“The economic argument”

Last week there was an xkcd strip that bothered me for three reasons.  Here’s the strip:

Two of the three things that bothered me about it were raised in this comment in the forum, more forcefully than I likely would have done.  So I’ll take the liberty of quoting “woodrobin”:

1. Dowsing is used by oil prospectors, as well as people looking for places to dig water wells. Less often these days, but it’s still used. Does that mean it works? No. Does people not using it mean it doesn’t work? No. Very few people use horses to pull plows, except the Amish and people in developing countries. Does that mean that horses can’t pull plows?

2. Health care cost reduction. That was funnier, taken seriously, than the original joke. When was the last time you ran into a doctor, hospital or insurance company that was interested in cost reduction through treatment? Any treatment, scientific or otherwise? Doctors and hospitals want to make money, and insurance companies have figured out it’s easier to save money by denying coverage for treatment, either in whole by canceling coverage, or in part by excluding anything “experimental” or “unproven.” In other words, it’s cheaper to exclude entire types of health care than to consider or cover them, whether or not they’re quackery notwithstanding.

“woodrobin” goes on to make two more points, about irrational practices that are in fact quite common in financial planning and military operations.

I would add one thing to woodrobin’s point 1, that people who defend dowsing usually claim only that it is a good way of finding water that is near the surface.  Most oil prospecting these days is concerned with deposits that are deep underground, so no method of shallow surveying is going to “make a killing” for anyone in that area.

My third objection hinges on the word “eventually” in the caption.  In the long run, the caption seems to say, market competition tends to eliminate irrational practices.  That may well be true.  However, that long run can be very long indeed, and in the interval those irrational practices can be reinforced by any of a wide variety of social forces.

Moreover, the rationality that competitive markets enforce is not the rationality Plato talked about in The Republic, not a single process that must culminate in a vision of unmixed truth and untainted justice.  Rather, it is the rationality Max Weber had in mind when he said that modern society traps its members in an “iron cage of rationality.”  Economic agents respond to the incentives of the market and develop ever more efficient ways of meeting the demands of other economic agents who have purchasing power.  Whether those demands accord with the sort of truth and justice Plato hoped to discover has nothing to do with it.  The mouseover text on this strip reads “Not to be confused with ‘selling this stuff to OTHER people who think it works,’ which corporate accountants and actuaries have zero problems with.”  The distinction between making a killing selling financial advice based on astrology to suckers who think astrology works and making a killing selling financial advice based on astrology because astrology really works may have made perfect sense to Plato, but it seems awfully tenuous from the viewpoint of someone like Weber.