Some Thoughts on Economic Rationality

Corey Garriott,

Rationalism in politics is the notion that man’s psyche, or his selfhood if you wish, can be understood by its division into two separable parts, a rational mind and a nonrational component called body. Rationalism merits its name because it places the seat of the will solely in the rational mind. One can draw a pictoral model for the idea. Imagine a line of causation representing self-rule extending downward from the ratio to the nonratio, represented as two boxes, one for mind one for body. The downward line signifies that the will, which in rationalism takes seat in the rational mind, has power over the body. There is also a reverse line of causation, one running upward and representing desire. It is the body that produces the desires and gives them to the rational mind to execute and fulfill. In the model it is important to realize that the “body” is an arational natural and usually material thing separated from the seat of the will. Being arational and unwilled, it has therefore an unchanging nature; it is solid, absolute, a “fact.” In contrast the mind, being rational and having will, can change. However, and this is the importance of the upward line of desire, the mind only acts in order to fulfill the desires. This model is what I mean by rationalism in politics. Ironically, it can be summarized in Hume’s phrase: “reason is the slave of the passions.”

In other words, the contemporary theory of rationality employed in economics (hence the theory employed in politics*) is that one is rational to the degree that one efficiently fulfills all of one’s irrational desires. This is the exact opposite of Plato’s theory that a soul is rational to the degree that it preempts the development of irrational appetites into controlling forces of the soul. As Plato accurately described it, the democratic soul is a soul dominated by a variety of appetites, each competing for priority in satiation but none predominating. All members of the polis are equal as are all desires, at least until any one disrupts the unity of the whole (by violence or obsession).

Combined with the idea of “revealed preferences,” the contemporary definition of rationality makes a hash of any attempt to normatively legislate what behaviors are rational and what behaviors are irrational. Each Christmas, one sees, for instance, articles sent around claiming that giving Christmas presents is economically irrational, since it results in a sub-optimal allocation of gifts hence a sub-optimal satisfaction of desires. This argument is then rebutted by a counter-argument that people have another desire–the desire to receive gifts from friends, etc.–that is satisfied only by gift exchange, hence Christmas is rational after all. Similarly, voters are irrational, since they don’t pay enough attention to election, but rational because they have maximally fulfilled their desire to ignore elections. And so on.

That economic thinking is injurious of conventional morality should go without saying. Morality tells us that sometimes we should do things that we don’t desire and refrain from doing things that we do desire. To justify morality, economists have to invent a meta-desire to do the things we don’t desire and so forth, but this charade is sometimes deemed too tedious for the rigorously economical mind. For example, Bryan Caplan argues that it would be more efficient if we could sell babies,

When I praised the growing division of maternal labor, the supposed reductio ad absurdum of baby selling came up. My reply: I see nothing wrong with selling your baby–born or unborn–to loving parents.

Similarly, Dubner and Levitt examine prostitution in their recent Superfreakonomics and conclude that the key to being a well-paid prostitute is to enjoy one’s job. This has come in for excoriating criticism in certain quarters,

It’s clear in the way that they classify women who do not charge for sex as "competition” to prostitutes-–as if those women were offering the same, or even comparable, experiences, and as if Levitt and Dubner genuinely cannot believe that sex is not a service performed for men by women, but a thing that women do for their own satisfaction.

Here are some remarks by the Japanese economist Iida Yasuyuki,

経済学は「合理的な経済人」というものを仮定してモデルを組み立てます。それを聞くと「非現実的だ、人間はそんなに何でも知っているわけじゃない。みんな非常に不十分な知識のなかで行動しているんだ」という感じで反論されます。これも実は用語法の誤解です。 ・・・・ 経済学者が仮定する「人々は合理的である」というのは、たとえばＡ君が何でも知っているとか、Ａ君は世の中のモデル、経済状態などをぜんぶ知ったうえで行動しているなんていう、とんでもないことを言っているわけではありません。 経済学にとってどうしても必要な仮定というのは、Ａ君がどうやって満足するのかを、Ａ君より知っている人はいない、たとえば、どうしたら私が満足できるかというのは、私が知っている必要すらなくて、私がほかの人よりは知っていればいい。自分のことは自分が一番知っていればいい、完璧である必要はもちろんない、という状態が「合理性」だと理解していただきたい。 Economists organize their models on the assumption of “rational economic man.” When people hear this, they try to refute it by saying things like, “That’s unrealistic! Human beings don’t go around understanding things that way. We all act on entirely insufficient data.” But this is actually a misunderstanding of economic terms of art. … When an economist assumes that “people are rational,” they aren’t saying something impossible, like for example that person A knows everything, has a model of society, understands economic conditions, and so forth and acts on all that. What for economists is a completely necessary assumption is that A knows how to fulfill A’s desires more than anyone else, so that for example, it’s not necessarily the case that I know everything about satisfying my desires, just more than anyone else. What I would like for people to understand is that the state of knowing oneself best, though of course not necessarily perfectly, is called “rationality.”

Thus, prostitutes know for themselves whether they’d be happier with some other job, and parents who sell their own babies know if they’d be happier with the money than a snot nosed brat. The long shadow of the cogito has been cast over the land in such a way that we think it non-problematic to claim,

I think therefore I am.

Therefore I am a thinking thing.

Therefore I understand my own thinking best of anything in the world.

The problem with this Cartesian approach to rationality is that the Ancients weren’t wasting their breath when they said, “Know Thyself.” Knowing thyself is hard. It’s harder even than Descartes proposed process of sitting alone in a chalet by the fire for a couple of days. Our desires are not always apparent to ourselves, and even if they were, that wouldn’t make them the rational goal we ought to pursue. Thus I fear that what we now call rationality is completely irrational.

* One notices then that Judge Posner’s much vaunted application of economics to law is less radical than is widely supposed. He merely does openly what others do in private. As Keynes says, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.”