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krystalxu

Behavioral economics: Reunifying psychology and economics | Proceedings of the National... - 0 views

  • A recent approach, “behavioral economics,” seeks to use psychology to inform economics, while maintaining the emphases on mathematical structure and explanation of field data that distinguish economics from other social sciences (1–3).
Javier E

The Power of Nudges, for Good and Bad - The New York Times - 0 views

  • Nudges, small design changes that can markedly affect individual behavior, have been catching on. These techniques rely on insights from behavioral science
  • when used ethically, they can be very helpful. But we need to be sure that they aren’t being employed to sway people to make bad decisions that they will later regret.
  • Three principles should guide the use of nudges:■ All nudging should be transparent and never misleading.■ It should be as easy as possible to opt out of the nudge, preferably with as little as one mouse click.■ There should be good reason to believe that the behavior being encouraged will improve the welfare of those being nudged.
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  • the government teams in Britain and the United States that have focused on nudging have followed these guidelines scrupulously.
  • the private sector is another matter. In this domain, I see much more troubling behavior.
  • Many companies are nudging purely for their own profit and not in customers’ best interests. In a recent column in The New York Times, Robert Shiller called such behavior “phishing.” Mr. Shiller and George Akerlof, both Nobel-winning economists, have written a book on the subject, “Phishing for Phools.”
  • Some argue that phishing — or evil nudging — is more dangerous in government than in the private sector. The argument is that government is a monopoly with coercive power, while we have more choice in the private sector over which newspapers we read and which airlines we fly.
  • I think this distinction is overstated. In a democracy, if a government creates bad policies, it can be voted out of office. Competition in the private sector, however, can easily work to encourage phishing rather than stifle it.
  • One example is the mortgage industry in the early 2000s. Borrowers were encouraged to take out loans that they could not repay when real estate prices fell. Competition did not eliminate this practice, because it was hard for anyone to make money selling the advice “Don’t take that loan.”
Javier E

The Facebook Fallacy: Privacy Is Up to You - The New York Times - 0 views

  • As Facebook’s co-founder and chief executive parried questions from members of Congress about how the social network would protect its users’ privacy, he returned time and again to what probably sounded like an unimpeachable proposition.
  • By providing its users with greater and more transparent controls over the personal data they share and how it is used for targeted advertising, he insisted, Facebook could empower them to make their own call and decide how much privacy they were willing to put on the block.
  • providing a greater sense of control over their personal data won’t make Facebook users more cautious. It will instead encourage them to share more.
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  • “Disingenuous is the adjective I had in my mind,”
  • “Fifteen years ago it would have been legitimate to propose this argument,” he added. “But it is no longer legitimate to ignore the behavioral problems and propose simply more transparency and controls.”
  • Professor Acquisti and two colleagues, Laura Brandimarte and the behavioral economist George Loewenstein, published research on this behavior nearly six years ago. “Providing users of modern information-sharing technologies with more granular privacy controls may lead them to share more sensitive information with larger, and possibly riskier, audiences,” they concluded.
  • the critical question is whether, given the tools, we can be trusted to manage the experience. The increasing body of research into how we behave online suggests not.
  • “Privacy control settings give people more rope to hang themselves,” Professor Loewenstein told me. “Facebook has figured this out, so they give you incredibly granular controls.”
  • This paradox is hardly the only psychological quirk for the social network to exploit. Consider default settings. Tons of research in behavioral economics has found that people tend to stick to the default setting of whatever is offered to them, even when they could change it easily.
  • “Facebook is acutely aware of this,” Professor Loewenstein told me. In 2005, its default settings shared most profile fields with, at most, friends of friends. Nothing was shared by default with the full internet.
  • By 2010, however, likes, name, gender, picture and a lot of other things were shared with everybody online. “Facebook changed the defaults because it appreciated their power,” Professor Loewenstein added.
  • The phenomenon even has a name: the “control paradox.”
  • people who profess concern about privacy will provide the emails of their friends in exchange for some pizza.
  • They also found that providing consumers reassuring though irrelevant information about their ability to protect their privacy will make them less likely to avoid surveillance.
  • Another experiment revealed that people are more willing to come clean about their engagement in illicit or questionable behavior when they believe others have done so, too
  • Those in the industry often argue that people don’t really care about their privacy — that they may seem concerned when they answer surveys, but still routinely accept cookies and consent to have their data harvested in exchange for cool online experiences
  • Professor Acquisti thinks this is a fallacy. The cognitive hurdles to manage our privacy online are simply too steep.
  • While we are good at handling our privacy in the offline world, lowering our voices or closing the curtains as the occasion may warrant, there are no cues online to alert us to a potential privacy invasion
  • Even if we were to know precisely what information companies like Facebook have about us and how it will be used, which we don’t, it would be hard for us to assess potential harms
  • Members of Congress have mostly let market forces prevail online, unfettered by government meddling. Privacy protection in the internet economy has relied on the belief that consumers will make rational choices
  • Europe’s stringent new privacy protection law, which Facebook has promised to apply in the United States, may do better than the American system of disclosure and consen
  • the European system also relies mostly on faith that consumers will make rational choices.
  • The more that psychologists and behavioral economists study psychological biases and quirks, the clearer it seems that rational choices alone won’t work. “I don’t think any kind of disclosure or opt in or opt out is going to protect us from our worst instincts,”
  • What to do? Professor Acquisti suggests flipping the burden of proof. The case for privacy regulation rests on consumers’ proving that data collection is harmful. Why not ask the big online platforms like Facebook to prove they can’t work without it? If reducing data collection imposes a cost, we could figure out who bears it — whether consumers, advertisers or Facebook’s bottom line.
Javier E

Robert Samuelson: Economists face hard times - The Washington Post - 0 views

  • These are hard times for economists. Their reputations are tarnished; their favorite doctrines are damaged. Among their most prominent thinkers, there is no consensus as to how — or whether — governments in advanced countries can improve lackluster recoveries.
  • economists at the Organization for Economic Cooperation and Development (OECD) published a retrospective study of its economic forecasts. This qualifies as an act of bureaucratic courage, because the record was predictably dismal
  • Interestingly, one item not on the list is “too much austerity.” The OECD economists found that they generally hadn’t underestimated the effects of spending cuts and tax increases intended to shrink budget deficits in Spain, Italy, Ireland, Portugal and elsewhere
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  • This conclusion is surely controversial because many economists attribute the weak recovery to misguided austerity, especially in Europe.
  • Perhaps history will vindicate this appeal to Keynesianism. Or perhaps not. The fact is that the United States did respond aggressively under both George W. Bush and Barack Obama. It certainly didn’t embrace austerity. Federal budgets ran massive deficits — $6.2 trillion worth from 2008 to 2013, averaging 6.4 percent of the economy (gross domestic product).Nothing like this had occurred since World War II. Yet, the economy limped along. Why wasn’t this enough?
  • It’s not just Keynesianism that’s under a cloud. The same fate has befallen monetarism — the doctrine that stable growth in the money supply can promote a more stable economy. Since 2008, the Federal Reserve has poured more than $3.2 trillion into the economy to keep interest rates low and accelerate economic growth. By monetarist reasoning, so much money pumped out so quickly should spawn higher inflation. Some economists predicted as much; it hasn’t happened yet. Consumer prices today are up a mere 1.5 percent from a year earlier.
  • The Great Recession and financial crisis changed behavior in fundamental ways that economists have yet to incorporate fully into their models or theories
  • The widespread faith that modern societies were sheltered from deep and sustained economic setbacks has been shattered, causing consumers, business managers and bankers to be more cautious in borrowing and spending. Economic stimulus may offset this caution, but if it signals that the economy is weaker than expected, it may also further depress private spending.
  • The faith in economics was, in many ways, the underlying cause of both the financial crisis and Great Recession — it made people overconfident and careless during the boom — and the basic explanation for the weak recovery, as stubborn caution displaced stubborn complacency
kirkpatrickry

How to get out of debt, according to behavioral economics. - 0 views

  • “Our emotions, which drive us so strongly, are inherently not rational,” says Dan Ariely, author of Predictably Irrational and a leader in the field, which examines the place where psychology and economics overlap. “If you think about an environment in which we have to think long-term and abstractly, that’s just not something we’re good at. Saving is about now versus later, it’s about concrete versus abstract, and we don’t do those well.”
  • One aspect of our nature that’s to blame is called present bias—the human tendency to emphasize now over later. “We get the money now, when we take a loan, and we pay it back some time in the future. This temporal component triggers a host of behavioral psychological effects,” says Oren Bar-Gill, a Harvard Law School professor who specializes in law and economics. “One of them is basic myopia. We think more about the present and less about the future, and so we’re more likely to take on debt, because we don’t put enough weight in our decision-making process on the future paybacks.”
  • although in theory you’d like to take care of yourself in the future, when it comes to how you live your lif
Duncan H

