Performativity and Politics: Nudges, Discount Rates, and Climate Change

May 18, 2010

We are welcoming Dan Hirschman, our new guest contributor.  This is Dan’s first post on Soc Finance, where he is examining the highly contentions intersection of issues of performativity and politics.

For more info about Dan, see his bio in the ‘about us’ section.

There’s been a lot written in the blogosphere about the relationship between “the performativity of economics” (the idea that economics creates and reshapes the world as much as it reflects it) and “politics”. The best examples are probably on SocFinance and couched in the discussion of Social Studies of Finance or SSF (e.g. Does SSF Mean Politics?). Here’s a quote from the end of that post:

So, does SSF mean politics? Yes it does. By revealing empirically the performative nature of financial markets and by showing the heterogeneity of networks of financial markets, SSF makes a political statement. Of course, one can ask if being political is the intention of SSF scholars. This is an open question. However, just like Howard Zinn’s famous statement that one cannot be neutral on a moving train, I think that SSF shows us that one cannot argue with mainstream economists and be politics-free.

I’m in complete agreement with Yuval et al. that performativity means politics. Echoing Latour, from whom SSF and performativity are in part descended, I would argue that scholars studying performativity are searching for “fresh sources of power” in a world where most sources of power are old, established, and semi-predictable. Latour looked in the laboratory – as in his famous study of Pasteur (see, e.g. “Give me a laboratory and I will raise the world”). Here’s a lengthy quote from the end of that story of how Pasteur gained mastery over germs in his laboratory and through that mastery transformed the world:

The congenital weakness of the sociology of science is its propensity to look for obvious stated political motives and interests in one of the only places, the laboratories, where sources of fresh politics as yet unrecognized as such are emerging. If by politics you mean elections and law, then Pasteur, as I have said, was not driven by political interests, except in a few marginal aspects of his science. Thus his science is protected from enquiry and the myth of the autonomy of science is saved. If by politics you mean to be the spokesman of the forces you mould society with and of which you are the only credible and legitimate authority, then Pasteur is a fully political man. Indeed, he endows himself with one of the most striking fresh sources of power ever. Who can imagine being the representative of a crowd of invisible, dangerous forces able to strike anywhere and to make a shambles of the present state of society, forces of which he is by definition the only credible interpreter and which only he can control?

Pasteur domesticated germs in his laboratory, and then leveraged that position to transform the world – politics by other means than ballot boxes or protest movements. But what about modern economics?

This weekend’s NYTimes Magazine has a wealth of fantastic articles. I’ll likely talk about another one in detail in a later post – it concerns the rise and fall of the GDP, a topic near and dear to my heart (and likely to my dissertation!). But for the moment I want to talk about a profile of Cass Sunstein, a behavioral law and economics prof from U Chicago who joined the Obama administration in an important but relatively unknown position, administering the Office of Information and Regulatory Affairs. Sunstein is most recently famous for his work with Thaler in a book called “Nudge“, which argues for a libertarian paternalism based on the insights of behavioral economics. This approach argues that politicians can push people in a desired direction without altering in any way their actual rights. For example, by making organ donation opt-out rather than opt-in, governments take away no rights but might convince more people to donate by changing their assumptions about what other people or doing, or simply because it becomes a different kind of decision (opting to deny rather than offering to give).*

As the head of the OIRA, Sunstein is in charge of approving regulations on the basis of cost-benefit analysis. Read the whole story for some fascinating nuggets about what this means, but one example struck me as a great example of a fresh source of politics: arguments over the proper ‘discount rate’. The discount rate measures the value of money now vs. money later. For example, how much would you prefer 10$ today vs. 10$ a year from now? In measuring the costs of a future harm, like global climate change, cost benefit-analyzers (what’s the real term? is there one?) must assume a discount rate. Assume a small discount rate, and problems in the future cost much more. Assume a large discount rate, and such problems are more trivial. Intergenerational conflict has been parameterized! And yet, what parameter should we set?

