The visible hand in economics

What a cow wants, what the economy needs

Posted on: October 2, 2007

It seems that some fine researchers in Waikato are trying to discover sets of preferences among cows. Good. I’m sure that individual cows do have a set of preferences over outcomes. However, the researchers better be careful that they don’t try to compare the value of different cows preferences, or take one cows (or a small subset of cows) set of preferences and assume that it holds over all cattle. These are mistakes that economists have made throughout time.

Economists are experts at positive judgements. Distilling the ‘facts’ and providing a framework with which to place issues of scarcity. If you want a normative judgement, such as what is the welfare function for cows, or how do we weight the importance of different cows feelings, then you have to find an expert in the field. In the case of cows, I think the appropriate expert would be a farmer. After all, who knows the nuances of a set of cows better than the farmer who raises them!

If only finding the appropriate experts was as obvious for questions about the national economy. Economists often settle for policy analysts or even themselves to provide the normative judgements around policy decisions. However, do economists and policy analysts get up at 4am most mornings to go visit the national economy? Do they spend precious time alone with the national economy, so they can really get to know it? Can policy analysts and economists identify the subtle nuisances that exist between the different individuals in the national economy?

Ultimately, if an economist wants to add apply normative judgements after setting up a given issue in the frame of scarcity, they must make sure they go out into the open air, and discover how their precious economic agents (people) are feeling. Only then can they attempt to claim that they know what the economy needs.

3 Responses to "What a cow wants, what the economy needs"

The changes if brought about should be at a very low speed so that the other factors can get adjusted too, the conomist should learn this.

I dunno Matt. I think it might be a bit expensive to survey every cow’s preferences. What’s wrong with taking a representative sample of the population? Unless you’re trying to model an individual cow’s decision making it should be just as useful and far cheaper. It is certainly a bit better than anecdotal evidence garnered by a quick stroll down Lambton Quay.

I’m also quite impressed that you managed to turn an article about agriculture into a rebuke of economists for their sloppy normative thinking (that still gets them that tenure-track position they’re after). I think this could be the running joke of the blog: how can Matt bring everything back to an argument about the merits of normative economics 😉

Hehe, I didn’t mean to write about normative economics, it just sorta came out 😉

I do think there is scope for normative economics, I’m just not sure many economists are well placed to provide value judgements. The subject that used to provide all the value judgements for policy analysts and economists was political economy. However, us economists strung them up for being to normative (which was the point of them really).

To be clear, I think normative statements are important, as you can’t have policy without them. However, I don’t know if university economics trains you on how to make appropriate value judgements (or I might of fallen asleep during those lessons 🙂 ).

I agree that representative samples are better than no evidence, in fact they are pretty damn good evidence. However, I think the best applied economists (that is what I will call economists who make normative statements) will spend most of their time talking to industry experts and looking at surverys, and then try to extract relevant pieces of information from this information.

The economist that creates the objective model and the economist that makes normative statements about the economy should be separate people. I think it is to much to ask of one person to fulfill the normative and the positive elements of formulating policy. That is why I love the idea of team based economics!

Just to be clear, I don’t hate normative economics, I think that normative economics is very important. However, I think normative economics requires very different skills than positive economics, and when I write things like this I just want to make that distinction clear.

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