What to Do About 'Coming Apart' - NYTimes.com - 0 views

  • Murray has produced a book-length argument placing responsibility for rising inequality and declining mobility on widespread decay in the moral fiber of white, lower-status, less well-educated Americans, putting relatively less emphasis on a similar social breakdown among low-status, less-educated Americans of all races
  • Murray’s strength lies in his ability to raise issues that center-left policy makers and academics prefer, for the most part, to shy away from. His research methods, his statistical analyses and the conclusions he draws are subject to passionate debate. But by forcing taboo issues into the public arena, Murray has opened up for discussion politically salient issues that lurk at a subterranean level in the back-brains of many voters, issues that are rarely examined with the rigor necessary to affirm or deny their legitimacy.
  • The National Review and the Conservative Monitor cited “Losing Ground” as one of the ten books that most changed America. Murray’s bookseemed like a bolt of lightning in the middle of the night revealing what should have been plain as the light of day. The welfare state so carefully built up in the 1960s and 1970s created a system of disincentives for people to better their own lives. By paying welfare mothers to have children out of wedlock into a poor home, more of these births were encouraged. By doling out dollars at a rate that could not be matched by the economy, the system encouraged the poor to stay home.
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  • He contends in “Coming Apart” that there was far greater social cohesion across class lines 50 years ago because “the powerful norms of social and economic behavior in 1960 swept virtually everyone into their embrace,” adding in a Jan. 21 op-ed in the Wall Street Journal thatOver the past 50 years, that common civic culture has unraveled. We have developed a new upper class with advanced educations, often obtained at elite schools, sharing tastes and preferences that set them apart from mainstream America. At the same time, we have developed a new lower class, characterized not by poverty but by withdrawal from America’s core cultural institutions.According to Murray, higher education has now become a proxy for higher IQ, as elite colleges become sorting mechanisms for finding, training and introducing to each other the most intellectually gifted young people. Fifty years into the education revolution, members of this elite are likely to be themselves the offspring of cognitively gifted parents, and to ultimately bear cognitively gifted children.
  • “Industriousness: The norms for work and women were revolutionized after 1960, but the norm for men putatively has remained the same: Healthy men are supposed to work. In practice, though, that norm has eroded everywhere.”
  • Murray makes the case that cognitive ability is worth ever more in modern advanced, technologically complex hypercompetitive market economies. As an example, Murray quotes Bill Gates: “Software is an IQ business. Microsoft must win the IQ war or we won’t have a future.”
  • Murray alleges that those with higher IQs now exhibit personal and social behavioral choices in areas like marriage, industriousness, honesty and religiosity that allow them to enjoy secure and privileged lives. Whites in the lower social-economic strata are less cognitively able – in Murray’s view – and thus less well-equipped to resist the lure of the sexual revolution and doctrines of self-actualization so they succumb to higher rates of family dissolution, non-marital births, worklessness and criminality. This interaction between IQ and behavioral choice, in Murray’s framework, is what has led to the widening income and cultural gap.
  • Despised by the left, Murray has arguably done liberals a service by requiring them to deal with those whose values may seem alien, to examine the unintended consequences of their policies and to grapple with the political impact of assertions made by the right. He has also amassed substantial evidence to bolster his claims and at the same time elicited a formidable academic counter-attack.
  • To Murray, the overarching problem is that liberal elites, while themselves living lives of probity, have refused to proselytize for the bourgeois virtues to which they subscribe, thus leaving their less discerning fellow-citizens to flounder in the anti-bourgeois legacy of the counter-cultural 1960s.
  • “Great Civic Awakening” among the new upper class – an awakening that will lead to the kind of “moral rearmament” and paternalism characteristic of anti-poverty drives in the 19th century. To achieve this, Murray believes, the “new upper class must once again fall in love with what makes America different.”
  • The cognitive elites Murray cites are deeply committed to liberal norms of cultural tolerance and permissiveness. The antipathy to the moralism of the religious right has, in fact, been a major force driving these upscale, secular voters into the Democratic party.
  • changes in the world economy may be destructive in terms of the old social model, but they are profoundly liberating and benign in and of themselves. The family farm wasn’t dying because capitalism had failed or a Malthusian crisis was driving the world to starvation. The family farm died of abundance; it died of the rapidly rising productivity that meant that fewer and fewer people had to work to produce the food on which humanity depended.Mead continues:Revolutions in manufacturing and, above all, in communications and information technology create the potential for unprecedented abundance and a further liberation of humanity from meaningless and repetitive work. Our problem isn’t that the sources of prosperity have dried up in a long drought; our problem is that we don’t know how to swim. It is raining soup, and we are stuck holding a fork.The 21st century, Mead adds,must reinvent the American Dream. It must recast our economic, social, familial, educational and political systems for new challenges and new opportunities. Some hallowed practices and institutions will have to go under the bus. But in the end, the changes will make us richer, more free and more secure than we are now.Mead’s predictions may or may not prove prescient, but it his thinking, more than Murray’s, that reflects the underlying optimism that has sustained the United States for more than two centuries — a refusal to believe that anything about human nature is essentially “intractable.” Mead’s way of looking at things is not only more inviting than Murray’s, it is also more on target.
Javier E

A gentler and more logical economics « Blog Archive « Dan Ariely - 0 views

  • When it comes to designing things in our physical world, we all understand how flawed we are and design the physical world around us accordingly.
  • What I find amazing is that when it comes to designing the mental and cognitive realm, we somehow assume that human beings are without bounds. We cling to the idea that we are fully rational beings, and that, like mental Supermen, we can figure out anything. Why are we so readily willing to admit to our physical limitations but are unwilling to take our cognitive limitations into account?
  • To start with, our physical limitations stare us in the face all the time; but our cognitive limitations are not as obvious. A second reason is that we have a desire to see ourselves as perfectly capable — an impossibility in the physical domain. And perhaps a final reason why we don’t see our cognitive limitations is that maybe we have all bought into standard economics a little too much.
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  • If we’re going to try to understand human behavior and use this knowledge to design the world around us—including institutions such as taxes, education systems, and financial markets—we need to use additional tools and other disciplines, including psychology, sociology, and philosophy. Rational economics is useful, but it offers just one type of input
katedriscoll

How does psychology contribute to economics? | Chicago Booth Review - 0 views

  • conomic models often give people credit for being what may seem at a glance an unexceptional thing: fully rational beings pursuing our own self-interest. But as psychologists, such as 2002 Nobel laureate Daniel Kahneman, and behavioral economists, such as 2017 laureate Richard H. Thaler, have pointed out, an assortment of biases, heuristics, and other factors often move us to behave in ways that seem distinctly irrational. Can social science’s understanding of how humans think and act be used to predict how markets will behave?
  • Although the responses tended to affirm the predictive power of behavioral economics, members of both panels reiterated that fully rational models still have an important place in economics. Pol Antras of Harvard, who agreed with the statement, added, “Still, models with fully rational agents provide a perfectly good approximation for explaining many market outcomes!”
caelengrubb

Investment - Econlib - 0 views

  • nvestment is one of the most important variables in economics.
  • Its surges and collapses are still a primary cause of recessions.
  • By investment, economists mean the production of goods that will be used to produce other goods. This definition differs from the popular usage, wherein decisions to purchase stocks (see stock market) or bonds are thought of as investment.
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  • Investment is usually the result of forgoing consumption. In a purely agrarian society, early humans had to choose how much grain to eat after the harvest and how much to save for future planting. The latter was investment.
  • In a more modern society, we allocate our productive capacity to producing pure consumer goods such as hamburgers and hot dogs, and investment goods such as semiconductor foundries. If we create one dollar worth of hamburgers today, then our gross national product is higher by one dollar.
  • Investment need not always take the form of a privately owned physical product. The most common example of nonphysical investment is investment in human capital.
  • In an economy that is closed to the outside world, investment can come only from the forgone consumption—the saving—of private individuals, private firms, or government.
  • In an open economy, however, investment can surge at the same time that a nation’s saving is low because a country can borrow the resources necessary to invest from neighboring countries.
  • That economists have a fairly strong understanding of firms’ investment behavior makes sense. A firm that maximizes its profits must address investment using the framework discussed in this article.
  • This method of financing investment has been very important in the United States. The industrial base of the United States in the nineteenth century—railroads, factories, and so on—was built on foreign finance, especially from Britain. More recently, the United States has repeatedly posted significant investment growth and very low savings.
  • Investment fluctuates a lot because the fundamentals that drive investment—output prices, interest rates, and taxes—also fluctuate. But economists do not fully understand fluctuations in investment. Indeed, the sharp swings in investment that occur might require an extension to the Jorgenson theory.
  • In Jorgenson’s user cost model, firms will purchase a machine if the extra revenue the machine generates is a smidgen more than its cost.
  • The general conclusion is that there is a gain to waiting if there is uncertainty and if the installation of the machine entails sunk costs, that is, costs that cannot be recovered once spent.
  • Although quantifying this gain exactly is a highly mathematical exercise, the reasoning is straightforward. That would explain why firms typically want to invest only in projects that have a high expected profit.
  • The fact of irreversibility might explain the large fluctuations in investment that we observe.
  • The theory of investment dates back to the giants of economics. irving fisher, arthur cecil pigou, and alfred marshall all made contributions; as did john maynard keynes, whose Marshallian user cost theory is a central feature in his General Theory.
  • Consumer behavior is harder to study than firms’ behavior. Market forces that drive irrational people out of the marketplace are much weaker than market forces that drive bad companies from the market.
  • Because the saving response of consumers must be known if one is to fully understand the impact of any investment policy, and because saving behavior is so poorly understood, much work remains to be done.
krystalxu

Why Behavioral Economics Is Cool, and I'm Not | HuffPost - 0 views

  • People conserve more energy when they see their neighbors’ consumption rates.
  • Hypothesis 2: Behavioral economists do more interesting work than psychologists.
Javier E

A Harvard Scholar on the Enduring Lessons of Chinese Philosophy - The New York Times - 0 views

