Today positivism is considered in the halls of social science as narrow, limited and really a bit antiquated. So I find myself and my modes of thinking a bit antiquated, since I can’t manage to subscribe to deconstructionism, postmodernism and the host of other –isms that have taken over. I understand their impetus but not their usefulness.
And I wonder whether it is time for a new perspective, one that can encompass the vast amount of uncertainty we face, in a “real” as well as emotional, psychological and social sense, while being of use in navigating the world and our lives.
I think of this in the context of externalities, or referring back to Wikipedia, spillovers of an economic transaction that have “an impact on a party that is not directly involved in the transaction.” I had a pretty good foundational education in mainstream “freshwater” economics, one based on theory and models and which would be considered quite positivist. In mainstream economics, externalities tend to be a side topic that is often assumed away as minor or localized. Nowadays, however, externalities seem – well, important. If you look at some of the arenas where the United States is failing miserably relative to socialized nations, i.e. non-university education, health care, environmental issues, these all have sizable externalities. Socialized systems have made implicit decisions about what negative externalities are untenable and instituted a policy net of seemingly minor moral hazards. When negative externalities become so large as to be untenable, such as the systemic failure of the financial system, then we institute moral hazard in the form of bailouts. And then we try to install a morass of regulation to mitigate the moral hazard we’ve created, likely triggering - in a host of ways we’ve yet to discover – the Law of Unintended Consequences.
The intertwining of the global financial system is perhaps just an example and a metaphor for an even larger trend towards interconnection and increasing externalities. After all, as we live more closely in urban mega-cities and interact more regularly over the internet and web-enabled mobile devices, it makes sense that both positive and negative externalities – that is, the impact of transactions on parties outside those transactions – would increase. In this world, the price mechanism fails more often. Our models fail more often. In this world of increasing uncertainty, where positive verification isn’t to be had, the positivist view seems less useful. This is important - once externalities gets to a certain level, it seems inevitable that our society will try to gain greater control of its constituents, to avoid inflicting the social cost of negative externalities or incent behavior which results in positive externalities. This points to a trend towards greater regulation and loss of individual liberty.
Unless – we can think of a new way of looking at things, a mechanism to complement the price mechanism when it fails. Some have suggested a reputation mechanism, though we haven’t attained the level of connectedness and transparency to make this efficacious. We should perhaps start thinking about this though…