As an academic, Sunstein seemed to side with economists like William Nordhaus at Yale, who set the discount rate at about 5 percent, which would counsel patience. “It’s not clear what direction the risk of error cuts in,” he told me. “If we err, 7 percent could be bad,” he said, but “if we err, 1 percent could be bad also.” A low discount rate might protect the environment by spurring us to sacrifice now — while damaging the economy, increasing poverty and putting more people out of work. The difficulty is that the experts are lined up “out the door and down the block on both sides of this issue,” one economist told me. Sunstein has urged long and detailed public comment. “We’re trying to get a wide range of views,” he said. But in some cases — in the case of climate change — the problem isn’t just that experts don’t know enough. The problem is that nobody knows enough, and still the government has to choose.

Note: the experts are lined up out the door. Not the public, nor the politicians. How could they? To have a voice in this debate, you need expertise – a PhD in economics or at least some climate-related science would be a good place to start. And yet, these decisions will influence (along with other, more established kinds of politics) how governments respond to perhaps the biggest problem of our times. So yeah, I’d say that performativity means politics.

8 Responses to “Performativity and Politics: Nudges, Discount Rates, and Climate Change”

  1. […] (Part n of N) Meta-Update: I’m guest-blogging over at Soc Finance! The below post is my debut over there. Future posts will look at such exciting topics as Glass-Steagall and the categories of […]

  2. Oops! The footnote * was omitted:
    * For a critical take on the efficacy of such a program with regards to organ donation, see Kieran Healy’s work.

    • Philip Roscoe Says:

      Just a quick comment, Dan: your throwaway example of presumed consent is an interesting one, because it does have ramifications. While economists argue over the “costs” of opting out versus opting in, the don’t notice the following. In the US, and the UK, donated organs are a public resource. The adoption of a presumed consent regime categorizes all of our organs, eyes, bones and tissues, as public property, until we opt out. Knocked down on the way to the opt-out office? Too bad. Bearing in mind common law traditions that we do not own our bodies (i.e. do not have property rights over them) even while we are alive, consent represents a flimsy marker in the boundaries of our person, and removing this on the basis of cost has unanticipated consequenses! I think consequenses like this stand behind any objection to government by a clique of “experts”.

  3. danielbeunza Says:

    Dan — the blogpost is apposite, relevant and critically important. Policiy makers are on the brink of “stupidizing” the American public.

    As I see it, the problem with behavioral economics is that it neglects the importance of decision-making tools. In doing so, it treats people as baboons… animals, primitives, babies, rendered “inaccurate” and “biased” due to the absence of calculators, sliding rules, abaccuses or excel spreadsheets. I saw that on the trading floor, as an ethnographer. The Bloomberg spreadplot, the formulae… are critically important to modern traders.

    Now, what’s tragic about behavioral economics is that by defending easy or cheap approaches to choice, most critically the government default option, behavioral policy makers are making choice less interesting, reducing controversy and decreasing the incentives of entrepreneurs to create calculating devices that might make choice better. And, in that way, it might end up being performative.

  4. Michael Bishop Says:

    I think we can and should distinguish between, on the one hand, social science with political implications, and on the other, politics with some of the trappings of social science.

    • Michael,

      Would you elaborate on this? How do we distinguish politics and science? What’s your understanding of politics here?

      • Michael Bishop Says:

        I am not so bold as to offer a single, well-defined, standard for “good science.” But one useful benchmark for good science is that it improves the accuracy of our predictions.

        An ethnography of derivatives traders might pass this test with flying colors. The surest way to find out would be to set up a system where predictions may be made and scored.

        If anyone has other ideas on how to be sure some piece of research is contributing to a cumulative body of useful knowledge, I’d be very interested to hear them.

  5. yuvalmillo Says:

    Dan, thanks again: the discount rate is yet another great example that shows that politics (power allocation and practice of power in the general sense) and Politics (the traditional political arena) are irreversibly intertwined. So, it is no news that markets are political and so is science. I want, however, to sharpen the point about SSF, performativity and politics. The infrastructure through which performativities come about: the applications of the Black-Scholes model, the implied probability apparatus that Beunza and Stark discuss are created and maintained in a political medium. The ‘old boys’ in the options market were not too happy to see traders with sheets of calculated prices. Similarly, NYSE specialists were not thrilled to have their block orders chopped to tiny one by algorithms. Performativity is an inner engine embedded within a larger process of intra-and inter-organisational change (creative or destructive) and, as such, it is political by its very nature.

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