As a new writer for the Fluffy Economist, I thought I ought to set out some of the basics of my thinking, though it might help to know that my political co-ordinates are: -9.00, -7.54. You can read more of me at Bartlett’s Bizzare Bazaar, and, coming soon, The Sharpener.
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“[W]hen we act, we create our own reality”; unnamed aide to President Bush, 2004.
Like giants, ogres and gnomes, Homo economicus is a mythical species of humanoid. Or rather, it once was. Unlike giants, ogres and gnomes, many educated, modern people have believe that Homo economicus, the monster-man who lives only by a calculation of personal material interests, not only exists, but that it is in fact Homo sapiens, the thinking-man, the man of sense, who is the fantasy.
Possessed by this belief, and possessing great power over the organisation of our society, this group of fantasists have, through human action, made their legends real. In ‘on your bike’, the attempt to disguise labour mobility as a virtue, people are told that there is no value to be found within the communities that they live and work. ‘Flexibility’, rendering jobs temporary, transient and often, precarious, erodes the notion of loyalty to and pride in anything greater than the individual economic unit.
This is presented as inevitable. But it is the product of human action. Homo economicus is presented as the natural form of existence for mankind. Why then, does it require thousands of years of social development to reach this form? Neo-liberal economic policies are the deliberate attempt to transform Homo sapiens, attached to place and people, culture and tradition by bonds that cannot be quantified, altering the environment so as to force evolution into Homo economicus.
The Marxist heritage of the leading proponents of neo-liberalism is patent. Marx and Engels wrote in The Communist Manifesto that “[t]he bourgeoisie cannot exist without constantly revolutionizing the instruments of production, and with them the whole relations of society”. “All that is solid melts into air”, leaving, as the only “nexus between man and man… naked self-interest… callous ‘cash payment’”. Everything is swept aside leaving only “egotistical calculation”. “[P]ersonal worth [is transformed] into exchange value” and freedoms have been replaced by Free Trade. Veiled exploitation is substituted by “naked, shameless, direct, brutal exploitation”.
What men like Thomas Friedman have forgotten is that ‘making the world flat’ is not conducted in the interests of the poor and the powerless, people whose difference is their only defence against exploitation. Like so many liberals, ex-New Left and now the New Right, what is always missing from their analysis, and is apparent in their blind faith in the market and the United States Marine Corps., is the central importance of power in human relations, even those apparently, at least to the myopic, equal relations of the market, even the market of ideas. Yes, making the world flat might, and only might, strip away the rationale for tribal conflict and gender inequality. But it undoubtedly is the painless, liberal way of describing the way that capital kicks through barriers and establishes its dominance, in the process transforming human-kind into the rational, but uncivilized monster-men of Milton Friedman’s dreams.
NAIRU — a harmful fairy tale
1 day ago
21 comments:
Are there any nice people called Friedman?
Dougie Friedman, Crystal Palace and Scotland striker. Crap footballer, though.
LOL! He's certianly seems an amiable sort but is discounted because it's spelt Friedman. Any others?
How about Kinky Friedman?
http://www.kinkyfriedman.com/
On the topic, though... I agree that homo economicus as a foundational theory is a bit extreme, to say the least. But it can't be totally wrong. How else to explain away the fact that, with some judicious additions (bounded rationality, imperfect information, multiperiod games, etc.), theories using it make predictions that turn out to be accurate.
Jarndyce,
I recently had a meeting with the head of postgrduate economics at Edinb urgh to see if I wanted to do a PhD with them. I asked if there was anything in an institutional vein and he had to ask me what it was. When I turned to bounded rationality he explained that its too bulky and complicated and gets in the way of clear predictions. It doesn't matter that the basis of these predictions is completely flawed, as long as they are precise.
I think it was Keynes who said that it's better to be approximately right than precisely wrong - mainstream theory still hasn't caught on!
Well, if you're clever enough to do a Ph.D. using bounded rationality models in economics, when most of the rest of us struggle to just-about-understand the *conclusion* to those papers, then you're *also* clever enough to know that how a few (or lots of) muppets choose to use theories (incorrectly) has *no* bearing on their worth. IMHO, homo economicus in all his utility-maximizing glory is not bad as an approximation. Chuck in some of the other-regarding behavior from the experimental-psychology-economics stuff, plus the additions I mentioned above, and you have a working model for why people do the things they do, no?
"Institutional" stuff is my favourite, too, however. Though from what I read, that is now very much homo economicus and mathematical models, too.
My (very short) academic career totalled:
1. teaching lots of students who had no wish, and little ability, to learn
2. one discussion paper that used a bit of econometrics to study UK electricity privatisation in the style of Williamson, Coase etc. etc. Oh, the sheer glamour of it...
Kinky for Governor!?
I liked the political compass. I scored a 4.88/ 2.0, which is a bit more authoritative than I'd imagine.
You seem to land where Trotsky might be.
Hey this is looking good! you guys are doing a good job with the group blog thing
Bear in mind I took the test in the midst of revising for an econometrics exam, hence the disillusion with a system that spawned such an evil discipline.
I think pragmatic Left Libertarian adequately sums up my ideology.
