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Economic Theory

The global technocracy confronts an inconvenient beast

Sina Odugbemi's picture
Power concedes nothing without a demand. It never did, and it never will.  --Frederick Douglass
 
Suddenly, the tumultuous on-rush of clarity. As the technocrats and leaders who run the global economic system reflect on widespread angry reactions to globalization and rapid social change, a new language is permeating the discussion of economic issues. Top economic policy leaders are now saying that ‘inclusive growth” is crucial. They are saying globalization must “work for everyone”. We are hearing exhortations about paying attention to public opinion (that famously unruly and inconvenient beast!). According to Larry Summers, a notable commentator on these matters, (in a Financial Times piece titled: “ Voters sour on traditional economic policy”):
People have lost confidence in both the competence of economic leaders and in their commitment to serve the wider public rather than the global elite.

A number of traditional economic leaders in the public and private sector seemed to be making their way through the traditional grief cycle – starting with denial, moving to rage, then to bargaining and ultimately to acceptance of the new realities.


Will anything change though? There is reason to be skeptical. For, at bottom, the issue is that the global technocracy insists on economic policy being the exclusive preserve of experts. So, once the experts do the numbers and they declare a trade agreement beneficial that should be the end of the matter. Or, once the experts decide that what appears to be a high level of immigration to the ordinary citizen is actually economically helpful they tell leaders to ignore public opinion and go for it. The point, naturally, is not that expert input into policymaking is not crucial. Of course it is. The point is: it is just an input. Wise leaders must add other considerations.

Does superior information make us more discerning? What Uber drivers can teach us about learning and rationality

Roxanne Bauer's picture

In 1957, Herbert A. Simon (Nobel Prize in economics 1978) introduced the concept of bounded rationality that recognizes that in decision making, human rationality is limited by the information we have, our own cognitive biases, our training and experience, and the finite amount of time we have to make a decision. Individuals and firms do the best they can with the information they have, and since they don’t have time to evaluate and rationally pick the optimal solution, they simplify their choices and go with one that is satisfactory rather than rationally optimal—this is called stastificing.

Behavioral economics accounts for this by attempting to incorporate psychological insights. While most economists agree that there are some limits to the reasoning capabilities of individuals and firms, there has been much discussion about where and how to account for bounded rationality.  On the spectrum between perfect rationality and the total absence of it, where are humans?

To explore this question, let’s take a look at cabdrivers and Uber drivers.