There I sat astonished in my first class on economics when the professor mapped out the functioning of the material world on a blackboard. It felt like I was being let in on all the secrets about which I had long been curious.
I wanted to know why some societies are rich and others poor, why we live long in some ages and not in others, and how it comes to be that empires rise and fall. This professor seemed to have the answers. It all came down to models, lines on graphs, and a neologistic vocabulary.
The first round of education concerns supply and demand, the endlessly useful constructs to explain the interaction of price and resources and hence the movement of what we call wealth.
We were exploring “utility functions” and their changes. In the course of this, we were examining preferences, and he introduced the possibility of a change in tastes. The demand curve moves right when a new good becomes the thing and left when an old good loses favor.
The idea of changing tastes in the model was what’s called “exogenous,” something that is a bit of an outside disturbance of otherwise stable events.
Something about that assumption triggered me. What is the world but an endlessly changing matrix of mutations of human preferences? It’s not just consumers; it is everything and everyone. How can this be modeled as an outlying event rather than the very essence of what we are supposed to be studying?
Of course, modelers must hold things steady in order to map and understand. It’s not enough just to draw chaotic squiggles on a chalkboard and say, “This is the economy.” No, we map things out rationally and introduce the presumption of some new elements in a way that our brains can process.
That’s what gives us a mental picture of what’s going on under the surface. Economists called this the “Ceteris Paribus” assumption, meaning “all else held to be equal or unchanged.”
There’s a lot built into that phrase, but I get it: We must freeze action to understand. Even so, we make a huge mistake in thinking that there is anything frozen in the real world.
Before you get bored with my disquisition here, let me tell you why I’m thinking about this.
I served a dessert to a friend a few nights ago, a cake I picked up from a Pakistani bakery precisely because it is not the typical American cake. It uses all-natural ingredients, a spongy texture, and only a limited amount of sweeteners like sugar and honey. The first time I tried it, I was completely thrilled.
To my amazement, my friend tried one bite and said he would not eat any more. He prefers the sticky cakes from the normal grocery stores, complete with corn syrup muck that goes straight to your head. My jaw hit the floor. I was astonished that anyone would say that.
My lesson: De gustibus non disputandum. That is, there is no accounting for taste.
The experience made me wonder just how much my own tastes have changed since I’ve adopted a more scrupulous approach to eating. I avoid all restaurants. There is nothing in any airport restaurant or bar that I want. I dread commercial food. I prefer all food at home, purchased from specialty stores, and not necessarily fancy ones. I like meat without chemicals, vegetables and fruits locally grown, and so on. I avoid bleached breads and caged chickens.
I’ve become the very person of whom I used to make fun! Oh well, these are MAHA times and many of us have changed.
Among the products I now buy is fresh fish. I’m fortunate enough to have that available locally. I’ve always favored lighter and milder fish like flounder, skate, cod, and tilapia.
A friend introduced me to mackerel, a much cheaper fish. The first time, I was shocked by the fishiness of the experience and did not like it. But the price kept calling me back. I tried it again and again and eventually came to like it, although I was always aware of its fishy quality. But instead of tasting yucky, it started tasting just strong and meaningful, a real fish experience.
Then, the other day, I reverted to a tilapia. I was actually put off by it. It tasted like nothing at all, like a piece of paper maybe or really no flavor at all. Through this experience, my previous favorites have gone down in my preference ranking, the curve shifted to the left, and other strains of seafood have gone up, the curve shifted to the right.
This is for me as an individual. There is no way to clock this as a group, or, rather, let’s just say that it is very difficult. Maybe one fish becomes fashionable and another does not. In that case, the demand curve for everyone undergoes a shift. Of course, such curves are always ex post estimates. There is no measurement device. All of this is conceptual.
The word taste in my examples above is used literally to mean what we taste. It turns out to be adaptable and trainable in ways I never understood before. A person raised with the sweetest cakes does not like them otherwise while a person raised on European-style desserts thinks American treats are disgusting.
Likewise, a person raised on salted fish thinks it’s wonderful, whereas most people could not swallow the stuff. There is a store in town that sells lots of salted fish even though fresh fish is only 7 feet away. This amazes me because salting fish is a way to preserve fish before refrigeration so why would it even still exist now? Again, de gustibus non disputandum.
One of the strangest features of the material world is how none of it is valuable until someone values it. Even more striking is how that economic value is ultimately without any means of measuring it until it changes hands. You trade your rug for a painting, and then we know its social value at least as regards the two traders. If there is money trading hands, we now have a price that can be useful to others. We can also engage in accounting.
Prices and accounting run the world, but no matter how big and complex the financial machinery, the core desiderata always traces to individual valuation, which is always and everywhere residing in the human mind as a subjective matter. Because value is subjective, it is subject to unrelenting change, most often in ways that are both unpredictable and inexplicable.
Models and graphs are not useless, but we must never confuse them with the real world. Scientists and social managers keep making that mistake on every front: economics, climate change, infectious disease, drug safety and effectiveness, diet and health, and so much more.
Such models can never capture the complexity of any reality nor the seeming chaos of that which is forever changing. Consumer tastes are just the start of it. All social life is governed by ceaseless change, which underscores the need for institutions that permit ceaseless adaptation to change.
This was and is the best case for a market economy: It’s signaling systems move with the unrelenting mutations of the human spirit itself. Any economic theory that dismisses that as merely exogenous to a perfect system can never accurately describe the world in which we live.