Sonia, you are sweet.
Possessed by this belief, and possessing great power over the organisation of our society, this group of fantasists have, through human action, made their legends real.
How exactly does the capitalist, who believes in the rule of law, private property, and decentalised decision-making act on behalf of others in making these legends real, as you put it? Is it not socialists who impose their vision on society?
Veiled exploitation is substituted by “naked, shameless, direct, brutal exploitation”.
This is backwards. For brutal exploitation, look no further than the socialist economies. 100 million dead in the 20th century under socialism, I believe?
You mention the costs of labour mobility, but not the rather substantial benefit of allocative efficiency (moving labour to where it is needed), and lower unemployment that comes with mobility. How about a little, just a little, balance in your analysis?
this group of fantasists
Which group? Specifically.
This is presented as inevitable.
By who? References please.
people are told that there is no value to be found within the communities that they live and work.
Sorry, who said that?
I've just realized how late my post is. Apologies. I haven't visited fluffy in a while.
Andrew
Another comment.
Homo economicus, the monster-man who lives only by a calculation of personal material interests
This is a fundamental mistake. The unit of analysis in microeconomics is utility, which includes non-material considerations.
More generally, the homo economicus argument is just a dressed-up way of saying you don't believe in economics. Ok, but how about saying something substantative, like pointing out specifically the economic models which get it wrong, and then following the policy implications through. Simply saying a model has an assumption which doesn't fully represent reality is tautilogical: that they do is why they're models. It does not follow, on its own, that those models are not useful.
No, I am not saying that these models are not useful. What I am saying is that these models are used by liberal ecnomic politicians the wrong way round. By this I mean many features of liberal economic policies, such as the marketisation - under the banner of 'choice' - of services and a belief in the fluidity of labour (between occupations and locations) is about taking the rational actor model - where that rationality is, as a necessity of it being a model, limited - and building a society that will produce this, one with atomised, individualised economic units.
This is what I meant by the construction of Homo economicus monster men. I did not mean that economic models using it were wrong, but that a political understanding of the world that appears limited to this is not only destructive, but dangerous in that policies built on such a narrow view can produce self-justifying results.
After two decades of 'on your bike' labour advice to the people of South Yorkshire's old coal mining communities there is little 'community' left, and many families have fractured, a product that in itself justifies the advice predicated on atomised labour units.
Just to be clear: this is not a bash at economists. This is a bash at politicians who embrace liberal economic political models without an understanding of the limits of enquiry.
It amuses me, for example, when people knock sociologists, as the most familiar complaint is that they have missed the influence of X, Y or Z, all of which lie beyond the scope of sociological enquiry. What annoys me is that this so often comes from scientists, who would never entertain objections to, say, molecular biology explanations of objects and events on the basis that they do not take into account objects that lie beyond the scope of such a disciplinary enquiry.
The problem, of course, is not when people who lack an understanding of the limits of disciplinary scope critise the limited claims of discipline, but when people who lack the understanding of disciplinary limits attempt to use this knowledge. We see this most egrariously pop-sociolbiology. I believe that we also see this lack of understanding coupled with utilisation in politicians with respect to economic models of human action.
Andrew
I can see what you're saying now, but I think there is a fine line between rejecting models and rejecting their application in the real world, since a model has no use if it is seriously inconsistent with the real world.
But my main concern with what you wrote stems from the example you gave of South Yorkshire. It does not take a narrow world view or a rigid belief in a mythical man to see that closing the mines was the right thing to do. Indeed, it was unavoidable.
Consider two possible closing dates for mines: (a) the date was which it becomes unprofitable (absent subsidies) to continue, and (b) the date at which either the coal runs out or the government goes bankrupt subsidising production. The mine has to close at some time, with social disruption at either date, so the difference between (a) and (b) is that at date (b) billions of dollars has been sunk into digging out coal that could otherwise have been spent on education, health, national defense etc. had the mine closed at (a).
I suspect most people who accept this reasoning would not object to the idea that some share of the billions of dollars saved by closing at (a) be shared with communities so seriously affected by closure in order to help them through, perhaps in the form of relocation financing or education grants. The main point, however, is that common sense, not some rabid pro-market viewpoint, tells you that sinking a lot of money into merely delaying significant pain is pointless.
Not to get into the closing of the coal mines, my point being that the advice given to the redundant was as if they were economically rational labour units rather than rounded human beings with attachments to people and place, but I will ;-):
I understand that the closing of the coal mines resulted in a rise in the price of coal on the international market. The vast British supply had been removed, but not the British demand. This price ended up exceeding the price that would have been paid for the mining of British coal. This is now no longer possible, as the infrastructure of the mines has degraded. More, consider the amount of money spent alleviating the social costs of the mass unemployment. Not counting the 'price' of human destruction brought by poverty, drugs and crime, merely the welfare costs, the legal costs, the tax breaks to tinpot call centres. But was all this 'money saved' really invested in these areas in order to regenerate them? Mind, there ought have been no re- about it, the money should have been spent before the grotesque decline. Oh, and add in the costs of the strike itself, the policing, the secret policing, the scabs. An anecdote that illustrates the abandonment of the coal mining areas is this; a ex-miner says, "back in '84 you couldn't move in this town for police. Now, with crime higher than it ever was then, you can't find a policeman no matter how hard you look." Further, consider that just a year or so previously billions of pounds were spent defending the way of life of a few sheepfarmers off Argentina. And they are subsidised to this day. Even if we consider things on a Tory nationalistic basis, it would have been money better spent on the defence of the nation to subsidise the slow, planned death of the coal industry and prevent the devastation of communities and the lives of hundreds of thousands. And more, we were buying coal after the strike from that produced by child labour in S. America and subsidised coal from the rest of Europe.
