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March 27, 2009

The Econalypse / Depression 2.0 and Kant's Categorical Imperative

In an earlier post I identified a few key drivers that lead to the Econalypse of 2009-2011 aka Depression 2.0: Maria distributed a list of companies about to close but still selling gift cards; I distributed that list very widely to make sure that I wasn't given any bum cards; and I took the few dollars remaining in my 401K out of the stock market.

Each of those actions, taken alone, made sense to me. Apparently they made sense to a lot of people, because it seems like a lot of people did the same things at about the same time, especially withdrawing from the stock market and avoiding retail outlets.

Brendan Koerner's recent Wired piece suggested that Depression 2.0 was driven not by M's list, but rather by a situation where rational micro-economic steps cause negative macro-economic effects. He wrote,
This is why colleges split economics into micro and macro. Unless your name is Madoff, your individual impact on the economy is negligible. You can't spend us out of Depression 2.0 all by your lonesome. Buy the Jet Ski; don't buy the Jet Ski. Whatever.

It's only when everyone decides to put off buying a Jet Ski—a reduction in aggregate demand—that things get dicey. When we all stop spending, the economy collapses, and theoretically, without a massive Keynesian infusion of government dollars, it's just you and the zombies.

It's sort of the opposite of moral hazard, where risky behavior bears reduced personal consequences; in Koerner's explanation of good micro / bad macro, judicious individual economic behaviors produce undesirable economic consequences.

Flogging the dead horse one more time: it's okay when I avoid buying gift cards at the mall, but when everybody does it there are serious economic consequences.

Koerner's good micro/ bad macro jumped off the page for me because not only is it a succinct demonstration of micro/macro economics, it's also a very tight example of Kant's Categorical Imperative. There aren't many instances of a philosophical maxim that map directly to an economic model.

Immanuel Kant's Categorical Imperative

Immanuel Kant was a philospher who sought to build a bridge between the empiricists (knowledge comes from experience) and the rationalists (knowledge comes from reason).

Kant described his Categorical Imperative with these words: "Act only according to that maxim whereby you can at the same time will that it should become a universal law."

In other words, act only in such a way that you're willing to have (literally) everybody do the same. If you're considering cheating on your taxes, you might reflect: What would happen if everybody cheated on their taxes? Realizing there would be dire implications if everybody did it, you would refrain from cheating on your taxes. If it's not all right for everybody to do it, then the individual has a duty to refrain from that action. This is a deontological or duty-bound ethic, which is concerned with the morality of motive rather than of effects.

You Kant Do That

In application, the Categorical Imperative says that you can't (get it? Kant?) do a lot of things. It's generally not a permissive approach.

Kant would not have taken his money out of the stock market.
Kant would not have avoided the retail chains.
If every man were a Kantian, maybe we wouldn't be in Depression 2.0 now.


FortKnight said...

Interesting post. A couple sites for you to visit:


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