The Analytical and the Normative Economy

Perhaps you have heard that I think highly of David Hicks 1981 masterwork on education, Norms and Nobility. In it (the best book on education written since 1950), Mr. Hicks argues that a new mind has overtaken the American school and he uses any number of words to describe that new mind. Perhaps the most informative are the pair, “analytical”, and “skeptical.”

He argues in eloquent page after provocative page that the analytical mind, rooted in a self-deluding theory of doubt based knowledge, has overcome what he calls the normative mind, which is necessary for a life worth living.

I’ve been dwelling quite a bit on this dichotomy, because I am convinced (more every day) that Mr. Hicks provides what may be the most spot on analysis about what has gone wrong with our schools, but he does so in a way that helps you see that education is only one element of the crisis.

He doesn’t go into the many extra-curricular applications of his principle, but like every other American I have been thinking about the economy quite a bit lately. What went wrong? Are there any solutions? Can the solutions be discovered using the eyes and minds of current leadership?

Even here I think Mr. Hicks provides the needed analysis. He makes us see that in one sense the problem is not as complicated as we have made it.

The modern economist studies what he calls economics in what Mr. Hicks would call a non-normative mode, one strictly analytical. The study of economics is treated like a specialty, analytically separated from other subjects. It concerns itself with GDP’s, economic growth, and other wholly abstract and amoral matters.

The science of economics reduces human exchanges to statistically accessible social behaviors.

And here’s the decisive point: only be studying economics for many years can you be an expert in the special knowledge required to understand these complexities.

The truth is that like every other area of knowledge, it would take many years of study to understand economic realities. However, the act of reducing economics to what is measurable so alters the realities of actual economics that the more you study modern economic theory the farther removed you are from understand economic reality.

How can that be? Because economics has to do with what one economist called “Human action,” and human action is always, fundamentally, irrevocably moral. It is also concrete.

When we treat human beings like animals or machines, the worst thing about it is that they begin to act like animals or machines. But they can’t make the transition as far as the economist wants them to.

Economics as a profession does not concern itself with freedom or justice because those are areas of inquiry that stand outside its analytical framework.

But a more normative approach to economics leads one to better understand the economic crises that pop up continually.

Currently, the analysts say things that the normative thinkers would not accept. For example, some banks are too big to fail. They try to stimulate economic growth by manipulating consumer confidence, believing that when consumers are confident they spend more, thus propelling growth.

The normative response to the latter is to call it a con-game. Consumers are most confident when they have a reasonable amount of control over their destinies and that is the case when they are out of debt or only take on debt that fits within their capacity for risk-management.

Norms develop over centuries and are inscribed on the human heart. They arise, not from “scientific” analysis of abstract numbers, but from the experience of the race over centuries and the wisdom hidden in our “common sense.”

A normative economy could grow steadily for centuries with only a few disruptions. An analytical one will endure serious, sometimes mind-numbing, disruptions continually.

You can see norms expressed well in the book of Proverbs, a simple read of which would have saved us from our economic woes. You even see them pop up in the mouths of fools like Polonius in Hamlet when he tried to look wise by quoting cliches to his son. We’ve probably all heard his grand opening, where he cautioned Laertes to, “Neither a borrower nor a lender be.”

Normative thought says, “Stay out of debt.”

It says, “Don’t believe those who say that the sky is falling – they are foxes who eat chickens by scaring them.”

It says, “If you borrow, be sure you have collateral and can afford to lose it.”

It says, “When you take on risk you must live with the consequences. And so must those for whom you are responsible. So be responsible.”

It says, “Be thrifty and frugal. Don’t spend beyond your means.”

These are principles that enable us to better endure and even to thrive in uncertain times, for the simple reason that they are rooted in humility before the reality of our vast ignorance.

The analytical mind is more impressed by what it knows.

The analyst says, “We need to spend more to keep the economy going.”

He says, “Those who took on big risks should distribute the consequences of their decisions among as many people as possible so it doesn’t hurt our economy.”

He says, “Trust us, we can print money and control the interest rates. We can deal with crises before they arise because we are much smarter than the millions of dummies who comprise the market.”

He says, “What the *&^% just happened?”

And the normative mind says, “You took on too much debt.”

“No, that’s not it,” says the analytical mind. “We’ll print more money to stimulate the economy and help those in debt by taking on more than our minds can get their heads around and that will save the world.”

“Grow up,” says the normative mind.

It looks as though we’re going to have to.