The Tory's killed our coal industry and wrecked the lives of hundreds of thousands. Not because it was economical - it was far more economical to save the pits and lose the Malvinas - but because they wanted to smash the political opposition of organised labour, which, incidentally, is the only way the mass of people can be a political force in a liberal democracy. And they did it, they won.
But anyhow, regardless of the facts of the closure of the coal industry, my point was that the advice given to the redundant was as if they were economically rational labour units rather than rounded human beings with attachments to people and place.
By the way - feel free to pick holes in this - I dashed this right off the cuff as I am off to watch Ghana v. Brazil and then have a game of five-a-side football. So if it sounds aggressive, it isn't (too much) - it is the web equivalent of being half out of the room while trying to finish a conversation.
Andrew
Thanks for the response - pretty good in view of a major distraction. Go England tomorrow.
I think I can see how the eonomically rational unit comes into the analysis. If you are right that policymakers had an economic monster in their minds when closing the mines, and acted according to that, then they are obviously misguided. Economics fully recognises the sorts of costs closures bring about, and indeed they can be measured.
But why pick economics as being what policymakers were confused about? Law, psychology and sociology, I believe, have their own mythical ideals - couldn't it have been any one of those that policymakers had in mind? Further, since it is the alleged confusion of policymakers that led to disrupption, does it really matter what model they had in mind?
The decision to close is more clearly an economic one, and in view of the large subsidies being paid, and that the post-closure price is not relevant to the exit decision (unless it pre-empts closures elsewhere, which you don't allege), the decision was correct on economic grounds, and indeed inevitable.
Matt,
I think what you said about measuring the costs of closures was revealing. Economics is the focus of this discussion because it exerts a force greater than any other social science on public policy; it's myths and errors are therefore of greater consequence and concern than other disciplines.
It's power lies in its promised ability to measure and forecast events and their consequences in easy to understand quantities. This is great for policy makers. However it supposes that all things can be measured. It seems clear that they are not. The lack of self-esteem created by job closures and widespread social breakdown simply cannot be expressed in pounds and pence. That economics goes further to diffrentiate and manipulate these supposed quantities requires assumptions that strip away all meaning from the entity being analysed in the first place. Andrew is therefore right to call for a greater inclusion of sociology in economic thinking.
I agree with Andrew that the attack on economics is more directed at those who apply it. Indeed Leon Walras, the most influential figure of the neoclassical trinity, saw the stripping of social characteristics from economic analysis as a basis for social justice. The ideas favoured by those in power will always succedd no matter what their original attention. Perhaps Andrew's and my complaint is simply an expression of frustration at social injustice.
Fist
It's power lies in its promised ability to measure and forecast events and their consequences in easy to understand quantities.
In this particular instance, I think the power of economics is to recognize the costs of subsidising production, and to allow policymakers to see the consequences of continuing down that track.
The lack of self-esteem created by job closures and widespread social breakdown simply cannot be expressed in pounds and pence.
Agreed, but why is this relevant? Jobs in mining had to be lost one way or the other, eventually. As I explained in an earlier post, the main difference between shutting then and shutting now is that billions of dollars worth of health or education or other consumption is foregone by delaying closure.
This is the crux issue, I think, and it's not even about economics. If you object to ending production using profit to determine to time to stop, why aren't you out protesting the thousands of jobs lost in horse whip production? A century ago, thousands used to have jobs making horse whips, but not anymore. The answer, I think, is that there is no point lamenting the loss of production of something that nobody wants any longer. But that is precisely why the British mines had to close. We are all poorer by insisting on leaving production completely unchanged by changes in what consumers and economies demand - yet that is what you are effectively arguing for. What does that achieve?
True, policymakers might have or could have been more helpful in getting dislocated miners and their families through. That they weren't more helpful has nothing to do with economics - it doesn't take a misunderstanding of economics to be heartless.
This is not to deny that social dislocation is real. That it is hard to measure makes it no less relevant. But if such dislocation is going to happen either today or tomorrow, and the cost of delay is that you forego great wealth, the sensible decision, as a matter of logic, as well as economics, is to close immediately. Why insist on destroying great wealth first?
Indeed Leon Walras, the most influential figure of the neoclassical trinity, saw the stripping of social characteristics from economic analysis as a basis for social justice.
I don't really understand this sentence, but it sounds interesing. Do you have a reference or something for me to look at?
Perhaps Andrew's and my complaint is simply an expression of frustration at social injustice.
That is precisely what is going on. So, again - why raise economics? Why not just call on policymakers to act more like whatever it is you expect?
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