  • Since 2006, Michael Puett has taught an undergraduate survey course at Harvard University on Chinese philosophy, examining how classic Chinese texts are relevant today. The course is now one of Harvard’s most popular, third only to “Introduction to Computer Science” and “Principles of Economics.”
  • So-called Confucianism, for example, is read as simply being about forcing people to accept their social roles, while so-called Taoism is about harmonizing with the larger natural world. So Confucianism is often presented as bad and Taoism as good. But in neither case are we really learning from them.
  • we shouldn’t domesticate them to our own way of thinking. When we read them as self-help, we are assuming our own definition of the self and then simply picking up pieces of these ideas that fit into such a vision
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  • these ideas are not about looking within and finding oneself. They are about overcoming the self. They are, in a sense, anti-self-help.
  • Today, we are often told that our goal should be to look within and find ourselves, and, once we do, to strive to be sincere and authentic to that true self, always loving ourselves and embracing ourselves for who we are. All of this sounds great and is a key part of what we think of as a properly “modern” way to live.
  • But what if we’re, on the contrary, messy selves that tend to fall into ruts and patterns of behavior? If so, the last thing we would want to be doing is embracing ourselves for who we are — embracing, in other words, a set of patterns we’ve fallen into. The goal should rather be to break these patterns and ruts, to train ourselves to interact better with those around us.
  • Certainly some strains of Chinese political theory will take this vision of the self — that we tend to fall into patterns of behavior — to argue for a more paternalistic state that will, to use a more recent term, “nudge” us into better patterns.
  • many of the texts we discuss in the book go the other way, and argue that the goal should be to break us from being such passive creatures — calling on us to do things that break us out of these patterns and allow us to train ourselves to start altering our behavior for the better.
  • You argue that Chinese philosophy views rituals as tools that can liberate us from these ruts.
  • Rituals force us for a brief moment to become a different person and to interact with those around us in a different way. They work because they break us from the patterns that we fall into and that otherwise dominate our behavior.
  • In the early Han dynasty, for example, we have examples of rituals that called for role reversals. The father would be called upon to play the son, and the son would play the father. Each is forced to see the world from the other’s perspective, with the son learning what it’s like to be in a position of authority and the father remembering what it was like to be the more subservient one
  • We tend to think that we live in a globalized world, but in a lot of ways we really don’t. The truth is that for a long time only a very limited number of ideas have dominated the world, while ideas that arose elsewhere were seen as “traditional” and not worth learning from.
  • imagine future generations that grow up reading Du Fu along with Shakespeare, and Confucius along with Plato. Imagine that type of world, where great ideas — wherever they arose — are thought about and wrestled with.
  • There’s a very strong debate going on in China about values — a sense that everything has become about wealth and power, and a questioning about whether this should be rethought. And among the ideas that are being brought into the debate are these earlier notions about the self and about how one can lead a good life. So, while the government is appropriating some of these ideas in particular ways, the broader public is debating them, and certainly with very different interpretations.
Javier E

