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Problems in Economic Modeling As Demonstrated Through A Conflict of Visions

This article is written by a student writer from the Her Campus at Texas chapter.

When I was a freshman, I started a painting club with my roommate, Julia. The club was an utter failure because membership was always abysmal (However, I still to this day do not consider this an inherent failure of the club, since its purpose and goals were never recruitment oriented. Rather, the club was focused on painting, and we did that every meeting. As far as I’m concerned, we were successful as an organization from that front.). We often resorted to bringing friends to club meetings in order to have company while painting. Julia brought her friend Divya along one day. Divya introduced herself to me as an economics major. When I pressed her as to why she would study economics, she tilted her head to the side and with a very dreamy, breathy sigh, she recounted a heartfelt passion that accumulated to “I don’t know; I just love it.”

I didn’t get her love for economics at first. I wasn’t an economics major at the time. Even when I had added it on as a double major the following semester, my reasoning for “Why economics?” was more, well, economic. I used a cost-benefit analysis for choosing economics in comparison to other double majors, such as government, English, and history (Fun fact: my grandmother actually laughed at the idea of me even considering being a philosophy and government double major).

Having studied economics for a few years, now, however, I more readily understand the je ne sais quoi Divya referenced. The skill set economics supplies you is addictive. Once you start using it, you don’t quit using it. It’s like Socrates’ Allegory of the Cave, where the enlightened individual cannot un-see the light—truth—when he first sees it. I grew up training my mind to think like a philosopher, and now, I also have an economist mindset that I utilize in order to evaluate the world around me.

I’m sure that Thomas Sowell puts on his philosopher and economist hats on in the same fashion, which is why he might have been compelled to write his A Conflict of Visions in the first place. While I have no illusions that his methods of evaluation are much more fine-tuned than mine own, I still find his description of reality quite skewed if I were to accept his thesis. As a true economist, Sowell posits a stylized model of the possible conceptions of human nature and human perfectibility that inevitably direct how people form political and economic opinions concerning public policies. For anyone who likes models (and I love models), the model ingeniously describes typical* political controversies as predictable arguments between two roughly organized groups of people, the constrained visionaries and unconstrained visionaries. Curiously enough, Sowell’s groupings of people also exemplify a common issue in economic modeling: the inability of models to accurately capture reality.

It seems I’ve created a short agenda for myself before I can demonstrate the parallel between Sowell and economic modeling. First, I should explain A Conflict of Visions and next, I should explain how economic modeling has this reality issue.

First, A Conflict of Visions declares that people have these things called visions, which are intuitions about how the world operates. These visions fundamentally orient and inform individuals on how to understand themselves, others, nations, politics, etc. It is easy to see how people with conflicting visions can get drawn into a never-ending debate about how to organize government and society when fundamentally people disagree about how government and society operate. Because these visions are intuitive, most people do not even know that they possess a vision that is contrary to another person.

Sowell occupies his time in the book with two visions that attempt to describe human nature. He terms these two visions the “constrained vision” and the “unconstrained vision”. In a nutshell, the “constrained vision” characterizes man as a self-interested being whose nature is unchangeable, incapable of perfecting. Those with a constrained vision reject the possibility that man can achieve virtuous ideals, and that governments should strive to perfect and equalize processes of law rather than strive for perfect ideals as outcomes, such as justice and equality. Thus, the constrained visionary thinks in terms of trade offs because he cannot uphold unattainable outcomes. Contrast the constrained visionary with the unconstrained visionary, now. The unconstrained view believes in man’s perfectibility, as man is fundamentally good. This visionary thinks that governments should strive to uphold ideals, since it is possible to achieve them. In this formulation, actions and policies are all permissible as long as they “move the ball forward” in achieving these ideals.

Second, economic modeling strives to describe what causes market behaviors on both microeconomic and macroeconomic levels. Modeling is generally stylized and simplified so that it can best explain and predict how individual factors influence the economic decisions of people, business, industries, and nations. However, reality can be, and has been, inconsistent with economic models. When reality doesn’t jive with the model, a few reasons can explain this phenomenon:

1)    The model is wrong;

2)    The model does not accurately capture all factors that are influencing economic behavior (Another way to put this: the model is somewhat wrong); or

3)     Reality is wrong.

Generally, if we have to claim that reality is wrong, then what we might actually be claiming is that people are behaving irrationally. This isn’t a great claim, however, because we want to assume that people act rationally. Rationality is an assumption in models, and it is an important assumption to have when you want to predict behavior (irrational behavior is difficult to predict). Additionally, if the rationality assumption in models is wrong, then by default, the model is also subject to error. You can see where this leads us: we need a better model to describe reality.

So where does the unconstrained and constrained visions fit into all of this?

Sowell points out numerous times in his novel that it is possible for individuals to have both a constrained and unconstrained vision at once by applying visions to different policies. Rarely will anyone ever be fully constrained or fully unconstrained in his or her visions. However, I find this hard to believe if these two visions really orient our thinking. Sowell does some very intriguing work applying both visions to a few schools of thought, such as Mill’s strain of utilitarianism and Marxism**, but these schools do not attempt to decisively utilize both simultaneously. Rather, Marxism shows how one vision (constrained) can develop into a new vision (unconstrained) through the development of history, and Mill’s utilitarianism shows how one vision (constrained) can be used to weigh its opposition to the idealism of the other vision (unconstrained). It is unclear which vision Millian utilitarianism actually subscribes to at that point, and it becomes difficult to ascertain how the leveled mixture of visions will predict policy-related actions.

Neither school of thought shows how people empirically operate with both visions simultaneously. Sowell’s visions are tied to action as well as opinion, because people want to see their policy opinions put into action. However, if anyone saw his or her vision of man fundamentally change from one policy to the next, then he or she would be forced to deal with an immense cognitive dissonance, assuming he or she has any functioning introspection at all. In fact, we do not see a massive amount of people undergoing cognitive dissonance through their evaluations of the quintessential human’s capabilities. Reality does not coincide with this constrained/unconstrained model. I must next consider whether everyone lacks a basic level of functioning introspection, a very unappealing, largely demoralizing, and personally self-congratulatory (even self-anointed) option. I can also reject Sowell’s model. Since the former requires me to question reality, I’m more inclined to accept the latter. Simply, Sowell’s model is unconvincing, and I think he should develop a new one.

 

Buy the book here: https://goo.gl/tfyWpo

 

 

* “Typical” in this context means political controversies you would expect to be in any normal functioning political arena. Nowadays, I would not characterize, nor would I expect other people to characterize, the American political sphere as typical. Such controversies may include education funding, affirmative action, social programs funding, defense spending, etc.

** I think this is worth reading into, but it is not necessary to go into in this article, so I’ll forego explaining Sowell’s analysis here.

Grace is a Philosophy and Economics double major and a Government minor at the University of Texas at Austin. Most of her writing focuses on politics and civic engagement, characteristically intertwining her journalism with op-ed takes (usually nonpartisan; depends who you ask). Grace enjoys reading philosophy, reading and discussing politics, gushing over her dog, and painting in her spare time. As a true economics enthusiast, she also loves graphs.