Thursday, May 28, 2015

I can't find my bootstraps to pull up

Clinton's welfare reform was the logical conclusion of Ronald Reagan's pernicious use of the 'welfare queen' myth in the 1980s.
(Amy B. Dean, fellow, Century Foundation)

The most brilliant propagandist technique will yield no success unless one fundamental principle is borne in mind—it must confine itself to a few points and repeat them over and over.
(Joseph Goebbels, Propaganda Minister, Nazi Germany)

Nature and nurture

“Good wombs have born bad sons,” as Shakespeare says in The Tempest. The nature versus nurture debate goes back to at least the time of Plato. But perhaps over the past fifteen or twenty years we have acquired a remarkable pool of knowledge regarding human behavior in general, be it the mapping of the human genome, neuroscience discoveries, behavioral psychology or even the controversial field of genopolitics. As individuals we are a complex mixture of genetic and environmental factors. But who are we in assorted groups or various interests or particular markets?

Behavioral economics it seems to me has a great deal to offer, for example, the 2016 presidential election in the United States, which promises to be once again less than enlightening, informative and honest.

Behavioral economics may also have a lot to say about how we look at poverty in the U.S. and throughout the world. Poverty in America has come out of the shadows, for the moment at least, in part because of the issue of racism, a central piece in understanding this country.

Where once behavioral economics was an outlier in the field, it has now become an influential element in understanding economic decision making. Even the World Bank in its 2015 annual report devoted most of the document to behavioral decision making. Ultimately, to be truly successful, it has to influence policymakers to think in a different way. This, however, is hardly ever easy; we humans are reluctant to let facts get in the way of our strongly held beliefs. Call it nature vs nurture.

My cortisol hormone just doesn't feel right

Researchers are familiar with what's called a hormone-receptor complex. There are steroid hormones, which include cortisol, estrogen and testosterone. Cortisol, for example, is released under stress, the proverbial threat, but it can also occur by merely thinking about unpleasant things. High levels of cortisol over long periods may cause such illnesses as depression, heart disease and overall suppression of the immune system.

Stress and prolonged complex tasks can cause glucose levels in the region of the brain associated with attention and planning to drop. Physical capabilities can decrease but mental acuity can be affected as well.

Neurotransmitters, serotonin and dopamine being two, are related to stress and motivation. Levels of serotonin in an individual can affect the sense of well being and confidence. These individual variations might cause different reactions and possibly have a bearing on how we think about and react to real world issues, such as violence, gay marriage and poverty.

The point of all this is that we know a good deal more about genetic and environmental factors when it comes to human behavior. This connects to behavioral economists and how they have looked at the field of psychology and the discoveries in neuroscience and have adapted and applied many of the ideas to economics. Some have referred to behavioral economics as the “hybrid offspring” of economics and psychology.

You've been framed

Frank Luntz, a political operative in the early George W. Bush presidency, told the administration that it was important to always refer to global warming as “climate change.” This phrase, it was believed, was less unsettling and more controllable, thus more easily ignored. The fossil fuel industry could rest easily.

More than 30 years ago two psychologists published a paper questioning the standard assumptions regarding decision making, which ultimately had a significant impact on traditional economic theory. See Prospect Theory: An Analysis ofDecision Under Risk.

The long standing belief had been that the “Economic Man” was rational and by in large made self-interested decisions. Intentionally or otherwise, this idea benefited the status quo and provided a justification for what has been thought to be the “inherent” wisdom of what is universally referred to as the free-market, which is hardly “free” in any sense of the word.

What was being suggested is that the reality was actually more about how alternatives were framed and not about their “relative value.” It became all too often a zero-sum game. The framing was what strongly influenced the decisions that people made.

Now, some thirty years later, the word “framing” is familiar to a great many people, and certainly it's part of the strategy for both marketeers and political operatives among others. Of course, who would want to pay a “death” tax. Outrageous! But what about a small percentage of the rich paying a very moderate estate tax upon their departure from the living, considering how they benefited from America's political and economic system? Andrew Carnegie, one of the founding fathers of the Gilded Age, did not believe that the children of the rich ought to be handed a pot of gold. This was the United States and we of course did not want to create a parasitic aristocracy. You've been framed.

Now, behavioral economists are looking at how people actually act in making economic decisions, which could influence the kinds of programs that might be developed, not only in dealing with poverty but improving upon the choices we all make—unlike what the traditional economic model claims we have been doing all along. It has been to a large degree a lovely fairy tale. Go ahead, treat yourself and pull out that credit card. You deserve it.

The problem with those people

It seems that so many of the tired, moth-eaten cliches have never gone away and have a life of their own: character flaw, lazy, lack of self-discipline and so forth have been the constant refrain. In my part of the country you only have to follow the state legislatures in Missouri and Kansas to know that obliviousness and general obtuseness have been raised to the level of sacred text.

It's not that an individual might be deemed unambitious, but that an entire class of people or group of individuals have been summarily dismissed as, well, “flawed.”

What makes behavioral economics so compelling is the many studies that have been undertaken and the quantifiable data gathered. It refutes so many of the standard, mythical economic beliefs beloved by the status quo—most obviously the comfortable and the privileged.

In the now well studied Dutch Hunger Winter of 1944, as the allies advanced across Europe, the Nazis let the people of Holland starve. This affected the fetuses of pregnant women, especially those fetuses in the 2nd and 3rd trimesters. The fetuses took the cue from their mother's low nutrient intake, but even when the war ended and there was plenty of food, in many cases the “thrifty” metabolism couldn't stop storing calories away. In a number of instances health problems like diabetes developed later on for these children.

We learned that physical deterioration was clearly obvious, but we also observed the mental effects of starvation. Food became the central thought, above anything else. Fast forward more than 60 years later and behavioral economists want to know how mental states along with social and physical environments affect economic activity on a very specific level … realizing that one size (program) does not fit all.

While behavioral economists, like any group of people, can have varied points of view, some basic ideas seem to stand out, oftentimes contrary to the prevailing views. Sendhil Mullainathan, a behavioral economist at Harvard has said that, “To put it crudely, poverty—no matter who you are—can make you dumber.”--anywhere in the world, among any economic class of people.

The gnawing away of cognitive competence, counter-productive decisions, the inability to consider the long-term best interest are all related to what economists refer to as scarcity. While the standard belief is generally that those poor people are poor because they make bad decisions, the behavioral economists believe that people make bad decisions because they are poor, perhaps obvious to some people, but observing (in the U.S.) the Congress, many state legislatures and numerous politicians pontificating on poverty and the poor, you would be hard pressed to locate cognitive competence among these “decision makers.”

This is a complex subject, and while behavioral economics is a central part of economic theory today, for many, it goes against deeply ingrained beliefs and vested interests. Framing is going to matter a lot.

For those who want additional information on the subject the following may be of interest:




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