MacIntyre | Internet Encyclopedia of Philosophy - 0 views

  • For MacIntyre, “rationality” comprises all the intellectual resources, both formal and substantive, that we use to judge truth and falsity in propositions, and to determine choice-worthiness in courses of action
  • Rationality in this sense is not universal; it differs from community to community and from person to person, and may both develop and regress over the course of a person’s life or a community’s history.
  • So rationality itself, whether theoretical or practical, is a concept with a history: indeed, since there are also a diversity of traditions of enquiry, with histories, there are, so it will turn out, rationalities rather than rationality, just as it will also turn out that there are justices rather than justice
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  • Rationality is the collection of theories, beliefs, principles, and facts that the human subject uses to judge the world, and a person’s rationality is, to a large extent, the product of that person’s education and moral formation.
  • To the extent that a person accepts what is handed down from the moral and intellectual traditions of her or his community in learning to judge truth and falsity, good and evil, that person’s rationality is “tradition-constituted.” Tradition-constituted rationality provides the schemata by which we interpret, understand, and judge the world we live in
  • The apparent problem of relativism in MacIntyre’s theory of rationality is much like the problem of relativism in the philosophy of science. Scientific claims develop within larger theoretical frameworks, so that the apparent truth of a scientific claim depends on one’s judgment of the larger framework. The resolution of the problem of relativism therefore appears to hang on the possibility of judging frameworks or rationalities, or judging between frameworks or rationalities from a position that does not presuppose the truth of the framework or rationality, but no such theoretical standpoint is humanly possible.
  • MacIntyre finds that the world itself provides the criterion for the testing of rationalities, and he finds that there is no criterion except the world itself that can stand as the measure of the truth of any philosophical theory.
  • MacIntyre’s philosophy is indebted to the philosophy of science, which recognizes the historicism of scientific enquiry even as it seeks a truthful understanding of the world. MacIntyre’s philosophy does not offer a priori certainty about any theory or principle; it examines the ways in which reflection upon experience supports, challenges, or falsifies theories that have appeared to be the best theories so far to the people who have accepted them so far. MacIntyre’s ideal enquirers remain Hamlets, not Emmas.
  • history shows us that individuals, communities, and even whole nations may commit themselves militantly over long periods of their histories to doctrines that their ideological adversaries find irrational. This qualified relativism of appearances has troublesome implications for anyone who believes that philosophical enquiry can easily provide certain knowledge of the world
  • According to MacIntyre, theories govern the ways that we interpret the world and no theory is ever more than “the best standards so far” (3RV, p. 65). Our theories always remain open to improvement, and when our theories change, the appearances of our world—the apparent truths of claims judged within those theoretical frameworks—change with them.
  • From the subjective standpoint of the human enquirer, MacIntyre finds that theories, concepts, and facts all have histories, and they are all liable to change—for better or for worse.
  • MacIntyre holds that the rationality of individuals is not only tradition-constituted, it is also tradition constitutive, as individuals make their own contributions to their own rationality, and to the rationalities of their communities. Rationality is not fixed, within either the history of a community or the life of a person
  • The modern account of first principles justifies an approach to philosophy that rejects tradition. The modern liberal individualist approach is anti-traditional. It denies that our understanding is tradition-constituted and it denies that different cultures may differ in their standards of rationality and justice:
  • Modernity does not see tradition as the key that unlocks moral and political understanding, but as a superfluous accumulation of opinions that tend to prejudice moral and political reasoning.
  • Although modernity rejects tradition as a method of moral and political enquiry, MacIntyre finds that it nevertheless bears all the characteristics of a moral and political tradition.
  • If historical narratives are only projections of the interests of historians, then it is difficult to see how this historical narrative can claim to be truthful
  • For these post-modern theorists, “if the Enlightenment conceptions of truth and rationality cannot be sustained,” either relativism or perspectivism “is the only possible alternative” (p. 353). MacIntyre rejects both challenges by developing his theory of tradition-constituted and tradition-constitutive rationality on pp. 354-369
  • How, then, is one to settle challenges between two traditions? It depends on whether the adherents of either take the challenges of the other tradition seriously. It depends on whether the adherents of either tradition, on seeing a failure in their own tradition are willing to consider an answer offered by their rival (p. 355)
  • how a person with no traditional affiliation is to deal with the conflicting claims of rival traditions: “The initial answer is: that will depend upon who you are and how you understand yourself. This is not the kind of answer which we have been educated to expect in philosophy”
  • MacIntyre focuses the critique of modernity on the question of rational justification. Modern epistemology stands or falls on the possibility of Cartesian epistemological first principles. MacIntyre’s history exposes that notion of first principle as a fiction, and at the same time demonstrates that rational enquiry advances (or declines) only through tradition
  • MacIntyre cites Foucault’s 1966 book, Les Mots et les choses (The Order of Things, 1970) as an example of the self-subverting character of Genealogical enquiry
  • Foucault’s book reduces history to a procession of “incommensurable ordered schemes of classification and representation” none of which has any greater claim to truth than any other, yet this book “is itself organized as a scheme of classification and representation.”
  • From MacIntyre’s perspective, there is no question of deciding whether or not to work within a tradition; everyone who struggles with practical, moral, and political questions simply does. “There is no standing ground, no place for enquiry . . . apart from that which is provided by some particular tradition or other”
  • Three Rival Versions of Moral Enquiry (1990). The central idea of the Gifford Lectures is that philosophers make progress by addressing the shortcomings of traditional narratives about the world, shortcomings that become visible either through the failure of traditional narratives to make sense of experience, or through the introduction of contradictory narratives that prove impossible to dismiss
  • MacIntyre compares three traditions exemplified by three literary works published near the end of Adam Gifford’s life (1820–1887)
  • The Ninth Edition of the Encyclopaedia Britannica (1875–1889) represents the modern tradition of trying to understand the world objectively without the influence of tradition.
  • The Genealogy of Morals (1887), by Friedrich Nietzsche embodies the post-modern tradition of interpreting all traditions as arbitrary impositions of power.
  • The encyclical letter Aeterni Patris (1879) of Pope Leo XIII exemplifies the approach of acknowledging one’s predecessors within one’s own tradition of enquiry and working to advance or improve that tradition in the pursuit of objective truth. 
  • Of the three versions of moral enquiry treated in 3RV, only tradition, exemplified in 3RV by the Aristotelian, Thomistic tradition, understands itself as a tradition that looks backward to predecessors in order to understand present questions and move forward
  • Encyclopaedia obscures the role of tradition by presenting the most current conclusions and convictions of a tradition as if they had no history, and as if they represented the final discovery of unalterable truth
  • Encyclopaedists focus on the present and ignore the past.
  • Genealogists, on the other hand, focus on the past in order to undermine the claims of the present.
  • In short, Genealogy denies the teleology of human enquiry by denying (1) that historical enquiry has been fruitful, (2) that the enquiring person has a real identity, and (3) that enquiry has a real goal. MacIntyre finds this mode of enquiry incoherent.
  • Genealogy is self-deceiving insofar as it ignores the traditional and teleological character of its enquiry.
  • Genealogical moral enquiry must make similar exceptions to its treatments of the unity of the enquiring subject and the teleology of moral enquiry; thus “it seems to be the case that the intelligibility of genealogy requires beliefs and allegiances of a kind precluded by the genealogical stance” (3RV, p. 54-55)
  • MacIntyre uses Thomism because it applies the traditional mode of enquiry in a self-conscious manner. Thomistic students learn the work of philosophical enquiry as apprentices in a craft (3RV, p. 61), and maintain the principles of the tradition in their work to extend the understanding of the tradition, even as they remain open to the criticism of those principles.
  • 3RV uses Thomism as its example of tradition, but this use should not suggest that MacIntyre identifies “tradition” with Thomism or Thomism-as-a-name-for-the-Western-tradition. As noted above, WJWR distinguished four traditions of enquiry within the Western European world alone
  • MacIntyre’s emphasis on the temporality of rationality in traditional enquiry makes tradition incompatible with the epistemological projects of modern philosophy
  • Tradition is not merely conservative; it remains open to improvement,
  • Tradition differs from both encyclopaedia and genealogy in the way it understands the place of its theories in the history of human enquiry. The adherent of a tradition must understand that “the rationality of a craft is justified by its history so far,” thus it “is inseparable from the tradition through which it was achieved”
  • MacIntyre uses Thomas Aquinas to illustrate the revolutionary potential of traditional enquiry. Thomas was educated in Augustinian theology and Aristotelian philosophy, and through this education he began to see not only the contradictions between the two traditions, but also the strengths and weaknesses that each tradition revealed in the other. His education also helped him to discover a host of questions and problems that had to be answered and solved. Many of Thomas Aquinas’ responses to these concerns took the form of disputed questions. “Yet to each question the answer produced by Aquinas as a conclusion is no more than and, given Aquinas’s method, cannot but be no more than, the best answer reached so far. And hence derives the essential incompleteness”
  • argue that the virtues are essential to the practice of independent practical reason. The book is relentlessly practical; its arguments appeal only to experience and to purposes, and to the logic of practical reasoning.
  • Like other intelligent animals, human beings enter life vulnerable, weak, untrained, and unknowing, and face the likelihood of infirmity in sickness and in old age. Like other social animals, humans flourish in groups. We learn to regulate our passions, and to act effectively alone and in concert with others through an education provided within a community. MacIntyre’s position allows him to look to the animal world to find analogies to the role of social relationships in the moral formation of human beings
  • The task for the human child is to make “the transition from the infantile exercise of animal intelligence to the exercise of independent practical reasoning” (DRA, p. 87). For a child to make this transition is “to redirect and transform her or his desires, and subsequently to direct them consistently towards the goods of different stages of her or his life” (DRA, p. 87). The development of independent practical reason in the human agent requires the moral virtues in at least three ways.
  • DRA presents moral knowledge as a “knowing how,” rather than as a “knowing that.” Knowledge of moral rules is not sufficient for a moral life; prudence is required to enable the agent to apply the rules well.
  • “Knowing how to act virtuously always involves more than rule-following” (DRA, p. 93). The prudent person can judge what must be done in the absence of a rule and can also judge when general norms cannot be applied to particular cases.
  • Flourishing as an independent practical reasoner requires the virtues in a second way, simply because sometimes we need our friends to tell us who we really are. Independent practical reasoning also requires self-knowledge, but self-knowledge is impossible without the input of others whose judgment provides a reliable touchstone to test our beliefs about ourselves. Self-knowledge therefore requires the virtues that enable an agent to sustain formative relationships and to accept the criticism of trusted friends
  • Human flourishing requires the virtues in a third way, by making it possible to participate in social and political action. They enable us to “protect ourselves and others against neglect, defective sympathies, stupidity, acquisitiveness, and malice” (DRA, p. 98) by enabling us to form and sustain social relationships through which we may care for one another in our infirmities, and pursue common goods with and for the other members of our societies.
  • MacIntyre argues that it is impossible to find an external standpoint, because rational enquiry is an essentially social work (DRA, p. 156-7). Because it is social, shared rational enquiry requires moral commitment to, and practice of, the virtues to prevent the more complacent members of communities from closing off critical reflection upon “shared politically effective beliefs and concepts”
  • MacIntyre finds himself compelled to answer what may be called the question of moral provincialism: If one is to seek the truth about morality and justice, it seems necessary to “find a standpoint that is sufficiently external to the evaluative attitudes and practices that are to be put to the question.” If it is impossible for the agent to take such an external standpoint, if the agent’s commitments preclude radical criticism of the virtues of the community, does that leave the agent “a prisoner of shared prejudices” (DRA, p. 154)?
  • The book moves from MacIntyre’s assessment of human needs for the virtues to the political implications of that assessment. Social and political institutions that form and enable independent practical reasoning must “satisfy three conditions.” (1) They must enable their members to participate in shared deliberations about the communities’ actions. (2) They must establish norms of justice “consistent with exercise of” the virtue of justice. (3) They must enable the strong “to stand proxy” as advocates for the needs of the weak and the disabled.
  • The social and political institutions that MacIntyre recommends cannot be identified with the modern nation state or the modern nuclear family
  • The political structures necessary for human flourishing are essentially local
  • Yet local communities support human flourishing only when they actively support “the virtues of just generosity and shared deliberation”
