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12 July 2013

The Economist's Error and Political-Economic Behavior

Paul Krugman, a brilliant man whom I respect and whose work I follow, is making a fundamental mistake, and it points to some fundamental issues with the current assumptions of economics, assumptions that even Krugman has acknowledged as problematic in the past.

Let's back up. Contemporary economics, in order to make sense out of extremely complex systems, starts with a false but helpful assumption: all else being equal, a person will behave in a way that maximizes his own utility; that is, people make rational choices. Without this convenient assumption, microeconomics collapses, bringing down most of macroeconomics, which is built increasingly on those micro-level understandings. The thing is, people do stupid shit; they are more often than not irrational and tend to behave in ways that go against their own individual best interests--at least in the immediate and short term. Unlike economics, this is the starting place for much of sociology: Why do people do seemingly nonrational things? And, we sociologists have more than a hundred years of data, theory, and analysis to make sense of it.

So, what mistake is Krugman making? Paul is pretty sure that the new Republican strategy that he is calling "libertarian populism" won't work because it is not in the best interest of the very group at which it is targeted: disaffected, downscale, rural, Northern, working-class whites. Why, after all, would a group rally in support of ideas that hurt them? This, of course, would make absolutely no sense to economists who assume that people behave rationally. To sociologists who assume the opposite, that people typically behave quite irrationally, it makes perfect sense. Moreover, from the sociological frame, there is far less reason to believe that the Republic strategy will fail. In fact, it's likely be quite successful.

Let's take another step back. Essentially what I'm writing about here is false consciousness, the idea that people are generally unaware that they are part of a class of people with whom they share a vested interest. These disaffected, downscale, rural, Northern, working-class whites do not in fact see themselves in these terms. They are much more likely to identify, first, as white and, second, as middle-class. This is the trick. If you don't see yourself as poor and you fail to recognize that you are a beneficiary of governmental welfare programs (PDF), you are not likely to support programs for the poor or the political party that created and defends those policies. Republican policies feel populists because you associate yourself with those who actually aren't much like you at all.

Krugman is optimistic because his discipline intentionally propagates the falsehood that people are rational, which leads to the inevitable conclusion that an irrational strategy will be ineffectual. As a sociologist, I am far more pessimistic.

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