Economics and Plumbing
by Erik W. Matson
Some economists think of themselves as social engineers, and try to persuade others to do the same. The Nobel laureate Esther Duflo, for example, has argued that economists should emulate plumbers. The argument is that just as plumbing systems require maintenance and regular oversight by experts, so too do economies. As plumbers tinker, fix, and regulate, so should economists.
The plumbing analogy is inapt. Market economies work remarkably well without such oversight. They are not, in fact, prone to systematic failure. Moreover, undesirable economic outcomes are not so easily dealt with as plumbing issues. Their causes are complex. The consequences of attempted solutions are extremely difficult to anticipate and even harder to observe. While a plumbing system is a closed, simple system, an economy, by contrast, is an open, complex system, the parts of which have, as Adam Smith said, their own principles of motion.
Perhaps the most important breakdown in the analogy, however, is that plumbers aren’t part of the systems they service, whereas economists are part of the economic order they seek to regulate. This fact generates complicated sociological and political dimensions into economic policy that have no parallel in plumbing.
Some economists will agree with these points. Yet economics, unfortunately, is still almost always introduced and taught—even in many conservative- and libertarian-leaning academic settings—in a way that inadvertently promotes a “plumbing” or social-engineering mindset.
In a typical microeconomics course, students are taught to model human beings as agents attempting to maximize expected utilities under constraints. Students are presented with stylized models of interactions between such agents, often with graphical representations and closed-form solutions. They are tasked with solving or analyzing them. Improvements in the models result not from changes in the agents’ ethical sensibilities or preferences, but from shifts in constraints. Social desirability, students are reminded, is a question about which economists, as economists, have very little to say. In other words, students learn that questions of moral value lie outside the economist’s purview.
Students are never told that economics is a mode of social engineering. They might even be cautioned that the models are simply attempts to isolate and study narrow aspects of a richer economic reality. Nonetheless, they may walk away from the class with an impoverished and even deterministic vision of human action, and a sense that economics is little more than a sophisticated effort in mechanism design: change the rules of the game, adjust the “framework” within which self-interested pursuits take place, and witness an increase in utility. Perhaps a student might conclude that economics is not so different from plumbing after all.
The problem in how economics is frequently taught flows from a deeper issue: how economists understand the purpose of their discipline. Over the 20th century, they gradually came to accept the spirit of Lionel Robbins’s definition of economics as “the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses.” Economics, according to this, is about answering how questions: How do individuals and societies allocate scarce resources, and how can these allocations be optimized?
Framing the discipline in such terms subtly invites the economist to understand himself as an expert uniquely positioned to perceive the intricate workings of the social order and equipped to impose—or remove—constraints to enhance social welfare. The economist is invited to understand himself as a “scientist of choice.”
This how framing in economics bodes ill for freedom because it promotes a technocratic mentality and empowers a managerial class. But it also does a disservice to economics, drawing attention away from the utterly miraculous nature of the modern economic order. Economics first emerged as an effort to understand the miracle of wealth, not to optimize resource allocation. Classical British economics was oriented around questions of what, where, and why. What, fundamentally, is wealth? Where does it come from? And why do we observe differences in wealth between individuals, groups, and nations?
These are the animating questions of Adam Smith’s 1776 magnum opus: An Inquiry into the Nature and Causes of the Wealth of Nations.
The Smithian vision of economics invites curiosity and humility. The student is not first confronted with stylized assumptions about human choice in the service of allocative efficiency. The student is invited instead to wonder at the marvels of civilization, the magic of the market process, and the breathtaking complexity of the social order he inhabits, and by which he is affected even in his efforts to understand it. The student is invited to grasp the wisdom of F.A. Hayek’s claim that “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”
A far cry from plumbing.
Erik Matson is a Senior Research Fellow at the Mercatus Center and Deputy Director of the Adam Smith Program at George Mason University. He additionally serves as a lecturer in political economy in the Busch School of Business at The Catholic University of America.