Brooks and the New Economics
Apropos of Larry’s recent post (and paper) on economic analysis, David Brooks had an interesting op-ed in yesterday’s New York Times, under the headline “The Return of History“. In the piece, Brooks offers a history of the discipline of economics, in five acts, culminating in the following:
Economics achieved coherence as a science by amputating most of human nature. Now economists are starting with those parts of emotional life that they can count and model (the activities that make them economists). But once they’re in this terrain, they’ll surely find that the processes that make up the inner life are not amenable to the methodologies of social science. The moral and social yearnings of fully realized human beings are not reducible to universal laws and cannot be studied like physics.
Once this is accepted, economics would again become a subsection of history and moral philosophy. It will be a powerful language for analyzing certain sorts of activity. Economists will be able to describe how some people acted in some specific contexts. They will be able to draw out some suggestive lessons to keep in mind while thinking about other people and other contexts — just as historians, psychologists and novelists do.
In something of that spirit, I might flag a recently completed (and submitted) paper of mine, entitled Beyond Individualism in Law and Economics. In it, I argue that law and economics – and, in a sense, economics more generally – must recognize important challenges to its methodological orientation to individuals, just as it has recognized, over the last twenty years, the limits of its assumption of rationality. Once the discipline does so, I suggest, it will invite far broader insights, akin to those offered by the behavioral revolution in psychology and economics.
The abstract, for those interested, is below the fold.
The study of law and economics is built on two pillars. The first is the assumption of individual rationality. The second, less familiar, is the practice of methodological individualism. Over the last twenty years, law and economics has largely internalized behavioral critiques of the rationality assumption. By contrast, it has failed to recognize the implications of growing challenges to its methodological individualism. Where social norms shape individual choices, network externalities are strong, coordination is the operative goal, or information is a substantial determinant of value, a methodology strongly oriented to the analysis of individuals will overlook at least as much as it reveals. Among other potential distortions, indicia of consent may be given greater weight than they deserve, the evolution of law and norms may be underemphasized, and our regulation of information, knowledge, and even the financial markets may be flawed. As with the shift toward a more careful approach to rationality, then, attention to the limits of methodological individualism may lead us to a richer account of law and economics.