James R. Otteson - PowerPoint Presentation

Slide1

James R. OttesonJoint Professor of Philosophy and EconomicsChairman, Department of PhilosophyYeshiva University500 West 185th StreetNew York, NY 10033 USA

The Great Mind FallacySlide2

Adam Smith and the “Man of System”He “is apt to be very wise in his own conceit; and is often so

enamoured

with the supposed beauty of his own ideal plan of government, that he cannot suffer the smallest deviation from any part of it. He goes on to establish it completely and in all its parts, without any regard either to the great interests, or to the strong prejudices which may oppose it. He seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a

chess-board

. He does not consider that the pieces upon the

chess-board

have no other principle of motion besides that which the hand impresses upon them; but that, in the great

chess-board

of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might

chuse

to impress upon

it” (

TMS,

VII.ii.2.17

–

18).

Herding

Cats Problem

.Slide3

Hayekian Political EconomyFriedrich Hayek and the “knowledge problem”:Rational and efficient management of scarce resources requires, inter alia, local knowledge.Goals, ambitions, ends.

Values, schedule of values.

Opportunities, opportunity costs, tradeoffs.

Skills, abilities, know-how.

Interpersonal relationships.

Local knowledge cannot be assembled from afar.

Centralized planner: an impossible position. Slide4

Smith Already Made the CaseThree interlocking claims:Local knowledge claim.Economizer claim.Invisible hand claim.Together, they establish:

Invisible Hand Argument for commercial society, and

The Great Mind Fallacy.Slide5

Local Knowledge Claim“What is the species of domestick industry which his capital can employ, and

of which the produce is likely to be of the greatest value,

every individual

, it is evident, can, in his local situation, judge much better

than any

statesman or lawgiver can do for

him” (

WN,

IV.ii.10).

Individual has

local knowledge;

statesman and lawgiver do not.

Implication: lawgiver cannot determine rational or efficient uses of resources.

Note on “

domestick

”: knowledge, not nationalism.Slide6

Next: Economizer Claim“In the first fire-engines, a boy was constantly employed to open and shut alternately the communication between the boiler and the cylinder, according as the piston either ascended or descended. One of those boys, who loved to play with his companions, observed that, by tying a string from the handle of the valve, which opened this communication, to another part of the machine, the valve would open and shut without his assistance, and leave him at liberty to divert himself with his

play-fellows

. One of the greatest improvements that has been made upon this machine, since it was first invented, was in this manner the discovery of a boy who

wanted to save his own

labour

” (

WN,

I.i.8; my emphasis).Slide7

Economizer Claim, cont’d.“But the principle which prompts to save, is the desire of bettering our condition, a desire which, though generally calm and dispassionate, comes with us from the womb, and never leaves us till we go into the grave. In the whole interval which separates those two moments, there is scarce perhaps a single instant in which any man is so perfectly and completely satisfied with his situation, as to be without any wish of alteration or improvement, of any kind” (WN,

II.iii.28).

Note: ‘bettering one’s condition’ left vague.

Point: We seek best return on energy investment.Slide8

Third: Invisible Hand“As every individual, therefore, endeavours as much as he can […] to direct

[his] industry that its produce may be of the greatest value

; every

individual necessarily

labours

to render the annual revenue

of the

society as great as he can. He generally, indeed, neither intends

to promote

the public interest, nor knows how much he is

promoting it […].

[H]e intends only his own security; and by directing that

industry in

such a manner as its produce may be of the greatest value,

he intends

only his own gain, and he is in this, as in many other cases

, led

by an invisible hand to promote an end which was no part of

his intention”

(

WN,

IV.ii.9).

Thus:

EC + LKC → specialization

→

increasing production → lowering price → (via invisible hand) “general plenty” and “universal opulence.”Slide9

A Smithian Invisible-Hand Argument for Commercial SocietyThe person best positioned to make decisions about how one should utilize one’s scarce resources is whoever has local knowledge of that person.The person with local knowledge of oneself is usually … oneself.

Therefore,

each of us is best positioned to decide how to use his own scarce resources.

Because each of us seeks the best return on his investment of energies, each is uniquely motivated to find their most efficient employment.

In doing so, each of us indirectly, if unintentionally, benefits others.

This invisible-hand mechanism leads to a “general plenty” and a “universal opulence which extends itself to the lowest ranks of the people.”

The political and economic institutions that comprehend this invisible-hand mechanism are those of commercial society.

Therefore,

if we want a “general plenty,” we should establish a commercial society.Slide10

What Does a Commercial Society Look Like?“All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society” (

WN,

IV.ix.51).

Note that last part: the “Great Mind Fallacy.”Slide11

The Great Mind FallacyThe belief that there is some person, or group of persons, capable of overcoming the Herding Cats and Local Knowledge Problems.(Also: That this person is not moved principally to ‘better his own condition’ but to better that of others.)My claim: There is no such person. There is no (earthly) Great Mind.

Smith:

“The statesman, who should attempt to

direct private

people in what manner they ought to employ their capitals,

would not

only load himself with a most unnecessary attention, but assume

an authority

which could safely be trusted, not only to no single person,

but to

no council or senate whatever, and which would nowhere be so

dangerous as

in the hands of a man who had folly and presumption

enough to

fancy himself fit to exercise it” (

WN,

IV.ii.10

).