  • MacIntyre rejects individualism and insists that we view human beings as members of communities who bear specific debts and responsibilities because of our social identities. The responsibilities one may inherit as a member of a community include debts to one’s forbearers that one can only repay to people in the present and future
  • The constructive argument of the second half of the book begins with traditional accounts of the excellences or virtues of practical reasoning and practical rationality rather than virtues of moral reasoning or morality. These traditional accounts define virtue as arête, as excellence
  • Practices are supported by institutions like chess clubs, hospitals, universities, industrial corporations, sports leagues, and political organizations.
  • Practices exist in tension with these institutions, since the institutions tend to be oriented to goods external to practices. Universities, hospitals, and scholarly societies may value prestige, profitability, or relations with political interest groups above excellence in the practices they are said to support.
  • Personal desires and institutional pressures to pursue external goods may threaten to derail practitioners’ pursuits of the goods internal to practices. MacIntyre defines virtue initially as the quality of character that enables an agent to overcome these temptations:
  • “A virtue is an acquired human quality the possession and exercise of which tends to enable us to achieve those goods which are internal to practices
  • Excellence as a human agent cannot be reduced to excellence in a particular practice (See AV, pp. 204–
  • The virtues therefore are to be understood as those dispositions which will not only sustain practices and enable us to achieve the goods internal to practices, but which will also sustain us in the relevant kind of quest for the good, by enabling us to overcome the harms, dangers, temptations, and distractions which we encounter, and which will furnish us with increasing self-knowledge and increasing knowledge of the good (AV, p. 219).
  • The excellent human agent has the moral qualities to seek what is good and best both in practices and in life as a whole.
  • The virtues find their point and purpose not only in sustaining those relationships necessary if the variety of goods internal to practices are to be achieved and not only in sustaining the form of an individual life in which that individual may seek out his or her good as the good of his or her whole life, but also in sustaining those traditions which provide both practices and individual lives with their necessary historical context (AV, p. 223)
  • Since “goods, and with them the only grounds for the authority of laws and virtues, can only be discovered by entering into those relationships which constitute communities whose central bond is a shared vision of and understanding of goods” (AV, p. 258), any hope for the transformation and renewal of society depends on the development and maintenance of such communities.
  • MacIntyre’s Aristotelian approach to ethics as a study of human action distinguishes him from post-Kantian moral philosophers who approach ethics as a means of determining the demands of objective, impersonal, universal morality
  • This modern approach may be described as moral epistemology. Modern moral philosophy pretends to free the individual to determine for her- or himself what she or he must do in a given situation, irrespective of her or his own desires; it pretends to give knowledge of universal moral laws
  • Aristotelian metaphysicians, particularly Thomists who define virtue in terms of the perfection of nature, rejected MacIntyre’s contention that an adequate Aristotelian account of virtue as excellence in practical reasoning and human action need not appeal to Aristotelian metaphysic
  • one group of critics rejects MacIntyre’s Aristotelianism because they hold that any Aristotelian account of the virtues must first account for the truth about virtue in terms of Aristotle’s philosophy of nature, which MacIntyre had dismissed in AV as “metaphysical biology”
  • Many of those who rejected MacIntyre’s turn to Aristotle define “virtue” primarily along moral lines, as obedience to law or adherence to some kind of natural norm. For these critics, “virtuous” appears synonymous with “morally correct;” their resistance to MacIntyre’s appeal to virtue stems from their difficulties either with what they take to be the shortcomings of MacIntyre’s account of moral correctness or with the notion of moral correctness altogether
  • MacIntyre continues to argue from the experience of practical reasoning to the demands of moral education.
  • Descartes and his successors, by contrast, along with certain “notable Thomists of the last hundred years” (p. 175), have proposed that philosophy begins from knowledge of some “set of necessarily true first principles which any truly rational person is able to evaluate as true” (p. 175). Thus for the moderns, philosophy is a technical rather than moral endeavor
  • MacIntyre distinguishes two related challenges to his position, the “relativist challenge” and the “perspectivist challenge.” These two challenges both acknowledge that the goals of the Enlightenment cannot be met and that, “the only available standards of rationality are those made available by and within traditions” (p. 252); they conclude that nothing can be known to be true or false
  • MacIntyre follows the progress of the Western tradition through “three distinct traditions:” from Homer and Aristotle to Thomas Aquinas, from Augustine to Thomas Aquinas and from Augustine through Calvin to Hume
  • Chapter 17 examines the modern liberal denial of tradition, and the ironic transformation of liberalism into the fourth tradition to be treated in the book.
  • MacIntyre credits John Stuart Mill and Thomas Aquinas as “two philosophers of the kind who by their writing send us beyond philosophy into immediate encounter with the ends of life
  • First, both were engaged by questions about the ends of life as questioning human beings and not just as philosophers. . . .
  • Secondly, both Mill and Aquinas understood their speaking and writing as contributing to an ongoing philosophical conversation. . . .
  • Thirdly, it matters that both the end of the conversation and the good of those who participate in it is truth and that the nature of truth, of good, of rational justification, and of meaning therefore have to be central topics of that conversation (Tasks, pp. 130-1).
  • Without these three characteristics, philosophy is first reduced to “the exercise of a set of analytic and argumentative skills. . . . Secondly, philosophy may thereby become a diversion from asking questions about the ends of life with any seriousness”
  • Neither Rosenzweig nor Lukács made philosophical progress because both failed to relate “their questions about the ends of life to the ends of their philosophical writing”
  • First, any adequate philosophical history or biography must determine whether the authors studied remain engaged with the questions that philosophy studies, or set the questions aside in favor of the answers. Second, any adequate philosophical history or biography must determine whether the authors studied insulated themselves from contact with conflicting worldviews or remained open to learning from every available philosophical approach. Third, any adequate philosophical history or biography must place the authors studied into a broader context that shows what traditions they come from and “whose projects” they are “carrying forward
  • MacIntyre’s recognition of the connection between an author’s pursuit of the ends of life and the same author’s work as a philosophical writer prompts him to finish the essay by demanding three things of philosophical historians and biographers
  • Philosophy is not just a study; it is a practice. Excellence in this practice demands that an author bring her or his struggles with the questions of the ends of philosophy into dialogue with historic and contemporary texts and authors in the hope of making progress in answering those questions
  • MacIntyre defends Thomistic realism as rational enquiry directed to the discovery of truth.
  • The three Thomistic essays in this book challenge those caricatures by presenting Thomism in a way that people outside of contemporary Thomistic scholarship may find surprisingly flexible and open
  • To be a moral agent, (1) one must understand one’s individual identity as transcending all the roles that one fills; (2) one must see oneself as a practically rational individual who can judge and reject unjust social standards; and (3) one must understand oneself as “as accountable to others in respect of the human virtues and not just in respect of [one’s] role-performances
  • J is guilty because he complacently accepted social structures that he should have questioned, structures that undermined his moral agency. This essay shows that MacIntyre’s ethics of human agency is not just a descriptive narrative about the manner of moral education; it is a standard laden account of the demands of moral agency.
  • MacIntyre considers “the case of J” (J, for jemand, the German word for “someone”), a train controller who learned, as a standard for his social role, to take no interest in what his trains carried, even during war time when they carried “munitions and . . . Jews on their way to extermination camps”
  • J had learned to do his work for the railroad according to one set of standards and to live other parts of his life according to other standards, so that this compliant participant in “the final solution” could contend, “You cannot charge me with moral failure” (E&P, p. 187).
  • The epistemological theories of Modern moral philosophy were supposed to provide rational justification for rules, policies, and practical determinations according to abstract universal standards, but MacIntyre has dismissed those theorie
  • Modern metaethics is supposed to enable its practitioners to step away from the conflicting demands of contending moral traditions and to judge those conflicts from a neutral position, but MacIntyre has rejected this project as well
  • In his ethical writings, MacIntyre seeks only to understand how to liberate the human agent from blindness and stupidity, to prepare the human agent to recognize what is good and best to do in the concrete circumstances of that agent’s own life, and to strengthen the agent to follow through on that judgment.
  • In his political writings, MacIntyre investigates the role of communities in the formation of effective rational agents, and the impact of political institutions on the lives of communities. This kind of ethics and politics is appropriately named the ethics of human agency.
  • The purpose of the modern moral philosophy of authors like Kant and Mill was to determine, rationally and universally, what kinds of behavior ought to be performed—not in terms of the agent’s desires or goals, but in terms of universal, rational duties. Those theories purported to let agents know what they ought to do by providing knowledge of duties and obligations, thus they could be described as theories of moral epistemology.
  • Contemporary virtue ethics purports to let agents know what qualities human beings ought to have, and the reasons that we ought to have them, not in terms of our fitness for human agency, but in the same universal, disinterested, non-teleological terms that it inherits from Kant and Mill.
  • For MacIntyre, moral knowledge remains a “knowing how” rather than a “knowing that;” MacIntyre seeks to identify those moral and intellectual excellences that make human beings more effective in our pursuit of the human good.
  • MacIntyre’s purpose in his ethics of human agency is to consider what it means to seek one’s good, what it takes to pursue one’s good, and what kind of a person one must become if one wants to pursue that good effectively as a human agent.
  • As a philosophy of human agency, MacIntyre’s work belongs to the traditions of Aristotle and Thomas Aquinas.
  • in keeping with the insight of Marx’s third thesis on Feuerbach, it maintained the common condition of theorists and people as peers in the pursuit of the good life.
  • He holds that the human good plays a role in our practical reasoning whether we recognize it or not, so that some people may do well without understanding why (E&P, p. 25). He also reads Aristotle as teaching that knowledge of the good can make us better agents
  • AV defines virtue in terms of the practical requirements for excellence in human agency, in an agent’s participation in practices (AV, ch. 14), in an agent’s whole life, and in an agent’s involvement in the life of her or his community
  • MacIntyre’s Aristotelian concept of “human action” opposes the notion of “human behavior” that prevailed among mid-twentieth-century determinist social scientists. Human actions, as MacIntyre understands them, are acts freely chosen by human agents in order to accomplish goals that those agents pursue
  • Human behavior, according to mid-twentieth-century determinist social scientists, is the outward activity of a subject, which is said to be caused entirely by environmental influences beyond the control of the subject.
  • Rejecting crude determinism in social science, and approaches to government and public policy rooted in determinism, MacIntyre sees the renewal of human agency and the liberation of the human agent as central goals for ethics and politics.
  • MacIntyre’s Aristotelian account of “human action” examines the habits that an agent must develop in order to judge and act most effectively in the pursuit of truly choice-worthy ends
  • MacIntyre seeks to understand what it takes for the human person to become the kind of agent who has the practical wisdom to recognize what is good and best to do and the moral freedom to act on her or his best judgment.
  • MacIntyre rejected the determinism of modern social science early in his career (“Determinism,” 1957), yet he recognizes that the ability to judge well and act freely is not simply given; excellence in judgment and action must be developed, and it is the task of moral philosophy to discover how these excellences or virtues of the human agent are established, maintained, and strengthened
  • MacIntyre’s Aristotelian philosophy investigates the conditions that support free and deliberate human action in order to propose a path to the liberation of the human agent through participation in the life of a political community that seeks its common goods through the shared deliberation and action of its members
  • As a classics major at Queen Mary College in the University of London (1945-1949), MacIntyre read the Greek texts of Plato and Aristotle, but his studies were not limited to the grammars of ancient languages. He also examined the ethical theories of Immanuel Kant and John Stuart Mill. He attended the lectures of analytic philosopher A. J. Ayer and of philosopher of science Karl Popper. He read Ludwig Wittgenstein’s Tractatus Logico Philosophicus, Jean-Paul Sartre’s L'existentialisme est un humanisme, and Marx’s Eighteenth Brumaire of Napoleon Bonaparte (What happened, pp. 17-18). MacIntyre met the sociologist Franz Steiner, who helped direct him toward approaching moralities substantively
  • Alasdair MacIntyre’s philosophy builds on an unusual foundation. His early life was shaped by two conflicting systems of values. One was “a Gaelic oral culture of farmers and fishermen, poets and storytellers.” The other was modernity, “The modern world was a culture of theories rather than stories” (MacIntyre Reader, p. 255). MacIntyre embraced both value systems
  • From Marxism, MacIntyre learned to see liberalism as a destructive ideology that undermines communities in the name of individual liberty and consequently undermines the moral formation of human agents
  • For MacIntyre, Marx’s way of seeing through the empty justifications of arbitrary choices to consider the real goals and consequences of political actions in economic and social terms would remain the principal insight of Marxism
