Tuesday, June 02, 2015

what economists can't see: the invidious effects of methodological individualism

We all begin as welfare recipients.
Worse, we begin as stereotypical welfare recipients. We first cause pain to our primary donor, Mom, then we get out there in the world and proceed to make impossible demands, stay up late at night and cause others to stay up late, never work, get addicted first to milk and then often to sugary substances. And all the while we complain complain complain.
Of course, this is a modern phenomenon. It used to be that many of us would get out there and start working when we were four. And of course it used to be that our death rate was in the 60 percent.
My point is that economists are generally so blind to the real material conditions of everyday life that they are quite comfortable treating generations as independent variables. Thus, we are supposed  to think that the young have interests opposed to the old, and so on. The production of these pseudo social categories is an invidious effect of the economist's disease - methodological individualism. Of course, once you have your pseudo social categories, you can mount your pseudo social movement, which explainst the perpetual libertarian thirty something push to cut social security because it hurts "young people." The people who do this kind of thing, on closer examination, are almost always products of terrific family benificence. They never give a worried thought about what to do with the parents when they get old, since the parents have already bought the cruise ship tickets and the time share in Costa Rico.
In reality, the economic lives of the young and the old are inextricably mixed in these things called families.
Without seeing families as anything other than individual agents puzzlingly tied together through long term contracts that the smart young person will renegotiate after consultation with an accountant, you'll never understand economic life in, well, the real world. Almost all Gary Becker like schemas, which map cost to benefit as though we were all University of Chicago ants, are thus bound to fail. 
A recent column by Paul Krugman cited a Pew Poll about financial security:
We learn, for example, that 3 in 10 nonelderly Americans said they had no retirement savings or pension, and that the same fraction reported going without some kind of medical care in the past year because they couldn’t afford it. Almost a quarter reported that they or a family member had experienced financial hardship in the past year.
And something that even startled me: 47 percent said that they would not have the resources to meet an unexpected expense of $400 — $400! They would have to sell something or borrow to meet that need, if they could meet it at all.
Where do you think that 47 percent goes to when they need to cover that expense? The local bank? No, the gap is covered by parents, grandparents, siblings or children for the most part. Although American family structure is notoriously weakly linked, I believe the trend is to stronger links, for various obvious reasons: the immensely cheaper logistics of keeping connected, the stagnation in upward social mobility, the erosion of the WASP model of family, which leans heavily on do it yourself. The frontier is dead – you can jam it up Davy Crockett’s ass, because it is done. Facebook is only the latest in the series of avatars that killed it and killed it. So we don’t have large groups of people disappearing to homestead in some desert and writing the family one or two letters a year.

I would guess that interfamily shifts in money are what has kept Americans afloat in the age of the Great Slump. But economists can’t even begin to see this until they start seeing something more than human pixels accruing capital.