The Tyranny of the Majority of the Minority: A Response to Popper’s “The Logic of the Social Sciences”

by Shaun Terry

Economists mostly try to be objective when utilizing their analytical tools, as seems to be the case in all the sciences, social and natural. But this emphasis on objectivity can obfuscate the fact that everyone has biases and that these biases play roles in the outcomes we achieve and experience.

This would be fine if those biases operated on the individual level without affecting the findings of entire fields of research or policy decisions. To this point, on page 96, Popper states:

“Such minor details as, for instance, the social or ideological habitat of the researcher, tend to be eliminated in the long run; although admittedly they always play a part in the short run.”

It is easy to see why this view might be attractive. We can see that humans are fallible and can easily be led astray, but if the pushing and pulling in various directions within a field can sufficiently lead to corrections to errors of bias, then there should be no need for worry. It may often be true that errors of bias are negated by preponderances of evidence, but the problems with this view can be seen as primarily having to do with the importance of many of those cases that, away from view, violate this idea.

As we discussed in class, the commodity options (if I remember correctly) market is one in which data conform to the conclusions. The effect is that much of the seemingly irrelevant noise in the data is brought closer to the general tendency. Following upon this, assumptions in economics can lead to distortions of markets until institutions correct for long-run effects of “social or ideological habitats”. Allow me to explain.

George Soros has claimed that his recognition of economic reflexivity has helped to facilitate much of his wealth concentration. That is to say that he rejects the idea that markets tend toward equilibrium; instead, according to Soros, people dictate markets in such a way that people react to market trends, sometimes causing lasting shifts toward previously unexperienced extremes.

Recent work by Victor Yakovenko shows that, historically, income and wealth distributions follow an exponential curve, but in recent decades, income and wealth distributions in America have become somewhat bisected. Most income and wealth distribution fit the exponential curve, but more and more, the distributions among the highest earners instead follow a steeper curve.

Thomas Piketty’s most famous work shows something similar. Over time, income and wealth distribution favor the very wealthy, and the hallmark feature of capitalism is long-term wealth extraction from the lower classes to the richest few.

Hyman Minsky recently became notable when his financial instability hypothesis correctly forecasted the 2008 financial crisis. It seems that there is some truth to the idea that people’s biases in the market lead toward irrational, destructive behavior, and as recent Federal Reserve Chairmen have sought to improve demand, they have been willing to provide institutional support to banks in ways that have led to more reckless behaviors.

If we look broadly at America’s economy over the past century, it is not tendency toward equilibrium within markets that has brought about high levels of production. The Great Depression was not followed by a return to the reckless banking practices that led to the crisis. Instead, regulations like the Glass- Steagall Act reined in those practices, while federal jobs programs, progressive tax policies, and public investment in infrastructure, education, research and development founded successes of the 1950s and 1960s.

The irony, perhaps, then, was that this led to the conditions that Minsky described, in that trade unions were eviscerated, tax policy shifted toward favoring the wealthy and large corporations, regulations like Glass-Steagall were repealed, and public investments in infrastructure, education, and research and development fell sharply from mid-century levels.

This all led to growth concentrated among the highest earners. The “Greenspan Put” followed, and Bernanke asserted, in his 2004 paper, “The Great Moderation,” that there was no longer a reason to worry because economics had, essentially, arrived: relegated to antiquity were worries over systemic failures, since central bankers now knew how to avoid those failures. Then, we went through 2008’s catastrophic confirmation of Minsky’s hypothesis.

It is easy to see that there is truth in what Popper is saying and it could be hard to blame him for his assertion. In fact, the problems come from limited cases. However, those problems sometimes lead to devastations. In addition to the examples above, this can be seen in the treatment of the problem of global warming. Global warming does not get sufficiently addressed, in part, because “social and ideological habitats” influence researchers in broad ways.

In economics, a couple basic assumptions that drive economic thinking are that growth is good and that people have insatiable wants, but these assumptions stand in stark contrast to the reality of the global catastrophe that we face. Growth is leading to global destruction and insatiable wants might not be as important as some other considerations.

The long-run trend has not been to wash away misinterpretations and misuses; instead, it has been to double down on what have often turned out to have been very bad ideas. Recent research by Michael Marmot and Kate Pickett and Richard Wilkinson show that, contrary to ideas about growth and insatiable wants, inequality is not healthy for us and it does not make people happy. So, then, what is the use in these assumptions? The problem lies in the fact that economists have started with problematic assumptions and operated on those assumptions. Their work reflects these assumptions and they fail to accept a framework that is based on a model not based on those erroneous assumptions, leading us to disastrous consequences. I would argue that Popper’s mostly right, here, but the results from the cases when he is wrong carry a great deal of gravity, and he fails to sufficiently address them.

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