  • After his retirement from teaching, MacIntyre has continued his work of promoting a renewal of human agency through an examination of the virtues demanded by practices, integrated human lives, and responsible engagement with community life. He is currently affiliated with the Centre for Contemporary Aristotelian Studies in Ethics and Politics (CASEP) at London Metropolitan University.
  • The second half of AV proposes a conception of practice and practical reasoning and the notion of excellence as a human agent as an alternative to modern moral philosophy
  • AV rejects the view of “modern liberal individualism” in which autonomous individuals use abstract moral principles to determine what they ought to do. The critique of modern normative ethics in the first half of AV rejects modern moral reasoning for its failure to justify its premises, and criticizes the frequent use of the rhetoric of objective morality and scientific necessity to manipulate people to accept arbitrary decisions
  • MacIntyre uses “modern liberal individualism” to name a much broader category that includes both liberals and conservatives in contemporary American political parlance, as well as some Marxists and anarchists (See ASIA, pp. 280-284). Conservatism, liberalism, Marxism, and anarchism all present the autonomous individual as the unit of civil society
  • The sources of modern liberal individualism—Hobbes, Locke, and Rousseau—assert that human life is solitary by nature and social by habituation and convention. MacIntyre’s Aristotelian tradition holds, on the contrary, that human life is social by nature.
  • MacIntyre identifies moral excellence with effective human agency, and seeks a political environment that will help to liberate human agents to recognize and seek their own goods, as components of the common goods of their communities, more effectively. For MacIntyre therefore, ethics and politics are bound together.
  • For MacIntyre ethics is not an application of principles to facts, but a study of moral action. Moral action, free human action, involves decisions to do things in pursuit of goals, and it involves the understanding of the implications of one’s actions for the whole variety of goals that human agents seek
  • In this sense, “To act morally is to know how to act” (SMJ, p. 56). “Morality is not a ‘knowing that’ but a ‘knowing how’”
  • If human action is a ‘knowing how,’ then ethics must also consider how one learns ‘how.’ Like other forms of ‘knowing how,’ MacIntyre finds that one learns how to act morally within a community whose language and shared standards shape our judgment
  • MacIntyre had concluded that ethics is not an abstract exercise in the assessment of facts; it is a study of free human action and of the conditions that enable rational human agency.
  • MacIntyre gives Marx credit for concluding in the third of the Theses on Feuerbach, that the only way to change society is to change ourselves, and that “The coincidence of the changing of human activity or self-changing can only be comprehended and rationally understood as revolutionary practice”
  • MacIntyre distinguishes “religion which is an opiate for the people from religion which is not” (MI, p. 83). He condemns forms of religion that justify social inequities and encourage passivity. He argues that authentic Christian teaching criticizes social structures and encourages action
  • Where “moral philosophy textbooks” discuss the kinds of maxims that should guide “promise-keeping, truth-telling, and the like,” moral maxims do not guide real agents in real life at all. “They do not guide us because we do not need to be guided. We know what to do” (ASIA, p. 106). Sometimes we do this without any maxims at all, or even against all the maxims we know. MacIntyre Illustrates his point with Huckleberry Finn’s decision to help Jim, Miss Watson’s escaped slave, to make his way to freedom
  • MacIntyre develops the ideas that morality emerges from history, and that morality organizes the common life of a community
  • The book concludes that the concepts of morality are neither timeless nor ahistorical, and that understanding the historical development of ethical concepts can liberate us “from any false absolutist claims” (SHE, p. 269). Yet this conclusion need not imply that morality is essentially arbitrary or that one could achieve freedom by liberating oneself from the morality of one’s society.
  • From this “Aristotelian point of view,” “modern morality” begins to go awry when moral norms are separated from the pursuit of human goods and moral behavior is treated as an end in itself. This separation characterizes Christian divine command ethics since the fourteenth century and has remained essential to secularized modern morality since the eighteenth century
  • From MacIntyre’s “Aristotelian point of view,” the autonomy granted to the human agent by modern moral philosophy breaks down natural human communities and isolates the individual from the kinds of formative relationships that are necessary to shape the agent into an independent practical reasoner.
  • the 1977 essay “Epistemological Crises, Dramatic Narrative, and the Philosophy of Science” (Hereafter EC). This essay, MacIntyre reports, “marks a major turning-point in my thought in the 1970s” (The Tasks of Philosophy, p. vii) EC may be described fairly as MacIntyre’s discourse on method
  • First, Philosophy makes progress through the resolution of problems. These problems arise when the theories, histories, doctrines and other narratives that help us to organize our experience of the world fail us, leaving us in “epistemological crises.” Epistemological crises are the aftermath of events that undermine the ways that we interpret our world
  • it presents three general points on the method for philosophy.
  • To live in an epistemological crisis is to be aware that one does not know what one thought one knew about some particular subject and to be anxious to recover certainty about that subject.
  • To resolve an epistemological crisis it is not enough to impose some new way of interpreting our experience, we also need to understand why we were wrong before: “When an epistemological crisis is resolved, it is by the construction of a new narrative which enables the agent to understand both how he or she could intelligibly have held his or her original beliefs and how he or she could have been so drastically misled by them
  • MacIntyre notes, “Philosophers have customarily been Emmas and not Hamlets” (p. 6); that is, philosophers have treated their conclusions as accomplished truths, rather than as “more adequate narratives” (p. 7) that remain open to further improvement.
  • To illustrate his position on the open-endedness of enquiry, MacIntyre compares the title characters of Shakespeare’s Hamlet and Jane Austen’s Emma. When Emma finds that she is deeply misled in her beliefs about the other characters in her story, Mr. Knightly helps her to learn the truth and the story comes to a happy ending (p. 6). Hamlet, by contrast, finds no pat answers to his questions; rival interpretations remain throughout the play, so that directors who would stage the play have to impose their own interpretations on the script
  • Another approach to education is the method of Descartes, who begins by rejecting everything that is not clearly and distinctly true as unreliable and false in order to rebuild his understanding of the world on a foundation of undeniable truth.
  • Descartes presents himself as willfully rejecting everything he had believed, and ignores his obvious debts to the Scholastic tradition, even as he argues his case in French and Latin. For MacIntyre, seeking epistemological certainty through universal doubt as a precondition for enquiry is a mistake: “it is an invitation not to philosophy but to mental breakdown, or rather to philosophy as a means of mental breakdown.
  • MacIntyre contrasts Descartes’ descent into mythical isolation with Galileo, who was able to make progress in astronomy and physics by struggling with the apparently insoluble questions of late medieval astronomy and physics, and radically reinterpreting the issues that constituted those questions
  • To make progress in philosophy one must sort through the narratives that inform one’s understanding, struggle with the questions that those narratives raise, and on occasion, reject, replace, or reinterpret portions of those narratives and propose those changes to the rest of one’s community for assessment. Human enquiry is always situated within the history and life of a community.
  • The third point of EC is that we can learn about progress in philosophy from the philosophy of science
  • Kuhn’s “paradigm shifts,” however, are unlike MacIntyre’s resolutions of epistemological crises in two ways.
  • First they are not rational responses to specific problems. Kuhn compares paradigm shifts to religious conversions (pp. 150, 151, 158), stressing that they are not guided by rational norms and he claims that the “mopping up” phase of a paradigm shift is a matter of convention in the training of new scientists and attrition among the holdouts of the previous paradigm
  • Second, the new paradigm is treated as a closed system of belief that regulates a new period of “normal science”; Kuhn’s revolutionary scientists are Emmas, not Hamlets
  • MacIntyre proposes elements of Imre Lakatos’ philosophy of science as correctives to Kuhn’s. While Lakatos has his own shortcomings, his general account of the methodologies of scientific research programs recognizes the role of reason in the transitions between theories and between research programs (Lakatos’ analog to Kuhn’s paradigms or disciplinary matrices). Lakatos presents science as an open ended enquiry, in which every theory may eventually be replaced by more adequate theories. For Lakatos, unlike Kuhn, rational scientific progress occurs when a new theory can account both for the apparent promise and for the actual failure of the theory it replaces.
  • The third conclusion of MacIntyre’s essay is that decisions to support some theories over others may be justified rationally to the extent that those theories allow us to understand our experience and our history, including the history of the failures of inadequate theories
  • For Aristotle, moral philosophy is a study of practical reasoning, and the excellences or virtues that Aristotle recommends in the Nicomachean Ethics are the intellectual and moral excellences that make a moral agent effective as an independent practical reasoner.
  • MacIntyre also finds that the contending parties have little interest in the rational justification of the principles they use. The language of moral philosophy has become a kind of moral rhetoric to be used to manipulate others in defense of the arbitrary choices of its users
  • examining the current condition of secular moral and political discourse. MacIntyre finds contending parties defending their decisions by appealing to abstract moral principles, but he finds their appeals eclectic, inconsistent, and incoherent.
  • The secular moral philosophers of the eighteenth and nineteenth centuries shared strong and extensive agreements about the content of morality (AV, p. 51) and believed that their moral philosophy could justify the demands of their morality rationally, free from religious authority.
  • MacIntyre traces the lineage of the culture of emotivism to the secularized Protestant cultures of northern Europe
  • Modern moral philosophy had thus set for itself an incoherent goal. It was to vindicate both the moral autonomy of the individual and the objectivity, necessity, and categorical character of the rules of morality
  • MacIntyre turns to an apparent alternative, the pragmatic expertise of professional managers. Managers are expected to appeal to the facts to make their decisions on the objective basis of effectiveness, and their authority to do this is based on their knowledge of the social sciences
  • An examination of the social sciences reveals, however, that many of the facts to which managers appeal depend on sociological theories that lack scientific status. Thus, the predictions and demands of bureaucratic managers are no less liable to ideological manipulation than the determinations of modern moral philosophers.
  • Modern moral philosophy separates moral reasoning about duties and obligations from practical reasoning about ends and practical deliberation about the means to one’s ends, and in doing so it separates morality from practice.
  • Many Europeans also lost the practical justifications for their moral norms as they approached modernity; for these Europeans, claiming that certain practices are “immoral,” and invoking Kant’s categorical imperative or Mill’s principle of utility to explain why those practices are immoral, seems no more adequate than the Polynesian appeal to taboo.
  • MacIntyre sifts these definitions and then gives his own definition of virtue, as excellence in human agency, in terms of practices, whole human lives, and traditions in chapters 14 and 15 of AV.
  • In the most often quoted sentence of AV, MacIntyre defines a practice as (1) a complex social activity that (2) enables participants to gain goods internal to the practice. (3) Participants achieve excellence in practices by gaining the internal goods. When participants achieve excellence, (4) the social understandings of excellence in the practice, of the goods of the practice, and of the possibility of achieving excellence in the practice “are systematically extended”
  • Practices, like chess, medicine, architecture, mechanical engineering, football, or politics, offer their practitioners a variety of goods both internal and external to these practices. The goods internal to practices include forms of understanding or physical abilities that can be acquired only by pursuing excellence in the associated practice
  • Goods external to practices include wealth, fame, prestige, and power; there are many ways to gain these external goods. They can be earned or purchased, either honestly or through deception; thus the pursuit of these external goods may conflict with the pursuit of the goods internal to practices.
  • An intelligent child is given the opportunity to win candy by learning to play chess. As long as the child plays chess only to win candy, he has every reason to cheat if by doing so he can win more candy. If the child begins to desire and pursue the goods internal to chess, however, cheating becomes irrational, because it is impossible to gain the goods internal to chess or any other practice except through an honest pursuit of excellence. Goods external to practices may nevertheless remain tempting to the practitioner.
  • Since MacIntyre finds social identity necessary for the individual, MacIntyre’s definition of the excellence or virtue of the human agent needs a social dimension:
  • These responsibilities also include debts incurred by the unjust actions of ones’ predecessors.
  • The enslavement and oppression of black Americans, the subjugation of Ireland, and the genocide of the Jews in Europe remained quite relevant to the responsibilities of citizens of the United States, England, and Germany in 1981, as they still do today.
  • Thus an American who said “I never owned any slaves,” “the Englishman who says ‘I never did any wrong to Ireland,’” or “the young German who believes that being born after 1945 means that what Nazis did to Jews has no moral relevance to his relationship to his Jewish contemporaries” all exhibit a kind of intellectual and moral failure.
  • “I am born with a past, and to cut myself off from that past in the individualist mode, is to deform my present relationships” (p. 221).  For MacIntyre, there is no moral identity for the abstract individual; “The self has to find its moral identity in and through its membership in communities” (p. 221).
Javier E