Note: “unnecessary” and “dangerous.”Slide12

“Unnecessary” and “Dangerous”Unnecessary: The Economizer Claim, the Local Knowledge Claim, and the Invisible Hand Claim together already address the statesman’s purported goal.Requires liberty and accountability: choice, feedback, incentives.Dangerous:

Violation of individual liberty or rights?

Not for Smith.

Instead: Diminishing prosperity, especially for the poor.

Narrowing the horizon of possibility.

Think of an army.

Think of feeding Paris (or Bucharest).Slide13

Objection: Expert Knowledge?Sunstein and Thaler, Nudge; Ubel, Free Market Madness.“Libertarian paternalism.”Obesity.Their suggestion: change public school cafeterias. Question: Can they overcome the Local Knowledge Problem?

Grant their intelligence; grant their expertise about human nutrition.

Do they know what I should eat? What you should eat?

Important note: possible ≠ probable.

Second important note: disregarding public-choice worries.Slide14

Resisting ‘Nudges’Pressing claim about limitations of knowledge seems to concede consensus about ends.But: Is there such a consensus?Consider nutrition, eating, and exercising.Tradeoffs.Unique schedules of values. Consider also the dynamic nature of human life: values

change.

Day 2?

Arguments from expert knowledge assume experts know where tradeoffs should be made and along what margins—continuously through time.

Reasonable assumptions?

A different issue: Respecting others as true moral agents?Slide15

Rational Obesity?Consider the case of a person who deliberately decides to become obese, in full knowledge of the risks.Can this person be rational? If so:Tradeoffs determined by schedules of values.Behaviors reasonably conduce to ends.An inherent badness of obesity? Slide16

Another Possibility: Consensus on “Basic Needs”?David Copp (1998): “Any credible analysis of the concept of a basic need would imply that all or most of the following are either basic needs or forms of provision for a basic need: the need for nutritious food and water;

the need

to excrete; the need otherwise to preserve the body intact;

the need

for periodic rest and relaxation, which I presume to

include periodic

sleep and some form of recreation; the need for companionship

; the

need for education; the need for social acceptance and recognition

; the

need for self-respect and self-esteem; the need to be

free from

harassment

.”

Perhaps in general, but in detail?

Consider

“the need for social acceptance and recognition.”

By whom? For whom? For what?

Problem 1: Knowledge, values.

Consider the “self-esteem” controversy in American public education.

Problem 2: Know-how.Slide17

What Do Experts Know?Analogy to evolutionary biology.What they know:Processes of evolutionary descent;What successful species/specimens did to succeed;Why unsuccessful species/specimens did not.What evolutionary biologists cannot

do:

Predict which species will succeed; give specific advice to any particular species or individual.

Too many variables involved, too much knowledge not obtainable.

Similarly with experts on human behavior:

Without

detailed,

individualized,

local knowledge,

they cannot know which paths of life will be successful.

Too many variables involved, too much knowledge not obtainable.Slide18

But There’s More . . .Experts can discover things that pose dangers.For example: Do not eat mercury.They can make hypothetical imperatives: “If you desire X, then you should do Y.”“If you want to be healthy, you should watch what you eat and exercise regularly.”Note how vague that is: Even for those to whom it applies, interpretive judgment based on local knowledge still required.

How much protein? How much fat?

What kind of exercise? How often is “regularly”?

Yet note also how often any attempted specifications would be

in

applicable.Slide19

Conclusions, Part IThere is no Great Mind.Yet much contemporary political economy is based on the assumption that there is. That is the Great Mind Fallacy.Third-party experts cannot overcome the Herding Cats or the Knowledge Problems.At least not without unacceptable compromises, like coercion and narrowing of options.Note: Barry Schwartz, in The Paradox of Choice

(2004), suggests that the latter is perhaps not so bad.Slide20

Conclusions, Part IILuckily, we need not despair: Smith’s Invisible-Hand Argument Decentralized decision-making can exploit relevant local knowledge. Decentralized allocations of resources can work.Additionally: government action does not exhaust moral responsibilities. Government: “an exact administration of justice”; but The direction of each person’s time, talents, and treasure are best—i.e.,

most efficiently

—left to the individual.Slide21

Two Final ConsiderationsHelping others? Is the position that we should not help others?No!Help is often required and rightly given.Claim: “Help” likeliest to help exploits local knowledge.Thus: Strong preference for local charity.

(An even

higher

demand?)

More to life than efficiency? Moral dignity, for example?

Yes!

Respecting people’s dignity requires respecting their moral agency, which requires respecting their decisions

and

holding them accountable for them.

Entails right to refuse—both recipient and provider.

One may help only with one’s own resources, together with those of others voluntarily given.

The Great Mind Fallacy addresses the possibility of actually helping others; considerations of human dignity make the argument against third-party interposition even stronger.Slide22

James R. OttesonJoint Professor of Philosophy and EconomicsYeshiva UniversityNew York, NY 10033 USAotteson@yu.eduThank You!