc..) can’t ever be, or faithfully represent any thing in the real world. This is of course true, the measurements and the actual things are ontologically different (one is a number, the other is bread and oil etc..) to the same extent that any one thing can never fully represent something unless they are in fact identical. So I could argue that my height in centimetres is a bad way to know how tall I am (maybe people perceive me as being taller because I wear stripes or maybe I slouch because I’m shy etc..). This kind of argument is *always* available since height and tallness will never be identical. Moreover, height and length in centimetres will never be the same.
    But when you hear of someone who “measures 2 metres” you don’t think “oh that means nothing, he could be a midget for all I know”.
    The reason economics is good about this issue (relative to other not-natural sciences) is that we have a specific independent discipline that ensures that our measurement methods are constantly revised and that a uniformity in their use is maintained. This is what academic accountants do (as opposed to accountants in the private sector that are constantly learning to manipulate these measurements). By the way, this is why accounting is so boring. What this ensures is that, unlike ‘disorder’ for psychology or ‘religion’ for anthropology for example, economic concepts like ‘GDP’ are standardized. So even if you find that they have been mis-interpreted (the measured GDP doesn’t have the significance that we meant the actual GDP to have) you know two things: the mistake that was made has been made uniformly and so only a single correction is necessary, and also, next year’s GDP will incorporate the correction. Oh, and another thing, we try to make it so that a mistake of this kind be clearly formalised, and quantified.
    Compare these things with psychology, where professionals have no problem to talk about “the self”, or philosophers who talk about “intuitions”. Both rarely bother demarcating what they include in these concepts and what they don’t….

  4. March 21, 2011 4:09 pm

    Thanks a lot for the links, I think I will have to look into those.

    The ‘height’/’measurement’ analogy is useful, but it’s not getting at all I’m trying to get at. I’m very happy that 5’11 is a good measurement of my height. I’m also very happy that economists provide something useful when they measure things like GDP. Just as the height obviously leaves out a lot about me, even though it may be correlated to it (e.g. how strong I am, how old I am), so with GDP.

    I’m fully in support of how economists ensure they can measure something, like GDP, reliably and rigorously, so that all manner of comparisons are meaningful. Nevertheless, the thing you can measure the best is not necessarily the thing you really want to find out about. Here I have given two things: ‘value’ and ‘work done’, which are vaguer, and harder to measure than financial metrics. I agree that there must be a compromise: we must try to operationalise the things we ‘really want to find out about’ in ways which are measurable, otherwise we won’t be able to make any useful analysis. But success here shouldn’t be confused with success at accurately measuring those things we really wanted to find out about. (and obviously economics isn’t *just* concerned with finding out these things – if at all).

    “the mistake that was made has been made uniformly” – the mistakes that I’m getting at are interpretive mistakes. My worry is that the language of economics has become so popular (partly due to how it has been so well ‘standardised’) that people take money-talk for more than what it is. And I don’t think that interpretive tasks are easy to formalise or quantify. If a nurse compares her salary to that of the unscrupulous investor and thinks ‘society values the investor more’, I think that this is an interpretive mistake, not a mistake which can be easily sorted out by a closer inspection of some equations.

    I am *all for* the rigour of modern economics, I just think it should be seen in context.

    Side notes: a) psychologists have to operationalise practically any concept that they introduce, so that they can measure *something* and subject it to quantitative analysis. As in economics, something is lost, but the process is pretty necessary. b) most philosophers don’t put a lot of stock in ‘intuitions’, these are just used as starting points. Yes, it is harder for a philosopher to measure something like ‘liberty’ or ‘truth’, but this isn’t because philosophers have chosen to be awkward, it’s because they’ve chosen to investigate profoundly difficult topics. That some of their concepts can’t be measured doesn’t mean they’re not real, important, or worth investigating in other ways.

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