How our brains numb us to covid-19's risks - and what we can do about it - The Washingt... - 1 views

  • Social scientists have long known that we perceive risks that are acute, such as an impending tsunami, differently than chronic, ever-present threats like car accidents
  • Part of what’s happening is that covid-19 — which we initially saw as a terrifying acute threat — is morphing into more of a chronic one in our minds. That shift likely dulls our perception of the danger,
  • Now, when they think about covid-19, “most people have a reduced emotional reaction. They see it as less salient.”
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  • This habituation stems from a principle well-known in psychological therapy: The more we’re exposed to a given threat, the less intimidating it seems.
  • As the pandemic drags on, people are unknowingly performing a kind of exposure therapy on themselves, said University of Oregon psychologist Paul Slovic, author of “The Perception of Risk” — and the results can be deadly.
  • “You have an experience and the experience is benign. It feels okay and comfortable. It’s familiar. Then you do it again,” Slovic said. “If you don’t see anything immediately bad happening, your concerns get deconditioned.”
  • The end result of all this desensitizing is a kind of overriding heedlessness decoupled from evidence — the anti-mask movements, the beach gatherings, the overflowing dance parties
  • One of the best ways to reinforce a certain behavior is to make sure that behavior is rewarded and that deviations from it are punished (or ignored).
  • But when it comes to lifesaving behaviors such as mask-wearing or staying home from parties, this reward-punishment calculus gets turned on its head.
  • “A few parks have drawn circles [on their lawns]: ‘Don’t go out of the circle,’ ” Griffin said. “We need to take those kinds of metaphors and put them throughout the entire day.”
  • while there is an upside to this decision — helping to stop the spread of the virus — it feels distant. “The benefit is invisible, but the costs are very tangible.”
  • By contrast, Slovic said, when you flout guidelines about wearing masks or avoiding gatherings, you get an immediate reward: You rejoice at not having to breathe through fabric, or you enjoy celebrating a close friend’s birthday in person.
  • Because risk perception fails as we learn to live with covid-19, Griffin and other researchers are calling for the renewal of tough government mandates to curb virus spread. They see measures such as strict social distancing, enforced masking outside the home and stay-at-home orders as perhaps the only things that can protect us from our own faulty judgment.
  • But these kinds of measures aren’t enough on their own, Griffin said. It’s also important for authorities to supply in-your-face reminders of those mandates, especially visual cues, so people won’t draw their own erroneous conclusions about what’s safe.
  • With parties, when you do the right thing and stay home, “you feel an immediate cost: You’re not able to be with your friends,
  • “The first step is awareness that sometimes you can’t trust your feelings.”
  • For people considering how to assess covid-19 risks, Slovic advised pivoting from emotionally driven gut reactions to what psychologist Daniel Kahneman — winner of the 2002 Nobel Prize in economics for his integration of psychological research into economic science — calls “slow thinking.” That means making decisions based on careful analysis of the evidence. “You need to either do the slow thinking yourself,” Slovic said, “or trust experts who do the slow thinking and understand the situation.”
  • Thousands of us are less afraid than we were at the pandemic’s outset, even though in many parts of the country mounting case counts have increased the danger of getting the virus. We’re swarming the beaches and boardwalks, often without masks.
Javier E

The Failure of Rational Choice Philosophy - NYTimes.com - 1 views

  • According to Hegel, history is idea-driven.
  • Ideas for him are public, rather than in our heads, and serve to coordinate behavior. They are, in short, pragmatically meaningful words.  To say that history is “idea driven” is to say that, like all cooperation, nation building requires a common basic vocabulary.
  • One prominent component of America’s basic vocabulary is ”individualism.”
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  • individualism, the desire to control one’s own life, has many variants. Tocqueville viewed it as selfishness and suspected it, while Emerson and Whitman viewed it as the moment-by-moment expression of one’s unique self and loved it.
  • individualism as the making of choices so as to maximize one’s preferences. This differed from “selfish individualism” in that the preferences were not specified: they could be altruistic as well as selfish. It differed from “expressive individualism” in having general algorithms by which choices were made. These made it rational.
  • it was born in 1951 as “rational choice theory.” Rational choice theory’s mathematical account of individual choice, originally formulated in terms of voting behavior, made it a point-for-point antidote to the collectivist dialectics of Marxism
  • Functionaries at RAND quickly expanded the theory from a tool of social analysis into a set of universal doctrines that we may call “rational choice philosophy.” Governmental seminars and fellowships spread it to universities across the country, aided by the fact that any alternative to it would by definition be collectivist.
  • rational choice philosophy moved smoothly on the backs of their pupils into the “real world” of business and governme
  • Today, governments and businesses across the globe simply assume that social reality  is merely a set of individuals freely making rational choices.
  • At home, anti-regulation policies are crafted to appeal to the view that government must in no way interfere with Americans’ freedom of choice.
  • But the real significance of rational choice philosophy lay in ethics. Rational choice theory, being a branch of economics, does not question people’s preferences; it simply studies how they seek to maximize them. Rational choice philosophy seems to maintain this ethical neutrality (see Hans Reichenbach’s 1951 “The Rise of Scientific Philosophy,” an unwitting masterpiece of the genre); but it does not.
  • Whatever my preferences are, I have a better chance of realizing them if I possess wealth and power. Rational choice philosophy thus promulgates a clear and compelling moral imperative: increase your wealth and power!
  • Today, institutions which help individuals do that (corporations, lobbyists) are flourishing; the others (public hospitals, schools) are basically left to rot. Business and law schools prosper; philosophy departments are threatened with closure.
  • Hegel, for one, had denied all three of its central claims in his “Encyclopedia of the Philosophical Sciences” over a century before. In that work, as elsewhere in his writings, nature is not neatly causal, but shot through with randomness. Because of this chaos, we cannot know the significance of what we have done until our community tells us; and ethical life correspondingly consists, not in pursuing wealth and power, but in integrating ourselves into the right kinds of community.
  • By 1953, W. V. O. Quine was exposing the flaws in rational choice epistemology. John Rawls, somewhat later, took on its sham ethical neutrality, arguing that rationality in choice includes moral constraints. The neat causality of rational choice ontology, always at odds with quantum physics, was further jumbled by the environmental crisis, exposed by Rachel Carson’s 1962 book “The Silent Spring,” which revealed that the causal effects of human actions were much more complex, and so less predicable, than previously thought.
Javier E

Daniel Kahneman | Profile on TED.com - 1 views

  • rather than stating the optimal, rational answer, as an economist of the time might have, they quantified how most real people, consistently, make a less-rational choice. Their work treated economics not as a perfect or self-correcting machine, but as a system prey to quirks of human perception. The field of behavioral economics was born.
  • Tversky and calls for a new form of academic cooperation, marked not by turf battles but by "adversarial collaboration," a good-faith effort by unlike minds to conduct joint research, critiquing each other in the service of an ideal of truth to which both can contribute.
Javier E

The Economic Case for Regulating Social Media - The New York Times - 0 views

  • Social media platforms like Facebook, YouTube and Twitter generate revenue by using detailed behavioral information to direct ads to individual users.
  • this bland description of their business model fails to convey even a hint of its profound threat to the nation’s political and social stability.
  • legislators in Congress to propose the breakup of some tech firms, along with other traditional antitrust measures. But the main hazard posed by these platforms is not aggressive pricing, abusive service or other ills often associated with monopoly.
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  • Instead, it is their contribution to the spread of misinformation, hate speech and conspiracy theories.
  • digital platforms, since the marginal cost of serving additional consumers is essentially zero. Because the initial costs of producing a platform’s content are substantial, and because any company’s first goal is to remain solvent, it cannot just give stuff away. Even so, when price exceeds marginal cost, competition relentlessly pressures rival publishers to cut prices — eventually all the way to zero. This, in a nutshell, is the publisher’s dilemma in the digital age.
  • These firms make money not by charging for access to content but by displaying it with finely targeted ads based on the specific types of things people have already chosen to view. If the conscious intent were to undermine social and political stability, this business model could hardly be a more effective weapon.
  • The algorithms that choose individual-specific content are crafted to maximize the time people spend on a platform
  • As the developers concede, Facebook’s algorithms are addictive by design and exploit negative emotional triggers. Platform addiction drives earnings, and hate speech, lies and conspiracy theories reliably boost addiction.
  • the subscription model isn’t fully efficient: Any positive fee would inevitably exclude at least some who would value access but not enough to pay the fee
  • a conservative think tank, says, for example, that government has no business second-guessing people’s judgments about what to post or read on social media.
  • That position would be easier to defend in a world where individual choices had no adverse impact on others. But negative spillover effects are in fact quite common
  • individual and collective incentives about what to post or read on social media often diverge sharply.
  • There is simply no presumption that what spreads on these platforms best serves even the individual’s own narrow interests, much less those of society as a whole.
  • a simpler step may hold greater promise: Platforms could be required to abandon that model in favor of one relying on subscriptions, whereby members gain access to content in return for a modest recurring fee.
  • Major newspapers have done well under this model, which is also making inroads in book publishing. The subscription model greatly weakens the incentive to offer algorithmically driven addictive content provided by individuals, editorial boards or other sources.
  • Careful studies have shown that Facebook’s algorithms have increased political polarization significantly
  • More worrisome, those excluded would come disproportionately from low-income groups. Such objections might be addressed specifically — perhaps with a modest tax credit to offset subscription fees — or in a more general way, by making the social safety net more generous.
  • Adam Smith, the 18th-century Scottish philosopher widely considered the father of economics, is celebrated for his “invisible hand” theory, which describes conditions under which market incentives promote socially benign outcomes. Many of his most ardent admirers may view steps to constrain the behavior of social media platforms as regulatory overreach.
  • But Smith’s remarkable insight was actually more nuanced: Market forces often promote society’s welfare, but not always. Indeed, as he saw clearly, individual interests are often squarely at odds with collective aspirations, and in many such instances it is in society’s interest to intervene. The current information crisis is a case in point.
Javier E

Worries About Success Can Make You Successful - Economic View - NYTimes.com - 0 views

  • In recent decades, behavioral economics has been the economics profession’s runaway growth area. Scholars in this field work largely at the intersection of economics and psychology, and much of their attention has focused on systematic biases in people’s judgments and decisions.
  • Paradoxically, our prediction errors often lead us to choices that are wisest in hindsight. In such cases, evolutionary biology often provides a clearer guide than cognitive psychology for thinking about why people behave as they do.
  • the brain has evolved not to make us happy, but to motivate actions that help push our DNA into the next round. Much of the time, in fact, the brain accomplishes that by making us unhappy. Anxiety, hunger, fatigue, loneliness, thirst, anger and fear spur action to meet the competitive challenges we face.
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  • The human brain was formed by relentless competition in the natural world, so it should be no surprise that we adapt quickly to changes in circumstances.
  • All of this brings us back to our decisions about how hard we should work — choices that have important implications for the lives we are able to lead. Most people would love to have a job with interesting, capable colleagues, a high level of autonomy and ample opportunities for creative expression. But only a limited number of such jobs are available — and it’s our fretting that can motivate us to get them.
  • THE anxiety we feel about whether we’ll succeed is evolution’s way of motivating us.
caelengrubb

Microeconomics - Econlib - 0 views

  • The motivating force for the change came from the macro side, with modern macroeconomics being far more explicit than old-fashioned monetary theory about fluctuations in income and employment (as well as the price level).
  • Many different distortions can create similar anomalies. If cotton is subsidized, the price farmers get will exceed, by the amount of the subsidy, the value to consumers. Society thus stands to gain by eliminating the subsidy and moving to a price that is the same for both buyers and sellers.
  • Public finance (see public choice) looks at how the government enters the scene. Traditionally, its focus was on taxes, which automatically introduce “wedges” (differences between the price the buyer pays and the price the seller receives) and cause inefficiency.
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  • Applied welfare economics is the fruition of microeconomics.
  • It is hard to imagine a basic course in microeconomics failing to include numerous cases and examples drawn from all of the fields listed above. This is because microeconomics is so basic. It represents the trunk of the tree from which all the listed subfields have branche
  • The specialization of production and the institutions of trade, commerce, and markets long antedated the science of economics. Indeed, one can fairly say that from the very outset the science of economics entailed the study of the market forms that arose quite naturally (and without any help from economists) out of human behavior
  • In microeconomics this is translated into the notion of people maximizing their personal “utility,” or welfare.
  • At the beginning of the process, those who adopted the new hybrids made handsome profits.
  • The economics of supply and demand has a sort of moral or normative overtone, at least when it comes to dealing with a wide range of market distortions. In an undistorted market, buyers pay the market price up to the point where they judge further units not to be worth that price, while competitive sellers supply added units as long as they can make money on each increment.
  • The strength of microeconomics comes from the simplicity of its underlying structure and its close touch with the real world. In a nutshell, microeconomics has to do with supply and demand, and with the way they interact in various markets.
  • If price controls keep bread (or anything else) artificially cheap, the predictable result is that less will be supplied than is demanded.
  • Had the government given wheat farmers coupons, each of which permitted the farmer to market one bushel of wheat, wheat marketings could have been cut by the desired amount. Production inefficiencies could be avoided by allowing the farmers to buy and sell coupons among themselves.
  • monopoly represents the artificial restriction of production by an entity having sufficient “market power” to do so.
  • Modern monopolies are a bit less transparent, for two reasons. First, even though governments still grant monopolies, they usually grant them to the producers. Second, some monopolies just happen without government creating them, although these are usually short-lived.
  • A final example of what occurs with official prices that are too high is the phenomenon of “rent seeking,” which occurs when someone enters a business to earn a profit that the government has tried to make unusually high.
  • If the wage does not adjust downward to equate supply and demand, the rate of urban unemployment will rise until further migration is deterred. Still other examples are in banking and drugs.
  • Rent seeking also occurs when something of value (like import licenses or radio/TV franchises) is being given away or sold below its true value
  • The great unifying principles of microeconomics are, ever and always, supply and demand. The normative overtone of microeconomics comes from the fact that competitive supply price represents value as seen by suppliers, and competitive demand price represents value as seen by demanders.
krystalxu

Journal of Economic Psychology - Elsevier - 0 views

  • The Journal aims to present research that will improve understanding of behavioral, in particular psychological, aspects of economic phenomena and processes.
Javier E

Opinion | A Nobel Prize for the Economics of Panic - The New York Times - 0 views

  • Obviously, Bernanke, Diamond and Dybvig weren’t the first economists to notice that bank runs happen
  • Diamond and Dybvig provided the first really clear analysis of why they happen — and why, destructive as they are, they can represent rational behavior on the part of bank depositors. Their analysis was also full of implications for financial policy.
  • Bernanke provided evidence on why bank runs matter and, although he avoided saying so directly, why Milton Friedman was wrong about the causes of the Great Depression.
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  • Diamond and Dybvig offered a stylized but insightful model of what banks do. They argued that there is always a tension between individuals’ desire for liquidity — ready access to funds — and the economy’s need to make long-term investments that can’t easily be converted into cash.
  • Banks square that circle by taking money from depositors who can withdraw their funds at will — making those deposits highly liquid — and investing most of that money in illiquid assets, such as business loans.
  • So banking is a productive activity that makes the economy richer by reconciling otherwise incompatible desires for liquidity and productive investment. And it normally works because only a fraction of a bank’s depositors want to withdraw their funds at any given time.
  • This does, however, make banks vulnerable to runs. Suppose that for some reason many depositors come to believe that many other depositors are about to cash out, and try to beat the pack by withdrawing their own funds. To meet these demands for liquidity, a bank will have to sell off its illiquid assets at fire sale prices, and doing so can drive an institution that should be solvent into bankruptcy
  • If that happens, people who didn’t withdraw their funds will be left with nothing. So during a panic, the rational thing to do is to panic along with everyone else.
  • There was, of course, a huge wave of banking panics in 1930-31. Many banks failed, and those that survived made far fewer business loans than before, holding cash instead, while many families shunned banks altogether, putting their cash in safes or under their mattresses. The result was a diversion of wealth into unproductive uses. In his 1983 paper, Bernanke offered evidence that this diversion played a large role in driving the economy into a depression and held back the subsequent recovery.
  • In the story told by Friedman and Anna Schwartz, the banking crisis of the early 1930s was damaging because it led to a fall in the money supply — currency plus bank deposits. Bernanke asserted that this was at most only part of the stor
  • a government backstop — either deposit insurance, the willingness of the central bank to lend money to troubled banks or both — can short-circuit potential crises.
  • Such arrangements offered a higher yield than conventional deposits. But they had no safety net, which opened the door to an old-style bank run and financial panic.
  • So banks need to be regulated as well as backstopped. As I said, the Diamond-Dybvig analysis had remarkably large implications for policy.
  • From an economic point of view, banking is any form of financial intermediation that offers people seemingly liquid assets while using their wealth to make illiquid investments.
  • This insight was dramatically validated in the 2008 financial crisis.
  • By the eve of the crisis, however, the financial system relied heavily on “shadow banking” — banklike activities that didn’t involve standard bank deposits
  • But providing such a backstop raises the possibility of abuse; banks may take on undue risks because they know they’ll be bailed out if things go wrong.
  • And the panic came. The conventionally measured money supply didn’t plunge in 2008 the way it did in the 1930s — but repo and other money-like liabilities of financial intermediaries did:
  • Fortunately, by then Bernanke was chair of the Federal Reserve. He understood what was going on, and the Fed stepped in on an immense scale to prop up the financial system.
  • a sort of meta point about the Diamond-Dybvig work: Once you’ve understood and acknowledged the possibility of self-fulfilling banking crises, you become aware that similar things can happen elsewhere.
  • Perhaps the most notable case in relatively recent times was the euro crisis of 2010-12. Market confidence in the economies of southern Europe collapsed, leading to huge spreads between the interest rates on, for example, Portuguese bonds and those on German bonds. The conventional wisdom at the time — especially in Germany — was that countries were being justifiably punished for taking on excessive debt
  • the Belgian economist Paul De Grauwe argued that what was actually happening was a self-fulfilling panic — basically a run on the bonds of countries that couldn’t provide a backstop because they no longer had their own currencies.
  • Sure enough, when Mario Draghi, the president of the European Central Bank at the time, finally did provide a backstop in 2012 — he said the magic words “whatever it takes,” implying that the bank would lend money to the troubled governments if necessary — the spreads collapsed and the crisis came to an end:
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